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BAE profit down as US cuts spending

BAE Systems reported a sharp fall in profits today as it revealed the impact of further defence spending cuts in the United States.

The company, which employs more than 88,000 people worldwide, is also braced for another decline in earnings this year but said an order backlog worth £42.7 billion meant it was well placed in the medium term.

Pre-tax profits for last year fell to £422 million from £1.2 billion a year earlier, a decline of 65%. Sales were 2% higher at £18.2 billion.

The guidance for this year sent BAE shares down by more than 10% and offset yesterday's announcement about new price terms with Saudi Arabia over the sale of 72 Eurofighter Typhoon jets.

Engines giant Rolls-Royce made a similar announcement last week when it said revenues will fail to grow this year for the first time in a decade.

The US government shutdown late last year saw more than 1,000 US intelligence, security and support staff sitting idle as Washington politicians squabbled over the budget.

Chief executive Ian King said: "Overall, the group delivered a solid performance in 2013, against the background of reduced government spending and challenging market conditions."

He added that a focus on costs and competitiveness protected margins across the majority of the business.

In December, BAE revealed that a multibillion-pound deal to sell 60 Typhoon jets to the United Arab Emirates (UAE) had collapsed, despite Prime Minister David Cameron pressing the case for it during a Middle East visit.

And the group announced in November that it would stop shipbuilding in Portsmouth with the loss of 940 jobs, alongside 835 redundancies in Glasgow, Rosyth in Fife, and at Filton, near Bristol.

The slide in pre-tax profits stems from a one-off valuation writedown of £865 million in two US businesses, reflecting the outlook for cuts in US defence spending. At an underlying level earnings were 3% higher at £1.9 billion, although this was still short of City expectations for a figure around £2 billion.

The company added that earnings per share in the current year were likely to be down by between 5% and 10% compared with 2013.

Mr King added: "Budget pressure in some of of the group's larger markets are expected to prevail but BAE Systems has a broad-based portfolio.

"Our strong order backlog and robust balance sheet provide a solid base for growth over the medium term."

BAE has based its planning assumptions on a progressive reduction in its US defence and security businesses of around 15% for 2013 and 2014.

It said: "The recent budget developments return some clarity to near-term US government spending, although pressures to reduce spending and address the US deficit are expected to continue."

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