BAE Systems sees lower 2020 profits; Reinstates dividend

(Sharecast News) - UK arms maker BAE Systems said full year profits would be slightly lower due to the coronavirus pandemic, but expected a good second half as it reinstated dividend payments.
The company on Thursday said annual earnings per share would be a mid-single digit percentage lower than last year's result of 45.8 pence.

BAE also reinstated a 13.8p-a-share £460m payout deferred from April and declared an interim dividend of 9.4p a share.

Pre-tax profit fell 11% to £689m in the six months to June 30, while revenue rose 5% per cent to £9.18bn year-on-year and net debt increased to £2.04bn, from £1.89bn.

Full-year free cash flow was now expected to be £800m, excluding a £1bn pension payment, close to original guidance allowing for the lower earnings, BAE said.

Chief executive Charles Woodburn said demand for BAE's weaponry remained high and he was optimistic on the second six months of the fiscal year, assuming no significant resurgence of the pandemic.

Half-year sales rose almost 5% to £9.8bn but underlying earnings fell more than 10% to £895m. BAE cited a fall in productivity at its UK manufacturing plants, shipyards in Lancashire and the Clyde in Scotland and the Barrow submarine base because of social distancing and workforce monitoring protocols.

The civil aerospace division, which makes parts for Boeing passenger aircraft, was hammered by the collapse in aviation demand.

BAE said that for the full year it expected sales to be less than 5% better than last year's £20.1bn, most of which would be generated by two recent US acquisitions, with underlying earnings down about 5% from £2.1bn in 2019.

Hargreaves Lansdown analyst Sophie Lund-Yates said the aviation sector headwinds would linger with medium-term demand for new planes likely to be stuck on the ground.

"However, the positive response to BAE's results is being driven by the underlying strength of other areas of the business. The group has enormous exposure to global defence spending, with over 90% of revenues coming from this area," she said.

"Defence spending has held up nicely throughout the crisis, and crucially the ominous climate created by a pandemic means some governments could be tempted to up their spending. Relying heavily on defence contracts gives BAE something rare in current conditions - great visibility over future business, and the order backlog is still worth billions of pounds."

"This unique position will be a large reason why BAE feels comfortable maintaining a dividend. In a time when we've seen scores of companies scrap returns to shareholders, BAE's 5% prospective yield is not something to be knocked."