Tight defence budgets and the strong pound combined to weigh down the first-half figures of Footsie giants Rolls-Royce and BAE Systems today.
Engine-maker Rolls is experiencing “growing pains”, according to chief executive John Rishton.
These pains include restructuring costs of £67 million from January to June, but the company’s current woes include a 32% fall in first-half operating profit to £489 million.
Revenue was down by more than £700 million to £6.63 billion, but Rolls said it has 600 engineers working on reducing costs and out-of-date facilities will “retire” by 2020.
Rishton said the results “reflected the expected reduction in our defence business”.
There have been military spending cuts on both sides of the Atlantic as the mission in Afghanistan winds down and as a result of austerity measures.
BAE saw first-half revenue slump 10.3% year-on-year to £7.61 billion, while operating profit was £689 million, a fall of £63 million.
Chief executive Ian King insisted BAE was proving its “resilience in this challenging business cycle”.
He added that there is a more “stable environment” in the United States after a two-year budget agreement was finally settled in December after a protracted battle over defence spending on Capitol Hill.
Investors were rewarded for sticking by BAE with a 2% increase in interim dividend to 8.2p per share. Shares in BAE stayed steady, creeping up 0.6p to 425.6p. But Rolls-Royce was on the slide, dropping 2.3% to 1031p.
Westhouse analyst Harry Breach said: “Weak first-half bookings match what most of the US prime contractors posted and we see it as clearly fitting in to our thesis of a protracted US defence down cycle and flattish UK spending.”
The companies have vast international operations and what Rolls describes as “significant exposure to foreign currencies”, which is why both saw results hit by the strong pound.
BAE announced it is buying Signal Innovations Group, a US analytics and imaging technology company.
Meanwhile, Rolls unveiled a new non-executive director, Ruth Cairnie, previously at Royal Dutch Shell.
