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BAE Systems (LSE:BA.) took a significant cut in 2011 as headline sales for the year were down 14% from a year ago, citing reduction in defence spending from its major markets, the US and the UK, in what the company described as a “difficult business environment”.
BAE lost about £3.121 billion worth of revenue, ending the year with £19.154 billion headline sales in an order book reduced to £36.2 billion.
Breakdown of 2011
In the US operations, which comprised 47% of BAE’s 2011 sales suffered a drawback in overseas military operations, particularly in Iraq, along with delays in defence appropriations contributed heavily on the loss of sales and deferment of projects.
A budget proposal for the US Defence in 2013 showed US$45 billion less than a year ago, as part of the US Government’s goal of reducing military spending by US$487 billion in 10 years.
In the UK, BAE lost about £500 million in annual sales following modifications in the Strategic Defence and Security Review (SDSR) programme that resulted to job cuts, contract settlements, and facility rationalisation.
The British market accounts for 29% of BAE revenues, which may be further reduced as the British Government plans on cutting 7.5% of the annual budget of the Defence Ministry to raise £10 billion in savings in four years.
Elsewhere, very recently, BAE lost a bid to provide India with the Eurofighter Typhoon, a £7 billion contract awarded to France’s Dassault.
In general, BAE’s Platform & Services segment in all markets, including the US and UK were all reduced.
BAE turns its strategy in the Cyber & Intelligence and Military & Technical services, which, along with other service-related activities, comprised 49% of all sales in 2011.
Disposals of non-core assets as well as acquisitions were made so the company can focus on its F-35 and Typhoon programme.
BAE now relies on the positive outcome of the negotiations in the pricing of its Typhoon with the Kingdom of Saudi Arabia, where defence spending is still a high priority and 48 Typhoon aircrafts are yet to be supplied to the Kingdom.
2012 Outlook
“Little sales growth can be expected for the Group in 2012 in the current market conditions,” BAE systems said in the statement, pinning its hopes to the “satisfactory conclusion to Salam negotiations.”
BAE is also looking forward to securing a contract with the Oman Government for the delivery of Typhoon, as well as combat vehicles in India, and several contracts with the Australian Government.
A final dividend of 18.8 pence per share, 7.4% higher than the previous year, will be given to shareholders despite a reduction in profit.
The market did not receive the news with much enthusiasm as more than 9.6 million shares changed hands at noontime GMT, and share prices were down 9 pence to 324 pence at the London trading.
Company Spotlight
BAE Systems is a global defence and security company providing air, land, and naval forces products and services, including advanced electronics, security, information technology solutions, and support services.
References
↑ BAE Systems sees weak sales as cuts bite
↑ BAE Systems’s annual sales fall by 14%
↑ BAE Falls After Outlook of Little Revenue Increase: London Mover
↑ BAE Forecasts Modest Earnings Rise
↑ Sales tumble at BAE Systems
↑ BAE may cut Typhoon price to win India order
↑ BAE Systems full-year profit down 7 pct
