BAE expects modest growth in underlying earnings

Hot on the heels of its failed merger with Airbus owner EADS, defence firm BAE Systems has confirmed that trading since its interim results at the beginning of August has been in line with management expectations.

Hot on the heels of its failed merger with Airbus owner EADS, defence firm BAE Systems has confirmed that trading since its interim results at the beginning of August has been in line with management expectations.

The interim management statement for the period July 1st-October 10th contains plenty of reasons which explain why management was prepared to consider a merger with EADS, however.

It appears that, although the UK defence environment is stable, there is uncertainty over the outlook for the US government defence budget. This, in turn, is caused by uncertainty over how US federal deficit reduction will be implemented. BAE warns: "Some limited trading disruption is likely in the last quarter of the 2012 calendar year."

The company glosses over the failed takeover talks, saying: "As discussions progressed further over recent weeks, it became clear that the interests of the parties' government stakeholders could not be adequately reconciled with each other or with the objectives that BAE Systems an EADS established for the merger."

Modest growth in underlying earnings per share is anticipated for 2012, assuming a satisfactory conclusion to the pricing negotiations this year with the Saudi Arabian government on the Typhoon Salam programme, and excluding the benefit in 2011 or the Research & Development tax settlement.

A higher level of operating business cash inflow is planned for the group in 2012, including the anticipated benefit of cash receipts related to the Salam programme.

Any deterioration in its trading from here could well spell the end for embattled Chief Executive Ian King who has already upset his largest shareholder, Invesco Perpetual.

BAE Systems will announce its financial results for the year ending December 31st 2012 on February 21st 2013.

CM

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