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BUSINESS NEWS

July 27, 2018 by

Sponsored by Odyssey Corporate Finance

Contact: Tom McCarthy, Director, Odyssey Corporate Finance

M: 07867 459 600

D: 0121 503 2375

E:

www.odysseycf.com

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30 Jul 18. Babcock says contract report “misleading”, expectations unchanged. British engineering company Babcock Intl (BAB.L) said its expectations for underlying revenue and earnings were unchanged after it missed out on an armoured vehicle maintenance contract, adding that a Sunday Times article on the deal was “misleading”. Britain’s Ministry of Defence (MOD) said late on Saturday it had decided not to proceed with a proposal from Babcock related to armoured vehicles. Babcock said it had recently put forward a proposal related to a number of different vehicle types, but the MOD had not taken this up, instead deciding to focus on its core Defence Support Group (DSG) contract. It said, however, that the Sunday Times was confused about the work affected by the MOD’s decision.

“There has been no change to the company’s expectations for underlying revenue and underlying earnings as detailed in its recent trading statement, and no change to the bid pipeline,” it said. “The impact of slower than anticipated spares procurement activity relating to DSG was included in the guidance issued at the time.” (Source: Reuters)

29 Jul 18. Babcock loses out on £1bn army vehicle repair contract. Babcock International has lost out on a potential £1bn contract to repair army vehicles, in a fresh blow to the FTSE 250 defence giant. The Ministry of Defence is understood to have told Babcock in recent weeks that it will not proceed with a deal to maintain about 2,300 armoured vehicles, including the Mastiff and Jackal. Last week Babcock stunned investors with a profit warning that knocked 10% off its share price. The company, which repairs Britain’s submarines and helped to build two aircraft carriers, said delayed spending by the MoD on land and naval programmes would slow revenue growth. However, Babcock did not tell investors that the army vehicle deal had been scrapped. A source close to the company played down the importance of the contract, but in late 2016, Babcock had said it was a key target for its land business. Worth between £350m and £1bn, it would have run until at least 2024, with the option of a further six years. The company, chaired by former BAE boss Mike Turner, has endured a tough few years, dragged lower by crises at outsourcing peers such as Carillion and Capita and worries over its growth prospects. It was relegated from the FTSE 100 last year. The MoD said: “Value for money is always one of our key considerations and . . . we have decided not to progress Babcock’s proposal.” (Source: The Sunday Times)

BATTLESPACE Comment: Rumours abounded in 2014 that Babcock was prompted by top figures in the Army to bid for the Protected Mobility Support Solution (PMSS) — Strategic Support Supplier (SSS) option, which was in effect to make Babcock the sole recipient of all maintenance work for British Army vehicles procured under UOR for Afghanistan including Mastiff, Jackal, Wolfhound, Coyote, Husky, Ridgback but not including the MAN Tracks and Ajax, which was eventually issued on July 20th 2015  under the following terms, note the large contract value.

‘Short description of nature and scope of works or nature and quantity or value of supplies or services:

The 2000 plus strong in-service fleet of 10 Protected Mobility (PM) platform types that were acquired during recent operations have been brought into the core equipment programme with Out-of-Service Dates (OSDs) varying from 2024 to 2036 and with support arrangements that are due to expire from 2017 onwards. The Land Equipment Support Strategy looked to develop improved support solutions with an increased focus on intelligent partners incentivised to identify business improvements. Solutions for A and B vehicle fleets were included in the DSG sale process. A decision was taken to develop a solution for the PM fleet separately. During its concept phase the PM Support Solution (PMSS) project has identified 2 main options (over and above an ‘As-is’ option) for further analysis:

— a ‘Do Better’ option based on a more efficient targeted use of current support arrangements which will be used as a VFM benchmark, and

— a ‘Do Different’ option based on a Single Strategic Support Supplier (SSS) accountable for end-to-end support of vehicle availability against a declared activity plan.

The PMSS project is now looking to engage with industry regarding the ‘Do Different’ SSS option and explore the risks, issues and opportunities that exist within that model. The solution being sought is for a single, enduring support arrangement consolidating current, separate short-term support arrangements, covering the end-to-end support for the PM vehicle fleet for 7 years commencing in Q2 2017 (with options to extend). The PM SSS is envisaged as a single overarching service for provision of available and capable vehicles to support a declared activity plan. The SSS will be accountable for equipment support, though not always directly responsible for MRO (Maintenance, Repair and Overhaul) or planning activity as elements may be undertaken by Units, REME, civilian/industry workshops as well as the SSS where required. The SSS will be accountable for the support solution design, optimisation and responsible for implementing it with the Army and delivery team ensuring the enablers are in place such as repair and maintenance procedures, spares and supply chain management, technical support and Post Design Services (PDS). This will require a transfer of elements of responsibility and decision making from the Project Team and Army/User to the SSS. The SSS will also be accountable for continuously driving improvement and efficiencies into the programme, which may include modifying equipment to improve reliability and maintainability. Estimated value excluding VAT:  Range: between 100,000,000 and 400,000,000 GBP.’

Thus, Babcock won the bid for DSG  with a knockout bid of £140m against teams from DynCorp and a KBR Rheinmetall team who are each believed to have offered no more than £47m. Rumours abounded last year that due to budget and troop cuts and the impending introducing of MRV(P) from Oshkosh and MIV from Rheinmetall, that DE&S at Abbey Wood had instituted a plan to cull the exiting fleet to make way for the new vehicles, which would be supported by the bidders, Oshkosh and Rheinmetall respectively, thus making a huge hole in Babcock’s projections for DSG work. At the same time, the Warrior WCSP Programme experienced delays and eventually started trials in December 2017, after a period of reported friction between Lockheed Martin and Babcock on work share. With PM SSS now effectively dead, will Babcock bite the bullet and issue a write down on the DSG assets which BATTLESPACE predicted last year? This will come on top of the recent profit warning on its Marine Division which will not make happy reading for its shareholders or Chairman Mike Turner already bruised from his losing tussle with Melrose over the GKN bid.

27 Jul 18. Cautious Morgan on the right path. Morgan Advanced Materials’ (MGAM) sweeping restructuring programme is beginning to live up to some of its early promise. After years of struggling to deliver any notable top- or bottom-line growth, the carbon and ceramic products specialist finally emerged at the midway point of 2018 with something to shout about. Strip out adverse foreign exchange movements and the associated costs of closing the group’s underperforming composite and defence systems business, and operating profit rose an encouraging 12.4 per cent. Like many of its peers, this improved performance was attributed to a combination of confidence returning to the wider industrial sector, and management’s own efforts to steer the engineer on a better course over the long term. During the period, Morgan benefited from healthier trading conditions across its many different end markets. Management flagged stronger demand from its rail, semiconductor, medical, renewable energy and precious metals customers, but was quick to point out that self-help measures played a key role in helping the group grow its market share. During the first half of 2018, the engineer reinvested the £7m of “operational efficiency” savings it generated into research and development, sales effectiveness and wider business infrastructure. Prior to the publication of these results, Numis guided for adjusted pre-tax profits of £108m for the December year-end, giving adjusted EPS of 24.4p, against £95m and 21.1p in 2017. Management took a cautious stance on results day, warning that growth will “moderate slightly” as Morgan comes up against tougher comparators. Judging by the current valuation, investors are yet to fully buy into the engineer’s growth strategy or improving trading backdrop, leaving the shares attractively priced at a steep discount to peers at 15 times forecast earnings. Buy. Last IC View: Buy, 339p, 28 Feb 2018. (Source: Investors Chronicle)

26 Jul 18. Bodycote’s investment strategy pays off. Bodycote’s (BOY) growth strategy continues to take analysts by surprise. Having upgraded its guidance in May, the specialist heat treatment engineer’s management team opted to strike a bullish tone once again on results day, confidently predicting that full-year figures will come in “marginally ahead” of current consensus. Chief executive Stephen Harris admitted that an improving resources market backdrop has lifted the overall general industrial sector, but also added that much of Bodycote’s success is now down to its own actions. Investing in high-margin specialist technology products and emerging markets, he claimed, has steadily transformed the engineer from a sputtering cyclical business into a lean, mean outperformer. Evidence of the group’s transformation can be found in the profit margins. Return on sales widened by 1.2 percentage points to 19 per cent in the period, underlining Bodycote’s increasingly strong pricing power. Meanwhile, the engineer also thrived in sectors that many of its peers have described as soft. One such example is the automotive market, where Bodycote grew revenues at constant currencies by 9.4 per cent to £100m. Free cash flow was less inspiring, falling 6 per cent to £39.4m. However, management’s admission that payments of staff bonuses and seasonal outflows on trade receivables were to blame suggest that there are no real causes for alarm here. Credit Suisse expects adjusted pre-tax profit of £136m for the year to December 2018, and adjusted EPS of 53.87p, against £121.5m and 49.83p in 2017.

