BAE takes £500m hit from reduced MoD spend

16 February 2012

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16 February 2012 | Adam Leach

Defence company BAE Systems reported a reduction of £500 million in sales as a result of the spending cuts outlined in the UK government’s Strategic Defence and Security Review (SDSR).

It reported 14 per cent drop in overall sales and a drop in EBITA (earnings before the deduction of interest, tax and amortisation expenses) to £2.03 billion compared with £2.2 billion in 2010, citing a reduction in defence spending in both the UK and US as major contributing factors. The UK arm of the group relies heavily on Ministry of Defence (MoD) contracts. In 2010, the SDSR outlined a number of changes to spending that have had a direct impact on the company’s sales.

The annual results, published today, said: “The post-SDSR programme changes have reduced the group’s annual sales by some £500 million. Actions were taken to mitigate the impact of these changes, including workforce reductions, facility rationalisation and contract settlement agreements.”

The report revealed that the company will be looking to make further efficiency savings this year. “The group continues to work with its UK customers to help to identify further efficiency savings,” it said.

While the spending changes at the MoD hit sales at the company, it did receive compensation from the department. As a result of cancelling contracts to build the Nimrod MRA4 and Harrier planes, the MoD paid the BAE £125 million.

Earlier this month a report by the MoD explained that it will look to use its procurement process to support the UK defence industry. The report said that in the past the department had been too specific when it outlining what it required and suggested that in future it would ask suppliers who submit bids to consider British industry and suggest a less technical export version of the same product or service.

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