BAe back in black

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British Aerospace, Britain's largest manufacturer, reversed three years of losses to report pre-tax profits of £211m, helped by record growth in defence businesses.

The results, which compare with last year's £257m loss, were again complicated by a large number of exceptional items and adjustments for new financial reporting standards.

But following last month's proposals to merge its regional jet business with the Franco-Italian ATR, BAe said yesterday that its big restructuring problems were behind it.

Defence sales last year rose 6 per cent to £4.5bn, with the order book at a record £9.7bn, up from £8.8bn a year ago.

"This is the highest order book we have ever had in the defence business," said Dick Evans, chief executive. "We have been saying in the past that in the post-Cold War era there was always a possibility of seeing some sort of downturn in our defence sales. That is clearly not the case."

Negotiations about merging BAe's Dynamics missiles business with France's Matra Defense were on course after more than two years. "All the negotiations have been going well. We are confident we are going to get there," Mr Evans said.

Joint ventures were the way forward for the company, he said, but talks about merging its Royal Ordnance business with GIAT were a long way from completion. The commercial logic of combining with GIAT was well established and both companies would benefit from rationalisation.

A reduction in group sales from £10.7bn to £7.1bn reflected the sale of Rover Group and Space Systems. About £89m of rationalisation costs were charged to the pre-exceptional results during 1994.

The group's financial position had strengthened significantly following strong cash flow in the second half. For the year as a whole, operating cash flow for the continuing businesses was positive despite a significant reduction in customer stage payments. Total cash inflow in the year was £1.06bn, including proceeds from Rover's sale and £170m from last year's VSEL rights issue.

Regional aircraft sales fell 4 per cent to £763m, with Airbus sales increasing 17 per cent to £733m. "Our Airbus business is profitable and cash-positive with an excellent outlook. Rationalisation and the proposed joint venture with ATR should reduce losses in the regional aircraft business," Mr Evans said.

A final dividend of 6p makes 10p for the year. BAe shares fell 7p to 472p.