As global tensions escalate, British defence giant BAE Systems is emerging as a major beneficiary, riding the wave of surging military budgets worldwide.
The FTSE 100-listed company, a cornerstone of the UK’s military-industrial complex, has reported stellar full-year results on Wednesday (18 February). This was driven by heightened demand for advanced weaponry and security solutions amid conflicts in Ukraine, the Middle East, and rising geopolitical rivalries.
In its preliminary results for the year ended 31 December 2025 sales reached £30,662 million, up 10% (on a constant currency basis), with organic growth of 9%.
Underlying earnings before interest and tax (EBIT) rose 12% to £3,322 million, lifting the return on sales to 10.8%. Underlying earnings per share climbed 12% to 75.2p.
The Board also recommended a 10% increase in the total dividend to 36.3p per share (including a final dividend of 22.8p). Order intake stood at £36.8 billion, pushing the order backlog to a record £83.6 billion.
Free cash flow came in at £2,158 million, down from £2,505 million the prior year due to elevated investment, though the three-year cumulative figure exceeded £7 billion.
A global footprint
What sets BAE apart is its global footprint. While deeply embedded in the UK’s defence ecosystem – supplying everything from fighter jets to submarines – the company isn’t tethered to domestic markets.
Its international operations provide a buffer against regional fluctuations, allowing it to capitalise on diverse opportunities.
The firm’s versatility is another key strength. Beyond traditional air, land, and sea domains, BAE is delving deeper into cutting-edge fields like electronic warfare and space-based security, areas poised to dominate future battlefields.
With cyber threats and satellite vulnerabilities on the rise, these “tomorrow’s defence hotspots” demand constant innovation. To stay ahead, BAE is channelling significant funds into research and development (R&D), ensuring its products remain at the technological forefront.
“BAE is highly experienced and a trusted name in the defence space, valuable attributes that put it in a prime position to win contracts. While it is a major cog in the UK’s defence wheel, it isn’t solely reliant on its home territory to grow earnings. BAE is an international business, and this diversification works to its advantage,” said AJ Bell in a note commenting on the results.
It adds that BAE benefits from having fingers in many pies. In addition to air, land and sea defence, it is increasingly involved in technologies for electronic warfare and space-based security.
“These are tomorrow’s defence hotspots, and innovation is paramount,” it said.
“It is ploughing big money into research and development to stay abreast of technological advancements and the need for more sophisticated products and services.
While that has pulled down free cash flow year-on-year, reinvesting in a business is essential to stay one step ahead of the competition. Free cash flow is the cash generated from operations minus the costs of running the business and capital expenditure.”
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