IC View. Bodycote’s valuation has nearly doubled in the past two years as the fruits of its well-executed investment strategy become increasingly apparent. Trading in line with the peer average at 19 times forecast earnings, the shares now appear to fairly reflect the engineer’s healthier business model. Hold. Last IC View: Hold, 934p, 6 Mar 2018. (Source: Investors Chronicle)

26 Jul 18. Britain’s Melrose explores sales of GKN engineering businesses – sources. British turnaround firm Melrose (MRON.L) is considering a series of sales of GKN businesses after clinching an £8bn ($10.5bn) hostile takeover of the aerospace and automotive parts supplier earlier this year, sources familiar with the matter told Reuters. GKN’s new owner has hired Rothschild and Jefferies to manage a disposal of the engineer’s powder metallurgy division and is separately weighing options for its off-highway powertrain unit and wheels business, the sources said. The powder metallurgy business, which manufactures components from powdered metal, is the biggest of the three businesses and could fetch around £2bn, which would represent about 10 times its core earnings, according to the sources. An auction is likely to kick off in September and is expected to attract interest from private equity firms. GKN’s powertrain business supplies clutches, driveshafts and gearboxes for agricultural, mining and industrial vehicles and could be worth around 300 million pounds if Melrose decides to sell it, according to the sources. Its wheels unit, which also supplies off-highway vehicles, would fetch less. The potential divestments come after Melrose delisted GKN from the London stock market in May following a closely-fought, acrimonious battle with the management of GKN, who had urged shareholders to reject the takeover. London-listed Melrose narrowly clinched victory after 52.4 percent of GKN shareholders accepted its cash-and-shares offer in March. As part of its defence against the Melrose bid, GKN drew up a plan to sell both the powder metallurgy and off-highway powertrain businesses, which it deemed non-core. GKN also struck a deal to merge its main automotive division with U.S. firm Dana, although that transaction collapsed once Melrose secured its takeover. Powder metallurgy generated £1.17bn in revenues and £177m in core earnings in 2017, according to the defence document GKN published earlier this year. The powertrain unit had sales of £376m pounds and £38m of earnings. The battle between the two companies drew considerable political and media scrutiny in Britain given GKN’s heritage as one of the country’s oldest engineers, tracing its roots back more than 250 years. It supplied cannonballs to the British army during the Napoleonic Wars in the early nineteenth century and manufactured Spitfires during the Second World War. Melrose was set up 15 years ago and focuses on turning around and then offloading industrial businesses, following a motto of “buy, improve, sell”. The furore surrounding its bid for GKN prompted Melrose to make a series of legally binding commitments, including a pledge to remain headquartered in the UK for at least five years. A spokesman for Melrose declined to comment. Rothschild, which advised Melrose on its purchase of GKN, declined to comment and Jefferies did not respond to a request for comment. (Source: Reuters)

26 Jul 18. Thanks to inflation, Airbus takes major financial hit, again, on largest military program. Airbus took a further financial hit on the A400M military airlifter program, booking €98m (U.S. $115m) of provisions in results for the first half the year. The hit mainly stems from price escalation, the company said in a statement on the first-half results, reported July 26. For the A400M, Airbus saw price increases in labor and equipment above those agreed in the production contract. Those provisions add to previous provisions totaling €7.2bn — all thank to this reality, stated by Sash Tusa, an analyst with an equity research firm, Agency Partners: “Costs in the aeronautical industry escalate, but Airbus has not been able to reclaim these under the current situation.”

In the U.S. there are producer price indices for the aeronautics sector, but the A400M reflects price increases in the euro zone. Airbus carries a heavy burden of financial risk under the present contract, even as the company adds capabilities to the aircraft and continues talks with the core seven client nations for easing the production contract.

“On our largest military program, the A400M, we are making progress operationally, on improving capabilities as well as in negotiations with governments for the necessary contract amendment,” Airbus CEO Tom Enders said in a statement with the results. Airbus expects to an agreement on the contract by the end of the year, the company said.

There were “encouraging prospects for European military cooperation programs in military aircraft and unmanned aerial systems,” while the Airbus Defense and Space division saw strong orders, particularly for space systems, the company said. Airbus has signed a partnership agreement with Dassault Aviation to cooperate on a Franco-German project for a Future Combat Air System, which is expected to include a new fighter, spy plane and air tanker. Other elements include swarms of drones and cruise missiles. (Source: Defense News)

26 Jul 18. MoD delays force Babcock to cut revenue expectations. Just as things appeared to be looking up for Babcock (BAB), the outsourcer was forced to cut its expectations for revenue growth this year after fresh spending delays hit its defence businesses. That’s arisen due to a review of programme spend timings following the restructuring of the Ministry of Defence (MoD)’s Defence Equipment & Support organisation and the creation of the Submarine Delivery Agency. Activity levels have slowed in the UK as the review takes place, leading underlying revenue growth guidance to be pared back to low single-digit levels, from low to mid single digits previously. The shares closed the day down 10 per cent following the announcement. Analyst consensus was for revenue growth of around 4 per cent, but this had been cut to 2 per cent at the time of writing. Disappointment is to be expected following the group’s poor revenue growth in the year to March 2018, which was driven by a wider slowdown in UK defence spending and tough conditions in offshore oil and gas markets.  These latest delays affect the marine division, which accounted for 33 per cent of revenues at the last full year results. The land business has been similarly affected by sluggish government procurement in the UK.  Some of the concerns around the business models of outsourcers do not apply easily to Babcock. The main criticisms of many of its peers are that they compete on price for low-value blue-collar work, leading to low margins and at times aggressive accounting on the value of contracts. Babcock, however, focuses on more specialised work in areas such as nuclear decommissioning and defence, which is higher-margin and non-discretionary.  Over the past five years Babcock has often had low or zero exceptional costs or impairments; consistently high levels of either are often a key indicator of trouble. Likewise, the introduction of IFRS15, which tightens the regulation on revenue recognition and led to significant restatements for peer Capita (CPI), is not expected to have a material impact on Babcock.

IC View. This latest announcement is disappointing, and the shares are down 15 per cent since recovering in June. However, the long-term drivers of the business – highly specialised services in non-discretionary areas – remain in place, and the order book and pipeline remain healthy. The shares trade at eight times forward earnings for 2019, according to Bloomberg consensus forecasts. That’s a discount to the group’s five-year historical average and also well behind its peer group. Buy at 728p. Last IC View: Buy, 795p, 23 May 2018. (Source: Investors Chronicle)

26 Jul 18. FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for the second quarter ended June 30, 2018. “We are pleased with our second quarter results,” said Jim Cannon, FLIR President and Chief Executive Officer. “Strong organic sales growth and meaningful margin improvement drove adjusted earnings per share growth of 31%. In addition to excellent sales and earnings performance, FLIR significantly improved operating cash flow for the first half of 2018, up 46% over the same period of 2017. Our team embraced a number of new business initiatives while maintaining focus on the customer to drive solid first half results. We’re taking this momentum into the second half of the year as we continue executing our mission of innovating technologies that increase awareness and insight so professionals can make more informed decisions that save lives and livelihoods.”

Second Quarter 2018

Second quarter 2018 revenue was $452.7m, up 4% over second quarter 2017 revenue of $434.1m. Organic revenue growth was 11%, which excludes the second quarter results in 2017 of the previously disclosed divested security businesses that closed in the first quarter of 2018.

GAAP Earnings Results

GAAP gross profit in the second quarter increased 12% to $232.6m, or 51.4% of revenue, compared to $206.7m, or 47.6% of revenue in the second quarter of 2017. GAAP operating income in the second quarter increased 33% to $88.7m, compared to $66.6 m in the prior year, representing a 430 basis point improvement in operating margin.

Second quarter 2018 GAAP net earnings were $71.6m, or $0.51 per diluted share, compared with GAAP net earnings of $51.4m, or $0.37 per diluted share in the second quarter last year.

Cash provided by operations was $153.3m in the first half of 2018, compared to $105.3m in the first half of the prior year, a 46% increase. Approximately 2.0m shares were repurchased in the first half of 2018 at an average price of $50.52.

Non-GAAP Earnings Results

Adjusted gross profit was $236.4 m in the second quarter, representing 52.2% of revenue and increasing 11% over adjusted gross profit of $212.4m in the second quarter of 2017. Adjusted operating income was $102.0m in the second quarter, which was 26% higher than adjusted operating income of $81.0m in the second quarter of 2017. Adjusted operating margin increased 390 basis points to 22.5%, compared with 18.7% in the second quarter of 2017.

Adjusted net earnings in the second quarter were $77.4m, or $0.55 per diluted share, which was 31% higher than adjusted earnings per diluted share of $0.42 in the second quarter of 2017.

Business Unit Results

Revenue from the Industrial Business Unit was $188.4m, an increase of 14% over the second quarter results of last year, with strength in optical gas imaging, automotive, and industrial unmanned aerial systems (UAS). The Government and Defense Business Unit contributed $161.0m of revenue during the second quarter, up 11% over the prior year, driven by increased deliveries of gimbaled systems, DR-SKO, and UAS systems. The Commercial Business Unit recorded revenue of $103.3m in the second quarter, down 17% from the prior year, but up 5% excluding revenue related to the divested security businesses. Strong results in the maritime, thermal rifle scopes, and intelligent transportation systems product lines contributed to the organic revenue growth.

Revenue and Earnings Outlook for 2018

Based on financial results for the second quarter and the outlook for the remainder of the year, FLIR now expects revenue in 2018 to be in the range of $1.780bn to $1.800bn, increased from the previous $1.760bn to $1.790bn amount provided in the first quarter earnings call. Adjusted net earnings per diluted share is now expected to be in the range of $2.17 to $2.22 per diluted share, up from the previous outlook of $2.11 to $2.16 per diluted share.

Dividend Declaration

FLIR’s Board of Directors has declared a quarterly cash dividend of $0.16 per share on FLIR common stock, payable September 7, 2018 to shareholders of record as of close of business on August 24, 2018.

