21 Feb 2013

BAE Systems blame weak global demand for drop in profits

BAE Systems has reported a fall in profits, blaming delays over a major Saudi Arabian contract and weak global demand.

The company is reporting a re-tax profit reduction of more than 6%, from £1.47bn last year to £1.37bn.

The company was formed in 1999 and is one of the world’s largest defence contractors. It made headlines last year when a planned merger with EADS, which would have resulted in a global aerospace and defence giant with combined sales of more than €70 billion ($90.3 billion) and more than 220,000 employees, fell through. BAE Systems have since been under pressure to develop an alternative strategy for growth and job security following the collapse of the deal.

As it stands, the company’s outlook for 2013 remains cautious, with a spokesperson saying it expected “modest growth in underlying earnings per share” and a “constrained” US and UK market. Indeed, BAE have warned that as many as 3500 US jobs could be under threat if the US Navy follows through with its intent to cancel a number of ship maintenance requirements after American budgets were slashed.

40% of BAE’s revenue currently comes from the US market, where defence budgets are being cut by $487bn (£320bn) over the next decade.

Its deal to supply Saudi Arabia with 72 Typhoons has also hit trouble following disagreements over the final contract price.

In December 2012, BAE won a £2.5bn aircraft contract with the Sultanate of Oman to provide 12 Typhoon fighter jets and eight Hawk Advanced Jet Trainer aircraft.

The company will publish its 2012 full-year results this week, which are expected to come in below analysts’ forecasts.