BATTLESPACE Updates

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02 Nov 18. Ultra divests its Airport Systems business to ADB SAFEGATE for £22m. Ultra announces that it has agreed to sell its Airport Systems business to ADB SAFEGATE for a total consideration of £22m, of which £2m is deferred. The deferred payment will be made following the transfer of certain commercial contracts. The transaction proceeds will be retained and used for general corporate purposes. Assuming satisfaction of all closing conditions, the transaction is expected to complete by 31 January 2019. Airport Systems provides specialised IT software solutions to improve the operational performance of airports and airlines. These solutions are installed in approximately 150 airports and are in-service with 100 airlines internationally.  For the year ended 31 December 2017, the Airport Systems business recorded revenues of £18.9m and operating profit of £3.2m after allocation of central overheads. The disposal will be marginally dilutive to the Group’s earnings for the year ending 31 December 2019. The gross assets of the Airport Systems business were £7.2m as at 31 December 2017. Depending on when the transaction completes, it will result in either a goodwill write down or accounting loss on disposal of approximately £8m. Further details will be provided in the Group’s 2018 Annual Report & Accounts.

Simon Pryce, Chief Executive Officer of Ultra, commented, “Although Airport Systems has been a part of Ultra for some time, it has little customer, process or technology commonality with the rest of the Group. As part of our focus on long term sustainable value creation and after conducting an appropriate process, we have therefore concluded that a sale of Airport Systems to ADB SAFEGATE is the best long term solution for Airport Systems customers, employees and other stakeholders and represents good value for Ultra.”

01 Nov 18. HEICO Corporation Announces Important Acquisition. HEICO Acquires Specialty Silicone Products, Inc., Marking Its 5th Acquisition In The Past 12 Months. HEICO Corporation (NYSE: HEI.A) and (NYSE: HEI) today announced that its Electronic Technologies Group acquired Specialty Silicone Products, Inc. (“SSP”) in an all cash transaction. HEICO stated that it expects the acquisition to be accretive to its earnings in the year following the purchase. Further financial terms and details were not disclosed.

Ballston Spa, NY-based SSP is a leading designer and manufacturer of silicone materials for a variety of demanding applications, used in aerospace, defense, research, oil and gas, testing, pharmaceuticals and other markets. SSP will be part of HEICO’s Electronic Technologies Group, which is comprised of businesses that specialize in the design and manufacture of highly-engineered, mission-critical products that must successfully operate in the harshest environments.

Since SSP’s founding in 1989, the company has been a consistent innovator and pioneer within the silicone manufacturing industry. SSP employs approximately 70 team members and operates out of one, 52,000 square foot, state-of-the-art facility in Ballston Spa, NY.

As is customary with the vast majority of HEICO’s previous acquisitions, SSP’s entire management team will remain with the company in their pre-existing positions and no material staff turnover is expected post-acquisition.

Laurans A. Mendelson, Chairman and Chief Executive Officer of HEICO Corporation, along with Victor H. Mendelson, HEICO’s Co-President and Chief Executive Officer of the Electronic Technologies Group, jointly commented, “We are thrilled to partner with SSP. We admire SSP’s commitment to excellence and focus on customer needs. It became apparent to us throughout our due diligence and negotiations that our two companies’ cultures and people could not be a better fit. We welcome the entire SSP team to the HEICO family.”

Patricia Babbie-Reo, Ted Taylor and Fred Sober, SSP’s founders and current shareholders, remarked: “Though we had a variety of suitors as we were contemplating a sale, we felt an immediate connection with the HEICO staff and truly believe that SSP has found a great, long-term home, with similar values and culture.”

Paul DiCaprio, SSP’s President said, “We look forward to our next chapter of excellence and growth with our new partners. We are excited to join the HEICO team and look forward to working with them.” (Source: BUSINESS WIRE)

31 Oct 18. PA Consulting (PA), a global innovation and transformation consultancy that’s bringing ingenuity to life, announced today that it has acquired Essential Design (Essential), a Boston-based innovation strategy and product design business. Essential are experts in user-centred design, improving customer experiences and driving innovation to market. Essential complements PA’s global capabilities in strategy, innovation, product design and engineering and manufacturing process improvement. PA’s team supports world-leading innovations such as Virgin Hyperloop One’s reinvention of transportation, Skipping Rocks Lab’s efforts to create sustainable plastic alternatives, and Monica Healthcare’s quest to save lives of unborn babies through innovative monitoring. Formed in 2001, Essential has flagship clients in the consumer, life science and healthcare sectors. Its diverse team of researchers, designers and engineers inform and translate innovation strategy, to create breakthrough physical and digital products. Essential’s work has won international recognition and received numerous industry awards for excellence in design research, design strategy and design development. In a world where strategies, technologies and innovation collide, the combination of PA’s and Essential’s capabilities will enable organisations to transform the way they bring new products and experiences to market. The acquisition provides PA with a new centre of excellence for innovation and product design in the United States, which will work in partnership with PA’s long established Global Innovation and Technology Centre in Cambridge, UK.

Frazer Bennett, PA Consulting’s Chief Innovation Officer, said: “We are delighted to welcome Essential Design to PA Consulting. Their team is passionate about understanding and empowering people; creating design-led visions that inspire change. This fits perfectly with PA Consulting’s Purpose: ‘We believe in the power of ingenuity to build a positive human future in a technology-driven world’. As well as enhancing our US presence, the brilliant Essential team will extend our capabilities at the front-end of design, bringing our clients’ customers a world of ingenuous opportunities.”

Essential Design’s founding partners, Scott Stropkay and Richard Watson, said: “We’re very much looking forward to joining PA Consulting. Their range of expertise, commitment to client success and unique ability to deliver innovative physical and digital solutions, building the futures we both imagine, is awesome. Becoming part of PA Consulting allows us to design more comprehensively, affecting more positive change for our clients.”

The terms of the transaction were not disclosed.

30 Oct 18. FLIR Systems Announces Third Quarter 2018 Financial Results.

Organic Revenue Growth of 3% Over Prior Year.

GAAP EPS of $0.52; Adjusted EPS of $0.57, Up 10% Over Prior Year

Operating Margin Improved 160 Basis Points Over Prior Year; Adjusted Operating Margin Improved 260 Basis Points Over Prior Year

FLIR Systems, Inc. (NASDAQ: FLIR) today announced financial results for the third quarter ended September 30, 2018. “Overall, I was pleased with the third quarter performance,” said Jim Cannon, FLIR President and Chief Executive Officer. “We delivered strong performance reaching our highest quarterly gross margin, operating margin, and operating cash flow in over five years. We also continued organic revenue growth despite challenging year-over-year comparables.”

