BAE Systems says Profit Up But Cyber Security Operations Under Pressure

British weapons maker BAE Systems PLC (BA.LN) said Wednesday that first-half profit rose 36% aided by currency effects but warned its cyber security operations needed to be restructured to improve returns.

The London-based company posted 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.

Sales increased 8.9% to GBP9 billion. The strong dollar boosted results making U.S. sales more valuable to the company that reports earnings in sterling.

BAE Systems said its cyber and intelligence operations that work for U.S. intelligence agencies and provide commercial services would see softening revenue growth and face a second-half restructuring charge. The commercially-focused Applied Intelligence unit lost GBP27 million in the first half, though should be near break-even for the full year, BAE said, when stripping out restructuring costs.

BAE said the impact would be absorbed by other units and full-year guidance of 5% to 10% growing in underlying earnings per share was unaffected.

BAE Systems also should benefit from rising U.S. defense spending, though the effect isn't expected to pad the bottom line immediately.

The company won several contracts from the British defense ministry, including to start building a new class of frigates, but uncertainty is rising about British defense spending amid concerns the military budget could be squeezed. The cost to the U.K. of buying several weapons from the U.S., including from Lockheed Martin Corp. (LMT) and Boeing Co. (BA), has risen amid sterling weakness, raising concerns other spending may be pressured.

"With the expected improvement in the defence budget outlook in a number of our markets, the group is well placed to continue to generate good returns," said Charles Woodburn, the company's new chief executive. Mr. Woodburn, who joined the company last year as chief operating officer, took the role on July 1, replacing Ian King, who had been in the job since 2008.

BAE said it would pay a dividend of 8.8 pence a share, up 0.2 pence over the year-prior's first half.

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(END) Dow Jones Newswires

August 02, 2017 02:43 ET (06:43 GMT)