BAE promises further growth after rise in earnings

BAE Systems promised on Thursday to deliver £4bn in free cash flow over the next three years and pledged an up to 8 per cent increase in underlying operating profits this year, as it reported a 1 per cent rise in 2020 earnings.

The UK’s defence champion fulfilled its promise to restore its dividend, having suspended payments like many companies at the onset of the coronavirus pandemic. It announced a payout of 23.7p a share, plus a 13.8p payment to make up for the suspended dividend in respect of 2019’s performance. This represents an increase from 23.2p on 2019.

Charles Woodburn, chief executive, said the group looked “forward to another year of top line growth, with . . . margin expansion and good cash flow” after the challenge of the global pandemic in 2020.

Sales were expected to increase 3 to 5 per cent this year, driven by advances in the air and electronics systems divisions. BAE set a target of 6-8 per cent growth for underlying operating profits, helped by the $1.9bn acquisition last year of the military global positioning business of US engineer Collins Aerospace, as well as expected improvements in the applied intelligence business. Margins in all divisions were expected to increase this year.

The group also aimed to generate free cash flow in 2021 of more than £1bn, with a three-year target to 2023 of more than £4bn.

The ambitious targets came as BAE delivered annual results in line with expectations, with sales increasing by 4 per cent to £20.9bn and underlying earnings by 1 per cent to £2.1bn. On a headline basis operating profits rose from £1.89bn to £1.93bn.

Sandy Morris, aerospace analyst with Jefferies investment bank, said the results “show BAE to be in good shape, perhaps the best we can recall for over a decade”. 

Free cash flow came in at £367m, after the £1bn injection into the pension scheme to accelerate the resolution of a weighty deficit. It was a move widely welcomed by investors when announced last year. Excluding this contribution, free cash flow was £1.4bn.

However, net debt was higher than expected at £2.7bn, up from £743m, as a result of increased borrowings in part to fund the pension issue.

The order backlog was marginally lower at £45.2bn after an order intake of £20.9bn.