Global defence spending boosts BAE Systems to £66 billion in orders

BAE Systems has booked a record £66 billion in orders to supply weapons and military services to countries re-arming themselves in response to the war in Ukraine.

The FTSE 100 defence giant upgraded its profit forecast as it beat City expectations and the board announced plans for a share buyback worth £1.5 billion, The Times reports.

The defence group, which builds Typhoon jets, nuclear submarines and supplies ammunition for the British military, told investors its earnings per share would now grow by 12 per cent this year, compared with previous guidance of up to 7 per cent. The company’s shares rose 5 per cent, or 46p, to 979p.

Charles Woodburn, BAE’s chief executive, said preparations for a new weapons base in Ukraine were “progressing” and that the company was having “good conversations” about opening an office in the country.

BAE’s revenues increased by 11 per cent to a better-than-expected £12 billion for the half-year ended 30 June. Operating profit rose 20 per cent to £1.2 billion and free cashflow jumped from £123 million to £1 billion.

Woodburn said the increase in orders from Ukraine itself was “quite a small” part of the overall uplift in demand for BAE’s weapons and equipment.

He said: “The general global threat environment is also affected by the war in Ukraine. You’ve got governments around the world looking at their prioritisation of defence vis-a-vis other government priorities. Defence is moving up. We are seeing defence programmes that were already in train being accelerated. The Asia-Pacific region is another theatre of rising threat.”

The UK government was criticised earlier this year by the Defence Select Committee for allowing stockpiles of munitions to dwindle. The Ministry of Defence has now signed a £280 million deal with BAE Systems for the supply of 155 million artillery shells and other ammunition.

However, Woodburn said that the sea-change in defence spending worldwide would require ambitious expansion of industrial capacity in the UK and Europe.

He said: “The inventory levels of some of the artillery shells for example are not at the level where you would like them to be given the circumstances of this conflict. “There is now a need to re-supply them, and of course all of that takes time, you can add shifts and sweat your assets to get more out of your existing footprint, but that only gets you so far.

“If you really want to add multiples of output, particularly on munitions, then you really need to increase the production capacity. All of that involves long lead times. We are in the process of doing that. The industrial capacity has shrunk since the end of the Cold War. Given the conflict now, it’s not where it needs to be. A lot of investment is now going into exactly that to put the capacity in place.”

Jamie Murray, research analyst at Shore Capital, said the results were a “vote of confidence for the group”. He said the company’s share price had fallen back since the Wagner mutiny in Russia and that this presented an opportunity to invest in the stock.