BAE Systems: UK arms maker enjoys record year for new orders as West’s defence spending rises amid Ukraine war
BAE Systems, the UK’s biggest engineering company, has enjoyed a record year for new orders as western governments stepped up defence spending in response to Russia’s attack on Ukraine..
Britain’s premier defence contractor saw a record order intake of £37.1bn – taking its order backlog to £58.9bn.
BAE, whose current work includes building type 26 frigates for the Royal Navy, making electronic warfare systems for the F-35 jet fighter and making the Beowulf unarmoured all-terrain vehicle for the US Army, said it was expecting order growth this year to be better still.
Underlying operating profits for 2022 came in at £2.5bn – up 12.5% on 2021 – as top line sales grew by 4.4% to £23.3bn.
BAE, one of the biggest suppliers to the US Pentagon, also enjoyed a tailwind from the strength of the US dollar against the pound.
The results allowed the company to raise its dividend to shareholders for the 19th consecutive year.
But it was that big increase in the size of the order book that really caught the eye.
The biggest portion of the new orders came in air, driven by new orders from Saudi Arabia and for MBDA, the European missiles systems business in which BAE is a partner.
Pic: BAE Systems
Maritime, driven by orders for the type 26 frigate and the UK’s dreadnought submarine programme, also contributed a big chunk of new business.
However, the other three key product and service areas – electronic systems, platforms and services and cyber and intelligence – all enjoyed growth in new orders as well.
The latter, while still the smallest part of BAE in terms of sales and profits, is among its most profitable businesses in terms of returns.
‘Tremendous potential ahead’
Charles Woodburn, the chief executive, said: “This is just the start. I still see tremendous potential ahead. We are investing in the business to support the future. We have leading technology solutions for our customers.”
He said BAE’s diverse geographic footprint, its deep customer relationships in the US, Europe and the Middle East and the multi-year nature of many contracts would create numerous opportunities in the future.
Mr Woodburn said it was not widely enough appreciated that BAE’s ability to export from the US, UK, Australia and Sweden meant it was “uniquely well equipped” to compete in multiple markets.
Re-equipping ammo stocks amid Ukraine war
He highlighted the urgent need to re-equip armed forces with ammunition – much of which has been diverted to Ukraine by its western allies – as one area where BAE’s strengths would stand it in good stead.
Read more: War in Ukraine helps boost earnings outlook at BAE Systems
BAE, which has two major Swedish subsidiaries in Hagglunds and Bofors, is also seen as a potential beneficiary if Sweden and Finland’s applications to join NATO are approved and the two countries raise defence spending accordingly.
Interestingly, while some of the sales growth is coming from BAE passing on inflation to customers, the vast majority comes from actually growing sales.
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Nov 2022: MD of BAE Systems’ naval ships business, speaks on Ian King Live
Only around a third of contracts are linked to the rate of inflation – a headwind that Mr Woodburn said BAE was increasingly comfortable with managing.
Cognisant of past criticisms of BAE for being too heavily dependent on Saudi defence orders, Mr Woodburn also stressed that no one programme represents more than 10% of group revenues.
UK-Australia security pact
Disappointingly, though, there was little news around the potential benefits for BAE from AUKUS, the new security pact between Australia, the UK and the US, which was announced 18 months ago.
Mr Woodburn said there was little he could say publicly but pointed to some work already being done around submarines – Australia’s decision to switch from French-made to British-made submarines created fury in Paris – cyber security and quantum computing.
The governments of the three countries are due to provide an update next month on the agreement and Mr Woodburn said he had no reason to think that would not be delivered.
There was, though, an update on the work BAE is doing as the lead contractor in the future combat air system programme, aimed at building Tempest, the sixth-generation jet fighter.
The project recently won a boost as Japan joined the Anglo-Italian programme. The company said work was progressing well and reiterated – as was announced before Christmas – that there are plans for the UK to lead the development of a new flying combat air demonstrator set to fly within the next five years.
The overall picture is one of a business that is diversified both in terms of its geographic footprint, customer base and its products and services.
Crucially, a major criticism often levelled at BAE in the past – that it fails to generate enough cash from its activities – also appears to be being addressed.
