[R-G] Demand from Conflicts Lifts BAE's Earnings

[Yoshie Furuhashi]

<http://www.iht.com/articles/2008/08/01/business/bae.php>
Demand from conflicts lifts BAE's earnings

Reuters
Friday, August 1, 2008

LONDON: BAE Systems, the largest European defense contractor, said
Friday that its first-half profit rose 14 percent, chiefly because of
demand for armored vehicles in Iraq and Afghanistan.

Net profit for the six months ending in June rose to £586 million, or
$1.16 billion, from £515 million a year ago. Revenue rose to £7.09
billion from £6.35 billion.

"The group is benefiting from customers prioritizing the provision of
equipment and capability to their armed forces engaged in overseas
operations," the company's chairman, Dick Olver, said.

Profit exceeded forecasts, but the rise in sales was below some
analysts' estimates, held back by a 19 percent drop in sales at the
programs and support unit.

Olver said Saudi Arabia remained a crucial market, and predicted that
BAE would add to its 4,600 employees there. The company is focused on
modernizing the Saudi armed forces, including the replacement of
Tornado fighter jets with new Typhoon aircraft next year.

But the company's dealings with Saudi Arabia have been under intense
scrutiny and are being investigated by regulators in the United States
and Switzerland.

A controversial decision by the British anti-fraud agency to halt an
inquiry in 2006 into whether BAE offered bribes in exchange for
lucrative contracts in Saudi Arabia was upheld Wednesday by Britain's
highest court. The House of Lords decided that the Serious Fraud
Office had acted lawfully when it decided to end the inquiry.

The Serious Fraud Office is investigating possible BAE bribes to
Tanzania, Romania, Chile and the Czech Republic in other arms
contracts.

Olver said the company's outlook for 2008 was positive, with more
orders for armored and mine protected vehicles likely - particularly
to protect North Atlantic Treaty Organization forces in Afghanistan.

"Notwithstanding budget pressures in many defense markets, BAE
Systems' large order book, together with realistic planning
assumptions, provide confidence in the outlook for the group," he
said.

BAE said its order book stood at a record £41.1 billion, up from £31.7
billion a year earlier. BAE's finance director, George Rose, said he
expected analysts to lift their 2008 profit forecasts.

The company's chief executive, Mike Turner, who will be succeeded by
the chief operating officer, Ian King, next month, said demand was
driven by a 29.5 percent rise in sales, excluding acquisitions, of
armored cars - particularly mine-resistant, ambush-protected vehicles.

BAE shares closed up 2.2 percent at £4.60 in London.