BAE Systems' New CEO Outlines Plan to Battle Tighter Competition--Update

By Robert Wall Features Dow Jones Newswires

The new chief executive of British weapons maker BAE Systems PLC (BA.LN) on Wednesday promised to focus more on costs and technology amid greater competition globally, even as he managed headwinds in the company's combat jet and cyber security operations.

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BAE Systems, Europe's biggest weapons maker, followed its larger U.S. rivals such as Lockheed Martin Corp. (LMT) in delivering forecast-beating earnings. Cost cuts and rising defense spending in key markets have helped lift arms maker's results.

Its shares were up more than 3% by midmorning Wednesday.

London-based BAE, which makes the U.K.'s aircraft carrier and is a partner on the F-35 Joint Strike Fighter, the Pentagon's largest weapons program, posted first-half net profit of 555 million pounds ($733 million) compared with GBP408 million the year prior. Its more closely watched underlying earnings before interest, taxes and amortization rose 11% to GBP945 million.

Charles Woodburn, who joined the company last year as chief operating officer and took the CEO role on July 1, replacing Ian King, who had been in the job since 2008, said BAE would stick to the current strategy. "It is very much of evolution not revolution," he said after the results.

Lockheed Martin and other BAE rivals such as Boeing Co. (BA) and Raytheon Co. (RTN) also are stepping up their drive to win lucrative overseas business.

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With international competition intensifying, Mr. Woodburn said the company would step-up efficiency measures. An effort to make purchasing decisions looking across the group to generate savings have shown good results, he said, with similar measures being looked at in other areas.

Mr. Woodburn also signalled that the company would try to bolster its technical edge over competitors. "We already have a stong focus on technology but you can expect to see more in this area as we see this as being an increasing driver of competitive advantage for us," he told reporters, without providing details.

Mr. Woodburn takes over at a time defense spending in the U.S., one of its main markets, is rising. Overseas demand for weapons also is rising. The company's land systems business, which makes armored fighting vehicles, should see growth in the coming years, he said.

Still, Mr. Woodburn inherits some headaches. BAE Systems has already had to slow production of the Eurofighter Typhoon combat jet it makes with Airbus SE (AIR.FR) and Leonardo SpA (LDO.MI) to stretch production amid a lack of orders. But a continued lack of deals for new planes threatens a production hiatus.

Mr. Woodburn said he expected more deals to be signed for the twin-engine fighter, without identifying potential customers. BAE Systems has been in protracted talks with Saudi Arabia for a follow-on deal to the 72 Typhoons the Middle East country has already received, but those discussions so far haven't led to a deal.

BAE on Wednesday warned that any new orders wouldn't boost production for at least two years. Assembly of Typhoons at BAE is currently due to end in 2019 unless more deals are secured.

The company also plans to restructure its cyber security operations. BAE Systems provides cyber security services for U.S. intelligence agencies and commercial customers. The commercially-focused Applied Intelligence unit lost GBP27 million in the first half, though should be near break-even for the full year.

BAE chief financial officer Peter Lynas said the restructuring costs wouldn't be major, allowing the company to maintain full-year guidance of 5% to 10% growth in underlying earnings per share.

Sales increased 8.9% to GBP9 billion.

-Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

August 02, 2017 04:27 ET (08:27 GMT)