US contract loss torpedoes BAE profits

Defence giant BAE Systems today said profits had been torpedoed by the loss of a key US contract and hefty fines to settle bribery allegations.

The loss of a major deal to build trucks for the US Army - confirmed earlier this week - meant a £973 million write-off at its Armor Holdings business bought in 2007.

The firm is also paying £278 million and pleading guilty to two charges after a probe of its activities in several countries by the US Department of Justice and the Serious Fraud Office.

Although BAE enjoyed a one-off pension gain in the US, operating profits for 2009 slumped to £982 million from £1.72 billion the previous year.

The firm expects further growth this year but it is also steeling itself for belt-tightening measures as governments attempt to tackle soaring deficits.

"Defence budgets in both the UK and the US are expected to come under further pressure, and with expectations of a more challenging business environment ahead, the focus on driving performance and efficiency in the business will be key," the company said.

BAE said the UK outlook was "difficult" because of "shifting national priorities", although the firm has several long-term contracts in place with the Royal Navy and RAF for Typhoon fighters as well as supplying Spearfish and Sting Ray torpedoes.

But cost-cutting moves include consultations on 1,100 potential job losses across UK sites at Woodford, Samlesbury, Warton and Farnborough announced last year.

In the US, headcount has been reduced by more than 10% to reflect the loss of the vehicle contract. The firm, which made 8,400 trucks for the US Army last year, will continue production until the end of 2010.

Despite the setback for its land and armaments division, the firm expects growth at its three other businesses. Orders across the group grew slightly to £46.9 billion, reflecting its acquisition of VT Group's 45% stake in its shipbuilding joint venture.

Two weeks ago, BAE announced it was pleading guilty to two criminal charges - conspiring to make false statements to the US government, and failing to keep "reasonably accurate" accounting records of its activities in Tanzania. Neither charge relates to corruption.

The company has said it "very much regrets" its past failings but says the settlements allow it to "deal finally with significant legacy issues".

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