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23 Aug 18. Patria Group Interim Report for 1 January – 30 June 2018. Patria Group’s result for the first half of the year was at estimated level. Net sales totaled EUR 232.6m (EUR 221.8m in 2017). Operating profit was EUR 10.0m (EUR 15.4m). The decrease is mainly due to normal fluctuations in the international business. Equity ratio was 53.3% (52.0%) and gearing 31.9% (29.6%). A large part of the new orders is linked to the Systems and Land businesses and their maintenance and life-cycle support services.
First half of 2018
In January, Patria signed an agreement with the Finnish Defence Forces on the mid-life upgrade and overhaul of the Finnish Defence Forces’ Hamina Class fast attack craft. The total value of the delivery contract, excluding options, is around 170m euros. The estimated employment effect of the programme in Finland will be around 300 person-years. Patria will act as the prime contractor, designer and lead system integrator having the overall responsibility for the project.
Kongsberg Defence & Aerospace and Patria entered into an agreement to develop opportunities for cooperation on Missile Systems. The agreement comprises the establishment of a Missile Competence Center in Finland, Open Tactical Framework (OTF) core technologies and system architecture software for missile programs in Finland and international opportunities linked to these capabilities.
The Estonian Centre for Defence Investment renewed the public contract with Patria’s subsidiary Milrem LCM, provider of defence vehicle lifecycle management, for repair and maintenance of the Patria XA-180 and XA-188 armoured vehicles.
Finland’s first 3D-printed aircraft engine part had its maiden flight in January. The part was installed in the F/A-18 Hornet fighter. Patria has been working on the manufacturing process for 3D-printed parts over the last two years and is continuously involved in exploring new repair methods utilizing the latest manufacturing and repair processes.
In February, Patria was in the middle of media attention in Finland in connection with a Finnish businessman tragically deceased in Uganda. The incident led to immediate corrective measures and changes in the management of Land business unit.
In March, Senop Oy signed a contract with the Norwegian Kongsberg Defence & Aerospace AS for the supply of the integrated command post shelters. The contract is a continuation for a long-term co-operation between Kongsberg and Senop. The deliveries will take place in 2019. In April, Patria signed an agreement on bridge-laying equipment systems. The Finnish Defence Forces will get four new Leopard 2L bridge tanks with ability to handle Leguan bridges of different lengths. The purchase’s total value is EUR 28,6m and its employment effect with options in Finland is some 55 person-years of which Patria’s employment effect is some 35 person-years. The deliveries will take place in 2019 – 2021.
In April, Patria’s subsidiary Milrem LCM and BAE Systems signed a contract to support Estonia’s fleet of CV9035 Infantry Fighting Vehicles (IFVs). Milrem will provide maintenance and repair services for CV9035 vehicles from its facilities in Estonia.
During April and May, employee cooperation negotiations in Aerostructures and Land business units were finalised. In Aerostructures, the negotiations resulted in reductions that affected 13 persons as redundancies or temporary lay-offs. 14 persons have temporarily laid-off part-time. In Land, the need for reduction was determined as 10 persons and at most 25 persons have their duties adjusted.
In May, Ingvar Pärnamäe, was appointed as the new CEO of Milrem LCM.
In June, Patria Aerostructures Oy acquired all the shares in Patricomp Oy, which operates in aircraft sheet metal part manufacturing, surface treatments and assemblies.
In June, Patria launched new products at Eurosatory event in Paris: two new passive RF sensor products, MUSCL for battle-proof air surveillance, ARIS-E ESM system for tactical situational awareness, and a new Patria 6×6 vehicle with its multifunctional transport capacity and modularity that adapts easily to customers’ needs.
Highlights after the financial period
In August, the Board of Management of Patria was strengthened by a new position of Chief Business Development Officer to support the implementation of the strategy, and by two new business unit Presidents. Pasi Niinikoski was appointed as Group’s Chief Business Development Officer, Teemu Raitis as President of Land business unit, and Jonas Geust as President of Systems business unit.
Outlook for the rest of the year
Patria’s domestic customer, the Finnish Defence Forces, has significant projects (HX, SQ 2020) in progress. Industrial participation is extremely important and a great opportunity to Patria. General development and changes in the security environment have also increased defence budgets and readiness requirements. These are likely to have a positive effect for Patria’s sales and profitability in the long run but not having an impact during 2018. The net sales is nonetheless estimated to improve from the last year.
