BAE Systems swings into profit, warns over defence cuts

17th February 2011, Comments 0 comments

Arms manufacturer BAE Systems said Thursday that it bounced back into net profit in 2010 but warned of the impact of defence budget cuts in Britain and the United States.

Earnings after tax hit £1.05 billion ($1.69 billion, 1.25 billion euros) last year, compared with a net loss of £67 million in 2009, BAE said in a results statement.

The 2009 shortfall was caused by a major write-down linked to the purchase of US military group Armor Holdings.

BAE said that earnings before interest, tax, depreciation and amortisation (EBITDA) -- a measure of underlying profitability -- rose by just 0.8 percent to £2.21 billion. Revenues meanwhile edged 1.8 percent higher to £22.39 billion.

"It is expected that pressures on defence budgets, particularly in the US and UK, will continue," said the company, which is based in Farnborough, southeastern England.

"Recent statements by the US Secretary of Defense indicated that the 2011 US defence budget is likely to include anticipated cost efficiencies, programme reductions and potential cancellations."

BAE said it has cut about 15,100 jobs, including contractors, over the past two years as it has tried to offset government spending cuts around the world.

The group's order book shrank 14 percent to £39.7 billion last year, with further reductions expected in 2011.

"Although the group faces a more challenging trading environment as governments look for cost savings to address budgetary pressures, our broad base of activity results in a resilient business that is well positioned to withstand near-term market pressures," it said.

BAE chief executive Ian King said that the group delivered "robust" earnings despite the tough environment.

"The group has delivered another robust set of results with the business performing well in a challenging business environment," King said in the statement.

"We are successfully meeting the affordability challenge with both improved returns for shareholders and lower costs for our customers.

"There continues to be sustainable growth prospects across our markets and we have a clear strategy which provides confidence in the resilience and strength of our business."

In early afternoon trade, BAE Systems saw its share price tumble 4.92 percent to 338.20 pence on London's FTSE 100 index of leading companies, which was down 0.07 percent to 6,080.96 points.

"We still feel that 2011 will be a very tough year for the defence industry," said Atif Latif, director of trading at Guardian Stockbrokers in London.

"This is due to the (UK) government's recent spending cuts and as such, BAE will be a victim of weak organic growth for the next four years or so."

BAE announced that it has boosted its shareholder dividend for the year to 17.5 pence from the previous 16 pence per share.

"Apart from an increase in dividend, investors have little to get excited about as the company predicts a tough year ahead," noted trader Manoj Ladwa at ETX Capital.

© 2011 AFP

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