Contracts loss forces BAE to restructure armaments
BAE Systems, Europe’s largest defence company, has begun to restructure its once-lauded land and armaments division after losing key armoured vehicle contracts.
The company said that it would cut thousands of jobs in the division but refused to give exact numbers. It also closed ten sites in the UK and United States last year as part of a “rationalisation programme”.
The division had previously been championed by BAE after a succession of big acquisitions turned the company into the world’s largest producer of armoured vehicles. However, BAE has been hit by a series of expected and unexpected contract cancellations, which resulted in like-for-like sales falling by 8 per cent last year.
Total sales for the division rose by 4.6 per cent to £6.7 billion last year but BAE warned that it would be unlikely to match that number in 2010.
The biggest contract loss was for the Future Medium Tactical Vehicles in the US, which were made by Armor Holdings, a company BAE bought for $4.5 billion three years ago. BAE was forced to write down £592 million from the purchase of Armor.
While BAE’s land division has struggled, the rest of the business continued to grow strongly. The company reported sales up 21 per cent to £22.4 billion last year and underlying profits rose 17 per cent to £2.2 billion.
Ian King, the chief executive of BAE, said: “We have benefited from resilience in three of our four main divisions. A few years ago it was air systems that was not growing as fast but that is now ramping up while land has slowed. That is the benefit of BAE — our diversity makes us strong.”
The strength of the group’s overall performance has allowed it to raise the final dividend 10 per cent to 16p a share. It also announced a £500 million share buyback.
However, the headline results were eroded by writedowns of £973 million, including the Armor loss, and £278 million to settle legal actions. This resulted in a loss for the year of £45 million against a £1.7 billion post-tax profit in 2008. The settlements included a $400 million fine after BAE pleaded guilty to one charge of making false statements to the US Government. BAE will also plead guilty to false accounting and will pay the UK Serious Fraud Office a £30 million fine.
Source The Times