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BAE Systems shares plummet on lower earnings BAE Systems shares plummet on lower earnings
(about 1 hour later)
Shares in BAE fell more than 10 per cent in early trading after the defence giant announced a fall in profits warning of further military spending cuts in the United States. Investors in BAE Systems ran for cover today after the defence giant took an £865 million hit in the US, where an axe has been taken to the Pentagon’s bloated budget.
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. The shares slumped more than 9 per cent as the Eurofighter Typhoon maker revealed profits fell 81.6 per cent to £176 million in 2013 and warned earnings per share this year will drop by between 5 per cent and 10 per cent.
Pre-tax profits for last year fell to £422 million from £1.2 billion a year earlier, a decline of 65 per cent. Sales were 2 per cent higher at £18.2 billion. Some of the £865 million writedowns, which made up a total impairment charge of £887 million, are related to acquisitions BAE made in the US several years ago, but the group conceded pressures to cut spending and reduce the deficit on the other side of the pond are set to continue.
The guidance for this year sent BAE shares down by more than 10 per cent and offset yesterday's announcement about a pricing agreement with Saudi Arabia over the sale of 72 Eurofighter Typhoon jets. BAE’s poor results are a significant blow for UK manufacturing, illustrated by its huge revenue of nearly £18.2 billion last year, which was up slightly from £17.9 billion in 2012.
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. In response, the shares dived 40p, or 9.2 per cent, to 396.8p. Chief executive Ian King said the defence cuts in the US were “impacting the whole industry”.
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. However, he insisted that the group had “delivered a solid performance in 2013, against the background of reduced government spending and challenging market conditions”.
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." In one piece of good news for investors, finance director Peter Lynas said BAE would be accelerating its share buyback programme; in the first of a three-year plan, around £270 million of shares have been repurchased. 
He added that a focus on costs and competitiveness protected margins across the majority of the business. “We’ll be upping the pace,” said Lynas, who added that the writedowns had no impact on dividend payouts and were a “technical accounting issue”.
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. King said yesterday’s welcome announcement that tortuous negotiations over the price of the sale of 72 Eurofighter jets to Saudi Arabia have been agreed puts BAE in a strong position to win more work with the kingdom. He described its need for more kit as “very real and immediate”.
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.
Additional reporting agencies