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28 Sep 18. South Korean defence sector in disarray after $16bn US tender fails. One of South Korea’s most promising industries was left reeling on Friday after a key arms manufacturer lost a much-anticipated multibillion-dollar contract to sell a fleet of jets to the US Air Force. Shares in Korea Aerospace Industries — South Korea’s sole aircraft maker — plunged as much as 28 per cent after the announcement the US would buy the 350 trainer jets from a Boeing-led consortium at a price tag of more than $9bn, about $7bn less than the air force originally said it would spend. The news triggered a broader rout of South Korean defence stocks, with engine maker Hanwha Aerospace and systems supplier LIG Nex1 falling as much as 12 per cent and 8 per cent respectively amid mushrooming concerns over the outlook for the industry. South Korea’s defence sector has blossomed in recent years on the back of global instability as well as an uptick in demand for the country’s speciality product: artillery. Regarded as modern, reliable and good value for money, South Korean military exports have soared more than tenfold in the past decade, with the bulk of sales coming from buyers in south-east Asia and the Middle East. The US contract, however, offered Seoul the chance to burnish its reputation and sell more advanced military equipment to developed nations. The lost contract is likely to cast a long shadow over the future of KAI, a company marred by controversy in recent years. Several top executives are under investigation for alleged financial improprieties, including price manipulation and accounting fraud. Recommended North Korea nuclear tensions US pulls back on pledge to suspend South Korea war games In May, the company became embroiled in the politics of the White House after it was revealed it had paid Michael Cohen, US president Donald Trump’s former lawyer, $150,000 for “advice” on “local accounting standards” in the US. For analysts, securing the deal — which at one point was estimated to be worth $16bn — was crucial to opening profitable markets for South Korean companies. “It is a big disappointment,” said Paul Choi, head of research at CLSA in Seoul. “This [contract] was not just about the US project, but about the potential for exports to other developed nations. People were holding [the stock] in anticipation of a win.” KAI had bid for the contract in partnership with US group Lockheed Martin — a tie-up that many in South Korea believed would give the company an edge. “Even though Lockheed Martin took part in this project in collaboration with KAI, due to Boeing’s low price and the resulting significant price difference, we failed to win the bid,” said the company, which described Boeing’s offer with Saab as “unbeatably low”. KAI had planned to supply its T-50A jets to replace the T-38 Talon aircraft that the US Air Force now uses to train pilots. Despite the setback on Friday, Mr Choi said the company would “not starve” and it still had growth opportunities in its “next generation helicopter project and its maintenance and repair business”. (Source: Google/FT.com)
28 Sep 18. SLAM technology market value to reach $8bn by 2027. SLAMcore, a UK company developing spatial artificial intelligence (AI) algorithms for robots and drones, today announced that it has raised $5m in funding led by global technology investor Amadeus Capital Partners. Existing investors Mirai Creation Fund and Toyota AI Ventures joined the round alongside newcomers MMC Ventures and Octopus Ventures.
“The robotics revolution may seem just around the corner but there is still a big gap between the videos we see on the internet and real-world robots,” said CEO, Owen Nicholson. “SLAMcore is helping robot and drone creators to bridge the gap between demos and commercially-viable systems.”
To be truly useful, robots and drones require spatial intelligence, including the ability to accurately calculate their position, understand unfamiliar surroundings, and navigate with consistent reliability. The fundamental algorithms that achieve this spatial awareness are often referred to as Simultaneous Localisation and Mapping (SLAM). SLAMcore offers spatial AI solutions designed to easily integrate into existing platforms, allowing robotics companies to concentrate on delivering value to the end customer.
“It is a really exciting time for robotics,” said SLAMcore co-founder Dr Stefan Leutenegger. “We are seeing a convergence of geometric computer vision algorithms, availability of high-performance computational hardware, and Deep Learning. We are embracing this new world and will move quickly towards offering solutions for robots requiring an advanced level of understanding of their environment.”
