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Defence Industry - UK - November 2015

Defence Industry - UK - November 2015

“The government’s commitment to spend the NATO-recommended 2% of GDP on the defence sector until 2020 has allowed the industry to plan its operations going forward. However, the western world’s growing tension with Russia, the global threat of terrorism, and emerging cyber security dangers provide a reminder of the changeable nature of conflict and that all those involved in operations must remain vigilant, flexible, and prepared to enter conflicts when required.”

– Lewis Cone, B2B Analyst

This report will explore the following key issues regarding the defence equipment industry in the UK:

What are the key determinants driving the defence equipment industry?
Was the market affected by the financial crisis and how has it recovered since? Has there been any structural changes as a consequence?
How has the government influenced and shaped the development of the sector?
What are the key issues the UK industry needs to address to maintain its global position in an ever-competitive market?
How have companies adapted to cost pressures and the changing nature of threats?
What does the future hold for the UK’s defence equipment industry?


EXECUTIVE SUMMARY
Market size
Figure 1: UK Defence Departmental Expenditure Limits and Defence Spending, 2010/11-2014/15
Figure 2: MoD Equipment Expenditure, 2011/12-2015/16
Market trends
Figure 3: Military Holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the
Conventional Armed Forces in Europe Treaty, by Equipment Group, 2010 and 2014
Figure 4: Defence Spending 2010 and 2014, World’s Top Six
Market factors
Current conflicts dictate spending patterns
R&D funding affecting response time and ability to compete as a global equipment buyer
Shift in global spending levels and exports
Monopolistic market for complex weapons restricts other entrants to the sector
The next Strategic Defence and Security Review is likely to lead to a further push towards efficiency
Companies
Forecast
Defence DEL set to rise over the next three years while total DEL is anticipated to fall
Figure 5: Forecast UK DEL on Defence, 2015/16-2017/18
The next SDSR, due in November, is expected to continue to streamline full-time force numbers and
military holdings to improve efficiency
The directional change in global defence spending patterns and exports poses challenges to the UK’s
position as the second largest defence equipment exporter in the world
What we think
KEY INSIGHTS
What are the biggest barriers to equipment procurement and sales?
How significant is the government’s commitment to spend 2% of GDP on defence?
Where are the key development opportunities for the industry?
INTRODUCTION
Definitions
Methodology
Abbreviations
POLITICAL
Figure 6: Trends in Public Sector Total Managed Expenditure, 2004/05-2015/16
Figure 7: Trends in Public Sector Total Managed Expenditure, 2004/05-2015/16
MARKET POSITIONING
The single market
Competitiveness
Research and innovation
International issues
UK ECONOMY
Key points
Overview
Figure 8: UK GDP, 2004-2015
Figure 9: Quarters after GDP Peak, 1979, 1990 and 2008
Inflation
Interest rates
House prices
Consumer spending
Manufacturing
Business investment
Figure 10: UK GFCF 2003-15
Imports
Exports
MARKET FACTORS
Key points
The Defence Industrial Policy
The Defence Growth Partnership
The Arms Trade Treaty
Current conflicts
R&D funding
Strategic Defence Policy
Defence policy
MARKET SIZE
Key points
Figure 11: The UK Defence Departmental Expenditure Limits and Defence Spending, 2010/11-2014/15
Figure 12: UK Defence Departmental Expenditure Limits and Defence Spending, 2010/11-2014/15
Figure 13: The UK Defence Departmental Capital Expenditure Limits, 2011/12-2015/16, (£ Million)
Figure 14: The UK Defence Departmental Cash Resource Expenditure Limits, 2011/12-2015/16
Figure 15: UK Defence Departmental Cash Resource Expenditure Limits, 2011/12 and 2015/16
Figure 16: The UK Defence Annually Managed Expenditure Limits, 2009/10-2013/14
Figure 17: The UK Defence Annually Managed Expenditure Limits, 2009/10-2013/14
Figure 18: MoD Equipment Expenditure, 2011/12-2015/16, (£ Million)
Figure 19: MoD Equipment Expenditure, 2011/12-2015/16
Figure 20: MoD Research & Development Expenditure Outturn, 2008/09-2012/13, (£ Million)
Figure 21: UK Defence Expenditure by Industry, 2009/10-2013/14, (£ Million)
Figure 22: MoD Major Equipment Projects, as at 31 March 2014, (£ Million)
Figure 23: MoD PFI Projects, 2014, (Year and £ Million)
MARKET TRENDS
Key points
SDSR and the National Security Strategy
Royal Navy and Royal Auxiliary Vessels
Figure 24: Number of Vessels In the Royal Navy and Royal Auxiliary Fleet, 2006-2014, (Number)
Figure 25: Number of Vessels in the Royal Navy and Royal Auxiliary Fleet, 2006-2014
Aircraft fleet
Figure 26: Aircraft Fleets, by Type of Aircraft, for the Royal Navy Fleet Arm, 2006-2014
Figure 27: Aircraft Fleets for the Royal Navy Fleet Arm, by Type of Aircraft, 2006, 2010 and 2014
