Sales down 14 per cent at defence giant BAE

The pressure on BAE Systems was highlighted today after the defence giant reported a 14 per cent fall in sales as military spending in the US and UK is cut.

The group, which is reported to be considering a move to close its Portsmouth dockyard, threatening up to 3,000 job losses, said sales fell more than expected to £19.2 billion in 2011. Underlying profits dropped 7% to £2 billion.

The defence and security giant, which produces Astute nuclear-powered submarines and is the largest supplier of land vehicles to the US army, said its order book also declined by 8% to £36.2 billion and warned that little sales growth can be expected in 2012.

The group said defence spending has reduced in its largest markets - the UK and the US - while it was also hit by a delay in an order for Eurofighters to Saudi Arabia.

BAE is also likely to see its Eurofighter consortium fail to land a large contract to supply fighter jets to India after a French rival was named preferred bidder.

It last year signalled the end of production at its factory in Brough, Yorkshire, as part of a round of 3,000 redundancies at sites across the UK as it adjusts to the difficult climate.

Chief executive Ian King said no decision had yet been made on the review of its warships operations, but he added that nothing could be ruled out, including the closure of Portsmouth, which employs 1,500 staff and a similar number of support roles.

He stressed that the review covers its entire warships business, not just its Portsmouth yard.

It is understood that its closure could potentially land taxpayers with a bill for up to £600 million because within a contract signed in 2009, the Ministry of Defence guaranteed BAE work for the next 15 years and is bound to shoulder the expense of any yard closures.

With regards to its bid to supply India with Typhoons, Mr King added that BAE was in discussions with its other partners in the consortium and would consider dropping its price.

But he added that they were "not going to do anything for stupid margins".

He said the contract could be worth a total of £10 billion to BAE over a number of years.

The group hopes to wrap up a key Saudi Arabian fighter jet contract, while it was also in discussions to supply Oman.

Mr King said the company's earnings performance represented the underlying resilience of its business as it looked to focus more on fast growing nations such as India.

Bottom-line profits rose 4% to £1.5 billion, helped by a £197 million tax rebate.

Shares fell 4% even though it increased its dividend by 7% as a sign of its future confidence.

Mr King refused to comment on reports that the company's top three executives are set to receive multimillion-pound bonuses and share awards.

The pay package for the year to December for Mr King, US chief Linda Hudson and finance director Peter Lynas is not yet known but any large bonuses are likely to infuriate the workforce after the company axed jobs.

PA