26 Jul 18. Cobham dives as KC-46 tanker programme gets messy. Boeing has said it is going to seek damages for delays in the programme but has yet to specify how much it will be seeking; Cobham intends to contest those claims. Defence firm Cobham Group PLC (LON:COB) disappointed the market with news of a £40mln charge relating to its US KC-46 tanker programme. The good news is that qualification testing on the centerline drogue system (CDS) to be used on the KC-46 Pegasus refuelling tankers has been completed and submissions have been supplied to support achievement of supplementary type certification of the aircraft, with CDS production deliveries having commenced in the period. The bad news is that completion of CDS qualification has taken longer and has been more challenging than expected. Furthermore, qualification of the wing aerial refuelling pods (WARPs) is in its early stages, with risks relating to schedule and cost. Completion could take significantly longer than originally planned, and this increases concurrency risk as well as base cost assumptions, Cobham warned, before revealing there would be an additional non-underlying charge of around £40mln in Cobham’s interim results. Meanwhile, its customer, Boeing has withheld payment of the KC-46 CDS and WARP invoices and indicated it would seek damages in respect of delays; Cobham will be disputing these assertions. Shares in Cobham tanked 10.4% to 117.9p. (Source: proactiveinvestors.co.uk)

25 Jul 18. Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2018. Beginning this quarter, coinciding with the initial reporting of the recent acquisition of Dresser-Rand’s government business (“DRG”), the Company has elected to change the presentation of its financials and guidance to include an Adjusted (non-GAAP) view that excludes first year purchase accounting costs associated with its acquisitions. We believe this change will provide improved transparency to the investment community in order to better measure Curtiss-Wright’s core operating and financial performance and improve comparisons of our key financial metrics to our peers. Reconciliations of “Reported” GAAP amounts to “Adjusted” non-GAAP amounts are furnished within this release.

Second Quarter 2018 Highlights

  • Reported (GAAP) diluted earnings per share (EPS) of $1.68, with Adjusted (non-GAAP) diluted EPS of $1.80, up 49% compared with the prior year, excluding first year acquisition-related purchase accounting costs;
  • Net sales of $620m, up 9%, including 4% organic growth (defined below);
  • Reported (GAAP) operating income of $102m, with Adjusted (non-GAAP) operating income of $109m, up 28%;
  • Reported (GAAP) operating margin of 16.5%, with Adjusted (non-GAAP) operating margin of 17.6%, up 260 basis points;
  • Free cash flow of $87m, up 19%;
  • New orders of $700m, up 28%; and
  • Share repurchases of approximately $34m.

Full-Year 2018 Business Outlook

  • Increased Reported (GAAP) full-year 2018 diluted EPS guidance by $0.28 reflecting strong operational performance in core business;
  • Introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance, which reflects a $0.25 adjustment for first year acquisition-related purchase accounting costs associated with the acquisition of DRG;
  • Combining these items, introduced Adjusted (non-GAAP) full-year 2018 diluted EPS guidance range of $6.00 to $6.15, up $0.53 compared to the prior Reported guidance range of $5.47 to $5.62 (see table below);
  • Full-year 2018 Adjusted guidance reflects higher sales (up 8-9%), operating income (up 11-14%), operating margin of 15.2% to 15.4% (up 50-70 bps) and diluted EPS (up 21-24%), compared with Adjusted 2017 financial results; and
  • Increased Reported free cash flow by $10m to new range of $250 to $270m and Adjusted free cash flow range of $300 to $320m, which excludes a $50m voluntary pension contribution made in the first quarter of 2018.

“We generated strong second quarter results which exceeded our expectations, as we delivered solid 9% top-line growth led by strong defense and industrial sales, and improved profitability driven by the benefits of our ongoing margin improvement initiatives, to produce Adjusted diluted EPS of $1.80,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “As a result of the strong first half results and our outlook for continued momentum through the remainder of this year, we have increased our full-year revenue, EPS and free cash flow guidance. We are projecting another solid operational performance including higher sales in all end markets, double-digit growth in operating income driving strong margin expansion and solid free cash flow generation.”

  • Sales of $620m up $53m, or 9%, compared with the prior year (4% organic, 4% acquisitions, 1% favorable foreign currency translation);
  • Higher organic revenues were principally driven by strong defense and industrial sales, partially offset by lower power generation revenues;
  • From an end market perspective, total sales to the defense markets increased 19%, 9% of which was organic, while total sales to the commercial markets increased 3%, 1% of which was organic, compared with the prior year. Please refer to the accompanying tables for a breakdown of sales by end market;
  • Reported operating income was $102m, with Reported operating margin of 16.5%;
  • Adjusted operating income of $109m, up $24m, or 28%, compared with the prior year, reflects higher defense and industrial sales, increased profitability on defense electronics products in the Defense segment, and the benefits of our ongoing margin improvement initiatives, most notably in the Commercial/Industrial segment;
  • Adjusted operating margin of 17.6%, up 260 basis points compared with the prior year, reflects higher revenues and favorable overhead absorption, as well as the benefits of our ongoing margin improvement initiatives; and
  • Non-segment expenses of $8m decreased by $1m compared with the prior year, primarily due to lower corporate expenses.

26 Jul 18. China flexes muscles by scuppering $44bn chip deal. Beijing’s failure to approve Qualcomm bid rattles global M&A. Qualcomm admitted defeat in its attempted $44bn takeover of Dutch chipmaker NXP, after failing to win approval from Chinese regulators for what would have been the semiconductor industry’s largest ever takeover.  The companies’ agreement expired just before midnight in New York on Wednesday without any indication that they had obtained antitrust clearance from Beijing, despite the deal getting sign-off from eight other regulators around the world.  After being shielded by the Trump administration from Broadcom’s hostile approach four months ago, Qualcomm has now become the highest-profile American victim of the US-China trade war. China’s inaction on regulatory approval has been seen as retaliation for President Donald Trump’s tariffs on Chinese imports.  The deal’s collapse could also prove costly for the hedge funds that had piled into NXP over the past few months, and now own more than a third of its shares.  Steve Mollenkopf, Qualcomm’s chief executive, conceded defeat earlier on Wednesday after a two-year effort to close the NXP tie-up. Instead, he announced a $30bn share buyback programme.  “We intend to terminate our purchase agreement to acquire NXP when the agreement expires at the end of the day today, pending any new material developments,” Mr Mollenkopf said on Wednesday afternoon. On a conference call with analysts, he added: “The decision for us to move forward without NXP was a difficult one . . . To say the least, the 21 months since we announced the NXP acquisition have been volatile.” Mr Mollenkopf said that Qualcomm ultimately decided that there was not a “high probability” of a near-term change in the “current geopolitical environment” that would allow the deal to close. Qualcomm plans to complete a “large majority” of its $30bn share buybacks before the end of its fiscal 2019, in September next year. The company on Wednesday also reported results that were “significantly above our prior expectations”. Revenues increased 6 per cent to $5.6bn, ahead of Wall Street’s estimates, with net income up 41 per cent to $1.2bn. Qualcomm’s shares jumped 6 per cent in after-hours trading.  And the company revealed a piece of long-anticipated news on its analyst call: Apple will not be using its modems in the next generation of iPhones, amid legal battles between the two companies. “We believe Apple intends to solely use our competitor’s modems, rather than our modems, in its next iPhone release,” said Qualcomm’s chief financial officer George Davis. “We will continue to provide modems for Apple legacy devices.” Before the close of trading on Wednesday, Qualcomm’s shares had been 10 per cent below where they were at the start of 2018, when they were buoyed by the offer from Broadcom. Mr Trump’s blocking of the bid in March on national security grounds marked an unprecedented intervention by the White House.  Qualcomm’s profits have been hit by its wide-ranging legal battle with Apple over royalties. Apple’s litigation began in January 2017, just a few months after the NXP deal was first agreed in October 2016.  Mr Mollenkopf will now come under pressure from Qualcomm’s investors to show how the San Diego-based chipmaker can diversify from its mainstay of chips for smartphones into the “internet of things” without the anticipated boost from NXP, which has a bigger business in the automotive and security industries.  Geoff Blaber, analyst at CCS Insight, said that the resolution to the drawn-out NXP saga was a “good thing” for Qualcomm investors because it provides “increased certainty”. Recommended Technology Apple to ditch Qualcomm modem in new iPhone “At some point you have to get on and manage the business. You can’t wait for something indefinitely,” Mr Blaber said. However, the company’s need to diversify remains. “This deal was all about [the internet of things] and the reality is that IoT is growing but still relatively small in the grand scheme of Qualcomm’s business.”  Qualcomm’s offer for NXP, which was increased from $110 to $127.50 a share in February amid pressure from activist investors, was set to expire just before midnight US eastern time on Wednesday.  NXP’s shares extended their decline in after-hours trading after Qualcomm said it would not pursue the takeover, sliding to roughly $96 — above a low hit in May as the deal fell into doubt and the Dutch chipmaker missed quarterly earnings expectations. Failure to complete the transaction will trigger a $2bn break-up fee that Qualcomm must pay immediately to NXP. (Source: FT.com)

25 Jul 18. UK clamps down on Beijing’s pursuit of sensitive technologies. When Theresa May stood for leadership of the Conservative party two years ago she vowed a “radical” new approach to business to avoid the fate of the controversial Kraft takeover of Cadbury in 2010.  The soon-to-be UK prime minister criticised Tory colleagues for nearly allowing AstraZeneca, a “jewel in the crown” of the pharmaceutical industry, to be sold to Pfizer — a US company with a record of “asset stripping”.  But those bold moves have largely fallen by the wayside, leaving her government more focused on the specific area of deals that could compromise national security.  On Tuesday, the British government unveiled a white paper that outlined a series of measures designed to enhance its toolkit when attempting to challenge foreign investment in the country. For details, check out the policy document and our news story.  The UK follows in the footsteps of the US, Germany and France, which have also introduced measures in response to increased Chinese dealmaking. The word “China” only appears once in the 120-page policy document released by the UK on Tuesday and which is designed to enhance the government’s powers to prevent foreign purchases of security-sensitive British assets But several UK officials confirmed that proposals to increase the government’s ability to block or amend foreign acquisitions of British assets that raise national security concerns were largely aimed at Beijing, which in recent years has ramped up its overseas dealmaking by snapping up everything from sensitive technologies to energy grids.

