BAe cash outflow worries investors

A pounds 202m outflow of cash at British Aerospace, despite the pounds 529m sale of its Rover car business, distracted the City's attention from group profits that were above expectations.

Richard Lapthorne, finance director, said the outflow had been expected and was unlikely to be repeated in the second half. He attributed it partly to the fact that pounds 250m of stage payments on one of its contracts, due in the first half of the year, had been received at the end of 1993. A further pounds 220m was due to the replacement of bank guarantees for a pounds 220m loan to Hutchison Telecom, where it has a 30 per cent stake, with a loan directly from BAe.

The outflow left borrowings at the end of June at pounds 367m, or 39 per cent of shareholders' funds, about half the level last June but up from pounds 165m at the start of the year. The City was alarmed by the outflow, despite warnings from the company that it was likely, and the shares closed 16p lower at 445p.

The group's results were distorted by the pounds 299m profit on the sale of Rover to BMW, which meant that pre-tax profit soared from pounds 20m to pounds 329m. Excluding the exceptional gain, profits were up from pounds 29m to pounds 90m. Earnings per share, excluding Rover, were 12.8p compared with 6.6p and the interim dividend is increased from 3.3p to 4p a share.

Again, that was largely due to Rover, where a pounds 19m loss last year became a pounds 14m profit in the three months of ownership. Profits at the defence business fell slightly, from pounds 230m to pounds 221m, while losses at the commercial aircraft business continued at pounds 79m.

Dick Evans, chief executive, said the results were a 'pretty good performance given current market conditions'. He highlighted the performance of Airbus, which came into profit in the second half of last year, and the defence business as the key strengths of the company.

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