05 May 2010 | Ref. 002
The BAE Systems Plc Annual General Meeting Wednesday 5 May 2010
Good morning, ladies and gentlemen.
Let me start by welcoming you to the Queen Elizabeth the Second conference centre for the BAE Systems 2010 Annual General Meeting.
I thank you all for your continued investment and support for our business and, later, I look forward to answering any questions you may have on the business of the meeting.
Before that, I would like to say a few words about the past year.
As you will have noted from our 2009 Annual Report, it's been another very good year for the Company with a strong performance, and progress across all our businesses, in the face of a challenging environment.
As a result, your company enters 2010 in good shape and well positioned for the long term, underpinned by four key elements:
- our well-diversified portfolio of programmes;
- our large and varied forward order book, which is at record levels;
- our good balance of market positions around the globe;
- and our improving operational agility ... enabling us to continue to execute our strategy, by meeting our customers' spending priorities as they evolve.
However while it's been another good year for BAE Systems it's been anything but just another year. The past 12 months have represented a landmark for this company. A special year, in which a heavy line has been drawn under some very important legacy issues that have hung over us for some time.
Let me start with the momentum of the business.
In essence, it's been a year in which we have effectively and consistently implemented our strategy.
And once again, this has delivered good results. Our strong performance during the year underlines our successful evolution into one of the world's leading defence, security and aerospace companies, a global company positioned and equipped to weather the pressures in our global markets.
We've achieved this blend of sustained good performance and deep resilience by aligning everything we do and driving all our thinking and activities with a single overarching theme of: 'Total Performance'.
Ian and I are absolutely committed, dare I say passionate about Total Performance. It means focusing resolutely on driving a high performance culture-right throughout our organisation-by benchmarking ourselves continually against a set of challenging metrics, both financial and non-financial.
I believe that our good results in 2009 reflect the progress we are making in embedding Total Performance, and demonstrate that we and our customers are reaping the benefits, as are you, our shareholders.
In the light of the company's continued successful bottom line performance in 2009, the Board has recommended a final dividend of 9.6 pence per share, up from 8.7 pence last year. If you approve the payment of this dividend later in this meeting, you will receive a total of 16 pence per share for the full year-that's an increase of 10 per cent on the previous year.
At this level, annual dividends are covered 2.5 times by underlying earnings. This is consistent with the Group's objective of growing the dividend, whilst maintaining long-term sustainable cover of approximately two times earnings.
Let me now turn to our strategy.
As I've often said, the success of our strategy - and of our business in the long term - ultimately comes down to keeping our promises to our customers. In 2009 we continued to achieve this across our businesses, responding rapidly to our customers' urgent operational requirements, and supplying services and equipment that the men and women currently serving their countries depend upon.
This consistent delivery on the ground is at the heart of what we do and our employees have excelled once again during the past year in delivering a first-rate operational and financial performance.
By many measures, our employees are among the best in the world. And their combined efforts and commitment in 2009 delivered the results that you're hearing about today.
As these results demonstrate once again, we've built a world-class company that creates value for our shareholders. But the importance of BAE Systems should also be measured by our overall contribution to the economies in which we operate.
In our seven home markets, we are also a catalyst of economic activity and growth and an important part of the industrial base in the United States, the United Kingdom, Australia, Sweden, South Africa, and the Kingdom of Saudi Arabia. And this is also our objective in India, our seventh home market.
Focusing now on the United States. There, the Quadrennial Defense Review has been completed, reaffirming the US's commitment to succeeding in its current conflicts whilst minimising casualties, building global relationships and preventing future conflicts, whether with nation states or non-state entities.
Achieving these aims involves an increasing emphasis on security, supporting the troops on the ground, and through enhanced equipment capability, readiness and sustainment.
These objectives are all aligned with our role in the United States, which is to act as a trusted partner to the United States government, providing innovative solutions and services in carefully-selected areas and working closely with bodies ranging from the law enforcement agencies to the armed forces, to support the safety and security of the United States and its people.
