BAE Systems reports drop in sales of 14 per cent for 2011

The defence company, Britain’s largest engineering employer, has increased its dividend payment by 7.4 per cent but warned of modest sales growth in the next financial year.

Ian King, chief executive officer, said the impacts of defence cuts in Britain and the US had been expected across the company but that it had positioned itself to mitigate against these through aggressive cost reductions, good programme execution and its presence in a number of territories.

In the UK, King said 2010’s Strategic Defence and Security Review led to a £500m reduction in the group’s annual sales but workforce reductions, (including contractors), facility rationalisation and contract settlement agreements had helped to offset this.

The winding down of US military operations in Iraq, coupled with delays to the US defence budget have also made a negative impact.

Profitable areas
Underlying profit before tax stood at £1.8bn compared to £1.98bn in 2010.

Measures to boost future profitability include growing BAE Systems’ international business, developing cyber, intelligence and security, and electronics systems businesses in both civil and defence, and delivering savings across its products and services.

So far, the company’s strategy to grow its presence in the cyber and intelligence markets has resulted in around seven per cent of its business now being generated in this area.

Overseas, the company is engaged in a land systems joint venture with Mahindra & Mahindra to pursue armoured vehicle and artillery opportunities, while in Saudi Arabia the Salam programme to supply the Saudi Air Force with 72 Typhoon aircraft is undergoing modifications.

The company also remains upbeat about its position as second-based bidder to supply India’s next medium multi-role combat aircraft.

So far, Dassault Aviation’s Rafale jet has been chosen as lowest-cost bidder to supply around 126 jets to India.

BAE Systems says it will continue working with Cassidian so that it remains in a position to re-negotiate the deal should contract negotiations break down with Dassault.