22 Aug 18. Alion Science and Technology Completes Acquisition of MacAulay-Brown, Inc. Alion Science and Technology Corporation (“Alion”), a portfolio company of Veritas Capital, today announced the completion of its previously announced acquisition of MacAulay-Brown, Inc. (“MacB”). “We are pleased to welcome Sid Fuchs and the MacB team to Alion, and we look forward to the new opportunities this combination will create for our customers and the broader industry,” said Steve Schorer, President and CEO of Alion. “Together we are ideally positioned to provide our customers with the breadth of capabilities, technology and differentiated solutions required to address their mission critical needs.” MacB will operate as a wholly owned subsidiary of Alion. (Source: BUSINESS WIRE)
21 Aug 18. Soitec (Euronext Paris), a world leader in designing and manufacturing innovative semiconductor materials, and MBDA, announce the joint acquisition of Dolphin Integration. Dolphin Integration is an industry recognized provider of semiconductor design, silicon IP and SoC (System-On-Chip) solutions for low power applications. Headquartered in Grenoble, Dolphin Integration was founded in 1985. It currently employs 155 people, including 130 design engineers. For the fiscal year ended March 31th, 2018, the company generated revenues of 17m Euros. The joint venture formed by Soitec and MBDA acquires Dolphin Integration, including all employees. The resulting ownership of the joint venture is as follows: Soitec at 60% and MBDA at 40%. The transaction was authorized today by the Commercial Court of Grenoble. It comes as a prompt and positive outcome of Dolphin Integration insolvency proceedings. The company went into receivership on July 24, 2018. Soitec and MBDA each provide complementary strategic support to Dolphin Integration. Soitec brings its engineered substrates expertise and unique low-power design methodology (body biasing) to accelerate Dolphin Integration design activities in low-power electronic devices, where a growing number of critical chips are built on FD-SOI technology. In addition, Soitec will strengthen Dolphin Integration’s position within the entire semiconductor ecosystem, to develop and promote products and services in several strategic markets, including mobile devices and infrastructure, data centers, and space and industrial applications. MBDA, a strategic customer of Dolphin Integration for defense applications since 2004, strengthens its existing industrial collaboration and long-term commercial pipeline for ASIC (Application Specific Integrated Circuit) and SoC (System on Chip) products. With the support of MBDA, Dolphin Integration will be able to advance its positions in aerospace and defense design.
Soitec and MBDA confident in Dolphin Integration profitable growth. Soitec and MBDA together committed to a financial investment of around 6m Euros including the acquisition of most of Dolphin Integration’s assets, the payment of certain liabilities and a significant cash injection to finance Dolphin Integration’s working capital requirements. Soitec and MBDA are confident in their ability to turnaround the financial position of Dolphin Integration. Dolphin Integration is expected to be fully consolidated into Soitec’s financial statements as of September 2018.
“Dolphin Integration represents a strategic opportunity for Soitec to reinforce a full IP and service offering related to energy efficient solutions for chip design on FD-SOI. This is a major differentiating factor for FD-SOI and a key accelerator of FD-SOI adoption in major market segments,” highlighted Paul Boudre, CEO of Soitec.
“MBDA investment will strengthen the French defense industrial base since it will provide Dolphin Integration with a more stable flow of defense related revenues and a closer technological collaboration that will allow it to enhance the access of its specialized microelectronics offering to the entire French and European defense industry,” said Antoine Bouvier, CEO of MBDA.
21 Aug 18. Houlihan Lokey Advises General Dynamics Information Technology. Houlihan Lokey announced the sale of General Dynamics Information Technology’s (GDIT) Systems Engineering and Acquisition Support Services Business Unit (SE&A BU) to CACI International Inc (CACI). The transaction closed on August 15, 2018. SE&A BU is a highly specialized engineering and lifecycle acquisition support platform with a rich 40+ year heritage supporting virtually every class of naval ship. The business provides full lifecycle acquisition services that support the Navy’s most mission-critical programs and systems. SE&A BU’s suite of capabilities includes acquisition and program support, integrated lifecycle planning and support, systems engineering and integration, system design and development support, and test and evaluation. The business was acquired by GDIT as a part of its acquisition of CSRA on April 3, 2018. Headquartered in Arlington, Virginia, CACI International Inc (NYSE:CACI) provides information solutions and services in support of national security missions and government transformation for intelligence, defense, and federal civilian customers. Named one of the World’s Most Admired Companies by Fortune, CACI is a member of the Fortune 1000 Largest Companies, the Russell 2000 Index, and the S&P SmallCap600 Index. Houlihan Lokey served as the exclusive financial advisor to GDIT.
