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08 May 13. BAE Systems plc issued its Interim Management Statement for the period from 1 January 2013 to 7 May 2013 in accordance with the requirements of the UK Listing Authority’s Disclosure Rules and Transparency Rules. Trading for the period has been consistent with management expectations at the time of the 2012 results announcement on 21 February 2013 and our outlook remains unchanged. Modest growth in underlying earnings per share for 2013 is anticipated, subject to the continued uncertainties relating to US defence budgets. This excludes the benefit from the share repurchase programme initiated in February 2013. In addition, and assuming a satisfactory conclusion to discussions with the Kingdom of Saudi Arabia relating to the formalisation of price escalation on the Salam Typhoon programme, there would be a further increase of around 3 pence in underlying earnings per share. This outlook does not reflect the impacts on US defence spending arising from Sequestration. In March 2013, legislation was passed to set funding levels for the remainder of the 2013 Fiscal Year, which has allowed some limited flexibility to enable near-term priorities to be pursued. In April, a Presidential Request for a Fiscal Year 2014 budget was tabled which would replace Sequestration with selective spending cuts. However, and notwithstanding these developments, there is at this point insufficient detail on which to base revised outlook assumptions. With the announcement of the full year results in February, the Group initiated a share repurchase programme of up to £1bn over three years. Full implementation of the programme remains subject to satisfactory resolution of the Salam Typhoon price escalation negotiations. As at 7 May 2013, BAE Systems had purchased 17 m shares for £65m under the programme.
In March, the Group was awarded a contract from the US Army valued at up to $780m (£504m) over five years to continue the operation and management of the Holston Army Ammunition Plant in the US.
In the UK, pressure on government spending continues, but the defence equipment environment remains stable with no material changes to programmes, many of which are subject to long-term contracting arrangements. The second of seven Astute class submarines was commissioned into the Royal Navy in February. The sixth and final Type 45 destroyer was handed over to the Ministry of Defence in March. Discussions continue with the UK government to balance naval surface shipbuilding capacity in the UK with future warship demand in accordance with the Terms of Business Agreement signed in July 2009. In February, BAE Systems and Vodafone agreed the formation of a five-year partnership to provide businesses with a range of advanced communications security products and services, initially focused on smartphones and tablets.
International market activity remains strong with significant opportunities being pursued. Building on the international order intake in 2012, a further £2.3bn of non-UK/US orders have been received in the year to date. Discussions continue with the Government of the Kingdom of Saudi Arabia relating to the formalisation of price escalation on the Salam Typhoon programme. Aircraft deliveries on the programme re-commenced in April. In March, a £0.6bn weapons contract was awarded under the Saudi British Defence Cooperation Programme.
M&A activity
In February, the Group completed the sale of its Commercial Armored Vehicles LLC business in West Chester, Ohio, to The O’Gara Group, Inc. for cash consideration of approximately $10m (£6m).
Half year results
BAE Systems will announce its financial results for the half year ending 30 June 2013 on 1 August 2013.
FT Comment: The latest interim trading statement was announced just before Dick Olver hosted his final annual meeting as BAE’s chairman before he retires. Mr Olver led the company’s attempt last year to combine with EADS, Europe’s biggest aerospace company. Get

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