BAE Systems hits targets and sets growth sights for 2016

BAE Systems has posted full year results that are in line with City expectations and issued guidance that underlying earnings per share will rise between 5-10% in 2016 as it enters what it says is an improved business environment.

For 2015, the defence and aerospace group saw underlying earnings before interest, tax, depreciation and amortisation decline 1% to £1.68bn due to previously reported slow sales of its Eurofighter Typhoon fighter jets, though overall group sales were lifted almost 8% to £17.9bn, helped by a stronger dollar.

Earnings were also hit by an impairment charges taken on its Australian shipyards, though gained £15m from exchange rate translation. Net debts rose by £390m to £1.4bn.

Operating profits rose more than 15% to £1.5bn, with underlying earnings per share up 6% to 40.2p, ahead of guidance for 38p issued in November, and a final dividend of 12.5p per share means the total of 20.9p per share for the year is an increase of 2% over 2014.

Having navigated through a period where defence budgets have been constrained by wider economic pressures, the overall business environment is now improving.

"We have delivered another year of solid performance," said chief executive Ian King, about whose departure there remains plenty of speculation.

He pointed to a large order backlog of £36.8bn at the year end, though it was down from £40.5bn a year before, and said BAE was "well placed to continue to generate attractive returns for shareholders as defence budgets recover and our commercial adjacencies of cyber and commercial electronics continue to grow."

Management acknowledge that the longer-term outlook "retains some uncertainty", but was confident the Electronic Systems division was in prime position to benefit from changing US Department of Defense priorities.

In the UK, after November's Strategic Defence and Security Review included commitments to the Royal Navy's submarine fleet and other naval requirements, as well as for investment in a future unmanned aircraft.

On Typhoon, although it admitted there was no certainty as to the timing of orders, the company said discussions with current and prospective customers "continue to support our expectations for additional Typhoon contract awards".

Analyst Steve Clayton at Hargreaves Lansdown griped that “earnings forecasts keep drifting lower" and expressed concern about the pension fund's ability to distract focus and drain cash.

He also speculated that the changing nature of modern warfare "might have leapfrogged modern weaponry" but that while national and commercial cyber security were areas BAE is keen to grow, "it is not yet big enough in the business to drive the overall group forward on its own".

Shares in the company shot up to their highest level since the start of the month before tailing off to 502.50p, a rise of 0.6% on the day.