Houlihan Lokey’s Aerospace•Defense•Government (ADG) practice is among the leading M&A advisors to aerospace, defense, government services, and homeland security companies. Since 2015, we have closed more than 60 transactions worth nearly $15bn in enterprise value. With a staff of approximately 30 investment bankers in Washington, D.C., London, and Los Angeles, Houlihan Lokey’s ADG practice is among the largest dedicated industry banking groups worldwide.
20 Aug 18. Kromek contracts building up. Sedgefield-based Kromek (KMK:26.5p), a radiation detection technology company focused on the medical, security and nuclear markets, has announced a raft of contract wins since I covered the full-year results (‘Kromek turns inflexion point’, 3 July 2018). When I interviewed the directors in early July they revealed that a number of potential clients were carrying out due diligence as part of the potential order placement, the implication being that we could expect news of new orders for both its medical imaging and nuclear businesses, which account for 90 per cent of the company’s revenues. The fact that they have delivered $3.6m (£2.8m) of awards in less than a month adds weight to the likelihood of the company winning even more contracts, and also de-risks Equity Development’s expectations that Kromek can lift revenues by more than a quarter to £15m in the financial year to end-April 2019, which would more than treble cash profits to £1.66m. Analysts Paul Hill and Andy Edmond at Equity Development estimate that more than two-thirds of their revenue forecast is covered by firm orders even at this early stage.
In the nuclear medicine instrumentation field, Kromek has just been awarded a $700,000 order from a new original equipment manufacturer (OEM) customer to supply its proprietary cadmium zinc telluride (CZT) detectors in the nuclear medicine market over an 18-month period. Today’s other award is a repeat contract worth $340,000 to supply CZT-based detectors to an existing customer in the bone mineral densitometry (BMD) market in the financial year to end-April 2019. Kromek’s patented CZT-based radiation detection technologies are used by a total of 11 OEM customers in medical imaging across single photon emission computed tomography (SPECT), BMD (to treat osteoporosis) and gamma probes (used for radio-guided surgery). The detectors are capable of diagnosing and monitoring conditions like Parkinson’s disease and making early diagnosis of cancer too, hence their increasing popularity.
The company’s technology is proving popular with the US Department of Homeland Security (to develop CZT detector modules for commercial off-the-shelf detectors for advanced X-ray systems in passenger baggage screening), and the Defence Threat Reduction Agency (for the development of the next generation of handheld nuclear radiation detectors). A few weeks ago, Kromek was awarded two contracts from the two US government agencies worth a minimum of $2.6m over the next three years. Kromek’s technology can enhance the detection of an extensive range of threat materials and significantly reduce false alarms in aviation security for baggage handling.
There is also real potential that its ‘dirty bomb’ detectors (10 times faster at detecting gamma and neutron radiation, and at a tenth of the cost of conventional detectors) will be rolled out across 20-plus cities across the US if Kromek secures a slice of an $8.2bn US government contract. Each city contract could be worth $10m in revenue alone, highlighting the substantial profit potential. The same is true if major OEM rivals to market leader GE Healthcare decide to contract Kromek as a CZT supplier for their own CZT-SPECT medical imaging cameras. Kromek is one of the few independent, end-to-end CZT manufacturers with the required design, engineering and technological skills to produce sufficient commercial quantities of the material, and has capacity to scale up production from its state-of-the-art new facility in Pittsburgh, Pennsylvania.
So, with potential for more multi-million dollar contracts to be landed, and blue sky potential too, I feel that the company is attractively priced on 18 times likely cash profits to enterprise value for the 2019-20 financial year. Having first advised buying the shares at 25p (‘Follow the smart money’, 27 Feb 2017), after which the price hit 37p before profit-taking took hold, a return to those highs, and beyond, is a real possibility if the order book continues to build. Buy. (Source: Investors Chronicle)
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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.
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