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02/11
BAE warns on sales as spending cuts bite
BAE Systems expects its sales to fall in 2011 amid a squeeze on defence spending that is hitting demand for its military hardware.
The defence contractor made the forecast on Thursday as it announced annual results that showed underlying profit had been broadly flat in 2010.
Shares in the group responded by falling 3.1 per cent to 344.7p in early morning trading in London.
Headcount at BAE fell by about 15,100 in 2009 and 2010 as government customers started looking more aggressively for cost savings to address budgetary pressures.
On Thursday it said the division that makes armoured combat vehicles and armaments faced a “challenging market environment” amid a continued reduction in US defence spending that could also hit its electronics, intelligence and support arm.
BAE repeated its forecast that the UK strategic defence and security review unveiled last autumn would have only a £50m impact on its earnings in 2011 as cost savings offset reduced activity.
Measures included in the review included the cancellation of BAE’s Nimrod surveillance aircraft and the earlier-than-planned withdrawal from service of its Harrier jet.
BAE’s 2010 sales were £22.39bn including contributions from equity-accounted investments, up 2 per cent on 2009.
Pre-tax profit was £1.44bn, compared with £266m in 2009, when earnings were held back by almost £1bn of impairment charges as well as £278m of exceptional charges stemming from a deal to end two corruption probes.
Underlying earnings before interest, tax and amortisation rose fractionally from £2.2bn to £2.21bn in 2010.
Excluding a £100m charge related to the termination of a Trinidad and Tobago ship contract, operating profits were in line with expectations, according to Investec, the broker.
However, Investec added: “There is caution through the statement in light of ongoing budgetary pressures and potential contract delays, particularly relating to the US.”
Ian King, BAE chief executive, said the company would continue to consider acquisitions, having recently purchased a string of cybersecurity businesses.
A final dividend of 10.5p per share has been proposed, making a total of 17.5p for the year, up 9 per cent on 2009.