Amelia Armour, Principal, Amadeus Capital Partners, said, “BIS Research estimates the global SLAM technology market to be worth over $8bn by 2027. This funding round will enable SLAMcore to take its spatial AI solution to that growing market and we expect demand for its affordable and flexible system to be high. Having backed SLAMcore at the start, we’re excited to be investing again at this critical stage for the company.”
“Our initial product will calculate an accurate and reliable position, without the need for GPS or any other external infrastructure, but that is just the start,” said Owen Nicholson. “With this funding, we will also develop detailed mapping solutions capable of creating geometrically-accurate reconstructions of a robot’s surroundings in real-time, and understanding the objects within, utilising the latest development in Machine Learning.”
27 Sep 18. ThyssenKrupp splits in two, shares jump 17%. ThyssenKrupp is splitting into two independently-traded public companies. The two-century old conglomerate, under heavy pressure this year from activist investors, announced on Thursday that it would separate its industrial goods business from its steel division, creating ThyssenKrupp Industrials and ThyssenKrupp Materials. Shares jumped 17 per cent on the news. The German group lost both its chief executive and its chairman in July, amid calls from Cevian Capital and Elliott Management to restructure operations and adopt a new strategy. ThyssenKrupp hived off its steel-making division to merge it with Tata Steel Europe earlier this year, but investors remained critical that the industrial solutions company, which also makes elevators, escalators, car components and other goods, was too broad and unfocused. “The Management Board is convinced that this new structure will allow the businesses to develop better and concentrate on their strengths,” the group said in a press release. The new Industrials group will consist of elevators, automotive supplies and core plant construction. Its bearings and the forging business are to be spun off, while “a new addition,” System Engineering — which builds production lines for cars — will be added. The Materials group will consist of Materials Services, the bearings and forging units, and the marine unit which builds submarines. It will also house ThyssenKrupp’s 50 per cent interest in the joint-venture with Tata. “The two companies will be of comparable size,” the group said. “ThyssenKrupp Industrials AG would generate sales of around €16bn with around 90,000 employees. ThyssenKrupp Materials AG would have sales of around €18bn with just under 40,000 employees.” Analysts at Jefferies called the move “long awaited,” noting the group is “one of the most mis-priced equities” they cover. ThyssenKrupp sees itself as a forward-thinking, industrial goods company with a lead on digitalisation efforts, but it trades more like a steel giant. The new structure still needs approval from the group’s supervisory board and shareholders. The whole process is expected to take 12 to 18 months. (Source: FT.com)
27 Sep 18. The defence electronics solutions provider HENSOLDT has finalized the separation process from former parent company Airbus Group SE (stock exchange symbol: AIR). Following the buy-back of the remaining 25.1% share from Airbus, HENSOLDT is now addressing the global sensor markets in a fully independent way. Two years ago, Airbus had sold its defence electronics business to the global investment company KKR, yet, retained a share of 25.1 % in order to ensure a smooth separation of business operations. This final step to become a fully independent company follows the successful integration of HENSOLDT’s business activities in France, completed by the physical separation of all HENSOLDT sites from Airbus earlier this year. “I am very proud that we have achieved the separation 10 months ahead of schedule”, said HENSOLDT CEO Thomas Müller, “I would like to thank all Airbus colleagues who have worked together with us in an extraordinarily constructive spirit to make this happen. This gives us another boost to be an independent and highly innovative solutions provider. Opening up new channels with platform manufacturers around the globe, will help us to grow our business significantly over the coming years.”
HENSOLDT provides sensor-solutions in air, sea and land applications to armed forces and security authorities. These include the protection of critical infrastructure, air defence, airborne self-protection, signal intelligence and data links, as well as thermal imaging and optronic targeting. Furthermore, its portfolio comprises mission avionics equipment such as computers, mission planning devices and situational awareness systems for helicopters.