Mr. Cannon continued, “Our continuous improvement initiatives through The FLIR Method are generating positive earnings momentum. While still in the early stages, the team’s commitment to The FLIR Method is beginning to yield exciting results. In this past quarter, we made meaningful progress on our strategic priorities presented at investor day to fuel, feed, and focus the business, particularly in unmanned solutions.”

Third Quarter 2018

Third quarter 2018 revenue was $434.9m, 6.4% lower than third quarter 2017 revenue of $464.7m. Organic revenue increased 3.1% over the prior year, excluding revenue from acquisitions and the previously disclosed divested security businesses which included revenue of $43.4m in third quarter 2017.

GAAP Earnings Results

GAAP gross profit in the third quarter was $222.1m, or 51.1% of revenue, compared to $222.9m, or 48.0% of revenue in the third quarter of 2017. GAAP operating income in the third quarter increased 1.7% to $88.6m, compared to $87.1 min the prior year, representing a 160 basis point improvement in operating margin.

Third quarter 2018 GAAP net earnings were $73.2m, or $0.52 per diluted share, compared with GAAP net earnings of $63.5 m, or $0.46 per diluted share in the third quarter last year. The GAAP net earnings increase was primarily driven by a 1,050 basis point decrease in our effective tax rate versus the prior year due to a reduction in the U.S. statutory rate as a result of the U.S. Tax Cuts and Jobs Act, as well as discrete tax items including an updated estimate of the U.S. transition tax, as well as excess tax benefits from stock compensation.

Cash provided by operations was $275.8m in the first nine months of 2018, compared to $209.3m in the first nine months of 2017, a 31.8% increase. Approximately 2.0m shares were repurchased in the first nine months of 2018 at an average price of $50.52.

Non-GAAP Earnings Results

Adjusted gross profit was $227.4m in the third quarter, slightly down from adjusted gross profit of $227.7m in the third quarter of 2017. Adjusted gross margin increased 330 basis points to 52.3%, compared with 49.0% in the third quarter of 2017. Adjusted operating income was $106.0m in the third quarter, which was 4.8% higher than adjusted operating income of $101.1 m in the third quarter of 2017. Adjusted operating margin increased 260 basis points to 24.4%, compared with 21.8% in the third quarter of 2017.

Adjusted net earnings in the third quarter were $80.3m, or $0.57 per diluted share, which was 9.6% higher than adjusted earnings per diluted share of $0.52 in the third quarter of 2017.

Business Unit Results

Revenue from the Industrial Business Unit was $177.2m, an increase of 3.6% over the third quarter results of last year driven by increased sales of automotive, unmanned aerial systems (UAS), and optical gas imaging products. The Government and Defense Business Unit contributed revenue of $172.0m during the third quarter, up 1.3% over the prior year, with strength in gimbaled and UAS systems partially offset by declines in airborne systems. The Commercial Business Unit recorded $85.8m of revenue in the third quarter, down 30.8% from the prior year. Commercial experienced organic revenue growth of 6.0% in the same period excluding revenue from acquisitions and the divestiture of the previously disclosed security businesses. Strong results in maritime and intelligent transportation systems contributed to the organic revenue growth.

Revenue and Earnings Outlook for 2018

Based on financial results for the first nine months of the year and the outlook for the remainder of the year, FLIR expects revenue in 2018 to continue to be in the range of $1.78bn to $1.80bn and adjusted net earnings per diluted share to continue to be in the range of $2.17 to $2.22 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 December 7, 2018 to shareholders of record as of close of business on November 23, 2018.

31 Oct 18. Airbus reports Nine-Month (9m) 2018 financial results.

  • Focus on deliveries and securing production ramp-up
  • 9m financials reflect A350 XWB performance and aircraft delivery profile
  • Revenues €40bn; EBIT Adjusted € 2.7bn; Free Cash Flow Before M&A and Customer Financing €-4.2bn
  • EBIT (reported) € 2.7bn; EPS (reported) €1.88
  • 2018 guidance updated to reflect latest delivery outlook

Airbus SE (stock exchange symbol: AIR) reported NineMonth (9m) 2018 consolidated financial results and provided updated full-year guidance.

“The nine-month results mainly reflect the good performance on the A350 and the aircraft delivery profile. Even though we delivered more aircraft than a year earlier, we still have a lot to do to meet our commitments,” said Airbus Chief Executive Officer Tom Enders. “On the A400M, we are progressing with the military capabilities, deliveries and retrofit. The contract amendment discussions are advancing, but a bit slower than planned. Our primary operational focus remains on commercial aircraft deliveries and securing the A320neo    ramp-up.”

As of 1 July 2018, the A220 aircraft programme has been consolidated into Airbus.

Net commercial aircraft orders totalled 256 (9m 2017: 271 aircraft) with gross orders of 311 aircraft including 58 A350 XWBs. Industry fundamentals remain solid with the Airbus order backlog totalling 7,383 commercial aircraft as of 30 September 2018(3).  Net helicopter orders increased to 230 units (9m 2017: 210 units), including 6 Super Puma Family and 36 H145s in the third quarter alone. Airbus Defence and Space’s 9m 2018 order intake of around €5.0bn included the contract for Heron TP drones from Germany.

Consolidated revenues increased to €40.4bn (9m 2017: €38.0bn(1)), mainly driven by Airbus and including the perimeter changes. At Airbus, a total of 503 commercial aircraft were delivered (9m 2017: 454 aircraft), comprising 8 A220s, 395 A320 Family, 31 A330s, 61 A350 XWBs and 8 A380s. Airbus Helicopters delivered 218 units (9m 2017: 266 units) with revenues stable on a comparable basis. On a reported basis, Helicopters’ revenues reflected the perimeter change from the sale of Vector Aerospace in late 2017. Revenues at Airbus Defence and Space reflected a stable core business and 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 € 2,738m (9m 2017: €1,208m(1)).

Airbus’ EBIT Adjusted of € 2,340m (9m 2017: € 806m(1)) was driven by the A350 performance and higher deliveries, particularly for the A320neo.

On the A320neo programme, a total of 222 aircraft were delivered compared to 90 in the first nine months of 2017. On the A330neo programme, the A330-900 received Type Certification from the European Aviation Safety Agency in September with the first delivery expected shortly. Meanwhile, the A350 programme is progressing well, with the targeted monthly production rate of 10 aircraft expected by the end of 2018. Good progress continues to be made on A350 programme recurring cost with the A350-1000 benefitting from the A350-900 learning curve.

