BAE Systems posts dip in operating profits with earnings set to flatline in 2018

British defence giant BAE Systems has reported a drop in annual profits after taking a charge on its cyber security business and said it expects earnings to flatline in 2018.

The company said lower growth forecasts for its applied intelligence unit resulted in a £384 million hit, which helped drag operating profit down 15% to £1.48 billion in 2017 from £1.74 billion a year earlier.

Sales for the year rose just 3% to £19.6 billion, which the company said largely reflected currency effects.

BAE Systems is now forecasting underlying earnings per share to be in line with those in 2017, due to "organisational changes" across the business as well as the impact of new accounting standards.

Its cyber and intelligence unit is expected to deliver marginally higher sales in 2018, with the applied intelligence division expected to break even, while aircraft sales are set to fall around 5% as European, Saudi and Oman contracts for its Typhoon jets start to come to a close.

The company has moved ahead with plans announced in October to axe a total of 1,400 jobs over the next three years amid reduced work linked to its Typhoon and Hawk aircraft.

It has also launched a reorganisation of the business that it said will deliver a "more targeted portfolio of products and services" focused on its core business units.

BAE said it will also benefit from a drop in its underlying effective tax rate for 2018 from 21% to 18% due to recent US tax reforms - though the final rate will depend on the "geographical mix" of its profits.

Chief executive Charles Woodburn cheered the company's results.

"We delivered a good performance in 2017, consistent with our expectations for the year.

"We start 2018 with a streamlined organisation and a strong focus on programme execution, technology and enhanced competitiveness, providing a solid foundation for medium-term growth.

"With an improving outlook for defence budgets in a number of our markets, we are well placed to generate good returns for shareholders."

Charles Woodburn, CEO: " We delivered a good performance in 2017, consistent with our expectations for the year. Read Charles' blog and watch the full video at

-- BAE Systems (@BAESystemsplc) February 22, 2018

Investors seemed less upbeat about the results, sending BAE Systems shares down as much as 3%.

But Kazunaga Senga, an analyst at Beaufort Securities, said that while the forecasts for 2018 were somewhat below expectations, there may be better news ahead.

"Though this was below the consensus estimate, we believe there remain good upside given the 'improving outlook' for defence budgets in a number of BAE's markets.

"With a solid order backlog amid ongoing terrorism, cyber security and geopolitical threats, at a time when the global economic trend is encouraging with higher oil prices, we believe BAE remain well placed to maintain positive momentum."

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