BAE Systems said delays in completing a substantial deal with Saudi Arabia and lower spending by European and American military customers dented profit, in a sector facing further government defence cuts.
Europe’s largest defence contractor, which will build Britain’s next generation of nuclear-armed submarines, on Thursday said earnings before interest, taxes and amortisation (EBITA) fell 3 percent in the first six months of the year.
US rivals, such as Northrop Grumman and General Dynamics, also reported lower earnings last month, and flagged uncertainty about an additional US$500bn in US defence spending cuts that could come in January, on top of US$487bn in cuts already made.
“BAE were similar to other large US defence companies,” said RBC analyst Rob Stallard. “I see more of the same in big defence with sales below expectations as the US budget declines.”
BAE, which makes around half of its revenues in the US, said sales at its US platforms and services unit fell 16 percent in the first half.
The group said it had seen less disruption to the award of US defence contracts this year than in 2011 but that it was making plans to cope with further delays caused by presidential elections in November, which could push back 2013 budgets.
“We have been running through plans with all of our US businesses and will take actions on a programme-by-programme basis when we get more clarity,” CEO Ian King told reporters.
“It’s not all plain sailing given the challenging environment,” King said.
BAE – part of the Eurofighter consortium that lost out on the sale of 126 jets to India earlier this year – said it expected to deliver “modest growth” in 2012 subject to the completion of the Saudi deal.
Saudi Arabia – the world’s top oil exporter – signed a contract with BAE in 2007 to buy 72 Typhoon aircraft, 24 of which have been delivered to the Royal Saudi Air Force. The Salam deal, as it is known, is worth around GBP£4.5bn (US$7bn).
Talks between BAE and Saudi over changes to the price of the deal are expected to be completed in the coming months.
“We’re making good progress in commercial discussions with Saudi, which we anticipate will close it in the second half,” King said.
Shares in BAE, which have risen 7 percent in the last month, were down 1.1 percent at 308.9 pence by 0920 GMT, valuing the business at around GBP£10.5bn.
EBITA fell to GBP£939m in the six months to the end of June, above a Thomson Reuters I/B/E/S average forecast of GBP£920m.
Sales fell 10 percent to GBP£8.33bn, while the order book edged up 2 percent to GBP£40bn.
BAE increased its half-year dividend by 4 percent to 7.8 pence per share.
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