BAE Systems ups dividend to ease worries on defence cuts

City A.M. Reporter
SHARES in BAE Systems rose five per cent yesterday after the firm unveiled plans to up its dividend and buy back £500m shares in a move to reassure investors it can navigate through military spending cuts in the UK.

But the British arms manufacturer posted a drop in net profits of 22 per cent to £478m in the first half on the back of falling sales.

Pre-tax profits for the first half fell from £781m a year ago to £691m, with sales falling by 13 per cent. Chief executive Ian King told reporters the company was in a “sweet spot” in the US despite budgetary uncertainty there and falling sales across the group.

“We still think we’re in the fast lane and the sweet spot of government spending in the US. We’re seeing contracts coming through -- the order backlog is reducing,” King said during a conference call yesterday.

King sounded the upbeat note as the maker of naval destroyers, submarines and Bradley military vehicles said profit before tax in the first half of 2011 reached £691m, down from £781m a year ago. The fall came after an anticipated 13 per cent drop in headline sales to £9.2bn from £10.6bn.

Shares in BAE closed at 307.34p yesterday, up 5.1 per cent.