Shares of BAE, which with an increase of 48% have been the best performer in the FTSE 100 over the last 12 months, fell by just over 1% having hit an all-time high on Wednesday evening.
Rolls-Royce takes City by surprise
Elsewhere, another of the UK’s big prestige engineering companies, Rolls-Royce, was taking the City by surprise with appreciably better results than expected.
The aircraft engine maker reported an underlying operating profit for 2022 of £652m – up 57% on 2021 – thanks to a better performance in its civil aerospace and power systems operations.
The shares were ahead by as much as 20% at one stage as investors digested not only this news but guidance that the company is expecting operating profits of £800m-£1bn for 2023.
Tufan Erginbilgic, the new chief executive, said Rolls had benefitted from a 35% increase in flying hours for its engines and highlighted new large engine orders received from Malaysia Aviation Group, Norse Atlantic Airways and Qantas.
He said Rolls was assuming large engine flying hours this year would come in at 80-90% of the 2019 level.
Underperforming for extended period
However, in his assessment or the company’s prospects, Mr Erginbilgic – a former BP executive who succeeded the long-running Warren East at the start of the year – pulled no punches.
He said Rolls had been underperforming for an extended period.
He added: “This is not just a COVID issue. Cash generation is unsatisfactory and our debt is too high.”
Mr Erginbilgic said too much of the company’s resources were simply covering its costs and interest payments and stifling its ability to invest.
He said it had a relatively high fixed cost base and lower profit margins than its rivals: “In the last five years, even excluding the COVID year of 2020, we have averaged a return on capital employed of just 3.5%.”
Arguing that Rolls had in the past lacked strategic clarity and tried to keep too many options open, he added: “I believe we have the potential to be a much higher quality and much more competitive company.
“We must only invest in new technologies where we are differentiated, where the market opportunity is sufficiently large and where there are synergies with our existing operations.”
‘Monumental uncertainties’
It will be tempting to suggest that, with massive demand still pent-up for flying, a strong 2023 for Rolls is all but guaranteed.
But Mr Erginbilgic warned there were “monumental uncertainties and challenges” in the guidance he was offering for the year, including inflation, potential supply chain disruption, interest rate rises and possible recessions around the world.
Investors also have other questions.
One is that, with civil aerospace set to continue growing in 2023, how easily they will be able to discern how well Rolls has done due to its own self-help measures – as opposed to just a general improvement in market conditions.
Looming redundancies but good potential to generate cash
Another is that with big a round of redundancies looming, Rolls may lose some people it would rather hang onto, due to the tight labour market.
Mr Erginbilgic said: “When we engage with our people, they are very excited about the future. Who doesn’t want to work for a successful company? And who wants to work for an underperforming company? Everybody has a role and we need to mobilise the whole workforce.
“Starting with clarity, why we need to change, and a very clear strategy, everybody knows their role.”
Rolls also still has net debt of £3.3bn and there is a degree of scepticism among investors that the company will be able to get that down by self-help measures and increased cash generation rather than by a sale of new shares.
This business, if it is managed the right way, has good potential to generate cash.
“We are already into our performance improvement agenda. We are looking to drive performance improvement as we speak. There is a huge sense of urgency there. Strategic clarity will follow that and then we will combine the two. Both of them will come together.”
After the near-death experience that the company went through during the pandemic, that will be music to the ears not only of investors but also the government, which is looking to Rolls to play a key role in the energy transition with the delivery of small modular nuclear reactors.
The daughter of a Post Office victim has told Sky News she suffered “dark thoughts of suicide” in the years after her mother was accused of stealing.
Kate Burrows was 14 years old when her mother, Elaine Hood, was prosecuted and subsequently convicted in 2003.
The first public inquiry report on the Post Office – examining redress and the “human impact” of the scandal – is due to be published today.
“I’ve suffered with panic attacks from about 14, 15 years old, and I still have them to this day,” Kate said.
“I’ve been in and out of therapy for what feels like most of my adult life and it absolutely categorically goes back to [what happened].”
