Page last updated at 14:35 GMT, Thursday, 18 February 2010

BAE profits hit by US truck deal loss

Typhoon fighter jet
BAE is Europe's largest defence company

UK defence firm BAE Systems has reported a sharp fall in profits after being hit by the loss of a contract for US army trucks.

BAE reported a pre-tax profit of £282m ($441m) for 2009, down 88% from the profit of £2.37bn a year earlier.

The figure was hit by a £973m write-down at its US firm Armor Holdings after the loss of the truck contract.

BAE recently agreed to pay £286m to US and UK governments following corruption investigations.

Spending pressure

BAE's loss of its deal to supply the US military with armoured trucks was a significant blow to its business in the US - a growth market for the company in recent years.

It became the US defence department's fifth-biggest supplier following its purchase of the truck maker Armor Holdings in 2007.

But a follow-up contract - potentially worth £2bn - was awarded to a US rival firm instead last year.

When one-off costs were stripped out, BAE's profits saw a rise of 17% to £2.2bn, with the company reporting strong sales and a healthy order book.

Defence budgets in both the UK and the US are expected to come under further pressure
BAE Systems statement

There was good news for shareholders too, with the company announcing a 10% rise in the dividend.

Investors reacted positively to the results, pushing BAE's share price up 3.7% in afternoon trade.

"These results show growth underpinned by a strong balance sheet and a record order book," commented BAE's chief executive Ian King.

However, BAE also expressed caution over the outlook for the global defence market in the coming year.

It said sales rose by 21% last year to £22.4bn, but warned that future revenues would be hit by likely falls in government defence spending.

"Defence budgets in both the UK and the US are expected to come under further pressure," BAE said.

"With expectations of a more challenging business environment ahead, the focus on driving performance and efficiency in the business will be key."

It added that cost-reduction measures were being "aggressively implemented".

Earlier this month the company announced 230 job cuts at its Barrow-in-Furness submarine site in the UK, bringing total job losses to more than 2,500 since the start of 2009.

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