BAE holds full-year guidance as MOD budget is squeezed
DEFENCE group BAE Systems has reported rising sales and profits for the first half of 2017, but held its guidance for the full year, despite signs the US is ramping up defence spending.
Revenue for the six months to the end of June was up 8.9pc at £9.01bn, with pre-tax profit rising more than a third to £714m.
On BAE’S preferred measure of profit, underlying earnings, the increase was 11pc to £945m, though the company said once the impact of the weaker pound was stripped out the rise was a more modest 5pc.
Charles Woodburn, the chief executive who took over last month, warned not to expect major changes under his leadership. “It’s much more a case of evolution than revolution,” he said in his first public run out as boss of the FTSE 100 business, though he added he had been with BAE for 15 months, working as chief operating officer before taking the top job from Ian King. “The strategy is good but there are three areas I wish to push harder in.”
These were operational excellence, competitiveness and technology.
Mr Woodburn said he had already started working on competitiveness, appointing a chief procurement officer who had found “significant savings”.
He said the US – which makes up about a third of BAE’S sales – signalled good future opportunities with “expected improvement in the defence budget outlook”, but Mr Woodburn also cautioned that any rise in military spending would take time to flow through into company orders.
In the smaller home market – responsible for about a fifth of BAE sales – the company said the general election had “given rise to the formation of a minority government, but one for which defence and security is expected to remain a priority”.
He refused to be drawn on warnings from the National Audit Office that Britain’s ability to pay for military equipment was under strain.
“Budgets are always under pressure,” he said. “We work with customers to offer the best value for money.”
Observers said BAE’S decision not to raise guidance from the current forecast of a 5pc to 10pc increase in earnings raised a warning flag. “BAE should be in an upgrade cycle,” said one. “It’s being cautious because how would it look to the Government if it said it was going to deliver higher profit with UK spending under such pressure?”
There was no sign of a long-awaited further export order for Typhoon fighter jets from Saudi Arabia, which would keep the production line running as current orders dry up. However, Mr Woodburn said he was “confident” of further orders.
Shares rose in early trade but, as investors digested the lack of an upgrade, closed 2.7pc lower at 590.5p. The dividend was raised 2pc to 8.8p and the order book grew by £6bn to £42.3bn.