Here in the United Kingdom, BAE Systems represents more than a key part of the country's physical industrial base. Your company's contribution extends beyond physical things like factories, ships and planes. And it includes:
- First. The Intellectual Property Rights that underpin the value of technological innovation, our ongoing investment in research and the long-term partnerships we embrace with universities and government.
- Second. The collective skills, experience and knowledge of the 18,000 experienced engineers that we employ in the UK. That's more than any other UK business.
- Third. The education system that is supported and nourished by our appetite for the best and brightest graduates and apprentices. At any given time, we have around five hundred graduates and one thousand apprentices training with the company in the UK.
- Fourth. The high-value jobs, world-class supply base and foreign direct investment that we help to attract and sustain through our global leadership in defence innovation.
What does all that mean for the United Kingdom?
It is widely known-though not always acknowledged-that we are the UK's biggest manufacturer. Even fewer commentators have focused on our wider significance for the UK's role and standing in the world.
If you take the jobs and wealth we create, supporting Britain's future economic growth and combine those with our role as a custodian of key defence assets, supporting Britain's ability to make its voice heard, then your company's importance to the UK's future wellbeing and success becomes clear.
Given this importance, you won't be surprised that we're taking an acute interest in the forthcoming Strategic Defence Review here in the UK.
The important decisions addressed in the SDR are quite rightly for the British government to decide upon; whatever form the next government may take.
However, without arguing for particular options under the Strategic Defence Review there are two points that I should like to emphasise as the review takes place. And I believe our company's role and interest make it right that we should nail our colours to the mast on these two critical issues.
First, defence assets are not just about a particular project or budget's contribution to the security of the nation. They are also about the Intellectual Property, skills, economic vibrancy and future export potential that these projects and budgets help to create. If you allow this essential bedrock of Intellectual Property and skills to be dispersed and transferred to other countries, experience suggests that you will not get it back. We've already seen the consequences for the UK of this being allowed to happen across great swathes of manufacturing industry.
Second, defence is not like other industries. The presence of a world-leading defence technology and manufacturing industry within the UK, consisting not just of BAE Systems, but many other world-class companies as well, helps to underpin the country's global influence in capitals and multilateral forums around the world.
With both these points in mind, we would urge and indeed are urging that the SDR includes careful consideration of the UK's wider economic wellbeing and global standing rather than focusing exclusively on projects and budgets.
Now, talking about what has changed in the past twelve months. I'd like to focus on extremely important developments that have taken place this year, and which collectively represent a landmark for BAE Systems. I'm referring to our settlements with the United States Department of Justice and UK Serious Fraud Office.
As reported by the Company at the time the settlements were agreed, and again in our Annual Report, under the agreement with the Department of Justice, the company pleaded guilty to one charge of conspiring to make false statements to the United States Government in connection with certain regulatory filings and undertakings. We have paid a fine of 400 million US dollars, and made additional commitments concerning ongoing compliance.
Under the separate agreement with the Serious Fraud Office, we'll plead guilty to one charge of breach of duty to keep accounting records, in relation to payments made to a former marketing adviser in Tanzania. In settlement we'll pay an agreed penalty of 30 million pounds, comprised of a fine to be determined by the Court with the balance paid as a payment for the benefit of the people of Tanzania.
The issues involved in the investigations that led to these settlements were serious. We regret - and accept full responsibility for ? the past shortcomings that the authorities investigated.
Shortcomings they were but these settlements enable the Company to deal with these legacy issues once and for all. We were determined to co-operate with the authorities to draw a line under them, and that is what we've done.
Even more important is that we are now demonstrably a different business from the one we were when these events happened.
In the intervening years, we've systematically enhanced our compliance policies and processes to be world class with a view to ensuring that we are as widely recognised for responsible conduct as we are for high quality products and advanced technologies.
This programme has included commissioning the Woolf Report some three years ago and we have now completed and implemented elements of our responses to the 23 key recommendations in that report. In January 2009 we rolled out our new Code of Conduct across our global workforce. And we continue to drive progress through the goals set under Total Performance which include establishing global leadership in standards of business conduct.
