BAE Systems will hit £3 billion of profits this year as wars in Ukraine, the Middle East and elsewhere swell the coffers of Britain’s leading arms company.
The defence company that builds the nation’s nuclear submarine fleet and squadrons of fighter jets, as well as producing missiles, shells and bullets for the UK and its allies, reported a better than expected 9 per cent increase in sales of £25.2 billion and profits before tax and interest of £2.68 billion respectively.
Following the £4.4 billion takeover of Ball Aerospace of the US, the largest acquisition in the history of BAE Systems, the company is now guiding analysts to sales this year of about £28 billion and annual profits of £3 billion for the first time — year-on-year increases of about 11 per cent and 12 per cent respectively.
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The hope that those upgrades would be landed, plus £75 billion of new orders in the past two years, and a record backlog of work now standing at nearly £70 billion, sent BAE’s share price to a record high of £12.54, valuing the group at nearly £38 billion.
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BAE’s shares have doubled in the past two years, coinciding with the Russian invasion of Ukraine in 2022. Before the pandemic BAE had been trading between £5 and £6 a share.
Despite the dividend being increased by 11 per cent to 30p a share and the prospect of the same again for 2024, BAE shares slipped in late trading on Wednesday, closing down 0.9 per cent, or 11½p, to £12.41½.
Analysts pointed to margins constrained a little more than expected and a conservative estimate of £1.3 billion of free cashflow in 2024.
Charles Woodburn, BAE’s chief executive, said 2023 had not been so much about the inflow of money, which brought in much higher than expected cashflows of £2.6 billion in the year.
Instead he cited three major strategic milestones achieved: confirmation of the build of the next generation of submarines after the Astute and Dreadnought class currently in production; the tripartite agreement with Japan and Italy to build the Tempest fighter jet of the future; and the acquisition of Ball, which takes BAE into a new frontier of space — and whose employees expand BAE’s payroll to more than 100,000 staff around the world.
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“These three pillars set us up very well for multi-decades of opportunities,” said Woodburn.
With cash of more than £4 billion sitting on its balance sheet and net debt halved to just £1 billion even after £560 million of share buybacks over the past year, Woodburn also talked of a “long-hopper” of takeover opportunities, most likely to be bolt-on buys such as the recent acquisition of the Berkshire drone manufacturer Malloy Aeronautics.
The group’s coffers were recently swelled by a £180 million windfall from the float of the Kazakhstan flag carrier Air Astana. BAE had held a two-decade legacy investment in the passenger airline resulting indirectly from a botched arms deal in the region. In the recent listing, BAE sold down its stake from 49 per cent to 16 per cent.
The company said operational highlights in the year included a demand by the UK government for a eightfold ramp-up in 155mm shells from BAE after a clearout of stocks supporting Ukraine; orders from the Czech Republic for 146 CV90 infantry fighting vehicles in its BAE Hagglunds Swedish joint venture; and the delivery of ten Eurofighter Typhoons for the Qatar Emiri air force, with 18 now in service.
