The UK defence contractor, which last year failed to pull off a £30bn merger with Airbus-owner EADS, said it was seeing “continued pressure on many areas of government spend in the UK”, while mandatory budget cuts in America via sequestration meant that “defence spend is expected to face continued reduction”.
However, pressures here were being partially offset by growth in international orders, while BAE is also seeing “increasing cyber opportunities, particularly in the civil area” – even though underlying earnings slipped marginally in that division in the first six months from £54m to £53m.
While total sales rose 1pc to £8.45bn, BAE chief executive Ian King said the company was operating in a “challenging environment”.
Pointing to “£4.8bn of orders from outside the UK and US”, Mr King said: “Growth from the UK and international has compensated for the expected reduction in the US”.
The overall order backlog rose to £43.1bn from £40bn this time last year.
While underlying earnings per share fell 4pc, BAE is forecasting “double-digit growth in underlying earnings” for the full year – though this is dependent on a “satisfactory conclusion” to talks over the pricing for the Salam contract for 72 Saudi Typhoon fighter jets.
BAE has so far delivered 28 aircraft but talks over the step-up in prices since the contract was first awarded have become protracted.
Mr King said: “We do expect we will close this out in the second half of this year”, noting that the Saudis were now talking about increasing the order “beyond the 72”.
BAE is also involved in a “big campaign in the UAE” for 60 Typhoon jets, he said, which would be “a major game changer”, while there had also been some “early activity” in Malaysia over a potentially large contract bid.
The half-year dividend increased by 3pc to 8p. The shares rose 9.57 to 455.48p in early trading.