Ian Giles, antitrust and competition partner at Norton Rose Fulbright, said: “The powers do allow scrutiny of much smaller deals — although many will wonder if this is worthwhile for the very small transactions now covered by the scope of these powers. We have just seen the secretary of state clear without conditions the first deal under the interim broader powers, which involved a Chinese investor in an aircraft parts business, and the MoD found no reason to object.  The important thing for business is predictability of the regime: that mandatory filings are not required for smaller deals and that where a review takes place, the evaluation criteria are proportionate and reasonable.”

Nearly two years after it first leaked that Qualcomm was in preliminary discussions to take over Dutch rival NXP, the US chipmaker faces a make or break decision today. If it does not get approval from Chinese regulators for its $44bn deal tonight, it must decide whether to amend its merger agreement or walk away. All indications point towards the latter.  The deal has been part of one of the more intense M&A sagas in recent memory, with NXP ultimately seen as a shrewd defence mechanism as Qualcomm fought off a hostile bid from Broadcom. But the deal now hangs on a thread. If Chinese regulators do not give the go-ahead by 11:59pm in New York on Wednesday, Qualcomm and NXP are expected to walk away from the deal. Qualcomm has promised to pay NXP $2bn in cash by 9am on Thursday if the deal falls apart and will probably kick off an aggressive share buyback programme to help bolster its stock price (which, mind you, is 15 per cent below the high it reached amid the Broadcom fight). If the deal does fail — barring last-minute word from Chinese regulators that they’re ready to approve it — it would be the clearest signal yet that tensions between Washington and Beijing have frayed and that the latter is willing to use its regulatory heft as one chess piece in the escalating trade war. The losers are not only executives in San Diego and Eindhoven, the respective headquarters for Qualcomm and NXP. Financial advisers, including Goldman Sachs, Evercore, Centerview Partners and Qatalyst Partners stand to miss out on millions in fees. (Source: FT.com)

26 Jul 18. Airbus second-quarter core profit doubles after A350 cost improvements. Airbus (AIR.PA) posted higher than expected second-quarter earnings and reaffirmed its 2018 financial targets, as A320neo deliveries accelerated following delays in engine supplies and the group scored cost improvements on its A350 jet programme. Europe’s largest aerospace group said quarterly adjusted operating earnings doubled to 1.148bn euros (£bn). Revenues rose 8 percent to 14.851bn euros, although Airbus said “challenges remain” in terms of meeting its full-year A320neo delivery target. Analysts were on average predicting an adjusted operating profit of 1.011 bn euros on revenues of 14.551bn in the second quarter, according to a Reuters survey. The long-haul A350, designed to compete with the Boeing 787 and 777, is on track to reach output of 10 jets a month by year-end and costs are coming down as the programme matures, marking what Chief Executive Tom Enders called a “strong improvement”. Airbus continues to face delays to deliveries of its bread-and-butter medium-haul A320neo jetliner due to gaps in engine supplies from Pratt & Whitney (UTX.N), and to a lesser extent from French-U.S. joint-venture CFM (SAF.PA) (GE.N). But Airbus reached a turning point in May as a long line of semi-finished airplanes, parked outside Airbus factories without their engines, peaked at 100 aircraft and started heading lower. For the first time, Airbus said it had delivered more of the A320neo carrying new engines in the second quarter than the previous A320 version. But it said “risks remain” to meet a “challenging” delivery forecast of 800 jets in total this year. Airbus’ results came a day after U.S. rival Boeing (BA.N) posted better-than-expected quarterly profit and revenue but disclosed $426m in higher costs on its delayed KC-46 refueling tanker programme, sending Boeing’s shares lower. (Source: Reuters)

26 Jul 18. Airbus reports Half-Year 2018 (H1) financial results.

  • Commercial aircraft environment robust, backlog underpins ramp-up plans
  • H1 financials reflect mainly A350 XWB performance and delivery phasing
  • Revenues € 25 bn; EBIT Adjusted €1.2bn
  • EBIT (reported) €1.1bn; EPS (reported) €0.64
  • 2018 guidance maintained

Airbus SE (stock exchange symbol: AIR) reported Half-Year (H1) 2018 consolidated financial results and maintained its guidance for the full year.

“The first half financials reflect the back-loaded deliveries due to A320neo engine shortages, while on the positive side there was a strong improvement on the A350 programme,” said Airbus Chief Executive Officer Tom Enders. “A320neo aircraft deliveries picked up during the second quarter but challenges remain to meet our full year targets. Market demand remains strong for the expanded Airbus portfolio that now includes the A220 at the smaller end. The recent Farnborough Airshow underlined this, with new business for over 400 single-aisle and wide-body aircraft announced. Our operational focus in commercial aircraft remains squarely on securing the production ramp-up. On our largest military programme, the A400M, we are making progress operationally, on improving capabilities as well as in negotiations with governments for the necessary contract amendment.”

Net commercial aircraft orders increased to 206 (H1 2017: 203 aircraft) with gross orders of 261 aircraft including 50 A350 XWBs and 14 A330s. The order backlog by units totalled 7,168 commercial aircraft as of 30 June 2018.  During July’s Farnborough Airshow, Airbus announced orders and commitments for a total of 431 aircraft although these are not yet reflected in the order book. Net helicopter orders totalled 143 units (H1 2017: 151 units). Airbus Defence and Space saw good order momentum, particularly in Space Systems, while there are encouraging prospects for European military cooperation programmes in Military Aircraft and Unmanned Aerial Systems.

Consolidated revenues were stable at € 25.0bn (H1 2017: € 25.2bn(1)), reflecting the commercial aircraft delivery mix and perimeter changes as well as the weakening of the US dollar. Deliveries totalled 303 commercial aircraft (H1 2017: 306 aircraft), comprising 239 A320 Family, 18 A330s, 40 A350 XWBs and six A380s. Airbus Helicopters delivered 141 units (H1 2017: 190 units) with revenues mainly reflecting the perimeter change from the sale of Vector Aerospace in late 2017. Revenues at Airbus Defence and Space reflected the stable core business and solid programme execution as well as the perimeter change mainly related to the divestment of Defence Electronics in February 2017 and Airbus DS Communications, Inc. in March 2018.

Consolidated EBIT Adjusted – an alternative performance measure and key indicator capturing the underlying business margin by excluding material charges or profits caused by movements in provisions related to programmes, restructuring or foreign exchange impacts as well as capital gains/losses from the disposal and acquisition of businesses – totalled €1,162m (H1 2017: €553m(1)).

Airbus’ EBIT Adjusted of €867m (H1 2017: €257m(1)), reflected mainly the strong improvement on the A350 programme and the A320neo ramp-up and transition. A total of 110 A320neo aircraft were delivered (H1 2017: 59 aircraft) with more NEO (new engine option) versions delivered than CEO (current engine option) versions in the second quarter. The ramp-up is ongoing. Engine manufacturers are working to meet their commitments and resources and capabilities have been mobilised internally. A recovery plan is in place and the number of stored aircraft has started to decline from the end of May peak but risks remain to meet the 800 aircraft delivery target, which is challenging. On the A350 programme, the first A350-1000s were delivered to Qatar Airways and Cathay Pacific in the half-year. Good progress was made on the recurring cost curve compared to a year earlier as the programme ramps up to the targeted monthly production rate of 10 aircraft by year-end. The A350’s industrial system is now reaching a mature level with the focus remaining on recurring cost convergence. Route proving flights have now been completed on the A330neo with more than 1,000 flight hours accumulated by the test aircraft fleet. The first delivery is expected end summer. In July, the BelugaXL transport aircraft completed its maiden flight.

Airbus Helicopters’ EBIT Adjusted increased to €135m (H1 2017: €80m(1)), reflecting solid underlying programme execution which compensated the lower deliveries.

Airbus Defence and Space’s EBIT Adjusted was €309m (H1 2017: €298m(1)), reflecting the stable core business and solid programme execution. On a comparable basis the Division’s EBIT Adjusted was broadly stable.

On the A400M programme, a total of eight aircraft were delivered compared to eight in the first half of 2017. A provision update of € 98m during the first half of 2018 mainly reflected price escalation. Progress was made toward achieving military capabilities. Airbus continues to work with the Launch Customer Nations to finalise a contract amendment by year-end.

Consolidated self-financed R&D expenses totalled €1,403m (H1 2017: €1,288m).

Consolidated EBIT (reported) was stable at € 1,120m (H1 2017: €1,211m(1)), including Adjustments totalling a net € -42m. These comprised:

  • The €98m A400M provision increase due to an update for escalation assumptions;
  • A negative €21m resulting from the first H160 helicopters;
  • A negative impact of €40m from the dollar pre-delivery payment mismatch and balance sheet revaluation;
  • A total of €40m in other costs, including compliance and merger and acquisition costs;
  • A net capital gain of €157m from divestments in Airbus Defence and Space.

Consolidated net income(2) of €496m (H1 2017: €1,091m(1)) and earnings per share of €0.64 (H1 2017: €1.41(1)) included a negative impact from the foreign exchange revaluation of financial instruments partly offset by the positive revaluation of certain equity instruments. The finance result was €-303m (H1 2017: €+72m(1)). Net income also reflects a higher effective tax rate from the reassessment of tax assets and liabilities.

