UK defence contractor BAE aims for rapid growth as defence budgets recover

BAE Systems, the world’s third-largest defence contractor by revenue, forecast that its annual earnings would grow by up to 10 per cent this year as defence budgets recover and demand for cyber and commercial electronics grows. The maker of Eurofighter warplanes and Astute-class nuclear submarines was buoyed in Nov­ember when after years of cuts, Britain […]

BAE Systems, the world’s third-largest defence contractor by revenue, forecast that its annual earnings would grow by up to 10 per cent this year as defence budgets recover and demand for cyber and commercial electronics grows.

The maker of Eurofighter warplanes and Astute-class nuclear submarines was buoyed in Nov­ember when after years of cuts, Britain increased its budget for defence equipment, while it is also expected to benefit from growing military spending in the US and continuing conflict in the Middle East.

BAE posted adjusted underlying earnings per share (EPS) of 40.2 pence in 2015, helped by tax provisions and currency, against 38 pence the year before.

This year, BAE forecast that EPS would grow by between 5 and 10 per cent against analysts’ estimatesof 38 per cent, helped by improving margins in its electronic systems business, whose equipment controls aircraft, and in its cyber-security unit.

The positive outlook comes after a year of measures to cut costs, including slowing production of the Eurofighter Typhoon to be able to keep manufacturing it over a longer period, as the company’s long wait for another major order for the jet from Saudi Arabia continues.

BAE also last year cut capacity at its the Williamstown shipyard in Australia.

BAE’s earnings growth sets the company up for the prospects of a recovery in US and European military spending, which had slumped because of the global financial crash. Likewise, aerial campaigns linked to the wars in Syria and Yemen are buoying service revenue. Still, the lower price of crude could begin to curb spending of countries dependent on oil revenue.

“The group is well placed to continue to generate attractive returns” as defence budgets recover and cyber-security and commercial electronics units grow, said the chief executive Ian King.

Bolstered by the Eurofighter programme, revenue last year rose 7.6 per cent to £17.9 billion (Dh94.45bn), after an 8.5 per cent decline in 2014. The company’s order backlog fell to £36.8bn from £40.5bn a year ago. BAE said the decline was not a concern amid the prospects for new deals.

On Monday, BAE named Charles Woodburn as its new chief operating officer. Currently chief executive of oilfield exploration and the testing specialist Expro International Group, Mr Woodburn is expected to take over from Mr King after spending at least a year learning about the business.

business@thenational.ae

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Source: Business

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