Feb. 20 - Europe's biggest defence contractor BAE Systems expects earnings this year to drop by up to 10 percent as a result of U.S. spending cuts. As Hayley Platt reports shares in the British group fell 11% to a 30-week low as a result.
It's a difficult time for many defence contractors - particularly those in Europe. And BAE Systems - the region's largest - says continuing cuts to U.S. government spending will hurt future profits. That sent shares plummeting 11 percent. The group managed a modest 3 percent rise for 2013. But said it expects sales in its North American business to shrink by up to a quarter over the next two years. IG's Brenda Kelly says the trend is affecting the entire industry. SOUNDBITE: Brenda Kelly, IG, saying (English): "We've already seen the likes of Rolls Royce actually pull back and this was due to the fact that there was little need for some of the government contracts that they had in situ. So I think for the time being unless we see new contracts come onboard from BAE Systems I would expect to see a little bit more of a downward pressure on the share price in the coming quarter." Even news BAE had finally agreed a price for the 72 Eurofighter jets it's selling to Saudi Arabia, failed to have much impact. The deal - first struck in 2007 - was originally worth 4.5 billion pounds. But Saudi Arabia wanted more weaponry and the contract had to be renegotiated. The new price hasn't been announced but it clearly won't be enough to keep all BAE's operations busy. SOUNDBITE: Brenda Kelly, IG, saying (English): "They're probably looking towards the Middle East in order to replace that which was lost in the U.S. I'm not so sure that the Middle East can make up for any contracts that will be lost in the U.S. however." BAE accepts that market conditions are challenging. Although it says the two-year budget deal passed by U.S. Congress last year has eased some of the pressure going forward.