UK defence firm BAE Systems posts fall in sales

British defence giant BAE Systems was hit by constrained government budgets last year as the company posted a seven per cent fall in annual sales on Thursday.

British defence giant BAE Systems was hit by constrained government budgets last year as the company posted a seven per cent fall in annual sales on Thursday.

The security firm, whose proposed merger with planemaker European Aeronautic, Defence & Space Co. (EADS) fell through last October, reported £17.83bn in sales for the year, down from £19.15bn in 2011.

Underlying earnings before interest, taxes and amortisation (EBITA) fell by 6.0% to £1.85bn due in part to the deferred recognition of revenues in relation to its failure to agree a price with Saudi Arabia for its Typhoon fighter jets.

BAE, Europe's largest defence contractor, was expected to post EBITA of between £1.85 bn and £2.1bn, with the average at £1.92bn, according to a Thomson Reuters poll of six analysts.

The firm ended 2012 with net cash of £387m.

US business accounted for 40% of group sales during the period despite the federal budget deficit and reduced activity in defence operations in Iraq and Afghanistan.

The US plans to slash $487bn from its defence budget for the next decade while Britain's government said in 2010 it would cut defence spending by 8.0% by 2014.

In the UK, the last ship of the six-ship Type 45 destroyer programme completed sea trials while the company was set to deliver major blocks for the assembly of the first of two ships under the Queen Elizabeth Class Carrier programme.

Work is also continuing on the design of the Type 26 ships to replace the UK's Type 23 frigates from early in the next decade.

"BAE Systems has continued to deliver on a clear strategy during 2012," the company said in a statement.

"The group's geographic breadth of business has provided, and is expected to continue to provide, resilience at a time when some of its markets are constrained by economic pressures."

Despite the fall in profits, the group raised its dividend by 4.0% to 19.5p per share from 18.8p, in line with its strategy to continue to accelerating capital returns to shareholders.

Looking ahead, the company said it sees growth opportunities in the US and the UK markets but the "overall outlook in both countries is expected to continue to be constrained".

"Subject to near-term uncertainties relating to US defence budgets, modest growth in underlying earnings per share is anticipated for 2013."

Analyst Jefferies International said the company was hit by lack of progress in its Saudi Arabia deal where a contract for 72 Typhoon aircrafts worth £4.5bn is still only partially completed as they continue to argue over the price of the remaining 45 aircraft to be delivered.

"However weak revenues as a result of these negotiations and negative underlying trends in US electronic systems and US platforms and services is likely to be offset by a strong and growing order book for 2013 with a numerous large deals closed," the broker said.

Jefferies issued the company a 'buy' rating and a target price of 350p.

Shares climbed 4.39% to 346.70p at 08:07 Thursday.

RD

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