BAE Systems reports large profits despite falling sales

Posted on 17 Feb 2011 by The Manufacturer

BAE Systems has reported a rise in profits in 2010 but sales growth was poor following a decline in government spending in the wake of the strategic defence spending review.

The company reported pre-tax profits of £1.4bn 2010, up from £266m in 2009. But ignoring exceptional items, underlying profits were up only 0.8%, while sales rose 1.8% to £22.4bn.

The minimal growth was due to tighter government spending in the UK and US, which caused sales at BAE’s land and armaments unit to fall 6%.

The UK firm said that it did not expect sales at the division, which produces armoured combat vehicles and artillery among others, to rebound this year.

“It is expected that pressures on defence budgets, particularly in the US and UK, will continue,” said the company in its preliminary results.

“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.”

The division has yet to recover from a 54% collapse in sales the year before. The order book at the unit fell by a quarter.

Markets took the news badly, with BAE’s share price falling 3.4% in early trading on the London Stock Exchange after the announcement on Thursday.

BAE is seeking to cut its costs, with the announcement late last year of plans to shed 1,400 jobs in the UK.