HENSOLDT is a key contributor to major European defence acquisition programs and has demonstrated its global reach by winning a number of international contracts. Among the most prominent air and space platforms equipped by HENSOLDT are the F-16, Eurofighter, Gripen and Rafale combat aircraft, the Tandem-X and EDRS-A satellites, the A400M transport aircraft, as well as helicopters of various types. Furthermore, the company provides mission-critical equipment to the PUMA and LEOPARD II armoured vehicles, the class 212 and 209 submarines, the US Navy “Freedom” class Littoral Combat Ship and the German Navy K130 Corvette. HENSOLDT’s sight- and night-vision optics have also been chosen for the German Future Soldier Programme “Infanterist der Zukunft”.
Innovation is deeply embedded in HENSOLDT’s DNA. Leading-edge solutions like the modular counter-UAV system XPeller, which protects critical infrastructures against drones, and the passive radar system TwInvis that provides a common air picture without any active emission, stand proof of HENSOLDT’s highly advanced technologies. In addition, HENSOLDT advances a number of strategic technologies defined by the German government, which are well suited for prominent roles in future programs like TLVS, MKS-180, Eurofighter AESA radar, the Heavy Transport Helicopter and airborne SIGINT.
26 Sep 18. Increased defence business drives AAR Corp sales growth. US aerospace component and services company AAR Corp reported results of its first quarter of fiscal year (FY) 2019 on 25 September, revealing a market increase in sales to the defence industry. The company generated sales of USD466.3m in the three months to 31 August, a rise of 23% year on year. Net income in the first quarter also rose by 42% to USD15.1m. Part of AAR’s growth was attributable to the expansion of its defence and government business, which was responsible for 32.4% of consolidated sales, up from 23.3% in the first quarter of FY 2018. The company’s Aviation Services business, by far the larger of its two segments, generated USD438.4m in the quarter. (Source: IHS Jane’s)
25 Sep 18. Mitie expectations disappoint. Shares in Mitie (MTO) have fallen precipitously since April, from a high of more than 14 per cent to just under 4 per cent. However, perhaps some of those investors were too quick to close their positions. Shares in the outsourcer fell 9 per cent on the morning management announced first-half operating profits would be flat or down on the same time last year, albeit in line with management expectations, at least. Investments in customer service and the group’s “connected workspace” initiative were partly to blame, but a panoply of issues from across the group’s businesses also contributed. Performance weakened in social housing, part of the property management division. The social housing business’s performance is expected to have a knock-on effect on engineering services, which also saw revenues impacted by contract losses. An unfavourable contract mix affected profitability in the cleaning division, while weaker sales in outdoor events led management to expect profitability in the catering division to be disappointing. Profitability was constrained in the care and custody division, albeit by mobilisation costs for a Home Office detention and escorting contract. Professional services and security – which accounted for an aggregate quarter of revenues in the year to March 2018 – were the only divisions where no issues were reported.
Cost-cutting programme “Project Helix” has continued to generate savings, with a cumulative in-year reduction of £40m expected by March 2019. However, timing changes for a workflow project in engineering services may delay some of the benefits, although management expects to counterbalance this by integrating the property management and engineering division.
IC View
Investing in transformation programmes is all very well, but this update shows Mitie is still wrestling with a range of issues across its divisions. What’s more, it has missed net debt expectations, and the order book has declined since the end of March. Sell at 141p. Last IC view: Sell, 205p, 08 Jun 2018 (Source: Investors Chronicle)
26 Sep 18. Nomination Committee for the Saab Annual General Meeting 2019. The members of the Nomination Committee for Saab have now been appointed based on the shareholder structure on 31 August 2018, in accordance with a resolution by the Saab Annual General Meeting. The Nomination Committee shall, according to the Nomination Committee process adopted by the Annual General Meeting, consist of one representative from each of the four shareholders or group of shareholders with the largest numbers of votes, who wish to appoint a representative. In addition, the Chairman of the Board of Directors shall also be a member of the Nomination Committee. Members of the Saab Nomination Committee for the Annual General Meeting 2019 are:
- Marcus Wallenberg, Chairman of the Board of Saab AB
- Petra Hedengran, Investor AB
- Peter Wallenberg Jr, Knut and Alice Wallenberg’s Foundation
- Jan Andersson, Swedbank Robur Funds
- Anders Algotsson, AFA Försäkring
The Nomination Committee is assigned to prepare proposals regarding Chairman of the Annual General Meeting, Board of Directors, Chairman of the Board of Directors, Auditor as well as Board remuneration and fee to the Auditor.