Clearly, there are always risks in this area, and a need for constant vigilance. No organisation, especially one the size and scale of this company, with 107,000 people in 100 countries can guarantee that nobody will ever again let the company down, by breaching its policies and processes.
What we can say, however, is that any such breach will be a violation of the principles which underpin every aspect of the way that we work. And we've established and undertaken extensive training to ensure that these principles are understood by every employee.
One of the most significant aspects of our settlements with the DoJ and the SFO is that having scrutinised our operations in depth for several years they have pronounced themselves satisfied that the changes made by the company have been sufficiently effective to satisfy their law enforcement concerns.
As is normal, as a result of these settlements, other regulators must necessarily satisfy themselves that the company is presently responsible from their perspective and a suitable contractor to government. Building on the findings of the SFO and the DoJ, we are actively working with them to support them in reaching that conclusion.
I've described what's changed in the last year, and what has not. So, where has all this positioned us today?
Well, today you own a company that's clear in its strategy, performing well and delivering consistently good results.
You own a company that has not only settled the key legacy issues laid against it but that has also received the endorsement of the regulatory authorities for the strength and rigour of its corporate governance processes and is demonstrably committed to being recognised as a global leader in responsible business conduct.
And you own a company that plays a critical role in supporting and sustaining the economic strength, global standing, security and influence of the countries that we serve.
Let me now map out the day's events.
In a few minutes, when I finish these opening remarks, I'll invite our Chief Executive, Ian King, to speak about your Company's performance and strategy going forward.
Then I'll deal with the formal resolutions detailed in the notice to this meeting. Finally, I'll answer any questions you may have on the business of the meeting. You'll find many of the most frequently-asked questions are covered in the materials provided to you when you arrived.
I'll aim to finish at one o'clock, when you are all invited to join us for lunch and something to drink. If anyone has any questions or observations still outstanding, I and the other directors will be available over lunch to continue our conversation, should you wish to do so.
I'll now introduce the members of our Board, particularly those who've joined us in the past year and are attending their first AGM.
First, I'd like to thank Sir Nigel Rudd for his consistently valuable contribution as a non-executive since 2006. Sir Nigel, who retired from the Board at the end of 2009, chaired our Remuneration Committee, a role that has been taken up by another of our non-executive directors, Carl Symon, seated three places to my left.
I also have the pleasure of welcoming two new non-executives to the Board.
The first is Paul Anderson, seated three places from the end to my right, who joined in October 2009. Paul is a former Chief Executive Officer of BHP Billiton Plc, and former Chairman of Duke Energy Corporation. He's also a non-executive director of Spectra Energy Corporation, from where he retired as Chairman in May last year. Since joining us, Paul has become a non-executive director of BP, having joined its board in January this year.
Second, Nick Rose, seated to my far right, is our most recent non-executive appointment, having joined in February 2010. Nick has been the Chief Financial Officer and a director of Diageo plc since 1999, and is also responsible for Diageo's supply, procurement, strategy and IT on a global basis. Previously, Nick spent eleven years with Ford Finance.
We're delighted to welcome these hugely experienced business people to our Board, and they are already making a great contribution to our business.
Turning to our executive directors, I would like to welcome Linda Hudson to the board, seated next to Carl on my left. Linda was appointed in October 2009 as Chief Operating Officer, President and CEO of BAE Systems Inc, our US business.
In this role, Linda was also appointed as an executive director of BAE Systems plc and continues to serve on the BAE Systems Inc Board and the BAE Systems' Executive Committee. Linda had previously been President of BAE Systems' Land & Armaments Operating Group since January 2007.
I'd like now to introduce the other directors, many of whom you'll have seen at previous AGMs.
Most of you will know our Chief Executive, Ian King, sitting immediately to my right. Next to him is George Rose, the Group Finance Director, and then Michael Hartnall, Chairman of the Audit Committee, Paul Anderson and Nick Rose (whom I've already introduced), and sitting between them Phil Carroll.
This is Phil's last AGM, as he is retiring from the Board after this meeting and I'd like to thank him for his very valuable contribution since joining us in 2005. Phil's experience and insight have made him a real asset to the business, and we wish him all the best for the future.