Consolidated free cash flow before M&A and customer financing amounted to €-3,968m (H1 2017: €-2,093m), reflecting the continued ramp-up while deliveries reflect the engine situation. Consolidated free cash flow of €-3,797m (H1 2017: €-1,956m) included around €0.3 bn of net proceeds from divestments at Airbus Defence and Space. Cash flow for aircraft financing was limited in the first half of 2018.

The consolidated net cash position on 30 June 2018 was €8.1bn (year-end 2017: €13.4bn) with a gross cash position of €17.8bn (year-end 2017: €24.6bn).

Outlook

As the basis for its 2018 guidance, the Company expects the world economy and air traffic to grow in line with prevailing independent forecasts, which assume no major disruptions. The 2018 earnings and guidance are prepared under IFRS 15. The 2018 earnings and Free Cash Flow guidance is before M&A. It now includes the A220(3) integration.

  • Airbus targets to deliver around 800 commercial aircraft, without the A220 Family.
  • On top, around 18 A220 deliveries are targeted for H2.
  • Before M&A, the Company expects EBIT Adjusted of approximately €5.2bn in 2018:

➢ The A220(3) integration is expected to reduce EBIT Adjusted by an estimated €-0.2bn.

➢ Therefore, including A220(3), the Company expects EBIT Adjusted to be approximately €5.0bn.

  • Compared to 2017 Free Cash Flow before M&A and Customer Financing of € 2.95 bn, the Company expects Free Cash Flow to be at a similar level in 2018 before the A220 integration.

➢ The A220(3) integration is expected to reduce Free Cash Flow before M&A and Customer Financing by an estimated €-0.3bn(3).

➢ In 2018, the Company expects the net cash impact of the A220 integration to be largely covered by the funding arrangement as laid out in the terms of the C Series Aircraft Limited Partnership, meaning limited cash dilution.

25 Jul 18. Boeing forecast for defence margins clouds profit beat, shares drop. Boeing Co (BA.N) reported better-than-expected profit and revenue on Wednesday, but cut the full-year forecast for its defence business margins, citing $426m (323.61m pounds) in higher costs on its long-delayed KC-46 aerial refuelling tanker programme. Shares of the world’s biggest planemaker fell 2.2 percent after it forecast a 2018 operating margin of 10 percent to 10.5 percent in its defence business, down from its previous outlook of 11 percent.

“Management has previously expressed confidence that there would be no more tanker charges, and yet they keep coming,” Robert Stallard, an analyst at Vertical Research Partners, said in a research note, adding that the KC-46 programme should “get less bad from 2019.”

“Investors have generally shrugged off prior issues in Defence – but when they result in Boeing leaving its earnings and cash forecast unchanged, that’s not good,” Stallard said.

Boeing sees 2018 core earnings of $14.30 to $14.50 per share, unchanged from the same period last year, but below the Wall Street estimate of $14.56 per share. Core earnings exclude some pension and other costs.

The Chicago-based company raised it full-year revenue forecast, but kept its earnings per share and cash flow forecasts unchanged.

Boeing stock has jumped more than 21 percent year to date on increased plane orders fuelled by strong air travel demand and Boeing’s ability to generate robust cash flow. But the shares are especially vulnerable if the trade war between Washington and Beijing escalates further, according to analysts.

Operating margins in its defence, space and security unit fell to 9.3 percent in the quarter from 11.9 percent a year earlier, reflecting increased costs of $111m in the KC-46 Tanker, Boeing said.

Boeing said the KC-46 U.S. Air Force aerial refuelling programme has cost an additional $426m before taxes as the company works through test delays and production changes. Boeing has already tallied some $3bn in total costs on the programme, a derivative of its 767 commercial aircraft.

Last month, the Air Force said the first delivery of the KC-46 would be in October, more than two years behind schedule.

The KC-46 problems overshadowed Boeing’s beat on quarterly profit. Core earnings were $3.33 per share, besting the average analyst estimate of $3.26 per share, according to Thomson Reuters I/B/E/S. Overall revenue rose 5 percent to $24.26bn, also beating estimates, while commercial aircraft deliveries rose 6 percent to 194 aircraft. Boeing booked 239 net orders during the quarter, including 91 wide-body jets. For the full year, the company expects total revenue of $97bn to $99bn, compared with its previous estimate of $96bn to $98bn. In its commercial airplanes segment, its largest, operating margins rose to 11.4 percent from 9 percent a year ago on revenue of $14.48 bn. Revenue was $14.28bn in the year-ago period. The stock was down 2.2 percent to $350.34. (Source: Reuters) (See: FEATURES – ‘US Majors Report Results In Line With Expectations’)

23 Jul 18. Lockheed Martin raises full-year guidance. Lockheed Martin upgraded its earnings outlook for 2018 after reporting a second-quarter profit that cruised past analysts’ expectations. Revenue at the Maryland-based aerospace and defence company rose 6.6 per cent from a year ago to $13.4bn in the three months ended June, comfortably surpassing the mean forecast of $12.7bn from analysts in a Thomson Reuters poll. Net earnings of $1.2bn, or $4.05 a share, were up by almost one-third from a year earlier and ahead of market estimates for $3.82 a share. Marillyn Hewson, chief executive, said the “strong” results in the second quarter allowed the company “to increase our financial guidance for sales, profit, earnings per share and cash from operations” for 2018. The company now expects to generate earnings of between $16.75 to $17.05 a diluted share, up from its April outlook of $15.80 to $16.10, on revenue of between $51.6bn to $53.1bn, up from $50.3bn to $51.85bn previously. Analysts had forecast earnings of $15.81 a share on $51.3bn in sales. For the June quarter, Lockheed’s missiles and fire control business saw the highest sales growth, of 16.9 per cent to $2.1bn, which was more than twice the pace of that seen in the company’s main aeronautics unit, which saw sales rise 8.1 per cent to $5.3bn. The space business was the only one to see sales shrink from a year ago. Operating profit was up by the most in the company’s rotary and mission systems division, which encompasses helicopters, undersea warfare and missile defence among other things, rising about 26 per cent to $341m. Its missiles and fire control and space units also saw double-digit rises in operating profit.   (Source: FT.com) (See: FEATURES – ‘US Majors Report Results In Line With Expectations’)

25 Jul 18. Orbital deal costs weigh on US defence group. The $9.2bn acquisition of Orbital, a specialised aviation and space contractor, boosted sales at Northrop Grumman by around $400m in the three weeks after the deal closed, the US defence contractor said on Wednesday, but costs from the deal weighed on profits. Second-quarter sales across the combined group climbed by 10 per cent from the same time a year earlier, Northrop said, reaching $7.1bn in the three months to the end of June. That included sales of $400m for Orbital — now rebranded as “Innovation Systems” — for the period between June 7 and June 30. For the latest quarter, net earnings rose 24 per cent to $689m — $3.93 a share. While net profits included earnings from Innovation Systems since the deal closed, Northrop said they were “more than offset by a full quarter of net interest expense related to the acquisition and deal-related costs”. The acquisition, which was announced last September, formed part of a wave of consolidation in the aerospace sector as companies have sought scale. US defence stocks were significant beneficiaries in the wake of the election of Donald Trump as president, but Northrop’s shares have faltered since the start of 2018, up just 3 per cent year-to-date and down by nearly 5 per cent over the past three months, despite regular upgrades to its earnings guidance. On Wednesday Northrop also once again lifted its estimate for full-year diluted earnings per share, which are now expected to be in the range of $16.60 to $16.85, up from $16.20 to $16.45 at the time the Orbital deal closed in June. The company also said its effective tax rate would be “mid 16 per cent” rather than around 17 per cent, and free cash flow would be at the top half of its previously guided range. Operating income from its units also climbed, but by only 3 per cent. Higher sales were partially offset by slimmer margins in Northrop’s mission systems and technology services business, the company said, and lacked the benefit of a $54m claim related to costs incurred in earlier years that flattered the comparative. Including the effects of general corporate expenses — including £23m of one-off deal costs and the amortisation of $21m of acquired intangible assets — group operating income and margin fell to $832m and 11.6 per cent respectively, from $873m and 13.5 per cent a year earlier. “With this quarter’s addition of Innovation Systems to our portfolio, along with robust internal investment, we continue to strengthen our foundation for long-term profitable growth,” Northrop chairman and chief executive Wes Bush said. (Source: FT.com) (See: FEATURES – ‘US Majors Report Results In Line With Expectations’)

25 Jul 18. Boeing Reports Strong Second-Quarter; Generated Robust Cash; Raises Revenue Guidance. Boeing raises profit guidance after strong Q2. The company upgraded earnings expectations for the year. Boeing raised its full-year profit guidance on Wednesday as it announced strong second-quarter earnings. It now expects to make $97bn-$99bn this year, up $1bn on previous guidance. The Chicago-based company reported core earnings per share for the quarter ended June 30 of $3.73, well above the market consensus figure of $3.25 and ahead of the prior year figure of $2.87. The company secured $29bn in new orders in the quarter, said chief executive Dennis Muilenburg. Boeing also beat market expectations with revenues of $24.3bn, above the market forecast of $24bn and last year’s figure of $23.1bn. This reflected 194 commercial aircraft deliveries and higher defence and services volumes. For the first half of the year, revenue was up 6 per cent to $47.6bn and earnings per share was up 46 per cent to $7.88. Net earnings climbed to $4.67bn, from $3.33bn in the same period in 2017. Commercial aeroplanes revenue was flat at $14.5bn, though up 3 per cent in the half. Revenue for defence, space and security grew 9 per cent to $5.6bn, but earnings in that division fell 15 per cent, “primarily reflecting KC-46 Tanker cost growth of $111m”. Boeing also booked 239 net orders for commercial aeroplanes during the quarter. Mr Muilenburg said: “Continued services growth, increasing defence volume and strong performance of our commercial business, as well as our positive market outlook, give us the confidence to raise our revenue and commercial aeroplanes margin guidance for the year.” (Source: FT.com) (See: FEATURES – ‘US Majors Report Results In Line With Expectations’)

