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United Kingdom Defence and Security Report Q2 2011
Business Monitor International, April 2011, Pages: 130
United Kingdom Defence and Security Report provides industry professionals and strategists, corporate analysts, defence and security associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Kingdom's defence and security industry.
The UK defence industry is set for a difficult 2011, as the government's austerity programme begins to impact on existing and potential contracts. The UK government has already taken certain significant moves – such as grounding the Harrier, cancelling various naval projects and cutting the overall size of the army. It is likely that further moves will follow. Furthermore, the government has made reforming the procurement system at the Ministry of Defence a main priority. While this is likely to ensure better value for money for the government, it risks limiting the profits of firms and disincentivising research and development if costs have to be increasingly borne by the companies themselves. To overcome these domestic burdens, it is likely that UK defence firms will focus on exports in the coming years.
A number of high-profile defence industry figures accompanied the Prime Minister David Cameron on his tour of the Middle East in February 2011. While the trip was overshadowed by the political developments in the region, which forced Cameron to finish the trip ahead of schedule, it had long been in the works. Securing defence contracts was viewed as a major objective of the trip, with the BAE Systems’ CEO, Ian King, as well as representatives from Thales, QinetiQ and Rolls-Royce, accompanying the prime minister. It is hoped by many in the industry that higher sales in the Middle East could counterbalance the negative effects of defence budget cuts in the UK and other Western countries. The UK's largest defence firm, BAE Systems, has released its 2010 performance figures. The firm has seen slight improvements in its fiscal position over the year, despite a worsening of its broader prospects.
Sales grew from GBP22bn (US$35.5bn) in 2009 to GBP22.39bn (US$36.14bn). This slight improvement has had a disproportionate effect on operating profit, which rose to GBP1.6bn (US$2.57bn) in 2010 – up from GBP966mn (US$1.56bn) in 2009. These improvements do bode well for the firm, which has proven itself capable of maintaining profitability in very difficult market conditions.
BAE Systems is seeking to boost its sales in international markets, particularly the Middle East. The firm has reported that it has entered talks to sell the Eurofighter Typhoon to Qatar and Oman. The firm views the Middle East as an important market for future sales, given the security concerns and high budgets of many countries as well as the lack of domestic firms.
Rolls-Royce has also released its 2010 financial figures. The firm has seen pre-tax profit grow slightly, with profits up from GBP915mn (US$1.48bn) in 2009 to GBP955mn (US$1.54bn) in 2010. This improved profitability came on the back of higher revenue, a larger order book and higher defence unit activity. Much of the firm's business is in the marine and civil aviation sectors but the firm received GBP2.1bn (US$3.4bn) in new defence orders in 2010.
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