Rolls-Royce and BAE Systems raise profit forecasts
Global increases in defence spending drive higher earnings expectations for both major UK engineering firms.
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Rolls-Royce and BAE Systems have both upgraded their profit forecasts following increased commitments from governments to invest in defence systems. The news came on Thursday morning as both companies reported improved financial outlooks. Rolls-Royce shares rose by 5.5% during Thursday morning trading, making the company the top riser in the FTSE 100, according to The Guardian.
Rolls-Royce boosts earnings guidance
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The company raised its forecast for underlying operating profit for this year to a range of £4.7bn to £4.9bn. This follows a previous guidance of £4bn to £4.2bn. Rolls-Royce also increased its free cashflow forecast from a previous range of £3.6bn to £3.8bn to a new range of £3.8bn to £4bn. The firm produces jet engines for commercial aircraft and combat planes, as well as turbines for submarines and ships. Demand for its power generation unit has grown due to increased use of datacentres by AI companies. The company also noted that long-haul flight recovery after the pandemic has increased revenues in its civilian passenger jet engine business.
“We have made significant operational and strategic progress in the first half of the year.”
Tufan Erginbilgiç, Rolls-Royce chief executive
Defence spending drives growth
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Rolls-Royce said it expects to benefit from NATO commitments, specifically regarding the Saab GlobalEye airborne early warning system and the MQ-4C Triton aerial surveillance system. Both systems utilise Rolls-Royce engines. BAE Systems also upgraded its profit forecast to a 10-12% rise, up from a previous estimate of 9% to 11%. The company cited sustained increases in defence budgets globally as the reason for the upgrade. BAE Systems produces a large portion of UK weapons, including tanks and fighter jets. The firm has seen demand from the US and several countries in the Gulf.
BAE Systems holds a £5.9bn contract with the British government to complete the HMS Dreadnought nuclear deterrent submarine. The company also secured a deal with the US to quadruple production of the infrared seeker for the Terminal High Altitude Area Defense interceptor missile. Additionally, BAE Systems has a contract to provide training and equipment for 20 Typhoon aircraft for Turkey. Charles Woodburn, BAE chief executive, said the global threat picture remains highly volatile and governments are responding with sustained increases in their defence budgets.
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