BAE feels pain of US defence spending cuts as profits slump

BAE Systems reported a sharp fall in profits yesterday as it revealed the impact of further defence spending cuts in the US.

The company, which employs more than 88,000 people worldwide, is also braced for another decline in earnings this year but said an order backlog worth £42.7bn meant it was well placed in the medium term. Pre-tax profits for last year fell to £422m from £1.2bn a year earlier, a decline of 65 per cent.

Sales were two per cent higher at £18.2bn.

The guidance for this year sent BAE shares down by more than 10 per cent and offset Wednesday’s announcement about new price terms with Saudi Arabia over the sale of 72 Eurofighter Typhoon jets.

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Engines giant Rolls-Royce made a similar announcement last week when it said revenues will fail to grow this year for the first time in a decade.

The US government shutdown late last year saw more than 1,000 US intelligence, security and support staff sitting idle as Washington politicians squabbled over the budget.

Chief executive Ian King said yesterday: “Overall, the group delivered a solid performance in 2013, against the background of reduced government spending and challenging market conditions.”

He added that a focus on costs and competitiveness protected margins across the majority of the business.

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In December, BAE revealed that a multi-billion-pound deal to sell 60 Typhoon jets to the United Arab Emirates (UAE) had collapsed, despite Prime Minister David Cameron pressing the case for it during a Middle East visit.

And the group announced in November that it would stop shipbuilding in Portsmouth with the loss of 940 jobs, alongside 835 redundancies in Glasgow, Rosyth in Fife, and at Filton, near Bristol.

BAE employs around 870 people at its site in Brough, East Yorkshire.