BAE Systems may wield axe again to offset sales fall


BAE Systems may be forced to cut more staff this year to help offset lower 2011 sales, which it still expects to be hit by reduced UK military spending and weakness at its land and armaments unit.

“The group continues to anticipate a reduction in sales in 2011 as the volume adjustment in land and armaments is expected to complete and as the changes arising from the Strategic Defence and Security Review (SDSR) reduce activity in the UK businesses,” BAE said in a statement ahead of its annual general meeting in London on Wednesday.

Europe’s biggest defence contractor said in February that it expected full-year revenues to be dented by weakness at its unit which makes artillery and armoured combat vehicles, and accounts for around a quarter of group profits, Reuters reports.
“Actions to lower cost and improve efficiency are expected to benefit return on sales and mitigate the impact of that lower activity,” the company added.

BAE, which is involved in the production of F-35 jets and Astute class submarines, has cut around 15,000 employees in the last two years in a bid to lower costs.

Britain last year slashed its defence budget by 8 percent to help reduce its budget deficit — cutting its army, navy and air force — hitting arms makers such as BAE, which makes around a fifth of its revenues in the UK.

Defence firms with exposure to the United States — where around half of BAE’s sales come from — have also been hit by a slowdown in U.S. defence spending in recent months.

The U.S., which has the world’s largest defence budget, recently reached agreement on a funding bill for 2011 after having operated on a continuing resolution that funded the military at 2010 levels — some $20 billion less than its defence department requested for 2011 — since October.

BAE, however, said the delayed approval of the U.S. budget was unlikely to have a material impact on its annual results.

Shares in BAE, which have fallen 6 percent in the last three months, were 0.3 percent down at 328.9 pence by 0740 GMT, valuing the company at around 11.2 billion pounds ($18.4 billion).

The company is expected to post an average pretax profit of 2.03 billion pounds in 2011, according to a Thomson Reuters I/B/E/S poll of 22 analysts.
“In the U.S., we continue to regard BAE’s business as robust at worst and quite capable of generating satisfactory growth … on balance, we believe the downside risk to now be limited and the upside risk to be rather more substantial, certainly on a 12- month view,” said RBS analyst Sandy Morris.

BAE, part of the four-nation consortium building the Eurofighter jet, added that its 2011 performance was expected to be weighted to the second half of the year, primarily reflecting the negotiation of changes to the Saudi Arabian Salam programme.