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BAE Profit Falls on Lower Vehicle Sales

BAE Systems Plc (BA/), Europe’s largest defense company, fell the most in more than two years in London trading after predicting sales will hardly grow this year as governments around the world cut defense budgets.

BAE dropped as much as 20 pence, or 6 percent, to 313 pence, the biggest intra-day decline since Oct. 1, 2009. The stock of the London-based company was down 3.9 percent as of 8:59 a.m., valuing BAE at 10.36 billion pounds ($16.24 billion).

The U.K. weapons manufacturer said its home market will fail to grow in 2012, and that U.S. defense budget cuts will create “uncertainty” in coming years. BAE is cutting 3,000 jobs because of falling production of fighter jets, and is reviewing its naval operations in the U.K. Chief Executive Officer Ian King said the company will continue to seek cost cuts in 2012.

Earnings before interest, taxes and amortization, excluding one-time items, fell to 2.03 billion pounds, in line with the 2.02 billion-pound average analyst estimate by Bloomberg.

BAE’s business of selling and maintaining combat vehicles has slowed as the U.S. reduces its presence in Iraq and Afghanistan. Sales at the unit fell 30 percent to 3.1 billion pounds last year, which should be the baseline for the business, said King. Overall, revenue in 2011 dropped 14 percent to 19.15 billion pounds.

The Pentagon proposed a $525 billion budget for fiscal 2013, $45 billion less than projected a year ago. Prime Minister David Cameron’s government announced an 8 percent cut in defense spending over four years in 2010.

The company is relying on its services business, which accounted for 49 percent of sales in 2011, while also pursuing contracts in countries including Oman and Saudi Arabia. BAE expects to wrap up negotiations with Saudi Arabia over the price for remaining Typhoon jets in 2012, and an accord may include additional Hawk orders, according to King.

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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