Middle East deals boost results of BAE Systems

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BAE Systems has posted a smaller than expected fall in underlying profits and cheered investors with a dividend boost and £1bn ($1.5bn) 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.

BAE’s non-U.S. and UK order intake rose to £11.2bn over the year from £4.8bn in 2011, reflecting the group's efforts to pursue business overseas in the Middle East region and India.

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.

“There are a lot of green shoots in this organization 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.

Europe’s largest defense 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.

BAE warned in December that delays in negotiations with Saudi Arabia over the Typhoon jets could negatively impact its earnings.

BAE has so far delivered 24 out of the 72 aircraft agreed with the Gulf kingdom in the 2007 government-to-government ‘Salam’ deal.

The company reported a 6.4 percent fall in earnings before interest, tax and amortization (EBITA) to £1.895bn in 2012, whereas most analysts contacted by Reuters had expected a result of around £1.85-1.87 bn.

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 defense budget pressures and reduced activity in support of deployed operations in Iraq and Afghanistan.