Turbulence hits BAe

British Aerospace is expected to reveal no surprises in its preliminary results statement later today, but vexed questions surrounding its proposed merger with GEC’s Marconi Electronics defence arm continue to preoccupy the company and the City.

BAe’s full-year results are not due to be finalised until March, but analysts expect the group to achieve pre-tax profits of #675m.

Sandy Morris, an analyst at ABN-Ambro, said he expected nothing more than good progress at the trading level.

‘The results will carry a number of exceptional items such as the sale of BAe’s stake in Orange. But I am delighted to say that under the current management team we know where we are going with BAe,’ he explained.

One of the central issues expected in the results is the amount of cash earned from defence exports. However, BAe is not expected to have had difficulties, and most of its business, such as the Saudi Arabian military, has been sufficiently accounted for.

BAe finance director George Rose is currently in discussion with auditor KPMG about the accounting treatment of the Marconi tie-up. A decision on the accounting approach is expected imminently, though European Union approval for the deal looks further off.

Analysts believe the company will not be able to adopt merger accounting principles in booking the deal, which values GEC Marconi’s goodwill at about #7.6bn, with a bottom-line cost of about #350m a year.

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