Figure 28: Aircraft Fleets for the Royal Air Force, by Type of Aircraft, 2006-2014
Figure 29: Aircraft Fleets in the Joint Helicopter Command and Joint Force Harrier, by Type of Aircraft,
2006-2014
Figure 30: Aircraft Fleets in the Joint Helicopter Command and Joint Force Harrier, by Type of Aircraft,
2006, 2010 and 2014
Conventional armed forces in Europe treaty holdings
Figure 31: Number of Tanks and Artillery Holdings in the UK, Germany, Cyprus and Gibraltar within the
scope of the Conventional Armed Forces in Europe Treaty, 2006-2015
Figure 32: Number of Tanks and Artillery Holdings in the UK, Germany, Cyprus and Gibraltar within the
scope of the Conventional Armed Forces in Europe Treaty, 2006, 2009, 2012 and 2015
Figure 33: Number of Armoured Combat Vehicle Holdings in the UK, Germany, Cyprus and Gibraltar
within the scope of the Conventional Armed Forces in Europe Treaty, 2006-2015
Figure 34: Aircraft Holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the
Conventional Armed Forces in Europe Treaty, 2006-2015
Figure 35: Military Holdings in the UK, Germany, Cyprus and Gibraltar within the scope of the
Conventional Armed Forces in Europe Treaty, by Equipment Group, 2011 and 2015
Global defence spending
Figure 36: Defence Spending 2010 and 2014
Figure 37: Defence Spending 2010 and 2014, World’s Top Six
The changing nature of conflict is dictating spend and use of specific equipment
Dstl and QinetiQ
Other trends
INDUSTRY STRUCTURE
Key points
Industry development
Industry Structure
Figure 38: Analysis of the Changes in the Structure of the Weapons and Ammunition Industry, 2011-
2015
Figure 39: Analysis of the Changes in the Structure of the Air, Spacecraft and Related Machinery
Industry, 2011-2015
Figure 40: Analysis of the Changes in the Structure of the Ship and Floating Structures Industry, 2011-
2015
Figure 41: Analysis of the Changes in the Manufacture of Military Fighting Vehicles Industry, 2011-2015
Structure by employment
Figure 42: Analysis of the Employment Structure of the Weapons and Ammunition Manufacturing
Industry, 2014 and 2015
Figure 43: Analysis of the Employment Structure of the Air, Spacecraft and Related Machinery Industry,
2014 and 2015
Figure 44: Analysis of the Employment Structure of the Shipbuilding and Repair Industry, 2013 and
2014
Figure 45: Analysis of the Employment Structure of the Manufacture of Military Fighting Vehicles
Industry, 2014 and 2015
Structure by turnover
Figure 46: Analysis of the Financial Structure of the Weapons and Ammunition Manufacturing Industry,
2014 and 2015
Figure 47: Analysis of the Financial Structure of the Air, Spacecraft and Related Machinery
Manufacturing Industry, 2014 and 2015
Figure 48: Analysis of the Financial Structure of the Shipbuilding and Repair Industry, 2014 and 2015
Figure 49: Analysis of the Financial Structure of the Manufacture of Military Fighting Vehicles Industry,
2014 and 2015
Defence Contracts
COMPANY PROFILES
AGUSTAWESTLAND
Figure 50: Financial Analysis of AgustaWestland, 2010-2014
Company outlook
AWE MANAGEMENT
Figure 51: Financial Analysis of AWE Management, 2009-2013
Company outlook
BAE SYSTEMS
Figure 52: Financial Analysis of BAE Systems, 2010-2014
Company outlook
BAE Systems’ Surface Ships
Figure 53: Financial Analysis of BAE Systems’ Surface Ships, 2010-2014
BAE Systems (Operations)
Figure 54: Financial Analysis of BAE Systems (Operations), 2010-2014
COBHAM
Figure 55: Financial Analysis of Cobham, 2010-2014
Company outlook
GENERAL DYNAMICS UK
Figure 56: Financial Analysis of General Dynamics UK, 2009-2013
Company outlook
HP ENTERPRISE SERVICES DEFENCE & SECURITY UK
Figure 57: Financial Analysis of HP Enterprise Services UK, 2009-2013
Company outlook
LOCKHEED MARTIN (UK)
Figure 58: Financial Analysis of Lockheed Martin (UK), 2010-2014
Company outlook
NETMA
QINETIQ
Figure 59: Financial Analysis of QinetiQ, 2011-2015
Company outlook
ROLLS-ROYCE
Figure 60: Financial Analysis of Rolls-Royce, 2010-2014
Company outlook
Figure 61: Profiled Companies’ Turnover, 2010-2014
FORECAST
Key points
Market size
Figure 62: Defence Budget, 2010/11-2014/15
Figure 63: Revised Defence Budget, 2010/11-2015/16
Figure 64: Defence Budget, Planned and Revised, 2010/11-2015/16
Figure 65: Forecast UK DEL on Defence, 2015/16-2017/18
Figure 66: Forecast UK DEL on Defence, 2015/16-2017/18
Figure 67: Post-Main Gate Major Equipment Projects, 2014
PFI
Figure 68: Estimated Payment under MoD PFI Contracts, based on Signed Defence Deals as of March
2014
Industry
The SDSR 2015
Direction change in global spending patterns and exports
Efficiency improvements and further savings still required
Recruitment issues remain even with enforced personnel restrictions
The emerging cyber-security threat
FURTHER SOURCES AND CONTACTS
Trade associations
Trade magazines
Trade exhibitions
UK B2B
Trade research
Informal
Formal
Desk research
Consumer research
Sampling and weighting
Definitions
Qualitative Research
Further Analysis
Statistical forecasting

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