Airbus Helicopters’ EBIT Adjusted increased to 202m (9m 2017: €161m(1)), reflecting solid underlying programme execution which compensated for the lower deliveries.

Airbus Defence and Space’s EBIT Adjusted totalled €409m (9m 2017: €397m(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, Airbus is progressing on the military capabilities and with the delivery and retrofit plan. Airbus is delivering against the objectives set in February 2018 as part of the Declaration of Intent (DoI) framework which was agreed with OCCAR and the Nations, but progress to convert the DoI into a contract amendment is a bit slower than planned. Risks remain, in particular on the development of technical capabilities, securing sufficient exports on time, on aircraft operational reliability in particular with regard to engines, and on cost reductions as per the revised baseline.

Consolidated self-financed R&D expenses totalled €2,103m (9m 2017: €1,918m).

Consolidated EBIT (reported) amounted to € 2,683m (9m 2017: € 1,673m(1)), including Adjustments totalling a net € -55m and largely unchanged from 30 June, 2018.

These Adjustments comprised:

  • A € 105m A400M provision update mainly reflecting price escalation, up by €7m compared to the €98m provision for the first-half of 2018;
  • A negative €23m resulting from the first H160 helicopters;
  • A negative €109m related to compliance and other costs;
  • A positive impact of €26m from the dollar pre-delivery payment mismatch and balance sheet revaluation;
  • A net capital gain of €156m from divestments at Airbus Defence and Space.

Consolidated net income(2) of €1,453m (9m 2017: €1,398m(1)) and earnings per share of €1.88 (9m 2017: €1.81(1)) included a negative impact from the foreign exchange revaluation of financial instruments partly offset by the positive revaluation of certain equity investments. The finance result was €-413m (9m 2017: €+101m(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 €-4,169m (9m 2017: €-3,344m) and now includes the A220. It reflects progress on aircraft deliveries but also the on-going ramp-up and some finished aircraft. Consolidated free cash flow of €3,928m (9m 2017: €-3,208m) included around €0.4 bn of net proceeds from divestments at Airbus Defence and Space. Cash flow for aircraft financing was limited.  The consolidated net cash position on 30 September 2018 was € 7.2bn (year-end 2017:     €13.4bn) after pension funding of €1.0bn in the third quarter. The gross cash position was €18.3bn (year-end 2017: €24.6bn).

With regard to full-year deliveries, the A320neo ramp-up is ongoing but the level of disruption resulting from the late availability of engines in the first half of 2018 as well as some internal industrial challenges make the full-year 2018 target a greater stretch. A lot remains to be done before the end of the year to fulfill commitments. The A330neo delivery schedule has been adjusted to reflect the engine partner’s latest 2018 outlook. Furthermore, Airbus is actively working to resolve certain commercial challenges on the A330ceo and A380 programmes that are targeted for completion by the year-end.

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 integration.

  • Airbus targets to deliver around 800 commercial aircraft in 2018, now including around 18 A220 aircraft and the updated commercial aircraft delivery schedule.
  • On that basis:

➢ Before M&A, the Company maintains expected EBIT Adjusted of approximately €5bn in 2018. This includes a lower expected reduction in EBIT Adjusted from the A220 than estimated in H1 2018.

➢ Airbus expects Free Cash Flow before M&A and Customer Financing to be lower than the 2017 level of €2.95bn. This also reflects an expected reduction of approximately €-0.3bn from the A220.

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.

31 Oct 18. Airobotics Raises $30m Series D Funding. Israeli automated drone startup Airobotics has announced a $30m Series D round of funding bringing its total capital raised to $101m.  Pavilion Capital is leading the round, joining a list of prominent investors, including BlueRun Ventures, Charles River Ventures and OurCrowd, as well as additional private investors. The new round of funding will be used to further scale Airobotics operations in the United States and Australia.  Airobotics recently launched its North American headquarters in Scottsdale, Arizona, where the company will run all North America, South America and Central America operations. The Scottsdale office will become the company’s global headquarters as Airobotics continues to scale.  The funding will also be used to continue servicing the mining industry and other industrial facilities globally.

“Airobotics is experiencing massive momentum and expanding across geographies,” said Ran Krauss, CEO and Co-Founder of Airobotics.  “We are honored that Pavilion Capital sees the huge potential in Airobotics’ technology and aerial data solutions. We have a strong business pipeline and to keep up with demand for our technology, we are continuing to expand operations across the countries in which we operate, specifically our new headquarters in the U.S. Additionally, the new funding will drive our continuous work with Aviation Authorities to obtain BVLOS (Beyond Visual Line of Sight) Certificate of Waiver in every geography we operate in, including in the U.S.” (Source: UAS VISION)

30 Oct 18. Curtiss-Wright Corporation (NYSE: CW) reports financial results for the third quarter ended September 30, 2018. Beginning in the second quarter of 2018, the Company 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.

Third Quarter 2018 Highlights

  • Reported diluted earnings per share (EPS) of $1.68, with Adjusted diluted EPS of $1.70, up 19% compared with the prior year;
  • Net sales of $595m, up 5%, including 2% organic growth (defined below);
  • Reported operating income of $97m, with Adjusted operating income of $98m, up 6%;
  • Reported operating margin of 16.3%, with Adjusted operating margin of 16.5%, up 20 basis points;
  • Free cash flow of $62m, down 31%;
  • New orders of $514m, down 1%; and
  • Share repurchases of approximately $33m.

Full-Year 2018 Business Outlook

  • Full-year 2018 Adjusted guidance reflects higher sales (now up 7-9%), operating income (up 11-14%), operating margin of 15.3% to 15.5% (now up 60-80 bps) and diluted EPS (now up 23-26%), compared with Adjusted 2017 financial results;
  • Increased full-year 2018 Adjusted diluted EPS guidance by $0.10 to new range of $6.10 to $6.25, compared with prior range of $6.00 to $6.15, reflecting improved profitability in the Defense and Power segments, as well as expectations for a lower tax rate and share count; and
  • Increased Reported free cash flow by $10m to new range of $260 to $280m and Adjusted free cash flow to a new range of $310 to $330m, which excludes a $50m voluntary pension contribution made in the first quarter of 2018.

