BAE Systems downplays Airbus merger revival talk as H1 profits dip - UPDATE

31st Jul 2014 07:18

Defence group BAE Systems posted lower half-year sales and profits as it downplayed talk that it could revive its failed merger with the former EADS group now known as Airbus.BAE, which builds submarines, warships and parts for the Eurofighter Typhoon and F-35 Joint Strike Fighter, reported a drop in sales to £7.6bn from £8.5bn in the six months to 30 June and said underlying pre-tax earnings came in at £802m versus £867m last time.The group expects sales to be weighted towards the second half of 2014, including the timing of Typhoon aircraft deliveries.Chief executive Ian King said BAE and other European defence groups, including potentially Airbus, could "unite around" a joint programme for unmanned combat aircraft.He added that the group's civil avionics business was doing well with involvement in programmes such as Boeing's 777X.But he brushed off rumours at this month's Farnborough Air Show that the planned merger with Airbus could be back on the table.There was speculation that the deal, which collapsed due to political wrangling among Europe's governments, could be revived now that the German elections are over, relieving pressure on German Chancellor Angela Merkel over the potential job implications of a deal.But King said it needed two parties to take part, implying that while BAE may still be interested, Airbus may not be so keen. BAE investors and the UK government backed the original merger plan but some EADS investors voiced disquiet. He also said the defence market was now benefiting from more certainty around military budgets in the US and UK."Look at our performance," he told journalists in a conference call.BAE said it continued to anticipate reported earnings per share to be some 5% to 10% lower than in 2013 as expected.But it said foreign exchange translation, assuming an average $1.70 exchange rate, would hit full year earnings per share by about 1p compared to previous guidance.King said: "Excluding the impact of exchange translation, the group remains on track to deliver earnings in line with our expectations for the full year."BAE said it had an order book of nearly £40bn, was finalising another £1.3bn of international orders related to Typhoon upgrades in Saudi Arabia and was at an advanced stage of negotiations on a further £1bn of UK "sole source" naval contracts.It pointed to a high level of activity in international markets, particularly Saudi Arabia, but said the US and UK environments - where it has faced pressure from government defence cuts - remained more constrained. BAE also announced the proposed bolt-on acquisition for an undisclosed sum of US intelligence group Signal Innovations to expand its imagery and data analysis technology business.BAE shares rose 2.8p or 0.7% to 427.8p at 08:58 in London.PW