BAE cautious as cost cuts bite

The group saw a small rise in underlying earnings to £2.2 billion last year but offered a cautious tone on prospects, particularly as it continues to grapple with the implications of October’s UK defence spending review.

With government customers looking for cost savings, BAE has cut more than 15,000 jobs over the last two years in order to boost competitiveness.

In the United States, BAE said the defence and security markets continue to generate a number of opportunities despite budgetary pressures. And in India, where BAE is working to boost its presence, defence spending is expected to grow substantially, according to the company.

Overall sales rose 2 per cent to £22.4 billion last year, while earnings were up due to growth in its division providing electronic systems for the US military.

However, its land and armaments division saw sales fall by 12% to £5.9 billion and earnings remain flat at £604 million as the division responsible for the design and production of armoured combat vehicles, naval guns and missile systems suffered due to pressure on defence budgets.

BAE reduced staff and contractor headcount in the division by 5,500 last year and said it expects pressure on the business to continue this year.

It added: “Going forward, the focus will be on securing key new programmes, pursuing export opportunities, and sustaining the margin improvement from the business’s ongoing restructuring and efficiency initiatives.”

In the company’s programmes and support division, which employs 31,600 people and comprises BAE’s UK-based air, maritime and cyber intelligence activities, 2010 sales were flat on a like-for-like basis at £6.7 billion. Earnings were down 21 per cent at £529 million, partly due to a charge for a terminated programme.