The Nomination Committee represents approximately 54 percent of the total voting rights of Saab AB based on the ownership structure as of August 31, 2018. The Annual General Meeting of Saab AB will be held on Thursday, 11 April 2019.
Nomination Committee for the Saab Annual General Meeting 2019
The members of the Nomination Committee for Saab have now been appointed based on the shareholder structure on 31 August 2018, in accordance with a resolution by the Saab Annual General Meeting.
The Nomination Committee shall, according to the Nomination Committee process adopted by the Annual General Meeting, consist of one representative from each of the four shareholders or group of shareholders with the largest numbers of votes, who wish to appoint a representative. In addition, the Chairman of the Board of Directors shall also be a member of the Nomination Committee.
Members of the Saab Nomination Committee for the Annual General Meeting 2019 are:
- Marcus Wallenberg, Chairman of the Board of Saab AB
- Petra Hedengran, Investor AB
- Peter Wallenberg Jr, Knut and Alice Wallenberg’s Foundation
- Jan Andersson, Swedbank Robur Funds
- Anders Algotsson, AFA Försäkring
The Nomination Committee is assigned to prepare proposals regarding Chairman of the Annual General Meeting, Board of Directors, Chairman of the Board of Directors, Auditor as well as Board remuneration and fee to the Auditor.
The Nomination Committee represents approximately 54 percent of the total voting rights of Saab AB based on the ownership structure as of August 31, 2018. The Annual General Meeting of Saab AB will be held on Thursday, 11 April 2019.
25 Sep 18. Boeing [NYSE: BA] completed the acquisition of Millennium Space Systems, a provider of agile, flight-proven small-satellite solutions. Millennium Space Systems will operate under Boeing Phantom Works as a subsidiary called Millennium Space Systems, A Boeing Company. It will retain an independent operating model while benefiting from Boeing’s resources, scale, manufacturing capability and technology research as the leading provider of aerospace products and services. Boeing first announced the agreement with Millennium Space Systems on August 16, 2018, pending U.S. government approval. Terms of the approved deal were not disclosed and do not affect Boeing’s financial guidance or the company’s commitment to returning approximately 100 percent of free cash flow to shareholders. Headquartered in El Segundo, Calif., Millennium Space Systems has approximately 260 employees and has developed high-performance satellites and space systems for exacting missions ranging from 50kg to more than 6,000kg.
24 Sep 18. Kape crusading cyber security. Kapa has just lifted organic revenue by 14 per cent to $24.1m (£18.5m) from its app businesses to boost cash profit by 45 per cent to $4.3m with margins rising by more than half to 15 per cent. Customer retention rates improved by 5 percentage points to 74 per cent, and premium subscribers account for over 70 per cent of its 1m user base. Kape added 350,000 new users to its paying customer base of which 270,000 subscribed to either Reimage, a patented Microsoft-based product tool that enables users to clean up their computers, and DriverAgent, a PC maintenance software products company offering a device driver search and update service, which scans computers for outdated drivers. Product upgrades are playing their part – Reimage now provides users of both Macs and PCs with its service – and so too is cross selling. In fact, Mr Erlichman pointed out that 150,000 products were cross sold in the six month trading period. He also highlighted that Cyberghost, a provider of secure virtual private networks (VPNs) that securely pass data traffic over public networks, is gaining further traction having launched a product for iOS and Mac systems. Moreover, he sees significant cross selling opportunities with the post period end acquisition Seattle-based Intego, a leading Mac and iOS cybersecurity and malware protection software-as-a-service (SaaS) business. Intego provides Kape with a foothold in the malware protection market and boosts its product portfolio with the addition of complementary malware protection and security solutions. Intego’s purchase price of $16m equates to 11 times its $1.4m pre-tax profit in 2017. That’s a sensible price, but if Kape’s management work their magic as they have at Cyberghost then there could be significant potential to grow Intego’s profits by leveraging off Kape’s larger customer base. And that’s not in the price.