“Our third quarter results exceeded our expectations, as we generated solid 5% top-line growth, led by a better than expected performance in the Power segment,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “As a result, we delivered a strong Adjusted operating margin of 16.5% and Adjusted diluted EPS of $1.70. We remain on track for a solid operational performance in 2018 which includes higher sales in all end markets, double-digit growth in operating income, strong margin expansion and solid free cash flow generation. Based on the solid year-to-date results and outlook for the remainder of 2018, we have increased our full-year Adjusted diluted EPS guidance to a new range of $6.10 to $6.25. In addition, we have raised our full-year Adjusted free cash flow guidance to a new range of $310 to $330m. We look forward to continuing to deliver solid profitability and free cash flow in order to enhance shareholder value.”

Third Quarter 2018 Operating Results

  • Sales of $595m up $27m, or 5%, compared with the prior year (2% organic, 3% acquisitions);
  • Higher organic revenues were principally driven by strong power generation and general industrial sales, partially offset by lower defense and commercial aerospace revenues;
  • From an end market perspective, total sales to the defense markets increased 4%, principally associated with the acquisition of Dresser-Rand’s government business (“DRG”), while total sales to the commercial markets increased 5%, most 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 $97m, with Reported operating margin of 16.3%;
  • Adjusted operating income of $98m, up $6m, or 6%, compared with the prior year, principally reflects higher power generation revenues in the Power segment, most notably due to the China Direct AP1000 program, as well as the benefits of our DRG acquisition;
  • Adjusted operating margin of 16.5%, up 20 basis points compared with the prior year, was primarily driven by higher revenues and favorable overhead absorption in the Power segment, as well as the benefits of our ongoing margin improvement initiatives; and
  • Non-segment expenses of $10m increased by $4m compared with the prior year, primarily due to higher pension costs.

Reported net earnings of $74m and reported diluted EPS of $1.68;

  • Adjusted net earnings of $75m, up $12m, or 18%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate;
  • Adjusted diluted earnings per share of $1.70, up $0.27, or 19%, compared with the prior year, reflecting higher operating income, lower interest expense and a lower tax rate, as well as a slightly lower share count; and
  • The effective tax rate (ETR) for the third quarter was 19.9%, a decrease from 26.0% in the prior year quarter, primarily driven by the current period reduction of the U.S. corporate income tax rate from 35% to 21% associated with the 2017 Tax Cuts and Jobs Act (TCJA).
  • Free cash flow of $62m, defined as cash flow from operations less capital expenditures, decreased $28m compared with the prior year, as higher earnings were more than offset by the timing of collections; and
  • Capital expenditures decreased by $1m to $10m compared with the prior year period, due to higher capital investments in the prior year period.

New Orders and Backlog

  • New orders of $514m, were down 1% compared with the prior year, as solid growth in naval defense orders, including the contribution from the DRG acquisition, were more than offset by lower commercial orders, most notably in the power generation market;
  • Year-to-date, new orders of $1.8bn are up 6% compared with the prior year; and
  • Backlog of $2.0bn was flat with December 31, 2017.

Other Items – Share Repurchase

  • During the third quarter, the Company repurchased 250,394 shares of its common stock for approximately $33m; and
  • Year-to-date, the Company repurchased 611,665 shares for approximately $79m.

Third Quarter 2018 Segment Performance

Commercial/Industrial

Sales of $295m were nearly flat compared with the prior year (1% organic, 1% unfavorable foreign currency translation);

  • Lower aerospace and naval defense market sales reflect lower sales of sensors on various fighter jet programs and lower sales of valves on the CVN-80 Ford class aircraft carrier program, respectively;
  • Commercial aerospace market sales were down slightly, as higher sales of sensors and controls products were more than offset by lower revenues resulting from FAA directives, which are winding down;
  • General industrial market sales growth was driven by solid demand for industrial valves and industrial controls products, and surface treatment services;
  • Reported operating income of $45m, down $2m, or 4%, compared with the prior year ((5%) organic, 1% favorable foreign currency translation); and
  • Reported operating margin decreased 70 basis points to 15.2%, reflecting unfavorable mix and lower profitability for sensors and controls products, which more than offset the benefits of our ongoing margin improvement initiatives.

Defense

  • Sales of $138m, down $4m, or 3%, compared with the prior year ((2%) organic, 1% unfavorable foreign currency translation);
  • Sales in the aerospace defense market were flat, as higher sales of flight test equipment on fighter jet and bomber programs were offset by lower sales of embedded computing equipment on helicopter and unmanned aerial vehicle (UAV) platforms;
  • Lower ground defense market sales principally reflect reduced sales of embedded computing equipment on various domestic and international programs; and
  • Reported operating income of $34m was flat compared with the prior year, while reported operating margin increased 60 basis points to 24.3%, as unfavorable absorption was offset by favorable foreign currency translation.

Power

  • Sales of $162m, up $30m, or 23%, compared with the prior year (15% acquisition, 8% organic);
  • Strong naval defense market sales were driven by higher CVN-80 aircraft carrier revenues and solid DRG service center revenues;
  • Strong power generation market sales reflect higher revenues on the China Direct AP1000 program, which more than offset lower revenues on the domestic AP1000 program, as well as improved domestic aftermarket sales supporting currently operating nuclear reactors;
  • Reported operating income was $28m, with Reported operating margin of 17.5%; and
  • Adjusted operating income of $30m, up $12m, or 66%, compared with the prior year, while Adjusted operating margin increased 470 basis points to 18.2%, reflecting higher sales and improved profitability on the China Direct AP1000 program.

