* Underlying EBITA down 6.4 pct at 1.895 bln stg
* Launches $1.5 bln share buy back over next 3 years
* International order book rises 133 percent
* "Absolutely not" in discussions with EADS
* Shares up 5 pct
By Brenda Goh
LONDON, Feb 21 BAE Systems posted a
smaller than expected fall in underlying profits on Thursday and
cheered investors with a dividend boost and 1 billion-pound
($1.5 billion) share buyback plan due to the strength of its
overseas arms sales.
The company, whose proposed merger with European aerospace
firm EADS collapsed last October, said growth in 2013
would likely come from outside its home markets in Britain and
the United States, where it said the overall outlook was
"There are a lot of green shoots in this organisation which
provides you with confidence that resilience is there and that's
another reason why we have confidence in the company to do a
share buy back," Chief Executive Ian King told reporters, citing
BAE's efforts to slash costs and increase overseas sales.
"A 1 billion-pound share buy back ... on top of one of the
highest dividend yields in the market can only be interpreted as
a very profound and positive signal about management's belief in
the robustness of the business," said Jefferies analyst Sandy
"And for them to do that whilst everyone probably has been
concerned about and most likely exaggerating the potential
impact of U.S. spending cuts is clearly going to catch the
market on the hop and pleasantly surprise it."
Shares in BAE were up 4.9 percent at 348.5 pence at 1230
GMT, valuing the company at 11.3 billion pounds.
Europe's largest defence contractor, said it would
immediately start buying back shares over the next three years
and raised its dividend by 4 percent to 19.5 pence a share.
It was going ahead with the buyback even though it said full
implementation still hinged on the resolution of current
discussions with Saudi Arabia over the pricing of its latest
Salem contract to supply the Gulf state with Typhoon aircraft.
Meanwhile King said the company was "absolutely not" in
discussions with EADS about reviving the proposed merger and
that BAE had moved on to focus on running its business.
The company reported a 6.4 percent fall in earnings before
interest, tax and amortisation (EBITA) to 1.895 billion pounds
in 2012, whereas most analysts contacted by Reuters had expected
a result of around 1.85-1.87 billion pounds.
The fall in profits was led by reduced business in its U.S.
division, which accounted for 40 percent of its 2012 sales, due
to defence budget pressures and reduced activity in support of
deployed operations in Iraq and Afghanistan.
But BAE said that while the outlook for the U.S. and UK
remained bleak it was encouraged by growth in its international
business, where combat jet deals worth billions of dollars were
recently signed with Oman and Korea.
"Subject to near-term uncertainties relating to U.S. defence
budgets, modest growth in underlying earnings per share is
anticipated for 2013," it said in the statement.
The company has been pressured by shrinking military
budgets in the United States and Britain where governments have
been trying to reel in large budget deficits.
BAE and its U.S. rivals such as Lockheed Martin and
Northrop Grumman have also warned that billions of
dollars in spending cuts could hit the U.S. military budget in a
process known as "sequestration".
BAE's non-U.S. and UK order intake rose to 11.2 billion
pounds over the year from 4.8 billion pounds in 2011, reflecting
the group's efforts to pursue business overseas in the Middle
East region and India.
King said he expects sequestration to hit BAE's revenues by
a maximum of 1 billion pounds in 2013 but that he expected
international deals to compensate for this as the order book
crystallises out in actual revenue.
BAE also said that 3,600 jobs in its U.S. ship repair
business was under threat after was notified by the U.S. Navy
that it was considering the potential to cancel, defer or revise
maintenance plans on thirteen ships.
BAE has begun the process to find a new chairman to replace
Dick Olver, who is due to retire in May 2014, King said.