BAE Systems bullish about defence budgets, restructures cyber security arm

BAE Systems' new chief executive Charles Woodburn presented a strong set of interim results on Wednesday, keeping the aerospace and defence group on an even keel and firing off a confident view on the outlook.

The FTSE 100 giant generated £9.57bn of revenues in the six months to 30 June , up 10% or 4% if currency tailwinds are ignored, feeding through to underlying operating profits up 11% to £945m, up 5% on constant currency rates.

Underlying earnings per share increased by 14% to 19.8p and with operating business cash flow of £277m the interim dividend was hiked 2% to 8.8p per share.

The order intake increased by £3.6bn to £10.7bn and includes award of a production contract for the initial batch of three Type 26 frigates, of which £2.8bn contributed to order intake in the half.

The order backlog increased to £42.3bn from £36.3bn a year ago.

Woodburn, who succeeded Ian King last month after his near-decade in the role, said the first half performance was consistent with internal expectations and guidance for the year.

"We have a sound platform for medium-term growth underpinned by a clear and consistent strategy. Strong programme execution, technology and enhanced competitive positions will be key in driving the business forward, and we will continue to focus on efficiency and meeting our customers' affordability challenges.

"With the expected improvement in the defence budget outlook in a number of our markets, the group is well placed to continue to generate good returns for shareholders."

The former oil executive, who joined BAE as chief operating officer in February last year, said the US Department of Defense fiscal year 2017 budget and 2018 budget proposal "support the medium-term planning assumptions for our US businesses as we see the ramp up of production on a number of our long-term programmes".

Prior to results, analysts were looking for news on Saudi Arabia, especially after the High Court recently threw out a case trying to block arms sales by British firms to the kingdom.

BAE said it "continues to address current and potential new requirements" as part of the long-standing agreement between the two countries' governments, with the industrial participation programme continuing "apace" and the final four of 72 Salam Typhoon aircraft delivered and deliveries continuing under the Hawk training aircraft contract.

With cyber security in the headline over political, business and consumer stories in recent months, the group enjoyed double-digit sales growth but made a £27m loss in the period, with underlying break-even expected over the full year.

Following a review of the cyber security sector, management have decided on an "increasingly focused investment programme in engineering capabilities and product development, in particular in our commercial cyber business", which will include an expected restructuring charge.