21st Feb 2019 12:03
LONDON (Alliance News) - Shares in defence firm BAE Systems PLC sank Thursday amid concerns about a potential blow to its Saudi Arabian aircraft revenue, despite boosting its annual dividend after its order book reached record highs and profit rose on lower costs.
Meanwhile, the FTSE 100-listed company also hired the current finance chief of miner and commodities trader Anglo American PLC as a non-executive ahead of the forthcoming retirement of a long-serving board member.
Shares in BAE were 6.5% lower at 471.40 pence on Thursday, the second worst performer in the FTSE 100.
BAE on Thursday warned of a potential hit to its key deals with Saudi Arabia in relation to its Eurofighter Typhoon aircraft should Germany push for a export ban to the country.
In March 2018, the UK and Saudi Arabian governments signed a deal which could see the oil-rich kingdom buy a further 48 Typhoon aircraft. BAE had also seen its air division secure GBP3.2 billion in orders for support services to Saudi Arabia in relation to its Typhoon project.
In 2018, the Air division at BAE - which includes the Typhoon project as well as other activities such as parts for the Lockheed Martin F-35 Lightning II - generated GBP5.66 billion - or a third - of the firm's total GBP16.82 billion revenue. On an operating profit basis, the Air unit generated about 50% of total profit in 2018.
"It should be recognised, however, that the company is reliant on the approval of export licences by a number of governments in order to continue supplies to Saudi Arabia," BAE explained in a statement. "In this context, the position on export licensing currently adopted by the German government may affect the group's ability to provide the required capability to the Kingdom."
In November, Germany - which is also part of the Typhoon consortium, supplying parts - announced it would no longer issue arms export licences to Saudi Arabia following the murder of Saudi journalist Jamal Khashoggi in Turkey in October.
The potential blow to the defence firm's future financial performance came as BAE announced it had made made "good progress" in strengthening the business amid a "strong" operational performance.
In 2018, pretax profit widened 14% to GBP1.22 billion from GBP1.07 billion the year prior. This was despite reported revenue falling 2.3% to GBP16.82 billion from GBP17.22 billion the year before, on a constant currency basis falling by 1%.
Profit was helped by a 3.3% fall in operating costs to GBP15.51 from GBP16.04 billion the year before.
Revenue struggled as sales from its largest Air division fell to GBP5.58 billion from GBP6.31 billion the year prior. Another drag on revenue was its Cyber & Intelligence unit which saw revenue fall to GBP1.68 billion from GBP1.82 billion the year before.
In contrast, the other major units saw growth in 2018. Electronic Systems revenue rose to GBP3.97 billion from GBP3.60 billion the year prior, Maritime revenue grew to GBP2.94 billion in 2018 from GBP2.85 billion in 2017, and US Platform & Services revenue edged up to GBP2.86 billion from GBP2.85 billion.
BAE proposed a 13.2 pence per share final dividend, up 1.5% from 13.0p the year prior. For the full year, the dividend rose 1.8% to 22.2p from 21.8p in 2017.
"The group made good progress in strengthening the outlook and geographic base of the business, with a number of significant contract wins," BAE Chief Executive Officer Charles Woodburn said. "The defence order backlog is now at a record high with visibility on many of our key programmes through the next decade."
The order intake during 2018 jumped to GBP28.28 billion from GBP20.28 billion in 2017. This helped take the order backlog to GBP48.4 billion at the end of 2018 from GBP38.7 billion at the end of 2017.
"Delivering a strong operational performance and continued investment will enable us to meet our growth expectations and underpin the long term," Woodburn added.
In a separate announcement, BAE said it has appointed Anglo American Finance Director Stephen Pearce as a non-executive director from the start of June.
The appointment of Pearce follows current Non-Exec Nick Rose - who has served for nine years at BAE - announcing his intention to retire at the end of 2019. Pearce will replace Rose as chair of the audit committee from the start of 2020.
"I very much look forward to Stephen Pearce joining the BAE Systems board," BAE Chair Roger Carr said. "He is a seasoned executive with considerable international experience. In particular, his finance knowledge and skills will further strengthen the board, and make him the ideal candidate to succeed Nick Rose as chairman of our audit committee from the beginning of next year."
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