25 Jul 18. Qatar Fighter Jet Deadline Missed As Qatar Emir Starts UK Trip. Qatar’s efforts to raise debt financing to buy advanced fighter jets from Britain has forced a delay in the deal until later this year, casting a shadow over a visit to London by the emir. The Qatari leader is due to meet with British Prime Minister Theresa May for a working lunch on Tuesday and hold meetings with other British ministers during the day. The order for the British-made fighters is at the heart of British relations with Qatar. Doha’s decision to raise funds from the capital markets for the purchase appeared to catch those close to the deal by surprise last month. Last December, Qatar agreed a $6.7bn deal with industry giant BAE Systems for 24 Typhoon fighter jets and the first payment was expected now. However, a source close to the deal confirmed that Qatar was seeking a $4bn loan to fulfill its obligations that delayed the payment and plunged the agreement into uncertainty.

“Initially the payment was expected around now but (has now been pushed) back to the third quarter on financial records, perhaps late August, so the deal can go through,” the source with knowledge of the contract said. “We don’t know why they need to do this (get the loan), it is their internal process that we are not party to, but we are still confident of payment and expect the deal to go through.” 

The financing will be backed by export credit agencies. Last December, BAE said the deal was subject to “financial conditions and receipt by the company of first payment, which are expected to be fulfilled no later than mid-2018”. (Source: defense-aerospace.com/The National)

25 Jul 18. Cubic acquires Shield Aviation. Cubic Corporation announced on 24 July that it had completed the acquisition of the assets of United States-based Shield Aviation. Terms of the deal were not disclosed. Shield Aviation provides unmanned aerial vehicles (UAVs) – most notably the ARES family of aircraft – for use in intelligence, surveillance, and reconnaissance (ISR) missions, as well as ISR services and UAV pilot training. Cubic said in a statement that the acquisition will expand the company’s Mission Solutions offerings through the provision of a rapidly deployable UAV. Cubic currently provides the datalinks and command-and-control links for Shield’s UAVs. (Source: IHS Jane’s)

24 Jul 18. ATI Announces Second Quarter 2018 Results.

  • Sales were $1.01bn, 15% higher than Q2 2017 and 3% higher than Q1 2018
  • High Performance Materials & Components sales of $592m, up 12% versus Q2 2017 and 6% higher than Q1 2018
  • Flat Rolled Products sales of $418m, up 18% versus Q2 2017 and even with Q1 2018
  • Business segment operating profit was $124m, or 12.3% of sales
  • HPMC segment operating profit was $97.9m, or 16.5% of sales
  • Q2 continued strong aero-engine market sales trend
  • FRP segment operating profit was $26.1m, or 6.3% of sales
  • Net income attributable to ATI was $72.8m, or $0.52 per share

Allegheny Technologies Incorporated (NYSE: ATI) reported second quarter 2018 results, with sales of $1.01bn and net income attributable to ATI of $72.8m, or $0.52 per share, a $0.10 per share sequential improvement compared to the first quarter 2018 and a $0.20 per share increase compared to adjusted first quarter 2018 results of $0.32 per share, which excludes the Q1 stainless sheet joint venture gain. Compared to the prior year quarter, ATI sales were 15% higher and earnings per share of $0.52 was more than five times the Q2 2017 results of $0.09 per share.

“Results in our High Performance Materials and Components (HPMC) segment improved at a faster pace than expected,” said Rich Harshman, Chairman, President and Chief Executive Officer. “Continued strong sales of next-generation jet engine products, which at $146m for the second quarter 2018 were up 39% year-over-year, drove HPMC segment operating profit margin to 16.5% of sales. These results demonstrate the power of our next-generation product mix, as these materials, parts, and components represented 49% of total second quarter HPMC jet engine product sales.

“Our Flat Rolled Products (FRP) business had a solid quarter, delivering $26.1m in segment operating profit, or 6.3% of sales, a significant improvement both sequentially and year-over-year, demonstrating the benefits of our actions to achieve sustainable profitability. FRP segment operating profit benefited from improved market demand and the absence of Q1 2018 headwinds, including a better matching of raw material costs and surcharges. We continue to see improvements in FRP segment profitability through a shift to differentiated products and increased asset utilization, including the ramp-up of the A&T Stainless joint venture.”

  • ATI’s sales to key global markets represented 81% of total ATI sales for the first half of 2018:

o Sales to the aerospace and defense markets were $944m and represented 48% of ATI sales: 28% commercial jet engine, 13% commercial airframe, 7% government aero/defense.

o Sales to the oil & gas market were $285 m and represented 14% of ATI sales.

o Sales to the automotive market were $160 m and represented 8% of ATI sales.

o Sales to the electrical energy market were $120 m and represented 6% of ATI sales.

o Sales to the medical market were $95m and represented 5% of ATI sales.

  • International sales represented 43% of ATI’s first half 2018 sales.

“In late March 2018, we filed for an exclusion from the recently enacted Section 232 tariffs on behalf of the A&T Stainless JV, which imports semi-finished stainless slab products from Indonesia. In the absence of an exclusion, these slabs will be subject to the 25% tariff recently levied on all stainless steel products imported into the United States,” Harshman said. “The U.S. government’s review of the JV’s exclusion request is ongoing, and we continue to believe that the facts underlying this request are compelling and justify an approval. U.S. stainless steel slab production is currently operating at a 95% utilization rate and stainless slabs are clearly not sufficiently and reasonably available.”

“We announced the acquisition of Addaero Manufacturing (Addaero) on July 16. This strategic acquisition brings together ATI’s deep knowledge and experience in commercial aerospace and our industry-leading powder metal manufacturing capabilities, including our new aerospace-qualified Bakers Powder Operations, and Addaero’s technical expertise to produce aerospace quality parts using various additive manufacturing technologies. Addaero’s competencies are a natural extension of ATI’s metallic powder expertise and expand our capabilities to provide comprehensive customer solutions ranging from the design of parts for additive manufacturing to the production of ready-to-install components. The acquisition of Addaero is another building block in our strategy to enhance ATI’s full specialty materials capabilities to provide end customers with finished products,” Harshman continued.

As of June 30, 2018, cash on hand was $122m and available additional liquidity under the asset-based lending (ABL) credit facility was approximately $355m, with no borrowings under the revolving credit portion of the ABL. During Q2 2018, ATI generated $82 m of cash from operating activities despite a $65m increase in managed working capital, which represented 37.5% of sales in the second quarter 2018. The increase in managed working capital supports higher demand and temporary inventory builds in anticipation of Q3 planned summer maintenance in several of our businesses. Capital expenditures for the second quarter 2018 were $29m, and were $71m year-to-date, including the initial down payments for the previously announced HPMC iso-thermal press and heat treating expansions, as well as significant expenditures on the STAL expansion in China, which is being placed into service in the third quarter 2018.

Strategy and Outlook

“In the HPMC segment, we expect continued year-over-year revenue and operating profit growth in the second half of 2018 resulting from ongoing aerospace market demand growth and improved asset utilization. We remain confident in our customers’ continued elevated order patterns due to increasing jet engine build rates over the next several years. Our focus continues to be on strong operational execution, continuous improvement initiatives, and on meeting the aerospace production ramp requirements,” Harshman said.

“In the FRP segment, we see continued strong end-market demand and the benefits from ongoing operational improvements, growth in our differentiated products, and benefits from the A&T Stainless joint venture. Cost inflation in many raw materials used to manufacture our products, primarily related to nickel, cobalt and molybdenum is likely to represent a moderate LIFO expense headwind in the second half of 2018 which would be greater than and not fully offset by our remaining NRV inventory reserves. Cash generation from operations remains a key focus, and we intend to carefully balance our working capital and other cash needs with the pace of our capital expenditure requirements. We expect strong second half 2018 cash generation, with at least $150m of free cash flow for the full year 2018, excluding about $40m in contributions to the ATI Pension Plan. We expect to end 2018 with zero borrowings under our ABL revolving credit facility. Finally, we do not expect to pay any significant U.S. federal or state income taxes in 2018 due to net operating loss carryforwards,” Harshman concluded.

Second Quarter 2018 Financial Results

  • Sales for the second quarter 2018 were $1.01bn, a 3% increase compared to the first quarter 2018 and a 15% increase compared to the prior year’s second quarter. HPMC sales in 2018 reflect stronger demand for nickel-based and specialty alloy products, forgings and components. FRP sales in 2018 include a stronger mix of high-value products, particularly nickel-based alloys.
  • Gross profit in the second quarter 2018 was $173.7m, or 17.2% of sales, compared to $148.6m, or 15.2% of sales, in the first quarter of 2018 and $124.3m, or 14.1% of sales in the prior year’s second quarter.
  • Net income attributable to ATI for the second quarter 2018 was $72.8m, or $0.52 per share. This compares to net income attributable to ATI of $58.0m, or $0.42 per share for the first quarter 2018, and adjusted Q1 2018 net income of $43.3m, or $0.32 per share, excluding the A&T Stainless gain. For the second quarter 2017, net income attributable to ATI was $10.1m, or $0.09 per share. Results in all periods include impacts from income taxes which differ from applicable standard tax rates, primarily related to impacts of income tax valuation allowances.
  • Cash on hand at June 30, 2018 was $122.4m. In the second quarter 2018, cash provided by operating activities was $82.1m, including $64.7m invested in managed working capital. Capital expenditures in the second quarter 2018 were $29.0m, and cash used in financing activities was $41.3m, primarily related to repayments of $50.0m of revolving credit borrowings under the ABL.

