BAE Second-Half Earnings Gain 28% on U.S. Purchases

BAE Second-Half Earnings Gain 28% on U.S. Purchases

Feb. 21 (Bloomberg) -- BAE Systems Plc, Europe's biggest weapons maker, increased second-half earnings 28 percent after U.S. purchases boosted sales and the company won orders in the U.K. and Middle East.

Earnings before interest, tax and amortization rose to 777 million pounds ($1.5 billion) from 607 million pounds a year earlier. Net income fell 69 percent to 386 million pounds after a year-earlier gain from the sale of a stake in Airbus SAS.

BAE gained as much as 3.2 percent in London trading after the year-end order book jumped 22 percent to 38.6 billion pounds, buoyed by a 4.43 billion-pound deal to supply 72 Eurofighter warplanes to Saudi Arabia and contracts to rebuild Bradley Fighting Vehicles returning from Iraq. The company boosted sales with U.S. purchases including Armor Holdings Inc., the largest maker of protection for Humvee vehicles.

``We have delivered another strong set of results in 2007, underpinned by the successful application of our global strategy,'' Chief Executive Mike Turner said in a statement today. ``Our large order book and consistently good program execution gives us unprecedented future visibility.'' The company said it anticipates ``good growth'' this year.

BAE, which also makes ships and artillery, advanced 15 pence to 487 pence and was trading at 478.75 pence as of 9 a.m. local time. That pares the stock's decline this year to 3.9 percent and values the company at 16.8 billion pounds. European Aeronautic, Defence & Space Co., the parent of planemaker Airbus, has dropped 18 percent.

Second-half revenue rose 19 percent to 8.82 billion pounds. Figures for the period were derived from annual numbers published today.

Full-year Gain

For the full year, ebita increased 22 percent to 1.48 billion pounds, BAE said in its statement, more than the 1.45 billion pounds predicted by analysts. Revenue added 14 percent to 15.7 billion pounds.

Net income dropped 45 percent in 2007 to 901 million pounds, or 26.4 pence a share. Year-earlier net included a 925 million-pound gain from the sale of a 20 percent Airbus stake.

BAE agreed in May to buy Jacksonville, Florida-based Armor for $4.14 billion to win U.S. contracts for armored Humvees used in Iraq and Afghanistan. The company paid $4.13 billion in 2005 for United Defense Industries Inc, manufacturer of the Bradley, for which it last year won Pentagon refurbishment work worth least $844 million.

U.S. defense spending will rise 7.5 percent to $515 billion in fiscal 2009, the 11th consecutive increase, based on the funding request President George W. Bush sent to congress Feb. 4. In excess of 50 percent of BAE's earnings before interest and tax will come from the U.S. this year, more than twice the proportion likely to be derived from the U.K., Morgan Stanley analyst Scott Babka estimated yesterday.

Chief Executive Turner said BAE is examining further takeover targets in the U.S. as it continues to build its presence in the world's largest economy.

``Clearly defense and security in the U.S. is right at top of agenda,'' he said on a conference call. ``We have a number of targets.''

U.K. Budget

The U.K. plans to raise its military budget by 1.5 percent more than the annual rate of inflation to 36.9 billion pounds through 2011, according to the Ministry of Defence Web site. Britain's Defence Board, which met yesterday, may scale back purchases to help cut 2.7 billion pounds from spending.

Programs that may be scrutinized include BAE's Astute-class attack submarines and the F-35 Lightning II, or Joint Strike Fighter, on which BAE is a partner.

BAE also agreed to buy the military-technology business of Tenix Group last month for as much as A$775 million ($710 million). The purchase, which adds aerospace, defense- electronics, military-vehicle and marine sales, will double the U.K. company's revenue in Australia, where it estimates military spending will increase by about 3 percent a year until 2015.

Turner Departure

CEO Turner said in October he'll step down in August, after turning 60. The ``global search'' for a successor is continuing and the company will consider both internal and external candidates, he said today.

The executive has said previously that his departure is not connected with probes into defense contracts with Saudi Arabia.

A U.K. Serious Fraud Office investigation of alleged corrupt payments linked with orders placed by the oil-rich country was called off in December 2006 after Prime Minister Tony Blair said the probe might damage relations. The U.S. Department of Justice is still examining the contracts.

BAE in December signed a separate contract to supply 72 Eurofighter Typhoons to Saudi Arabia.

The U.K. company sold its holding in Toulouse, France- based Airbus to majority owner EADS in October 2006. BAE had held a stake in the world's largest maker of commercial aircraft for 27 years.

BLOOMBERG