Thursday 20 February 2020 12:14 pm

BAE Systems sees profits rise as aircraft contracts pay off

Defence giant BAE Systems posted an 18 per cent increase in profit in 2019 as the firm said work on F-35 fighter jets and its Qatar Typhoon contract would help earnings to grow by a mid-single digit percentage next year.

Shares in the company had increased over 2.5 per cent by midday.

Read more: BAE Systems to buy Collins GPS business for $2bn

The figures

Operating profit rose to £1.9bn in 2019, up from £1.6bn last year.

Revenue increased by a similar percentage to £18.3bn from £16.8bn in 2018.

BAE also boosted its sales, pushing up from £18.4bn last year to £20.1bn this year.

The firm reduced its net debt to £743m, compared to £904m in 2018.

Earnings per share increased to 46.4p, nearly 50 per cent higher than last year’s 31.3p.

For 2020, BAE expects earnings per share to grow by a mid-single digit percentage.

Why it’s interesting

The defence contractor, which builds combat aircraft and ships, said that it would make a one-off payment of £1bn in an attempt to reduce its £1.9bn employee pensions deficit.

Operationally, 2019 was a strong year for the multinational, with the firm making an agreement with Qatar to accelerate the delivery of its Typhoon and Hawk aircraft.

Speaking to reporters, chief executive Charles Woodburn said that the increased defence spending from a number of European countries would offset the potential impact of Germany’s ban on exporting arms to Saudi Arabia.

The ban has raised questions over BAE’s multi-billion-pound deal to sell 48 Typhoon airfighters to the Gulf state, which is under pressure due to its involvement in the ongoing conflict in Yemen.

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Woodburn said: “A number of European countries are looking to increase their defence spending and move closer to meeting their NATO commitments. The group is well-positioned to benefit”.

It also said it expected to ramp up its flagship F-35 programme to full production in 2020.

BAE’s maritime division also continued to perform well, with the HMS Prince of Wales, the second of the Royal Navy’s new aircraft carriers, delivered in December.

The firm is also building three new Type 26 frigates and the first Dreadnought class submarine.

Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said:

“The Trump administration loosened defence purse strings, and BAE has been able to capitalise on the trend, with increasing volumes of things like US Combat Vehicles bolstering order backlogs.

“Things are a little less clear when it comes to the provisional sale of 48 Typhoon fighter jets to Saudi Arabia. Lingering political tension means it’s not yet a case of all systems go for this £10bn transaction, and the deal is something BAE will be keen to land at some point.

“BAE has made progress on its hefty pension deficit, having agreed to make a debt-funded £1bn payment in the coming months. That means the decks are being cleared faster than originally planned, and there’s scope for free cash flow to sail higher from 2022.” 

Read more: BAE Systems faces accusations of ‘aiding and abetting’ alleged Saudi war crimes in Yemen

What BAE Systems said

Charles Woodburn, chief executive, said: “2019 has been a year of significant progress for BAE Systems. We delivered a good set of financial results in line with guidance, growing sales and earnings, with improved operational performance and increased investment in the business to underpin our growth outlook.

“We have a large order backlog and remain focused on strong programme performance to deliver a sustainable business model with enhanced financial performance.”