United Kingdom: A boost in military spending spurred by Russia’s war on Ukraine and the Israel-Gaza conflict helped British arms maker BAE Systems record profits, and further increases are expected in the future.
The FTSE 100 company made underlying profits before interest and tax of £2.7 billion in 2023 on record sales of £25.3 billion. Russia’s full-scale invasion of Ukraine in February 2022 showed an impact in the shares of arms manufacturers have risen over the past two years. Also, it prompted governments to revise their plans for military spending.
Tensions have escalated across the Middle East since October 7, when Hamas, which controls Gaza, attacked Israel, killing 1,139 people. Israel responded by bombing Gaza for months, killing 30,000 Palestinians.
The BAE system’s extensive interests include manufacturing nuclear submarines, fighter aircraft, tanks, ships, guns and ammunition. The Chief Executive of BAE Systems, Charles Woodburn stated that the weapons manufacturer was expecting “sustained growth in the coming years.”
“Instability in Europe, the Middle East and other parts of the world brings into sharp focus the vital role that we play in protecting national security. While most of our order volume was driven by existing programme positions that predate the Ukraine conflict, orders to restock and upgrade heavy armour and munitions are starting to come through,” he said.
An enquiry research analyst at Quilter Cheviot, Jarek Pominkiewicz, reported that, “BAE would benefit from a growing recognition of the need to bolster defence spending, particularly in eastern European and Baltic countries close to Russia’s borders.”
The company’s share price declined by more than 3 percent, due to lower margins than expected, but remains tight to record levels, esteeming the company at around £38 billion. Since February 2022, its stakes have more than doubled in value.
The BAE Systems was created in 1999 when Marconi Electronic Systems merged with British Aerospace. Previously, British Aerospace has merged with defence companies including British Aircraft Corporation and Hawker Siddeley.
According to the statement, the company anticipates a 10 percent to 12 percent increase in sales in 2024. Additionally, the OCS agreement between Australia, the UK, and the US to build a new generation of nuclear submarines, as well as a global combat air program involving Italy, Japan, and the UK, to design a new fighter jet, have contributed to the company’s longstanding order book.
BAE remarked that the war in Ukraine had particularly highlighted the importance of autonomous technology, while “reinforcing the critical need for munitions and maintaining legacy capabilities.”
Woodburn expressed his satisfaction with the company’s listing in London, stating that the company was “very happy with our London listing.” Some of the largest companies listed on London’s stock market have relocated to the United States due to concerns that UK companies are undervalued. However, BAE Systems is unlikely to follow suit due to the UK government’s deep influence, including a “golden share,” which prevents the company from falling into foreign ownership.
He further added that, “If you go back a few years, I think we were trading at a discount to some of our US peers, but I think through the strong performance of the business over recent years, I think we’ve, in many ways, closed much of that gap.”
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