Turning to my left, we have the Company Secretary, David Parkes. Then Sir Peter Mason, who is the Senior Independent Director. Then Carl Symon and Linda Hudson, both of whom I've already introduced. Next to Linda on my far left is Roberto Quarta, another non-executive director.
We also have two more non-executive directors, who unfortunately could not be with us today. They are Andy Inglis, who is Chairman of our Corporate Responsibility Committee and Ravi Uppal. Both have sent their apologies.
Returning to today's business in hand, in accordance with UK regulatory requirements, BAE Systems plc has this morning issued its interim management statement, relating to the period since the start of the 2010 financial year.
I should also inform you that - as announced in last year's interim management statement - the Board has asked me to serve a third term as Chairman, subject to your approval at today's meeting. This would extend my tenure as chairman through to 2013. I am tremendously proud to be part of this great company and to lead such a talented Board and I would be even prouder were you to ask me to continue.
If there are any questions on resolution six concerning my re-election, I will of course ask Sir Peter Mason to take the chair.
Now, let me hand over to our Chief Executive Ian King for his description of the company's performance in 2009 and its objectives for 2010.
Ian, thanks very much indeed.
It's time now to turn to the main business of the meeting.
The Report and Accounts has been made available to all members, and the Directors have nothing to add to the documents so circulated.
You should all have a copy of the Notice of Meeting, and I now formally propose all the resolutions as shown in the notice.
We will take questions on the resolutions shortly and, after those questions have been taken, I will ask you to vote on those resolutions.
Voting will be by a poll. For this you will need a poll card. For most of you this card was enclosed with the notification you received of this meeting. Otherwise you should have been given one when you registered here earlier today. If you do not have one, please inform one of the stewards and they will provide one to you.
At the end of the meeting I will ask you to vote on the resolutions. Simply put a cross in the 'For' or 'Against' box on your card. Once you have voted, please sign and date the card and, after the meeting has finished, deposit it in one of the ballot boxes that you will see just outside. If you wish to receive the results of the polls by post, please let the Shareholder Information Desk have your details. The results will also be posted on the Group's website.
Before taking questions, I want to make sure you are aware of some of the issues raised by shareholders who are not able to be with us today. We asked all shareholders to let us know if they had any questions they wished to pose to us, and we said we would publicly answer the most frequently-asked questions. On your seat this morning you should have found details of these frequently-asked questions, and the answers we have given in response. We have also published all these questions, and the answers, on our website.
Of course, many of you wish to ask questions in person in today's open forum. A number of you registered to ask a question before the meeting started, and I'll take those questions first in just a moment.
If you did not register before the meeting, you can still ask a question. Simply go to one of the two positions, (A) or (B), which you can see in the middle of the room, and one of the stewards will let you know what to do. You can sit in the seats provided while awaiting your turn at the microphone.
To be clear, I will take questions on any of the resolutions. As we are voting by way of a poll, we do not need to go through the resolutions individually.
I see there is already someone ready and waiting at Position A. So let's start off by taking a question from there.
That concludes the questions, and I will now deal with how to vote on the resolutions.
But first, it is best practice that shareholders are advised of the votes submitted by shareholders prior to the meeting.
These figures show a clear majority of votes in favour of all the resolutions. The lowest number of votes in favour has been cast for resolution 13, concerning authority to allot new shares, where 91.4% of the proxy votes were in favour.
On the screen you will see details of the votes cast by proxy.
However, the proxy figures are not the final results, although they are a very good indicator. The final results will only be available after you have voted. If you sent a proxy card in ahead of the meeting you can, if you wish, vote again today, changing your original instructions. If you decide to do this, your original card will be disregarded.
If you wish to receive the result of the polls by post, please let the Shareholder Information Desk have your details.
Can I now ask you to vote on the resolutions by completing your poll cards. Once completed you should deposit them in the ballot boxes as you leave the meeting.
That concludes the business of the meeting. Therefore, I now declare the meeting closed.
Lunch will now be served next door.
Thank you all for attending.