High Performance Materials & Components Segment

Market Conditions

  • Aerospace and defense sales in the second quarter 2018 were $438.5m, 3% higher than the first quarter 2018, and represented 74% of total segment sales. Compared to the first quarter 2018, commercial jet engine sales and commercial airframe sales were both 3% higher, and government aero/defense sales were 1% higher. Total HPMC second quarter 2018 sales increased 6% over the first quarter 2018, with sales to the electrical energy market up 31%, and sales to the construction & mining market 8% higher. Direct international sales represented 51% of total segment sales for the second quarter 2018.

Second quarter 2018 compared to second quarter 2017

  • Sales were $591.9m, a $65.5m, or 12%, increase compared to the second quarter 2017, primarily due to higher sales of next-generation jet engine products. Sales to the commercial aerospace market, which represented 63% of second quarter 2018 sales, were 14% higher than the prior year, including a 16% increase in sales to the commercial jet engine market. Construction and mining market sales were 52% higher, and electrical energy market sales were 67% higher, from a low prior-year base in both end markets.
  • Segment operating profit improved to $97.9m, or 16.5% of sales, compared to $68.0m, or 12.9% of sales for the second quarter 2017. This operating profit improvement reflects higher productivity from increasing aerospace and defense sales, and an improved product mix of next-generation nickel alloys and forgings for the aero engine market.

Flat Rolled Products Segment

Market Conditions

  • In the second quarter 2018, conditions continued to improve in most end markets including automotive, consumer durables, aerospace & defense, and electrical energy, while project-based sales to the oil & gas market declined, all compared to the first quarter 2018. Additional project-based oil & gas demand is expected later in 2018. Sales increased 8% for standard products, and declined 4% for high-value products primarily as a result of lower project-based oil & gas sales, compared to the first quarter 2018. Direct international sales were 32% of second quarter 2018 segment sales.

Second quarter 2018 compared to second quarter 2017

  • Sales were $417.6m, a $63.8m, or 18%, increase compared to the prior year period. Sales of high-value products were 27% higher, primarily for nickel-based and specialty alloys, and sales of standard products were 6% higher, compared to the second quarter 2017.
  • Segment operating profit was $26.1m, or 6.3% of sales, compared to $2.9m, or 0.8% of sales for the second quarter 2017. Compared to 2017, results in 2018 included a better matching of raw material surcharges with changes in prices for nickel, ferrochrome and other metallics, improved cost absorption through higher operating rates, and benefits from the recently-formed A&T Stainless joint venture.

Closed Operations and Other Expenses

  • Closed operations and other expenses in the second quarter 2018 were $5.1m, compared to $13.2m in the prior year quarter. Changes between periods were primarily the result of foreign currency remeasurement gains in the second quarter 2018 compared to remeasurement losses in Q2 2017.

Income Taxes

  • ATI continues to maintain income tax valuation allowances on its U.S. federal and state deferred tax assets, and we do not expect to pay any significant U.S. federal or state income taxes for the next few years due to net operating loss carryforwards. The second quarter 2018 6.1% tax rate primarily relates to income taxes on non-U.S. operations. (Source: BUSINESS WIRE)

23 Jul 18. Foreign takeovers of UK companies to face increased scrutiny. Nato allies fear that China and other rivals of the west may buy sensitive technology. Theresa May called in the purchase of a stake in the Hinkley Point nuclear power station by Chinese investors, before going on to clear the deal. Ministers will announce plans for an increase in government scrutiny of foreign takeovers in British industries that present national security concerns. Under the proposals to be unveiled on Tuesday, dealmakers will be encouraged to notify the government ahead of any transactions that could give rise to security risks. That will apply even if the takeover targets are very small and even if the deal involves just the acquisition of an asset, intellectual property or shareholding. For the first time, breaches of the government’s recommendations over such deals will be classified as a criminal rather than a civil offence. The changes come amid rising concerns across Nato allies that sensitive technologies are being systemically acquired by rivals of the west, particularly China. The US is currently debating legislation to strengthen its national security clearance system, driven by anti-Beijing policies from the White House. Germany made changes to its takeover reviews last year. British civil servants believe the changes will prompt a significant increase in the number of “interventions” they make on national security grounds from about one a year to as many as 50. This year there has been only one national security-related review, the takeover of Northern Aerospace by Chinese-owned Gardners. Last year, the only one was the acquisition of Sepura by China’s Hytera. Under internal government analysis, officials now expect to receive about 200 notifications a year, of which 100 will be called in and 50 subjected to an intervention. Theresa May set out plans to tighten the takeover regime for sensitive foreign buyers soon after she became prime minister, having called in the purchase of a stake in the Hinkley Point nuclear power station by Chinese investors — although she cleared that deal. Authorities can already intervene in deals under the Enterprise Act 2002 if a transaction has implications for either national security, media plurality or financial security Current options range from offering “approval subject to conditions” to an outright block of a deal. The proposals put forward on Tuesday morning in a new white paper — “National Security and Investment” — would give the government much greater powers to intervene under the first of those conditions: national security. At present the authorities can intervene if a deal creates a group with 25 per cent of the market or with turnover of over £70m. That has already been cut to £1m mergers in two areas: advanced technology and the “dual use and military use sector”. Recommended UK politics & policy Cyber watchdog warns on Huawei security risks to critical UK networks The white paper suggests both thresholds should be swept away entirely for all security-related sectors ranging from transport schemes and telecommunications to defence contracts. That means sellers will have to notify officials of any transaction with a buyer that could prompt national security risks. That could involve the sale of a small asset, for example a laptop, if necessary. Sellers will be expected to notify the authorities where they sell more than 50 per cent of one asset or more than 25 per cent of shares in their company. Companies and investors will be encouraged to notify the government about such transactions on a voluntary basis rather than under a “mandatory notification”, which was put forward in an earlier green paper. The proposals will be the subject of a 12-week consultation. They will need new legislation, depending on gaps in the parliamentary calendar and are designed to bring the UK regime more in line with Germany, Australia, Canada and France. Last week, the Huawei Cyber Security Evaluation Centre Oversight Board, which monitors checks in China’s Huawei telecoms company in Britain’s critical networks, suggested that “significant additional work” was needed to manage the risk to UK national security. (Source: FT.com)

23 Jul 18. Aerospace merger flies again after being grounded by competition fears. The on-off purchase of Northern Aerospace by Derby-based Gardner Aerospace is expected to be completed within the next 24 hours after the deal was cleared by competition authorities last week. The £44m acquisition had been held up after the Business Secretary Greg Clark asked the Competition and Markets Authority to investigate whether it would reduce competition and have an impact on national security. Gardner is owned by Chinese aerospace and mining business Shaanxi Ligeance Mineral Resources. The investigation blocked the deal’s progress beyond the deadline of July 7 and the agreement lapsed. The competition and security fears have now been allayed and the two companies have now “entered into a binding legal agreement” to complete the transaction, a statement by Northern Aerospace owners Better Capital has said. Northern Aerospace supplies precision machined parts to the aerospace industry. The County Durham-headquartered group employs around 600 people at six sites, including Leicester. (Source: News Now/http://www.thebusinessdesk.com)