The £186m market cap is rated on 25 times Shore Capital’s 2019 EPS estimates of 6.4p, but with $46.7m (£33m) of cash available for further bolt-on deals, management actively looking to do so, and the business performing strongly, then I am happy with a target price of 180p based on an enterprise value to cash profit multiple of 20 times. Please note that I first rated the shares a buy, at 47.9p, in my 2017 Bargain Shares Portfolio. Buy. (Source: Investors Chronicle)
24 Sep 18. L3 Strengthens Unmanned Maritime Capabilities With Acquisition of ASV Global. L3 Technologies (NYSE:LLL) announced today that it acquired ASV Global, LLC, a leading unmanned surface vessel (USV) and autonomous vessel control systems company on September 20. This acquisition strategically enhances L3’s full spectrum of unmanned maritime capabilities, including integrated anti-submarine warfare (ASW) solutions, future surface combatant unmanned off-board sensors, and integrated unmanned surface and undersea vessel (USV/UUV) operations. The new company will be known as L3 ASV.
“Autonomous capabilities for surface ships and undersea vessels are top priorities for our naval and commercial maritime customers, and we are increasing our investments to lead in this strategic growth area and strengthen L3’s position as a leading supplier of maritime solutions,” said Christopher E. Kubasik, L3’s Chairman, Chief Executive Officer and President. “The addition of L3 ASV enables us to deliver both unmanned surface and undersea vehicle technologies to an expanded international customer base and take a prime contractor position on major unmanned systems.”
Based in Louisiana and the United Kingdom, L3 ASV delivers surface vessels in a range of sizes, currently from 10 to 42 feet, with proprietary software and control systems and proven unmanned system autonomy architectures. These time-tested capabilities have been demonstrated on multiple vessel types and sizes with over 1,500 operating days of service. Additionally, the company’s autonomy systems are consistent with the International Regulations for Preventing Collisions at Sea, 1972 (COLREGs) published by the International Maritime Organization.
“L3 continues to collaborate on and deliver best-in-class maritime sensor, autonomy, USV/UUV, and command and control technologies,” said Sean J. Stackley, L3’s Senior Vice President and President of its Communications & Networked Systems business segment. “Aligning L3 ASV’s proprietary surface vessel control technology and proven unmanned system autonomy architecture with our already strong UUV capabilities allows us to stay ahead of the curve in helping our customers meet their mission objectives.” (Source: BUSINESS WIRE)
21 Sep 18. Filtronic shares jump as it inks supply agreement with European defence contractor. The contract is anticipated to have a potential value of between £3mln and £5.7mln depending on the final volumes delivered over the duration of the agreement. Under the agreement, Filtronic will manufacture and test microwave modules for aerospace radar systems. Filtronic PLC (LON:FTC) shares jumped in early trading Friday as it secured a multi-year agreement with a European defence contractor to supply microwave modules for use in aerospace radar systems. The AIM-listed antenna maker said under the agreement it would manufacture and test the modules at its advanced mmWave centre in Sedgefield. The contract is anticipated to have a potential value of between £3mln and £5.7mln depending on the final volumes delivered over the duration of the agreement.
Rob Smith, chief executive of Filtronic, said: “We have worked hard to develop opportunities in the defence and aerospace market and this contract flows from the successful ramp of our other defence contracts. This further underwrites our growing credibility in this important market.” Shares were up 8.2% at 21.2p. (Source: proactiveinvestors.co.uk)
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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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