BAE Systems, the world’s third-largest defence company by sales, insisted it had “performed well” and maintained guidance for the rest of the year despite missing expectations in the first half.
Revenues at the British group increased 3 per cent to £8.3bn in the first six months of the year, with total sales including its share of equity accounted investments rising to £8.7bn. Analysts had forecast an 8 per cent increase.
Profit before tax increased only £20m compared to the same period last year, to £528m, in contrast to consensus predictions of a jump to £752m.
The company maintained its gull-year guidance, however, predicting underlying earnings per share for the year to be five to ten per cent higher than last year thanks to an anticipated trading bias to the second half.
Ian King, BAE chief executive, said:
In the first half of 2016, BAE Systems performed well. Despite economic and political uncertainties, governments in our major markets continue to prioritise national security, with strong demand for our capabilities. In the US, we are seeing encouraging signs of a return to growth in defence budgets and improved prospects for our core franchises. In the UK, the result of the EU referendum will lead to a period of uncertainty, but we do not anticipate any material near-term trading impact on our business.
Our business benefits from a large order backlog, with established positions on long-term programmes in the US, UK, Saudi Arabia and Australia. We are well placed to maximise opportunities, deal with the challenges and continue to generate attractive shareholder returns.
The company has suffered from spending cuts in some of its key markets in recent years. US military spending declined 16 per cent between 2011 and 2015, according to the Stockholm International Peace Research Institute, but there have been signs of a pick-up in the company’s largest market.
BAE said it sees “encouraging signs of a return to growth in defence budgets and the ramp up of production on a number of the group’s long-term programmes” in the US.
The company has also benefited from the swift formation of a new government after the Brexit referendum. Parliament voted to renew Britain’s nuclear deterrent in Theresa May’s first Commons appearance as Prime Minister last week. BAE is set to lead the £31bn “Successor” project, though the government has opted to approve the investment in stages in an effort to control costs.
BAE said the successor programme is “approaching the production stage,” with the Ministry of Defence’s initial build commitment anticipated later this year.
BAE’s attempt to move into cyber security also made good progress, with sales at the company’s applied intelligence business increasing 16 per cent compared to the same period last year. The company said “sales growth is expected to continue as cyber security becomes an increasingly important part of government security and a core element of stewardship for commercial enterprises. Chief executive Ian King has ambitions to double revenues from the business from £500m to £1bn in the next five years.
Earlier this year BAE appointed Charles Woodburn, former chief executive of oil services group Expro International, as chief operating officer and heir apparent to Mr King. The appointment was seen as a way to “bring fresh perspective” to the company, though some analysts were sceptical that an industry outsider would be able to successfully manage often-fraught relationships with foreign governments.