Kate and Rebecca with their mother, Elaine
Kate, along with others, helped set up the charity Lost Chances, supporting the children of Post Office victims. She hopes the inquiry will recognise their suffering.
“It’s important that our voices are heard,” she said. “Not only within the report, but in law actually.
“And then maybe that would be a deterrent for any future cover-ups, that it’s not just the one person it’s the whole family [affected].”
Her sister, Rebecca Richards, who was 18 when their mother was accused, described how an eating disorder “escalated” after what happened.
“When my mum was going through everything, my only control of that situation was what food I put in my body,” she said.
Elaine with her husband
She also said that seeing her mother at court when she was convicted, would “stay with me forever”.
“The two investigators were sat in front of my dad and I, sniggering and saying ‘we’ve got this one’.
“To watch my mum in the docks handcuffed to a guard… not knowing if she was going to be coming home… that is the most standout memory for me.”
The sisters are hoping the inquiry findings will push Fujitsu into fulfilling a promise they made nearly a year ago – to try and help the children of victims.
The siblings were teenagers when their mum was unfairly prosecuted
Last summer, Kate met with the European boss of the company, Paul Patterson, who said he would look at ways they could support Lost Chances.
Despite appearing at the inquiry in November last year and saying he would not “stay silent” on the issue, Kate said there has been little movement in terms of support.
“It’s very much a line of ‘we’re going to wait until the end of the inquiry report to decide’,” she said.
“But Mr Patterson met us in person, looked us in the eye, and we shared the most deeply personal stories and he said we will do something… they need to make a difference.”
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2024: Paula Vennells breaks down in tears
Fujitsu, who developed the faulty Horizon software, has said it is in discussions with the government regarding a contribution to compensation.
The inquiry will delve in detail into redress schemes, of which four exist, three controlled by the government and one by the Post Office.
Victims of the scandal say they are hoping Sir Wyn Williams, chair of the inquiry, will recommend that the government and the Post Office are removed from the redress schemes as thousands still wait for full and fair redress.
A Department for Business and Trade spokesperson said they were “grateful” for the inquiry’s work, describing “the immeasurable suffering” victims endured and saying the government has “quadrupled the total amount paid to affected postmasters”, with more than £1bn having now been paid to thousands of claimants.
Anyone feeling emotionally distressed or suicidal can call Samaritans for help on 116 123 or email jo@samaritans.org in the UK. In the US, call the Samaritans branch in your area or 1 (800) 273-TALK
Donald Trump has warned that all goods from Japan and South Korea will face tariffs of 25% from 1 August.
The announcement, via his Truth Social platform, marks the restart of the threatened “liberation day” escalation that was paused in April, for 90 days, to allow for negotiations to take place with all US trading partners.
The president showed off copies of letters to the leaders of both Japan and South Korea informing them of the tariff rates. Those duties will come on top of sector-specific tariffs – such as 50% rates covering steel – already in force.
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He warned the rates could be adjusted “upward or downward, depending on our relationship with your country”.
Country-specific tariffs had been due to take effect from Wednesday this week but Mr Trump had earlier revealed that nations would start to get letters instead, setting out the US position.
Duties would take effect from 1 August, without any subsequent deal being agreed, it was announced.
The letters sent to Japan and South Korea cited persistent trade imbalances for the rates and included the sentence: “We invite you to participate in the extraordinary Economy of the United States, the Number One Market in the World, by far.”
He ended both letters by saying, “Thank you for your attention to this matter!”
The European Union – the biggest single US trading partner – is among those set to get a letter in the coming days.
Mr Trump has also threatened an additional 10% tariff on any country aligning itself with the “anti-American policies” of BRICS nations – those are Brazil, Russia, India, China and South Africa and whose members also include Egypt, Ethiopia, Indonesia, Iran and the United Arab Emirates.
The UK, bar a massive shock U-turn, should be exempt.
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What does the UK-US trade deal involve?
The country was the first to be granted a trade deal, of sorts, in May and the Trump administration has claimed many others had been offering concessions since the clock ticked down to 9 July.
The UK is not expected to face any changes to its current 10% rate due to the trade truce, which came into effect last week.
