BAE Systems

BAE Systems plc (BAE), Europe’s largest defense contractor and the world's seventh-largest is well positioned to take advantage of increased defense spending by its major customer countries. Early concerns about potential Brexit-related impacts have lessened.

Immediately followed the UK’s decision to leave the European Union, there was significant speculation about the potential fallout that might occur as established relationships between BAE and its European continent partners tried to work through the changing trade environment.

Based on BAE’s heavy customer concentration in the UK, US and Middle East and its relatively small (but significant) European trade, it appears that the company will not face serious consequences from Brexit.

More recently, the Russian invasion of Ukraine and increasing concerns about China’s intentions has created a surge in global demand for military hardware and systems. This presents robust business opportunities for BAE Systems. While much of the increased demand is likely to come from the company’s larger customers in the US and UK, there will be substantial growth potential from Europe and Asia-Pacific.

Given BAE’s heavy reliance on global defense and security markets and its ability to avoid any serious supply chain constraints, the company has maintained solid financial performance during the COVID pandemic.

The company operates on a calendar fiscal year. For 2021, BAE had total revenues (referred to as net sales in company reports) of £21.3 billion, up 2% from 2020 revenues of £20.9 billion, which was up nearly 4% from £20.1 billion in 2019.

Due to the company’s aggressive cost management efforts in response to the global pandemic, measures of profit were well above industry comparables. EBIT in 2021 was £2.6 billion, up an astonishing 24% from £2.1 billion in 2020, resulting in an EBIT margin of 12%. Even more impressive, was the rise in profit before taxes, which grew from £1.6 billion in 2020 to £2.1billion in 2021, 32% increase.

BAE’s backlog dropped slightly from 2020 to 2021, going from £45.2 billion to £44 billion.

Of the company’s five operating segments, Air is the largest with 2021 revenues totaling £8.3 billion, a 5% increase from 2020. Electronic Systems is the next largest with 2021 revenues of £4.5 billion, down 1.4% from 2020. Maritime is next with £3.42 billion in 2021, up 5% from the prior year. Platforms & Services is finished 2021 slightly behind Maritime with revenues of £4.40, down 3% year-over-year. The smallest segment is Cyber & Intelligence with 2021 revenues of £1.8 billion, down 3.3% from 2020.

The company expects full year 2022 revenues to be up between 3-4%, with the strongest growth rates coming from Maritime and Cyber & Intelligence. Slightly lower growth is expected from Air and Electronic Systems, while Platforms & Services is projected to be flat.