23 Jul 18. Long-term investors are not the enemy for European company chiefs. With buyout funds on the prowl there is a benefit in engagement. For too long equity investors have been reluctant to engage with European management teams. European chief executives have not made it easy, but with buyout funds on the prowl, it’s time for a constructive dialogue to begin. Perhaps we’re both at fault. Investors in European companies haven’t always followed the lead of shareholders in US companies, who proactively engage with management to promote changes that help unlock returns for clients. Many are still sitting on the sidelines. Yet efforts by active long-term investors to engage with European companies have often been snubbed because management thinks they don’t have the company’s best interests in mind. It’s easy to forget that we, the shareholders, are the company’s owners. But change is coming. Pay attention to recent high-profile cases. In March, GKN, the UK-based engineering group, received a hostile bid from Melrose Industries, a buyout firm. In February, Danish telecom group TDC made a $2.5bn bid for Modern Times Group (MTG) of Sweden after reportedly receiving a takeover bid from an infrastructure fund that we first learned about in the press. What do these two stories have in common? In both cases, management refused to listen to constructive input from shareholders, which could have helped them improve performance and preserve their independence. Instead, their strategic weaknesses left them vulnerable to takeovers by buyers who could impose similar measures to those that investors had advocated for. As investors in GKN, we repeatedly tried to engage with management and the board of directors. Our analysis suggested that the company’s conglomerate structure made no sense. In our view, GKN’s operational performance — and shareholder returns — would have benefited from splitting the aerospace and automotive businesses into two separate entities. We were ignored. Then came Melrose, and GKN immediately put its auto business up for sale. Surely the abrupt U-turn raises questions about corporate governance. When investors suggest painful decisions, don’t reject them outright. Deferring tough moves is . . . an invitation for an unwanted buyer TDC’s bid for MTG was obviously a poison pill, designed to create a company too diverse for a pension fund to swallow. Instead of engaging with shareholders like us on the merits of accepting a takeover offer, TDC remarkably developed a strategy to buy MTG and issue equity. In both cases, management only took action when their independence was under threat and their jobs were on the line. Both stories could have ended differently if management was open to communicating with concerned shareholders. For that to happen, a change of mindset is needed. Management teams should stop looking at engaged shareholders as enemies. It’s simply not true. Long-only investors aren’t renting the stock; they’re actually buying a stake in the company. That means we’ve done our homework. Sometimes, investors can help management deepen their understanding of what’s going on across their industry and even inside their company. But to foster better communication, European chief executives need to start thinking differently. Start by being clear about your strategy. Stop hiding behind vague, long-term value-creation promises. Even if we disagree about strategy, talk to us. Debate is healthy. Shareholders might not have all the right answers, but don’t assume that you do either. Sometimes, an outside view is essential for change. We have skin in the game, and unlike others, we don’t charge for the dialogue. When investors suggest painful decisions, don’t reject them outright. Deferring tough moves is a recipe for failure and an invitation for an unwanted buyer. Sceptics deserve to be heard. Speak with investors who are shorting your stock. Find out why they think you are destroying value. Sometimes they are right — and why spurn free analysis? Then act and prove them wrong. It’s also important to improve alignment with shareholders. That means compensation should be linked to metrics that indicate how well your strategy is delivering and how well it is creating value for investors. Recommended Private equity Sovereign wealth funds start to cool on private equity Chief executives who choose to ignore these suggestions shouldn’t be surprised when a private equity firm turns up unannounced or when a more vocal and hostile activist fund puts them in their crosshairs. Private equity funds are awash with cash and are hungry for deals. They can smell opportunity, especially since return on equity of European companies is lower than US peers. If our suggestions fall upon deaf ears, don’t be surprised if long-only investors like us decide to help them. Many long-only investors want to work with European management teams toward the best long-term outcome for all stakeholders by helping companies build on their business strengths to improve profitability. Shareholders like us would rather capture the value of a company’s hard work through a public share price than give up that upside to another player — like a private equity buyer. There’s a new breed of activist investors on the European corporate landscape who aren’t aggressive and don’t seek to air disputes in public. We’re actually on the same team and have the same long-term interests. Just open the door and you won’t regret letting us in. Tawhid Ali is chief investment officer of European equities at AllianceBernstein. Andrew Birse is portfolio manager of European equities at AllianceBernstein.

BATTLESPACE Comment: Given the GKN family connection, the Editor attended the last GKN AGM and the Melrose AGM. At both he met the new management team to express his views as published in BATTLESPACE (See: Features ‘GKN – The Next 150 Years – A Family Viewpoint By Julian Nettlefold’). Whilst seemingly taking stock of the Editor’s point of view and his comments about Farnborough, Melrose made no move at all to make a strong statement bout their GKN acquisition at Farnborough. Why? Was it because their PR Company Montfort has no other aerospace clients, thus does not understand the business or was it because Melrose doesn’t really know what they have bought? Certainly, they were unaware of the aerospace trends and five year gap seen by GKN between old programmes such as F-35, Typhoon and A320 to new programmes such as Tempest, A320 ONEO and the proposed European fighter. Sources say that Melrose is slashing staff and amalgamating teams including making the US and UK aerospace businesses under one roof thus ignoring the Chinese Walls deliberately erected to protect sensitive US Programs. Melrose CEO Simon Peckham was at Farnborough but apparently not pressing he flesh with the likes of Airbus and Boeing to give them the comfort that the new team understands aerospace. Melrose has two years to ride with the current aerospace boom but it must start making moves to bid for the next iteration of Programmes. On wider issues, the Driveline business ahs been divided into four segments, no doubt to make it easier to sell and the Powdered metallurgy business is rumoured to be on the block for £1.5bn. The next set of Melrose figures which will include 9 months of GK, will no doubt contain the usual kitchen sink exercise of clearing out the bad news, it’s the finals later on in the year that we should watch for.

23 Jul 18. Capita’s shareholders may be wondering why they stumped up £662m for a rights issue in May. New chief executive Jonathan Lewis told them it was needed to help turn the outsourcing group around, after a profit warning wiped £1bn off its value. Now it seems the UK government has turned around and wiped its signature off Capita’s contract to run the British military’s fire and rescue service. Last month, Capita beat rival outsourcer Serco to win the Ministry of Defence contract, which involves the transfer of more than 2,000 staff at 78 defence fire stations worldwide. But, a day later, the Financial Times revealed that an assessment of Capita commissioned by the MoD had given the outsourcer the riskiest possible rating — in spite of its fundraising.  Now Serco has challenged the government’s decision to award the contract to its rival — which means the outsourcing has been suspended. Yesterday, the MoD confirmed that “the contract award has been suspended until a legal challenge to the procurement is resolved”.  Apparently, official documents show that Capita scored 10 out of 10 for risk in an assessment by CompanyWatch on behalf of the government — where 1 indicates the lowest probability of distress and 10 the highest.  By contrast, Serco scored just seven out of 10 for risk, according to the assessment — which led it to take legal action. For Capita, the decision represents a blow to its turnround plans — and demonstrates the increased focus on outsourcing risk since the collapse of government contractor Carillion in January. This MoD contract was one of the first major outsourcing deals announced by the government since Carillion went into liquidation after failing to refinance billions of pounds of debt.  Capita will hope that its financial recovery enables it to keep the military work. It has recently won other government contracts, including a two-year extension to a deal to run controversial disability assessments tests for the Department for Work and Pensions.  Capita said of the MoD contract: “This award was based on a rigorous evaluation process that assessed Capita’s proposition as being the most economically advantageous tender, including quality, technical merit and value. Capita remains fully committed to the future delivery of the Defence Fire and Rescue Project and will continue to support the MoD on this matter.”  (Source: FT.com)

BATTLESPACE Comment: Sources close to BATTLESPACE commented that this is very unusual in UK procurements – but perhaps not that surprising given weight of Americans on Serco’s board these days. The source believes that Serco are attempting to get legal injunction to prevent contract award whilst they prepared their protest. MOD has obviated that by giving them some time.  In reality, the ‘financial risk’ score that Serco have been talking to the FT about is not part of the OJEU assessment process UNLESS Serco can show that Capita’s original PQQ is no longer relevant due to changed financial circumstances. It’s unlikely that they can do that as all the measures asked for in the PQQ (last 3 years accounts, demonstration of credit from bankers – especially post rights-issue etc.) are still fine. It’s a strange thing for Serco to do, on two grounds:-

  • If they can’t overturn the OJEU process assessment, then the best they can hope for is that the competition is cancelled. If they can overturn it, then it would probably have to be re-run, perhaps another 5 years?
  • If by some political means, if they did convince MOD / Treasury to kick Capita out on financial risk grounds, then they open up a huge hole for themselves on other contracts. Who is to say that “a Max 10” on risk is unacceptable whist a ‘7’ which they claim Serco got is OK? Suppose someone in Treasury decides that this must be made objective and built into Assessment criteria for future programmes – then decides that a ‘3’ or a ‘5’ is the arbitrary limit. Game over for Serco, Capita – and frankly most of the outsourcers

23 Jul 18. EU launches antitrust probe into Thales’ proposed takeover of Gemalto. The European Commission has launched an in-depth investigation into the proposed acquisition of digital security company Gemalto by French aerospace and defence group Thales, a deal that would combine the two largest suppliers of hardware security modules globally. The Commission said on Monday that it is “concerned that the merger could lead to higher prices and reduce choice and innovation for customers of hardware security modules.” A hardware security module is a digital security tool in the form of a dedicated hardware appliance. It runs on encryption software to generate, protect, and manage encryption keys used to protect data in a secure tamper-resistant module. In December Thales agreed to buy Gemalto in a deal worth close to €4.8bn, after Gemalto rejected a €4.3bn takeover proposal by larger rival Atos. At the time Thales said it would combine its digital businesses into Gemalto, which would continue to operate under its own brand. The combined business would rank among the top three players worldwide in the digital security market, said the companies. Commissioner Margrethe Vestager, in charge of competition policy, said in a statement on Monday: Our society is increasingly dependent on data security solutions to secure all sorts of social, commercial or personal information. We are opening this in-depth investigation to ensure that the proposed transaction between Thales and Gemalto would not lead to higher prices or less choice in hardware security modules for customers looking to safely encrypt their data. The Commission said that its investigation will seek to confirm the extent to which the two companies are close competitors, the potential response of the merged entity’s competitors, and the ability of software-based solutions to reach the same security level as hardware security modules, and therefore compete with the latter. The Commission now has 90 working days, until 29 November 2018, to take a decision. Thales and Gemalto did not immediately respond to requests for comment. (Source: FT.com)

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Odyssey is an independent corporate finance firm which advises on acquisitions, business sales, management buy-outs and raising finance, typically in the £5m to £100m range.  We have extensive experience in the niche manufacturing sector with our most recent completed deal being the sale of MacNeillie to Babcock Plc. Details can be seen at:  http://www.odysseycf.com/case-study-macneillie/

As a result of this and related projects we have developed relationships with buyers and funders looking to acquire or invest in the sector.  We would be happy to share further insights into the sector and to carry out reviews of businesses whose shareholders are considering an exit, acquisition or fundraise.

The review will include:

* Valuation

* Market review

* Comparative deals and structures

* Initial thoughts on buyers/ investors/ targets

* MBO viability

* Feasibility review and identification of any issues to be addressed pre-deal

There is no charge for this review.

If this is of interest we would be happy to meet at your convenience.

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