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Defence cuts hit profits at BAE Systems

PROFITS slid at global defence giant BAE Systems last year as the company behind the Clyde naval shipbuilding operation warned its outlook continued to be constrained by deficit cutting measures in the UK and US.

BIG ORDER: BAE Systems' Glasgow yards are busy building major blocks for the Queen Elizabeth Class of aircraft carriers. Picture: Nick Ponty
BIG ORDER: BAE Systems' Glasgow yards are busy building major blocks for the Queen Elizabeth Class of aircraft carriers. Picture: Nick Ponty

The company, which employs about 3000 staff at its two Clydeside yards, said it expected UK defence budgets to remain flat as it announced underlying earnings before interest, taxation and amortisation of £1.9 billion, compared with £2.02bn in 2011.

However, shares in BAE Systems rose 13.7p or 4% to 345.9p. Pre-tax profits fell to £1.4bn from £1.5bn and sales dropped by 7% to £17.8bn from £19.2bn in a year that saw BAE fail to seal a merger with European defence firm and Airbus owner EADS. This was despite extensive talks last year with key stakeholders including the UK, US and Saudi Arabian governments.

BAE's Glasgow yards are currently busy building major blocks for two ships in the Queen Elizabeth Class Carrier programme, billed as the largest ships to ever be built in the UK.

Its next major naval project looks set to be the Type 26 programme, a new class of destroyers to replace the Type 23 frigates.

BAE's proposals for the design, manufacture and cost of the 13-strong fleet are currently being assessed by the MoD as part of a four-year procurement process.

Trade union Unite called for clarity from the Scottish and UK Governments on the future of MoD contracts. A spokesman said: "We're going into some very fluid political times and the one thing everyone is looking for is clarity on job security.

"These are highly skilled jobs and for Unite these have to be sustained. That's the clarion call we're sending out to all politicians. What are you going to do to defend these jobs? The MoD contracts are vital to that just now."

Despite the constrained outlook, BAE, whose activities cover aerospace, defence, security and military services, said planning had become more predictable in the UK because of the stability that has followed the Government's Strategic Defence and Security Review in 2010. It reported that the group's UK maritime business was currently "experiencing a high level of activity".

Last year sea trials were completed on the last of six Type 45 destroyers built on the Clyde, and work continued on the carrier programme.

BAE acknowledged the Type 26 contract would "utilise a lower level of UK ship build capacity" in light of the levels devoted to the carrier programme.

A spokeswoman declined to say whether there would be any direct impact on Scottish jobs, but said the yards were currently "full to bursting point" because of work on the carriers.

BAE said: "Discussions continue with the UK government to determine how best to sustain the capability to deliver complex warships in the UK in the future."

Elsewhere in the company's UK operations, BAE's military air division continued to deliver European Tranche 2 Typhoon jets last year, with the firm stating that there was potential for production to extend into the next decade. Outside the UK and US, where BAE said business has been affected by the scaling back of operations in Iraq and Afghanistan, the firm recorded an order intake of £11.2bn.

Chief executive Ian King added that "this has resulted in an 8% increase in our order backlog to over £42bn".

However, overall headcount was cut by 3600 as the company reduced costs.

Mr King added: "We have closed the year with a strong balance sheet and are well positioned for the future."

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