Known for its air-to-air refuelling technology, Britain's third biggest defence and aerospace group after Rolls-Royce and BAE Systems has been in recovery mode since a string of profit warnings forced it into a rights issue in 2017.

Last week it said it would now cost an additional $53 million to complete its work on Boeing's troubled KC-46 aerial refueling programme, with delays straining ties between the two groups and sending its shares down 10 percent.

On Friday it said its stronger balance sheet, improving order book and higher operating margin gave it confidence in the medium and longer term. For 2018 it said underlying profit remained unchanged "with a range of potential outcomes".

Shares in the group rose an initial 3 percent in early trading before slipping back to be up 0.5 percent, giving it a market value of 3 billion pounds.

"These underlying results show that we are making encouraging progress to improve our operational performance, with the business and the balance sheet in better shape," Chief Executive David Lockwood said.

"Risks and challenges remain and we are continuing to engage with Boeing to resolve the issues around the KC-46 tanker programme."

Its order intake stood at 1.03 billion pounds, up from 916 million pounds in 2017. Revenue and operating profit both slipped.

Jefferies analyst Sandy Morris, with a Buy rating on the stock, said the 25 percent organic increase in the order intake reaffirmed its investment case, notwithstanding the uncertainty around Boeing's "unquantified" claims on the KC-46 contract.

(Reporting by Kate Holton; editing by Sarah Young and Alexander Smith)