30 Oct 18. General Electric cuts dividend to 1 cent after $22bn writedown. US company to restructure power division after failing again to reverse its fortunes. GE’s earnings are the first to be reported under new chief executive Larry Culp. General Electric cut its dividend for the second time in less than a year and unveiled a radical restructuring of its troubled power equipment division after third-quarter results revealed the industrial group remains unable to turn round its declining fortunes. The quarterly dividend is being cut from 12 cents per share to just 1 cent, allowing the company to save almost $4bn of cash a year at a time when its finances are under severe pressure. Adding to the strain, the company made a $5.1bn cash contribution to its pension fund, up from $1.2bn in the equivalent period of 2017. The earnings are the first to be reported under new chief executive Larry Culp, who took over last month after the abrupt exit of John Flannery. They included a $22bn non-cash writedown for goodwill in the power division, which the company announced last month when it replaced Mr Flannery. GE also disclosed that it is being investigated by the US justice department and the Securities and Exchange Commission over the goodwill writedown. “After my first few weeks on the job, it’s clear to me that GE is a fundamentally strong company with a talented team and great technology,” said Mr Culp. “However, our results are far from our full potential. We will heighten our sense of urgency and increase accountability across the organisation to deliver better results.” Earnings per share for the third quarter, excluding that writedown and other one-off items, were 14 cents, well below analysts’ average forecast of 20 cents. The earnings for the period were down 33 per cent from the equivalent period of 2017. The results showed that the difficulties at the power equipment division, built around a star-crossed 2014 acquisition of Alstom’s energy unit and hit hard by the rise of renewable energy and slowing demand in developed countries, have continued unabated. The division suffered an adverse swing of almost $1bn, slumping into a loss of $631m for the quarter compared with a profit of $464m for the equivalent period of 2017. Orders were down 18 per cent at $6.6bn for the quarter. John Inch, an analyst at Gordon Haskett, described the results as “disappointing” and said the dividend cut suggested “GE faces a significant cash constraint, particularly as we expect that new management would still be early in thoroughly reviewing the operations”. In his first strategic move since taking the job, Mr Culp said he would be breaking up the power division, separating it into a unit for GE’s traditional business of gas turbines and another with all other assets, including steam turbines and grid equipment. GE’s other divisions reported mixed results, although there was a strong performance from the business that makes aero engines and other aircraft parts, where profits were up 25 per cent from $1.3bn to $1.7bn. The group has now sold most of GE Capital, the financial services operations that frequently generated about half of GE profits before the 2008 financial crisis. The remaining operations made a residual profit of $59m, but the parent company will no longer receive a large cash dividend from GE Capital. Combined with the jump in payments into the pension fund, that meant GE has swung from a net cash inflow of $4.1bn in the first nine months of 2017 to a net cash outflow of the same amount for the first three quarters of this year. Mr Culp made his name at the manufacturing conglomerate Danaher, where as chief executive from 2001 to 2014 he had success with a model based on improving the performance of businesses that it acquired. He said his priorities in his first 100 days were “positioning our businesses to win”, starting with the power division, and cutting GE’s debts. Mr Inch also raised concerns over the future of GE’s aircraft components business, writing in a note: “A key question is how long aviation strength can last at what appears close to a cycle peak.” (Source: FT.com)

30 Oct 18. KBR Announces Third Quarter 2018 Financial Results.

– KBR Revenue growth of 24% to $1.3bn and Net Income Attributable to KBR of $58m

– 59% Government Services revenue growth, 12% organic; 35% for Technology, all organic

– EPS of $0.41 and Adjusted EPS of $0.46

– Increasing 2018 EPS guidance to $1.93 to $2.03 and Adjusted EPS guidance to $1.45 to $1.55

KBR, Inc. (NYSE: KBR), a global provider of differentiated, professional services and technologies across the asset and program life cycle within the government services and hydrocarbons industries today announced third quarter 2018 financial results.

“I am delighted to report another strong quarter of growth, in which KBR delivered healthy revenues, earnings and operating cash flows,” said Stuart Bradie, KBR President and CEO.

KBR’s top line revenue momentum is underpinned by industry leading organic growth from its Government Services and Technology businesses, strong execution across all segments, accretive growth from Aspire and SGT and buoyant government contracting and hydrocarbons end markets. “The markets are as healthy as we’ve seen in many years, and we are strategically positioned where demand is growing,” Bradie said.  “Our pipeline of opportunities has increased considerably from just six months ago, and we are encouraged by active levels of client engagement and project award momentum. Operationally, each of our segments is delivering strong performance and results, and we have restored operating cash flows to normative levels. Given our solid market fundamentals and consistent execution, we are pleased to increase our 2018 Adjusted EPS guidance for the second consecutive quarter,” continued Bradie. “Our success – safety, operational, financial – is directly attributable to the outstanding commitment of our people, and I wish to thank each of them for their contributions in strengthening KBR today as we position our company for tomorrow.”

Third Quarter Financial Results

Summary of Financial Results: Overall, our quarterly and year to date increases in revenue, gross profit, net income and earnings per share were driven by strong organic growth in our Government Services and Technology businesses, the consolidation of acquired entities in the Aspire Defence program and our acquisition of SGT. These increases were partially offset by the completion or substantial completion of several projects within our Hydrocarbons Services business as well as the non-recurrence of the $35m PEMEX settlement in the second quarter of 2017.

Our joint ventures continue to produce quality earnings from solid execution. Our Brown & Root Industrial Services joint venture grew significantly year over year, and we achieved a significant construction milestone on a lump sum EPC project executed from one of our joint ventures in Europe.  The quarterly and year to date decrease in equity in earnings is attributable to the consolidation of the Aspire Defence subcontracting entities, now reported in revenue and gross profit, and reduced earnings from the Ichthys LNG project.

Liquidity: We ended the quarter with $581m of cash and $1,169m of gross debt (or $588m of net debt).  During the quarter, cash provided by operations totaled $72m, a 1.2x operating cash conversion rate, with DSO and DPO remaining consistent from the second quarter 2018.

New Business

KBR achieved an overall book-to-bill of 1.1x during the quarter with ending backlog of $13.5bn as of September 30, 2018.  Bid volume across the business remains high with $26bn of bids submitted and awaiting award[1] and another $12bn in proposal preparation at the end of September.

Government Services

Third quarter bookings for Government Services were strong with book-to-bill of 1.3x.  Domestically, each of the GS service lines scored wins highlighting our ability to apply solutions to high impact, mission critical work that drives customer confidence across the value chain.  Internationally, our portfolio of PFI contracts continues to deliver expansion opportunities, and we continue to seek diversification into other government sectors and non-PFI defense projects. The following summarizes selected awards during the quarter:

  • Defense Health Agency award to provide cybersecurity services to secure healthcare information of the U.S. Air Force, Army and Navy and their families;
  • U.S. Air Force Institute of Technology Graduate School award to provide defense-focused graduate and professional continuing education;
  • A seat on the Department of Defense Information Analysis Center R&D contract;
  • LIG Nex1 award to support the upgrade of the Korean military’s Identify Friend or Foe capabilities; and
  • NASA award to study the future of commercial enterprise in low Earth orbit.

