BAE Systems on track for earnings hike as global conflicts boost orders

Defence giant BAE Systems has said it remains on track for a surge in annual earnings as countries increase military spending amid the conflict in Gaza and Russia’s war in Ukraine.

The group – which builds ships, submarines and fighter jets – said it has booked around £10 billion of orders since the end of June, taking its total for the year so far to more than £30 billion.

The company also has a site in Brough, East Yorkshire.

It upped its earnings guidance in August after orders soared following Russia’s invasion of Ukraine last year, forecasting that underlying earnings would grow by 6 per cent to 8 per cent, earnings per share would jump by 10 per cent to 12 per cent in 2023 and that sales would rise by between 5 per cent and 7 per cent.

BAE Systems employees work on the tail section of 81mm High Explosive Mortar munitions at the BAE Systems factory in Washington, near Newcastle upon Tyne in north-east England on November 8, 2023.  (Photo by Oli SCARFF / AFP) (Photo by OLI SCARFF/AFP via Getty Images)BAE Systems employees work on the tail section of 81mm High Explosive Mortar munitions at the BAE Systems factory in Washington, near Newcastle upon Tyne in north-east England on November 8, 2023.  (Photo by Oli SCARFF / AFP) (Photo by OLI SCARFF/AFP via Getty Images)
BAE Systems employees work on the tail section of 81mm High Explosive Mortar munitions at the BAE Systems factory in Washington, near Newcastle upon Tyne in north-east England on November 8, 2023. (Photo by Oli SCARFF / AFP) (Photo by OLI SCARFF/AFP via Getty Images)
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Since then, war has erupted following Hamas’s unprecedented October 7 surprise attack into Israel from the Gaza Strip.

Israel has responded with air strikes on Gaza and the conflict has threatened stability across the Middle East.

BAE said: “The high order flow reflects continued customer confidence in our ability to deliver important capabilities at a time of heightening geopolitical risk.”

It added that it has good visibility over future sales, because these are typically long-cycle orders, with payments spread over several years.

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Key contracts secured in the second half of the year so far include £3.9 billion of funding for the next phase of the Aukus submarine programme between Australia, Britain and the United States.

BAE said: “This phase includes the detailed design of the submarine and long-lead procurement for the build phase over the coming decades.

“The award also paves the way for significant infrastructure expansion at our Barrow site together with investment in critical skills and the supply chain to support the wider submarine enterprise.”

Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said: “With some of its biggest buyers, the UK, US and Europe, all expected to continue raising defence budgets over the coming years, the sky really is the limit for this jet-maker.”

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He said the long-cycle nature of BAE’s orders have “given management the confidence to reiterate all recently upgraded full-year guidance, which is something of a novelty for most businesses in the current uncertain environment”.

The update comes after BAE Systems recently signed a 5.6 billion US dollar (£4.6 billion) deal to buy Ball Corporation – a company which supplies parts to the James Webb telescope and the US’s fighter jets.

Mr Chiekrie said: “The acquisition should add around 2.2 billion US dollars (£1.8 billion) in revenue to BAE’s top line, before growing at a compound rate of around 10% annually over the next five years.

“And given the similarities between the two businesses, there’s clear scope to streamline operations, cut costs and boost profit margins.”

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The news comes after hundreds of trade unionists under the banner “Workers for a Free Palestine” blockaded BAE Systems’ factory in Kent last week.

An organiser said that more than 400 trade unionists are involved in the action at the site, which they claim provides components for military aircraft being used in the bombardment of Gaza.

BAE Systems said it is “horrified by the situation in Israel and Gaza”, adding: “We operate under the tightest regulation and comply fully with all applicable defence export controls, which are subject to ongoing assessment.”