BAE Systems warns it could be hit by German stance on Saudi

LONDON (Reuters) - BAE Systems said German moves to block exports to Saudi Arabia could hit its major deals with the Kingdom, weighing on Britain's biggest defence company's financial performance and relationships.

BAE said it was reliant on the approval of export licences by a number of governments in order to continue supplies to Saudi Arabia.

"BAE Systems is therefore working closely with the UK government to minimise the risk of any such occurrence and the impact it would have on financial performance, the supply chain and relationships," it said on Thursday.

The company also said its earnings would grow in 2019 compared to a flat 2018, despite ongoing geopolitical uncertainty which could affect its business.

BAE said it expected mid-single digit growth in underlying earnings per share in 2019, compared to a full-year figure for last year of 42.9p, roughly flat on the previous year and in line with expectations.

Shares in BAE slid 3.6 percent in early trading in London.

"The Group made good progress in strengthening the outlook and geographic base of the business, with a number of significant contract wins," Chief Executive Charles Woodburn said on Thursday.

Despite growth in its backlog of defence orders, BAE said the group was "subject to geopolitical uncertainties" that could undermine its expected earnings growth.

Germany has attempted to halt weapons exports to Saudi Arabia after the killing of Saudi journalist Jamal Khashoggi in the Saudi consulate in Istanbul on Oct. 2, but Britain has urged Germany to exempt big defence projects or face damage to its commercial credibility.

On Wednesday, German Foreign Minister Heiko Maas said that future decisions on whether to deliver arms to Saudi Arabia will develop on how the conflict develops in Yemen.

BAE makes 16 percent of its annual sales from selling Eurofighter Typhoon fighter jets and other arms to Saudi Arabia and the tensions have raised questions about the UK government's 10 billion pound deal to sell Saudi Arabia 48 new Typhoons, which are made by BAE Systems and its partners.

The deal, confirmed in a memorandum of understanding in March, has not been finalised, and is not reflected in BAE's 2018 financial statements.

(Reporting by Alistair Smout; Editing by Paul Sandle/Keith Weir)