• Profit before tax and exceptional items increased 31% to £596m
  
• Year end order book rose to £22.1bn
  
• Sales increased 15% to £8,546m
  
• Earnings per share excluding exceptional items increased 32% to 98.3p
  
• 19.53p dividend declared, an increase of 25%
  
• Net cash at year end was £761m

The growing strength of our business is enabling us to develop options with which to pursue the release of further value from consolidation in our industry. In this context, we welcomed the trilateral government agreement, between the UK, Germany and France, to study the opportunities that might exist for a consolidation of their aerospace and defence industries."

Cash management continues to be a feature of the Company's strong performance. Despite pressures for cash utilisation from rising programme activity, operational cashflow has been satisfactory. The balance sheet held net cash of £761m at year end after expending £146m on investments.

In July, BAE SYSTEMS in partnership with Rheinmetall completed its acquisition of the German defence system integration business STN Atlas Electronik and in October BAE SYSTEMS was successful, pending regulatory approval, in bidding for the UK and Australia based Siemens Plessey businesses. These additions together with those activities undertaken in partnership through BAE SYSTEMSSEMA will now form the core of a new Defence Systems business unit.

Defence produced another strong performance with increased sales of £6,357m and increased profit before interest of £598m. In December, a notable programme milestone was the four nation contract signature for Eurofighter production investment, launching the Eurofighter programme into production. The development programme has progressed smoothly with all seven Eurofighter development aircraft contributing to the flight test programme.

Tornado remains a substantial industrial activity with deliveries of new build aircraft to Saudi Arabia under the Government to Government Al Yamamah programme and the hand-over of the first of 142 GR4 upgraded aircraft to the Royal Air Force.

In April 1997, BAE SYSTEMS and Lockheed Martin teamed to jointly compete, as Prime Contractors, for a programme to supply the US and UK armed forces with an advanced battlefield reconnaissance system. The requirement harmonises the UK's TRACER programme with the proposed US Future Scout Cavalry System. Important also is the relationship being forged with Lockheed Martin as a member of a team competing for the proposed next generation Joint Strike Fighter in the US.

The Avro regional jet business achieved break-even as planned and production of the Jetstream 41 turboprop aircraft was ceased as indicated in 1997.

1997 was a record year for Airbus Industrie, winning orders for 438 aircraft net of cancellations. Deliveries rose to 182 aircraft from 126 in 1996. The order backlog was 1,009 aircraft at year end, valued at $72 bn. During the year the Airbus partners agreed to launch the A340-600 and similar, longer range, A340-500.

In Airbus, opportunities have been identified with our partners to further strengthen its position through a more integrated management of the Airbus assets. To this end the partners agreed, at the beginning of 1997, on a programme to bring about a restructuring of the Airbus partnership, by 1999. Progress is continuing on work required to restructure Airbus into a Single Corporate Entity with a single, integrated and focused management team responsible for the assets across the Airbus system.

The aerospace and defence markets in the Asia Pacific region have been growing and whilst the full effects of economic turmoil in the region have yet to be assessed, they will continue to be an important element of our overseas relationships. Whilst Airbus has had significant successes in these markets, the exposure to potential disruption to production output from possible order cancellation or deferral is not large with currently some 10% of forward orders held by carriers in the affected region. These same markets represented 1% of BAE SYSTEMS Defence sales during 1997.

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