BAE foresees modest growth in EPS

published 2 May 2012

A depressed defence market, exacerbated by political uncertainty in the US, has led to a downbeat trading update from BAE Systems.

The company says "little sales growth can be expected in 2012 in the current market conditions, modest growth in underlying earnings per share is anticipated."

One crucial issue is the firm's Salam programme which involves selling 72 Typhoon aircraft to Saudi Arabia. The latest phase of the contract is the assembly of 48 of these high tech fighters; as well as the creation of a maintenance facility, higher specs for the last 24 aircraft in the order, and formalisation of a price rises. BAE is still waiting on the price escalator but the rest of the project is agreed and contracts valued at £0.4bn have been received.

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The group's earnings forecast depend on a "satisfactory conclusion" to the Salam negotiations.

In its main UK market, BAE says it is waiting on final budgets with the Ministry of Defence while working with the government "to address the capability requirements for the new Queen Elizabeth class aircraft carriers." The exact specs for this carrier have proved politically controversial as politicians have chopped and changed their requirements.

In the US BAE has benefited from the approval of the defence budget at the back end of 2011 after several months of painful political grandstanding which left the American government operating on a month by month basis.

The company is still braced for delays to the 2013 budget in the wake of Presidential and Congressional election and a possible return to the nightmare of the "continuing resolution" regime seen last year. This will make flogging weapons to the Pentagon more difficult.

Order intake in the first quarter from markets outside the US and UK was £1.1bn, this appears slightly down on the £4.8bn seen for the full year 2011.

One other item on Chief Executive Ian King's to-do list includes paying around £200m more into the company's two largest pension schemes over the next five years following recent valuations.