Saudi deal and military spend hit BAE Systems

City A.M. Reporter
BAE SYSTEMS said yesterday 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, yesterday said earnings before interest, taxes and amortisation (Ebita) fell three per cent 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 $500bn in US defence spending cuts that could come in January, on top of $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 per cent in the first half.

Earnings before the deduction of interest, tax and amortisation fell to £939m in the six months to the end of June, as sales fell 10 per cent to £8.33bn, while the order book edged up two per cent to £40bn.

BAE increased its half-year dividend by four per cent to 7.8 pence per share.