British aero electronics group Cobham expects to deliver further growth this year after cost cuts and a strong performance from commercial aviation boosted 2011 profit.
Cobham, whose equipment helps military vehicles such as F-35 fighter planes communicate with one another, on Wednesday said 2011 pre-tax profit rose 7 percent to GBP£328 million (USD$516.2 million) on sales 3 percent lower at GBP£1.85 billion.
Cobham's revenue growth has been hit by cuts to government defence budgets in the United States, which accounts for 56 percent of its sales.
The company, which said it would increase its full-year dividend by a third to 8 pence, said a fall in US defence sales was offset by growing military sales in emerging markets such as Brazil and a buoyant civil aviation business, which it expects to keep growing.
"The positive trend in our export and commercial markets are expected to continue in 2012 and we expect to deliver underlying progress this year," said Cobham's chief financial officer Warren Tucker.
"The 33 percent increase in the dividend is a clear statement of confidence in the business model and future cash generation prospects, in our view, in the face of persistent defence headwinds," said Investec analyst Andrew Gollan.
The company expects its cost saving programme to deliver annual savings of GBP£75 million by the end of 2013 - up from the previous target of GBP£65 million.
Defence firms across the globe have been hit by cuts to military spending as governments look to reduce debt. The United States capped its military budget at last year's levels for 2012 but Cobham believes the United States is recovering, albeit slowly.
"The US defence and security market is stabilising, though conditions are still challenging. We're in priority areas for the US like air re-fuelling and rapid communications, which gives us confidence," said Tucker.
In contrast to the defence market, civil aerospace is performing well. Commercial aircraft demand is rising as high oil prices force airlines to renew fleets with more fuel-efficient planes.
Suppliers to the civil aerospace sector have been boosted by order book growth at Airbus and Boeing, who expect combined deliveries for 2012 to be 15 percent ahead of last year.
"Our commercial markets have good growth prospects, being driven by large jet, helicopter and general aviation production," said Tucker, adding that Cobham was on the hunt for acquisitions to help expand its content on platforms such as the Airbus A380 and A350 as well as the Boeing 787.
British aero engineers Meggitt, GKN and Senior have said they expect to benefit from airlines renewing fleets with more fuel-efficient planes this year, after that trend helped them deliver strong profit growth in 2011.