Technology

Our Technology business delivered a healthy book-to-bill of 1.4x, once again achieving record backlog at the end of the quarter. We continue to experience strong demand for petrochemical, refining and agricultural technologies driven by availability of competitively priced feedstock combined with increasing global development, expanding consumer demand and increasingly stringent environmental policies.  The following summarizes selected awards during the quarter:

  • K-COT™ and SCORE™ technology award by Lihuayi Lijin Refining & Chemical Co., Ltd.;
  • PCMAX™ polycarbonate technology awards Pingmei Shenma Group; and
  • Nitric acid technology award by Kemerovo Azot JSC.

Hydrocarbons Services

Market conditions are showing improvement for LNG and downstream opportunities given the abundance of low-priced natural gas and the increasing demand for clean LNG, chemicals and petrochemicals.  We were awarded a number of strategic concept, pre-FEED and FEED projects to deliver solutions to advance our clients’ core objectives to launch new capital projects that represent future delivery-stage opportunities for KBR.  To strengthen our competitive advantage, we also announced a joint development alliance with ConocoPhillips LNG Licensing LLC to provide low-cost and expedited mid-scale LNG solutions to the marketplace utilizing Optimized Cascade® process technology and the KBR SmartSPENDSM methodology.

Guidance

We are increasing the company’s full year 2018 EPS guidance range to $1.93 to $2.03 and Adjusted EPS guidance range to $1.45 to $1.55.  Our guidance of earnings per share is on an Adjusted EPS basis, which excludes legacy legal costs for U.S. Government contracts, acquisition & integration-related expenses associated with our acquisitions and the gain and amortization associated the Aspire consolidation.  The estimated legacy legal costs do not assume any cost reimbursement from the U.S. Government that could occur in the future.  A reconciliation of GAAP EPS to Adjusted EPS guidance is located at the end of this release.  We also reaffirm guidance for operating cash flows estimated to range from $125 m to $175 m for 2018.

Our effective tax rate, excluding discrete items, for 2018 is estimated to range from 23% to 25%, an increase from the previous range of 22% to 24%. The increase is primarily related to new guidance published during the quarter on taxes associated with international operations stemming from the U.S. Tax Cuts and Jobs Act of 2017.

1 For Hydrocarbons Services “bids submitted and awaiting award” includes proposals formally submitted as well as EPC/EPCm projects awarded but that have not achieved FID (e.g. Magnolia and Methanex). “FID” is not applicable for our GS and Technology prospects.

29 Oct 18. J.F. Lehman & Company Acquires International Marine & Industrial Applicators, LLC and Craft and Technical Solutions, LLC,. J.F. Lehman & Company (“JFLCO”), a leading middle-market private equity firm focused exclusively on the aerospace, defense, maritime, government and environmental sectors, is pleased to announce that an investment affiliate has acquired International Marine & Industrial Applicators, LLC and Craft and Technical Solutions, LLC (collectively, “IMIA”) from IMIA Group, Inc.

Founded in 1985, IMIA provides critical vessel preservation services to the U.S. Navy (“USN”) and commercial maintenance, repair, and overhaul (“MRO”) and new construction markets.  Headquartered in Spanish Fort, AL with a presence in over 30 facilities nationally as well as in Japan, IMIA is the market leader in the surface preservation of hulls, tanks and other critical coated areas on USN submarines, aircraft carriers, surface combatants and auxiliaries as well as commercial vessels.

“We are excited to be partnering with the IMIA management team and are pleased to welcome the company to the J.F. Lehman & Company portfolio,” said Alex Harman, a Partner with JFLCO. “They are an excellent fit with our investment strategy given their leading market positions, long-standing customer relationships and outstanding workforce. In today’s government and commercial marine marketplace, the need for high-quality, reliable, safe and cost-effective preservation solutions is growing, and IMIA offers a full-range of services to meet this demand.”

Mike Keenan, President and CEO of IMIA commented, “J.F. Lehman & Company is a great partner for IMIA.  They offer an excellent combination of unique expertise and relationships as well as capital to accelerate our growth. We look forward to continuing IMIA’s proud heritage of providing best-in-class preservation services to the U.S. maritime industry.”

Debt financing for the transaction was provided by Ares Management LLC.

Blank Rome LLP and Jones Day provided legal counsel to JFLCO.  Mensura Capital, LLC and Mensura Securities, LLC served as the M&A financial advisors to IMIA Group, Inc. and Sheppard Mullin, Richter & Hampton LLP provided legal counsel.

