UPDATE: BAE Systems Profit Soars, Sees Growth Despite Squeeze

29th Jul 2010 09:29

(Adds detail and comment.) By Jonathan Buck Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. defense giant BAE Systems PLC (BA.LN) Thursday reported net profit soared in the first half, largely due to the strength of its support and services activities, and said it continues to expect to grow in 2010 despite the anticipated squeeze on defense spending by some of its biggest customers. The London-based company, whose products include Challenger tanks, Tornado jet fighters, Astute class submarines and Queen Elizabeth class aircraft carriers, said the value of its order book at June 30 fell to GBP43.6 billion from GBP44.3 billion a year earlier, a drop that Chief Executive Ian King told reporters was "as expected." He told reporters that was partly due to weakness in its land and armaments business, though performance at that unit was better than expected. "The group anticipates a challenging trading environment as governments look for cost savings to address budgetary pressures and enhance value for money," BAE Systems said in a statement. The British government currently is carrying out a strategic defense and security review, which is due to report in the autumn. King noted that BAE Systems' U.K. business had performed well in the first half, but accounted for only 20% of group sales. In the U.S., King said the company was well placed, especially after the Quadrennial Defense Review in February restated a commitment to the next-generation F-35 Lightning II combat aircraft program, in which BAE Systems is a major participant. The company generates more than half of its sales in the U.S. and is the sixth-largest supplier to the U.S. Defense Department, the world's biggest spender on defense. King added that the U.K. and U.S. governments were keen to promote exports. BAE Systems counts the U.K., the U.S., Australia, India, Saudi Arabia, South Africa and Sweden as its seven "home" markets. King identified Brazil as a possible eighth. He touted the company's success in India, where it and partner Hindustan Aeronautics Ltd. Wednesday secured a GBP500 million deal to supply products and services to enable a further 57 Hawk Advanced Jet Trainer aircraft to be built under licence for the Indian air force and Indian navy. King called the deal "a great first step." A key differentiator for BAE Systems in the first half was its customer support and services activities. These activities, which include provision of cyber and security services to governments and readiness and sustainment business for air, land and naval sectors, accounted for 49% of first-half sales. The company said it had grown its customer support and services business, delivering enhanced capabilities while reducing costs for its customers. It added that a substantial program of cost cutting and efficiency improvements already was under way, including a reduction in headcount of 3,300 jobs in the first half. BAE Systems employs more than 100,000 workers world-wide. King said more jobs probably would be cut in the second half. BAE Systems in the six-month period ended June 30 posted net profit of GBP618 million compared with a net loss of GBP82 million in the same period a year earlier. Year-ago figures were restated to account for the sale earlier this year of half of BAE Systems' 20.5% stake in Swedish defense group Saab AB (SAAB-B.SK). Earnings before interest, tax and amortization, a measure closely watched by analysts, rose 14% to GBP1.11 billion from GBP978 million. Sales climbed 9% to GBP10.64 billion from GBP9.75 billion. According to consensus figures provided by the company, analysts had expected Ebita of GBP979 million and revenue of GBP10 billion. Basic earnings per share rose to 16.1 pence per share from a loss of 2.1 pence per share. The company raised its dividend 9% to 7 pence. At 0821 GMT, BAE shares traded up 9 pence, or 2.9%, at 326 pence. They have fallen 10% in value since the start of 2010, largely on concerns about the outlook for defense spending. -By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 9237; [email protected] (END) Dow Jones Newswires July 29, 2010 04:29 ET (08:29 GMT)