While UK-made cars aerospace products face no duties under a new quota arrangement, it still remains to be seen whether 25% tariffs on UK-produced steel and aluminium will be cancelled.
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Can the UK avoid steel tariffs?
They could, conceivably, even be raised to 50%, as is currently the case for America’s other trading partners, because no agreement on eliminating the rate was reached when the government struck its deal in May.
It all amounts to more uncertainty for the UK steel sector.
A No 10 spokesman said on Monday: “Our work with the US continues to get this deal implemented as soon as possible.
“That will remove the 25% tariff on UK steel and aluminium, making us the only country in the world to have tariffs removed on these products.
“The US agreed to remove tariffs on these products as part of our agreement on 8 May. It reiterated that again at the G7 last month. The discussions continue, and will continue to do so.”
China and Vietnam have also secured some US concessions.
The dollar strengthened but US stock markets lost ground in the wake of the letters to Japan and South Korea being made public, with the broad-based S&P 500 down by 1%.
Stock markets in both Japan and South Korea were closed for the day but US-traded shares of SK Telecom and LG Display were down 7.5% and 5.8% respectively.
Shares in Elon Musk’s Tesla have reversed sharply over renewed concerns about his focus on the company’s recovery as he plots against Donald Trump.
Shares in the electric car firm plunged by more than 7% at the start of trading on Wall Street – taking about $71bn (£52bn) off its market value.
The stock has often come under pressure since Musk started his association with the president, latterly helping bring down federal government costs through a new department known as DOGE (Department of Government Efficiency).
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But it is now suffering as their political relationship has soured.
Musk has publicly opposed the so-called “big, beautiful bill” – Mr Trump’s flagship tax cut and spending plans that received Congressional approval last week – since he left his DOGE role.
Musk wrote in a post on his X platform on 30 June: “It is obvious with the insane spending of this bill, which increases the debt ceiling by a record FIVE TRILLION DOLLARS that we live in a one-party country – the PORKY PIG PARTY!!”
Once the bill was passed, he created a poll on X, asking people if they would want him to launch the America Party.
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Musk v Trump: ‘The Big, Beautiful Breakup’
He wrote on 4 July: “Independence Day is the perfect time to ask if you want independence from the two-party (some would say uniparty) system!”
The vote ended with 65.4% in favour of creating the party.
The formation of the America Party was announced the following day.
“By a factor of 2 to 1, you want a new political party and you shall have it! When it comes to bankrupting our country with
waste & graft, we live in a one-party system, not a democracy.”
“Today, the America Party is formed to give you back your freedom,” Musk posted.
Trump responded on his Truth Social account: “I am saddened to watch Elon Musk go completely ‘off the rails,’ essentially becoming a TRAIN WRECK over the past five weeks.
“He even wants to start a Third Political Party, despite the fact that they have never succeeded in the United States –
The System seems not designed for them.”
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Trump threatens to ‘put DOGE’ on Musk
Trump has previously threatened to go after Tesla‘s government subsidies and contracts through the DOGE department to save “big” as their relationship deteriorated.
Such threats have also pressured the share price at Tesla.
It has suffered throughout Trump 2.0 and, in fact, has trended lower since last December – shortly after Mr Trump’s election win was confirmed.
Read more:
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The possibility of tariff hits to the business, followed by actual tariff disruption, along with a consumer and investor backlash against Musk’s previous DOGE role have contributed to a 35% decline on the December peak.
The very absence of Tesla’s CEO dragged on the shares.
Tesla sales suffered globally as the trade war ramped up due to the imposition of tariffs by a government he supported, until the public row between him and the president began in early June.
Musk had only just renewed his 100% focus on Tesla and his other business interests by that time.
Tesla sales were down during the presidential election campaign last year and continued to decline, on a quarterly basis, during the first half of 2025.
Neil Wilson, UK investor strategist at Saxo Markets, said of the company’s share price woes: “Investors are worried about two things – one is more Trump ire affecting subsidies and the other more importantly is a distracted Musk.
“Investors had cheered Musk stepping back from frontline politics but are now worried he’s going to sucked back in and take his eye off Tesla.”
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