BAE Systems posted a first-half loss of £82m yesterday as the group's pension deficit ballooned by 30 per cent to more than £3bn.
The slump – which was also partly blamed on £256m-worth of goodwill writedowns on a US acquisition – was shrugged off by BAE's chief executive, Ian King, as an accounting "quirk". Underlying earnings before interest, tax and amortisation rose 19 per cent to £979m on revenues up by 28 per cent to £9.9bn, and earnings per share rose 10 per cent to 17.8p.
"It is an accounting loss, not an actuarial loss," Mr King said. "We have agreed recovery plans with our trustees and the regulators appointed by the Government that go out for 20 years, but we still have to go through these quirks of accounting in the short term." Notwithstanding the underlying figures, the market was spooked, and the defence group's shares closed off 4.88 per cent at 311.75p.
Despite the recession, BAE is confident of its future. The order book has grown by nearly £4bn to £45bn in the first half, and the group is expanding in India, South Africa and Australia. "We are not immune, and we are vigilant, but we still see a lot of growth," Mr King said.
In the US, where BAE generates more than half its revenues, the group has been boosted by plans to increase funding for the F-35 joint strike-fighter programme. In the UK, the Eurofighter Typhoon will be the main driver for growth, the company said yesterday. And even the combination of the straitened public finances and the Strategic Defence Review due to start next year hold few concerns. "If the SDR meant the Government wanted to terminate any of our contracts, it would be for their convenience, which means we would recover all our costs," Mr King said.
Some City commentators also saw through the mark-to-market fluctuations. Allan Smylie, at Numis Securities, said: "The underlying operating business remains extremely robust."
BAE is not the only company wrestling with pension issues caused by the volatile markets. This week the airports operator BAA's first-half results were hit by a £219m pension deficit charge, which helped to pull its losses down to £546m, triple last year's level.