BAE Systems Raises 2026 Free Cash Flow Forecast to About £3 Billion
Key Facts
BAE Systems raised its 2026 free cash flow forecast to about £3 billion, from more than £2 billion in its previous guidance, according to a trading statement issued by the company on November 12. The update came as the group maintained its forecasts for sales growth, profit and earnings per share for the year. The company said the new cash forecast includes some benefit from advance payments received from customers as of the update date. It does not assume any further material advance payments during the rest of the year. The company’s free cash flow was £2.2 billion in 2025, according to the statement.
The comparison between the new forecast and previous guidance points to an improvement in expected cash, while the company’s explanation remains limited to customer payments already received. BAE Systems did not attribute the revision solely to higher defence spending or its order backlog, although government commitments to increase spending and growth opportunities featured in its update. The company also excluded any assumption of potential material advance payments during the remainder of the year. That means the announced estimate combines the partial impact of payments collected so far with expected cash flows from the group’s operations. On a year-on-year basis, the 2026 forecast of about £3 billion compares with actual free cash flow of £2.2 billion in 2025.
On trading, the company kept its expected sales growth range for 2026 at 8% to 10%. Its forecasts for underlying operating profit growth before interest and tax remained at 10% to 12%, and underlying earnings-per-share growth at 11% to 13%. These ranges accompany the higher cash flow forecast, with no change to the sales and profit guidance set out in the statement. This distinguishes the cash update from estimates for operating performance and earnings per share, which remained at their announced levels. The statement gave no new figure for sales or profit growth in this guidance.
On divisional performance, BAE Systems said strong trading in its electronic systems, air, platforms and services businesses more than offset slower growth and margins in the maritime business in the second half to date. It added that the Type 26 frigate programme remains in its early stages. The contrast offers a picture of the group’s business units during the period, with strength in several divisions countering relatively weaker activity in maritime. The statement did not give a separate financial figure for each division’s contribution to expected free cash flow. It said, however, that strong performance in those businesses was enough to outweigh the impact of slower growth and margins in maritime.
On demand, the order backlog reached a record £84 billion in an earlier EL7 report dated August 17. Coverage citing Reuters said second-half awards included about £4.3 billion in funding for Britain’s Dreadnought submarines, about £1.6 billion for the Global Combat Air Programme and about £1.5 billion for work related to MBDA. The breakdown places submarine, aviation and munitions programmes among the orders featured in the coverage. Jefferies analysts also compared the new cash forecast with a consensus estimate of about £2.3 billion before the November 12 update. That provides a benchmark against which to compare the company’s announced figure with analysts’ previous estimate.
Chief Executive Charles Woodburn said the secured order backlog provides good visibility on activity, adding that the company’s portfolio, aligned with changing threats and priorities, positions it for sustained growth. The statement puts management’s view of its portfolio at the heart of its outlook for demand, alongside its financial guidance for the year. The company also cited continued government commitments to increase defence spending and the presence of growth opportunities, without giving a single figure for global defence budget increases. Its update thus combines specific financial forecasts with management’s description of the market and demand for its products. The statement gave no overall quantitative estimate for defence spending growth.
BAE Systems is due to report its preliminary results for the year ended December 31, 2026, on February 19, 2027. The annual results will provide a view of the year’s actual performance against the company’s guidance for sales, profit and earnings per share, and its updated cash forecast of about £3 billion. The cash forecast continues to include some impact from advance payments received as of the November statement. It also excludes any assumption of further material advance payments before year-end, the company said. The results date is the next milestone for investors identified in the statement.