29 Oct 18. Military spending surge spurs defence industry deals. For 20 years the US defence industry has been dominated by 5 prime contractors — now there are 6. Proposed merger between Harris and L3 would create a formidable competitor in military communications and defence electronics. For more than two decades the US defence industry has been dominated by five “prime” contractors, companies with the technological and financial firepower to deliver key programmes for the Pentagon. Now there is a sixth. This month’s proposed merger between L3 and Harris Corp creates a genuine challenger to the big five: Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon. “It’s about chasing the cycle in the US and the ability to bid for major programmes. Everybody always wants to move up the food chain,” said Robert Thomson, aerospace partner at consultants Roland Berger. A combined L3 and Harris, the new company is to be called L3 Harris Technologies, will become a formidable competitor in military communications and defence electronics, with estimated net revenues in 2018 of $16bn. This is still some way behind the revenues of the top five but close enough to warrant a place among prime contractors. Explaining the rationale for the deal, chief executive of L3 Chris Kubasik told analysts he had always envisioned L3 would become “a non-traditional sixth prime, non-traditional meaning we want to be more agile, innovative and affordable with greater speed to market”. The agreement, structured as a merger of equals, comes after a series of deals in the aerospace and defence sector as companies have responded to a surge in military spending in the US and a global boom in commercial aircraft sales. Both Boeing and Airbus, the European aerospace and defence group, have record order backlogs equivalent to almost a decade’s worth of production. On the deals front, TransDigm Group this month agreed to take over aerospace parts maker Esterline Technologies for $4bn, including debt. This followed the agreement by General Dynamics to acquire IT and cyber-security group CSRA for $9.6bn earlier this year. According to PwC, deals worth more than $30bn had already been announced by the end of the third quarter in 2018 in the sector. For BAE Systems, Britain’s largest defence group, which is also a significant contractor to the Pentagon, the L3-Harris deal could have repercussions for its US business in the longer term. The company has competed against both Harris and L3 on numerous programmes and has also worked with both. BAE’s US operations last year generated about $10bn or £7.65bn in sales. The deal “pushes them quite some way down the pecking order” in the US, said Mr Thomson. Sash Tusa of Agency Partners noted that “BAE has eschewed doing big deals”, adding that “it will be interesting to see whether they can continue with that sort of discipline when their peers are consolidating”. Some industry advisers suggested BAE could decide to expand its electronic systems business in the US through smaller acquisitions below the $500m level but cautioned that valuations were already high given the positive spending environment. Sandy Morris, analyst at Jefferies, said BAE could instead increase its spending on research and development in its electronics business. In the US, the L3-Harris merger will leave Textron, which makes Bell helicopters and Cessna jets, as one of the few remaining independent mid-sized defence contractors, according to analysts at Jefferies. Textron has been subject of break-up speculation in the past because of its conglomerate structure. The company this month reported lower than expected profits for the third quarter mainly because of a poor performance from its industrial unit, which sells golf carts and snowmobiles. Textron also has a systems division that specialises in military simulation and training tools, as well as armoured vehicles. Recommended Aerospace & Defence L3 and Harris merge in $33bn all-stock military electronics deal In the UK, the sector, unlike the prime contractor-dominated US market, still has several reasonably sized companies including Babcock International, Cobham, Ultra Electronics, Qinetiq and Meggitt. Here, Babcock is in the spotlight. The engineering and support services company, which is the second-biggest supplier to the Ministry of Defence and repairs and decommissions the Royal Navy’s submarines among other things, has seen its share price drop. Concerns it could suffer the same fate as some of its support services peers, such as Carillion, have undermined the stock’s performance. Its shares have dropped sharply from their peak of almost £13 a share in 2014, in part because it has been targeted by short sellers. While a merger with BAE Systems is deemed unlikely because of competition concerns, private equity groups such as KKR and Carlyle of the US could be tempted, according to analysts. Analysts said Cobham, which is disputing an unquantified damages claim from Boeing over delays to the KC-46 tanker refuelling programme, could become vulnerable once the issue has been resolved. The dispute with one of its most important customers has been a blow to David Lockwood, Cobham’s chief executive, who was appointed nearly two years ago to turn round the company after a string of profit warnings under previous management. In continental Europe, some in the industry expect defence groups to form cross-border alliances for future programmes, such as the 50:50 joint venture between Naval Group of France and Fincantieri of Italy announced this month, rather than pursue significant transactions. The fledgling military shipbuilding alliance aims to make them more competitive in international tenders, primarily against rivals from the US but also increasingly from countries such as China and South Korea. But the area most ripe for consolidation, according to Mr Thomson, is aerostructures. United Technologies, a global leader in aerospace components such as wheels, brakes, landing gear, aerostructures and electrical systems agreed to buy smaller rival Rockwell Collins last year. More deals could be agreed. Spirit Aerosystems, the Kansas-based designer and manufacturer of aerostructures, along with Triumph Group, are tipped as potential buyers of smaller rivals, according to analysts. While defence contractors have done well thanks to President Trump’s spending promises, some of his recent comments suggest that military budgets could stagnate over the rest of his tenure. Against that backdrop, executives at L3 and Harris may just have timed their run well. (Source: Google/FT.com)

29 Oct 18. Rohde & Schwarz can look back on a successful 2017/2018 fiscal year, with substantial gains in incoming orders and revenue. With its core competencies and cutting-edge solutions, the Munich based technology group is addressing key future topics such as communications, information and security, helping to ensure a safer and connected world. In the 2017/2018 fiscal year (July to June), Rohde & Schwarz surpassed the 2bn euro mark for revenue for the first time. At EUR 2.04bn, revenue was 6.7 percent higher than in the previous year, while incoming orders rose by 7.4 percent to EUR 2.21bn. The number of employees worldwide climbed from around 10,500 to 11,500 by June 30, 2018. The company’s decision to focus on key, high-growth markets of the future with its four strategic pillars – test and measurement, broadcast and media, aerospace, defense, security, and networks and cybersecurity – is paying off.

Ready for 5G and IoT

By providing test and measurement solutions for mobile and wireless applications, Rohde & Schwarz is playing an active role in the advancement of future technologies such as the internet of things (IoT) and the fifth generation of mobile communications (5G). The group offers a market-leading portfolio of mobile communications solutions and the currently widest range of test and measurement solutions for 5G, including 5G signal generators and analyzers covering the newly specified millimeterwave bands, unique over-the-air measurement solutions and a production tester for series production of 5G modules.

The 5G system is also one of the technical prerequisites for autonomous vehicles. This has led to a very pleasing trend in the automotive market that benefits Rohde & Schwarz. The automotive industry’s substantial R&D expenditures for driver assistance systems and autonomous driving translate into rising demand for test and measurement solutions. The group already offers a broad portfolio of solutions in this area, including test solutions for V2X, radar, eCall, connectivity and automotive buses.

Security backed by state-of-the-art Technology

In the aerospace, defense, security business field, the major development efforts in recent years have borne fruit in all areas. Rohde & Schwarz body scanners now define the market standard for passenger screening at many German and international airports, a development that is reflected in the growing number of airports using them.

The R&S Ardronis drone detection and monitoring solution for commercial drones has also established itself on the market. These drones can pose a security risk to air traffic and other areas in need of protection. R&S Ardronis is part of the GUARDION drone defense system, a cooperation between ESG, Rohde & Schwarz and Diehl Defence. GUARDION was live in action at the G20 summit in July 2017 and at the International Aviation Exhibition (ILA) in April 2018.

Armed forces all over the world are preparing for the comprehensive digitization of their communications equipment. With its technologically leading communications solutions for land, sea and airborne operations, Rohde & Schwarz is well positioned to meet this challenge. At the ILA, the company showcased the R&S SDAR, the most advanced airborne radio on the market. The order received last year from the German Federal Ministry of Defense to equip 50 command vehicles with the joint radio system of the German armed forces (SVFuA) further bolstered the position of Rohde & Schwarz in the field of tactical communications, and not only in the domestic market. The innovative software defined radio is an important component in the D-LBO project, a major initiative to digitize the land based operations of the German armed forces in the next few years.

Digitization is also progressing rapidly in air traffic control. Rohde & Schwarz showed foresight in developing IP-based communications systems early on, as was confirmed by major project success stories written on several continents in the past fiscal year. At the end of 2017, the National Air Traffic Control Service (NATS) in the UK selected Rohde & Schwarz as “Supplier of the Year 2017”.

