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Sunday, 21 December 2014

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BAE Systems says profit growth hinges on Saudi Arabia deal

DEFENCE group BAE Systems said its chances of delivering profit growth in 2012 hinged on talks to finalise a fighter jet deal with Saudi Arabia, in a year marked by tight government defence budgets.

"Whilst little sales growth can be expected for the group in 2012 in the current market conditions, modest growth in underlying earnings per share is anticipated, assuming a satisfactory conclusion to Salam negotiations (with Saudi Arabia) in 2012," BAE, Europe's biggest defence contractor, said today (Wednesday).

In 2007 Saudi Arabia signed a contract with BAE to buy 72 Typhoon aircraft, 24 of which have been delivered to the Royal Saudi Air Force. The Salam deal, as it is known, is worth around £4.5 billion.

Earlier this month BAE said the contract to build the remaining 48 jets in Britain had been signed but changes to the price of the deal had yet to be agreed.

"Salam trading ... remains deferred until ongoing negotiations have been concluded," BAE said.

BAE, which is involved in the production of F-35 fighter jets and Astute class submarines systems at Barrow, said the approval of the United States' 2012 defence budget had resulted in less disruption to the award of contracts than in 2011 but that delays to the approval of 2013 budgets were likely.

"Saudi contract negotiations must be successfully concluded given the importance of this to BAE as both an offset to declining U.S. land revenues and management's ability to do further buybacks," said Morgan Stanley analyst Rupinder Vig.

Shares in BAE were down 1.2 per cent at 292.9 pence this morning (Wednesday), valuing the group at £9.6 billion.

BAE shares have fallen 10 per cent in the last year, underperforming the FTSE All Share Aerospace and Defence Index by almost 18.5 per cent.

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