BAE confident of ‘modest’ earnings growth despite budget constraints

Defence contractor BAE Systems has forecast “modest” earnings growth this year amid ongoing uncertainties over budget cuts in the US.

However, the group – which saw its proposed merger with European aerospace firm EADS collapse last October – said the defence equipment environment in the UK remains “stable”, despite continued pressure on government spending.

Chief executive Ian King said: “We continue to pursue growth in our international markets and have built on the strong international order intake in 2012 with a further £2.3 billion of non-UK/US orders received in the year to date, reflecting the strength of our broad based and diverse business.”

In March, the US army awarded BAE a five-year contract, worth up to $780 million (£501m), to continue running the Holston ammunition plant in Tennessee, but government cuts in the US will force the Pentagon to reduce its spending plans by $42bn this year.

BAE also said its three-year £1bn share buyback programme hinges on the outcome of talks with the Saudi authorities over a fighter jet order. So far it has bought back £65m of shares.

The contract, known as the Salam deal, was first signed with Saudi Arabia in 2007 but has been delayed by pricing negotiations. BAE has already sent 24 of the 72 Typhoon aircraft ordered to the Royal Saudi Air Force and deliveries started again in April.

King said that BAE’s underlying earnings would receive a boost of around 3p per share this year “assuming a satisfactory conclusion to discussions” with Saudi Arabia.