Monday 24 June 2019

BAE Systems posts fall in profits as Australia ships contract talks kick off

Sales were down in what the company has described as a ‘transition’ year for the business.

BAE said it was going through a ‘transition’ year (Peter Byrne/PA)
BAE said it was going through a ‘transition’ year (Peter Byrne/PA)

By Helen Cahill, Press Association City Reporter

BAE Systems posted a fall in profits as it kick-started talks with the Australian government over its £20 billion contract to build warships.

For the six months ended June 30, operating profit dropped 11% to £792 million, down from £885 million for the same period in 2017.

Sales were down 3% to £8.8 billion over the period, which BAE said was due to lower production of Typhoon jets.

BAE’s shares were down 12.2p to 641p following the results.

Chief executive Charles Woodburn said: “We have made good progress in the first half, strengthening the outlook through significant wins on the Australian SEA 5000 and US Amphibious Combat Vehicle programmes.

“These, combined with the launch of the UK Combat Air Strategy, provide good momentum into the second half and beyond.

“In this transition earnings year, our group earnings guidance is maintained and, with a large order book and a positive outlook for defence budgets in a number of key markets, we have a strong foundation to deliver growth and sustainable cashflow.”

The figures come after a series of high-profile contract wins for the company, which secured a 198 million US dollars (£150 million) tank contract with the US Marine Corps in June.

The British defence giant also made headlines when it landed a £20 billion contract to build a new generation of warships for Australia.

BAE will supply nine Type 26 submarine hunter ships for the Royal Australian Navy under the terms of a 30-year contract.

On Tuesday, BAE said it had kick-started negotiations with Australia’s defence department on the £1.1 billion design and development contract, an initial four-year contract which is likely to be finalised by the end of the year.

“The production scope is then expected to be negotiated for the first batch of ships with work on the first ship expected to start in early 2020s in South Australia,” BAE said.

Sandy Morris, equity analyst at Jefferies, said: “We believe BAE’s outlook after the 2020 financial year to be quite bright. The issue is the pace at which BAE grows through the 2019 financial year, and the 2020 financial year.

“We forecast relatively pedestrian progress. We see nothing in today’s somewhat ‘scruffy’ first-half results – especially the large cash outflow – to change our mind.”

Press Association

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