Arms firm BAE says profit fell by 45%

BAE Systems Plc, Europe's biggest weapons maker, said full-year profit fell 45 percent after a year-earlier gain from the sale of a stake in Airbus SAS.

Net income dropped to 901 million pounds, or 26.4 pence a share, from 1.64 billion pounds, or 49.2 pence, London-based BAE said yesterday. Revenue rose 14 percent to 15.7 billion pounds. Analysts had estimated a profit of 982 million pounds.

BAE boosted sales with purchases including Armor Holdings Inc, the largest maker of protection for Humvee vehicles.

The company won an order valued at 4.43 billion pounds to supply 72 Eurofighter warplanes to Saudi Arabia and contracts from the Pentagon worth least $844 million to rebuild Bradley Fighting Vehicles returning from Iraq. Earnings before interest, taxation and amortization rose 22 percent to 1.48 billion pounds, more than the 1.45 billion pounds predicted by analysts.

"We have delivered another strong set of results in 2007, underpinned by the successful application of our global strategy," Chief Executive Mike Turner said in the statement.

"Our large order book and consistently good program execution gives us unprecedented future visibility." The company said it anticipates "good growth" this year.

Airbus impact

Year-earlier net income was boosted by a 925 million- pound gain from the sale of a 20 percent Airbus stake.

BAE, which also makes ships and artillery, has declined 5.2 percent this year, valuing it at 16.6 billion pounds.

Lockheed Martin Corp, the world's biggest defense company, has added 1.4 percent and Airbus parent European Aeronautic, Defence & Space Co. EADS has dropped 18 percent.

BAE agreed in May to buy Jacksonville, Florida-based Armor for $4.14 billion to win US contracts for armored Humvees used in Iraq and Afghanistan. It paid $4.13 billion in 2005 for United Defense Industries Inc, manufacturer of the Bradley.

US defense spending will rise 7.5 percent to $515 billion in fiscal 2009, the 11th consecutive increase, based on the funding request President George W. Bush sent to congress on Feb 4.

More than 50 percent of BAE's earnings before interest and tax will come from the United States this year, more than twice the proportion likely to be derived from the United Kingdom, Morgan Stanley analyst Scott Babka estimated.

The UK plans to raise its military budget by 1.5 percent more than the annual rate of inflation to 36.9 billion pounds through 2011, according to the Ministry of Defence website.

Britain's Defence Board, which met on Wednesday, may scale back purchases to help cut 2.7 billion pounds from spending.

Programs that may be scrutinized include BAE's Astute-class attack submarines and the F-35 Lightning II, or Joint Strike Fighter, on which BAE is a partner.

Tenix purchase

BAE also agreed to buy the military-technology business of Tenix Group last month for as much as A$775 million ($710 million). The purchase, which adds aerospace, defense-electronics, military-vehicle and marine sales, will double the UK company's revenue in Australia, where it estimates military spending will increase by about 3 percent a year until 2015.

BAE's expansion has been led by CEO Turner, who said in October he'll step down in August, after turning 60. Turner said his departure had no connection with a probe into defense contracts with Saudi Arabia.

A UK Serious Fraud Office investigation of alleged corrupt payments linked with orders placed by the oil-rich country was called off in December 2006 after Prime Minister Tony Blair said the probe might damage relations. The US Department of Justice is still examining the contracts.

BAE in December signed a separate contract to supply Eurofighter Typhoons to Saudi Arabia.

The UK company sold its holding in Toulouse, France- based Airbus to majority owner EADS in October 2006. BAE had held a stake in the world's largest maker of commercial aircraft for 27 years.

Agencies

(China Daily 02/22/2008 page16)