STRONG overseas arms sales helped compensate for weak growth in BAE Systems’ main markets in the UK and US, the defence giant said today.
Europe’s biggest military contractor posted a smaller-than-
expected fall in underlying profits and cheered investors with a dividend hike and a £1 billion share buyback plan on the back of an order pipeline which
includes recent fighter jet deals with Oman and South Korea.
But no fresh update was
provided on the future of its Scottish shipyards at Govan and Scotstoun, or Portsmouth, amid BAE’s plans to rationalise its
operations in the UK. “Discussions continue with the UK government to determine how best to sustain the capability to deliver complex warships in the UK in the future,” the company said.
BAE, whose proposed merger with European aerospace firm EADS collapsed last October, said growth in 2013 was likely to continue to come from overseas as the outlook for the UK and US remained “constrained”.
Chief executive Ian King stressed there were “a lot of green shoots” in the company’s operations.
“Resilience is there and that’s another reason why we have the confidence in the company to do a share buy back,” he said.
Jefferies analyst Sandy Morris said the update would be seen as very positive among investors.
“A £1bn share buyback on top of one of the highest dividend yields in the market can only be interpreted as a very profound and positive signal about
management’s belief in the robustness of the business,” he said.
“And for them to do that whilst everyone probably has been concerned about, and most likely exaggerating, the potential impact of US spending cuts is clearly going to catch the market on the hop and pleasantly surprise it.”
BAE’s sales reduced by 7 per cent to £17.8bn in 2012 and profits fell 6.6 per cent to £1.37bn, slightly ahead of analyst forecasts. The fall in profits was led by reduced business in its US division, which accounted for 40 per cent of its 2012 sales, due to defence budget pressures and less activity in support of deployed operations in Iraq and Afghanistan.
But the company’s order book increased by 8 per cent to £42bn and BAE said it would immediately start buying back shares over the next three years as well as raising its dividend by 4 per cent to 19.5 pence a share.
It was pressing ahead with the buyback even though it said full implementation still hinged on the resolution of current discussions with Saudi Arabia over the pricing of its latest Salem contract to supply the Gulf state with Typhoon aircraft.
Meanwhile, life insurer Legal & General has struck a deal with BAE’s staff pension scheme to insure against the risk of members living longer than expected, the largest such deal to date in the UK.
L&G is taking responsibility for paying the pensions of 31,000 retired BAE workers, covering £3.2bn of liabilities, in return for an undisclosed premium. Shares in BAE rose by 14.4p or 4.3 per cent to close at 346.6p.