War in Ukraine fuels higher profits at BAE Systems

The boss of Britain’s biggest defence firm said the war in Ukraine was accelerating demand for its kit – but acknowledged that it was navigating its way through supply chain challenges. 

BAE Systems chief executive Charles Woodburn made the comments as the company reported better than expected half-year profits of £1.1billion, up 8 per cent on a year ago. 

It also confirmed the appointment of Cressida Hogg as its first female chairman, meaning Britain’s three publicly listed defence companies – BAE, Rolls-Royce and Babcock – will all be led by women. 

BAE shares have risen by more than 30 per cent since Russia invaded Ukraine in February as countries ramp up their defence budgets – boosting the sales outlook for the maker of fighter jets, combat ships and submarines. 

BAE revealed in its latest results that its order backlog had risen to £52.7billion. But the company also acknowledged struggles with hiring and supply chains, especially with ‘highly constrained’ microelectronic components such as chips. 

BAE is sticking to guidance that profits will rise by between 4 per cent and 6 per cent this year and Woodburn told the Daily Mail the conflict in Ukraine ‘has a longer term impact in terms of driving defence spending and moving defence and security up government priorities’. 

‘It’s less a this-year effect and more a next year, the year after, the year after that type of thing,’ Woodburn said. 

Kit now going into Ukraine is coming out of the existing stock of the countries backing it. 

BAE benefits as those countries giving their equipment to Ukraine have to replace it. The US, Germany and Australia are also responding to increased threats by hiking their overall budgets. 

Boris Johnson has pledged an increase in the defence budget to 2.5 per cent of GDP while Tory leadership frontrunner Liz Truss wants to raise it to 3 per cent.

Woodburn said: ‘Clearly as the UK’s largest defence company, an increase in UK defence spending ultimately will be beneficial to us but we’ll just have to wait and see how the race plays out.’ 

About a quarter of BAE’s revenues come from the UK and nearly half from the US and the rest from other markets including Australia and Saudi Arabia. 

Woodburn said the company was managing supply chain problems better than others in the sector ‘but it’s not without challenges’. 

He said: ‘There are certain parts of the business where we are, on a daily basis, knife and forking our way through it. But we are coping with those challenges significantly better than most.’ 

As the sector seeks to scale up output, the ability to recruit, train and retain employees was also ‘something we’re all struggling with’, he added – even for BAE’s well-paid career programmes. 

Asked whether the role of the industry’s profile had received a boost as the West seeks to help bolster Ukraine’s defences, Woodburn said: ‘I think the current conflict has just brought into sharper focus the importance of defence and security on the current world stage.’