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BAE Systems holds fire on dividend but sights still on Raytheon acquisitions

The defence group said its liquidity and business profile remains “reliant on the goodwill of our customers and the financial strength of our supply chain” to keep up the drumbeat of production

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The M109A7 self-propelled howitzer

BAE Systems PLC (LON:BA.) has decided to hold fire on paying its final dividend due to the coronavirus pandemic, which it says has begun to inflict “significant disruptions” in recent days.

Without saying what these disruptions amounted to, the FTSE 100-listed defence contractor said it was controlling costs to help limit the financial impact of disruptions and assured investors that it is in a “strong position” with a £45bn order backlog of mainly long-term government contracts.

The first three months of the year saw “no material impact” from coronavirus on financial performance, with significant contract awards on a self-propelled howitzer, repairing US ships and for the THAAD missile programme.

At the end of last year, BAE's balance sheet showed net debt of £743mln, including cash and equivalents of £2.6bn, as well as access to a £2bn borrowing facility. 

As it “typically” has a working capital cash outflow in the first half of the year, BAE said it was now looking to “optimise” cash flow and is in talks about funding with major customers.

BAE said its liquidity and business profile remains “reliant on the goodwill of our customers and the financial strength of our supply chain” to keep up production, so it believes that it is in the company’s best interests to defer a decision on paying the dividend. 

“Whilst it remains our intention to pay a dividend, the timing of any payment will be contingent on prevailing macro-economic and social conditions over the coming months,” the group said.

It also stated that its previous guidance for 2020 would be impacted but it was too soon to predict the extent of that.

However, BAE said it still plans to complete the US$2.2bn acquisitions of the Collins Aerospace military GPS business and Raytheon airborne radios unit that are being sold off as part of the merger of US defence giants Raytheon and United Technologies, as financing is already in place.

It also stated that its previous guidance for 2020 would be impacted but it was too soon to predict the extent of that.

Shares in BAE fell 2% to 487p on Friday morning, where they are down 15% in the year to date.

Ian Forrest, investment research analyst at The Share Centre, said: “The news of recent disruption to operations and the decision to defer the dividend decision are hardly surprising given the rapid spread of Covid-19 around the globe and the fact many other companies are cancelling their payments at the moment.

“Beyond that the update was fairly reassuring, especially regarding the Collins and Raytheon acquisitions.”

   --Adds share price and broker comment--

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Price: 509.476 GBX

LSE:BA.
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Market Cap: £16.38 billion
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