Rohde & Schwarz establishes new Networks and Cybersecurity division

At the beginning of the new fiscal year, Rohde & Schwarz increased its stake in LANCOM Systems GmbH, the leading German manufacturer of network solutions for business customers and the public sector, to 100 percent. Together, the company and Rohde & Schwarz Cybersecurity GmbH form the new Networks and Cybersecurity division. Founder Ralf Koenzen will continue to manage LANCOM and also head the new division. This acquisition brings the group a big step closer to its goal of positioning itself as a leading European provider of secure network solutions for business customers and the public sector.

Innovator for a rapidly changing media Industry

Amid the digital transformation and the shift towards online content, movie and TV post production studios face the challenge of replacing their traditional tape based workflows with file based solutions. This means replacing almost all of their equipment. This trend is intensified by a constant increase in the number of media formats and distribution channels, which require flexible software and cloud based solutions like those offered by Rohde & Schwarz.

The internet is playing an ever-increasing role in content distribution, but terrestrial radio is holding its ground. Outdated broadcasting infrastructures are continuously being upgraded and replaced by state-of-the-art digital transmitters. Several major projects in Europe and overseas have enabled Rohde & Schwarz to further solidify its position as a leading transmitter manufacturer. In South Korea, for example, a nationwide network of UHD-capable ATSC 3.0 Rohde & Schwarz transmitters was put into operation for the 2018 Winter Olympic Games.

Tackling the issues of the future

Rohde & Schwarz has aligned all of its business fields to meet future challenges. By focusing on the high-growth market segments of communications, information and security, its leading-edge product portfolio and its strong business performance, the company is looking ahead to the coming years with confidence.

29 Oct 18. IBM to buy software pioneer Red Hat for $34bn. Largest takeover in IT veteran’s history set to accelerate shift towards cloud computing. IBM is buying open-source software pioneer Red Hat for $34bn, in the biggest acquisition in the IT veteran’s 107-year history. The deal will help both companies accelerate the move to cloud computing among big corporate clients, as well as providing a much-needed boost to IBM’s revenue growth.  “This is to reset the entire cloud landscape,” said Ginni Rometty, IBM’s chief executive, in an interview. “We have been reshaping IBM for this moment.”  IBM is paying $190 per share in cash for Red Hat, a 63 per cent premium to Friday’s closing share price, giving it an enterprise value of $34bn. The company’s latest push into open source software follows a similar move by Microsoft, whose $7.5bn acquisition of code-sharing site Github closed last week.  The tech industry’s biggest deal so far this year comes as IBM’s long-awaited return to revenue growth seemed to falter in its most recent quarterly results. IBM’s shares fell by around 5 per cent earlier this month as it reported weaker than expected sales, which the New York-based company blamed on delays to large transactions.  Red Hat, which will retain its headquarters in Raleigh, North Carolina following the takeover, has been the company most closely associated with Linux and other open-source technologies since it was founded 25 years ago. Today, it sells infrastructure tools and services to businesses which use its open-source software for servers and cloud computing.  IBM and Red Hat have already been partners for several years but the deal will hand IBM direct control of its large portfolio of open-source software.  Buying Red Hat, which saw its revenues grow by 21 per cent in its most recent financial year, will add to IBM’s free cash flow and gross margin within 12 months. The deal, which IBM is financing through cash and debt, is expected to close in the second half of 2019.  Recommended Technology sector IBM rebound runs out of steam as revenue dips Ms Rometty said that together, Red Hat and IBM would become the “starting point” for clients wanting to build a “hybrid cloud” that combines applications run on their own IT systems as well as on “public cloud” platforms.  Red Hat chief executive Jim Whitehurst said that the company would retain a “level of distinction” with IBM in order to continue working with cloud computing providers such as Amazon, Google and Alibaba, who compete with IBM in some areas.  “In technology there are many people who are both partners and competitors,” he said. “We pride ourselves working well across everyone in the industry. We will continue to work with everyone.”  He said IBM’s far larger sales force would help Red Hat build services better tailored to particular industries, such as financial services, transportation, telecommunications and healthcare.  IBM’s next largest deal was its $5bn purchase of business intelligence software company Cognos in 2007. Red Hat is a “prized asset”, Ms Rometty said, given its “high revenue [growth], high profit, great free cash flow”.  She said that IBM would not be changing its dividend payouts and would target a return to its previous investment grade status in “just a couple of years”. IBM will, however, suspend its share buybacks programme for 2020 and 2021. Goldman Sachs, Lazard, JPMorgan Chase and Paul, Weiss advised IBM. Guggenheim Securities, Morgan Stanley and Skadden advised Red Hat. (Source: FT.com)

29 Oct 18. Northrop Grumman Corporation (NYSE: NOC) today announced that it has entered into an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC to repurchase $1bn of Northrop Grumman’s common stock. Under the ASR agreement, Northrop Grumman will receive initial deliveries of approximately 3 million shares on Oct. 31, representing approximately 80 percent of the expected share repurchases under the ASR agreement, based on the company’s closing price of $269.84 on Oct. 26, 2018. The final number of shares to be repurchased will be based on Northrop Grumman’s volume-weighted average price during the term of the transaction, less a discount, and is expected to be completed in the first quarter of 2019. The ASR will be completed under the company’s current share repurchase authorization, under which $2.1bn remained at Sept. 30, 2018.

29 Oct 18. Quickstep welcomes 42% growth in sales for Q1 2019. Quickstep Holdings has delivered strong sales growth for Q1 of the 2019 financial year, driven by key export achievements with major aerospace and defence contracts like the F-35, C-130J and, for the first time, Boeing’s F-15.  Quickstep delivered strong sales growth in Q1 with sales revenue of $17.6m, up 42 per cent compared with $12.4m in Q1 FY18. This represented 6 per cent growth on $16.6m in Q4 FY18 and all components were supplied on time and in line with program demand during the quarter. Quickstep remains on track to deliver higher Joint Strike Fighter volumes over the next two years, with JSF revenue expected to increase more than 40 per cent in FY19.

Operating cash flow of $2m reflected delayed customer payments received in October 2018. Working capital temporarily rose by $5.6m as a consequence of the delayed receipts, as well as increased sales. The increase in working capital was partially offset by an increase in net deferred income of $1.9m.

Improvement in gross margin is expected during FY19 as JSF volumes continue to increase and from the ongoing lean manufacturing program. Q1 gross margin was impacted by supply chain stress as the JSF program ramps towards full rate production.

A comprehensive supply chain management strategy is in place to address supply chain risks arising from the ramping up in F-35 production.

Quickstep enjoyed a number of key operational highlights, including:

  • Lean operating and continuous improvement: Lean operating initiatives continue to be rolled out across all functions at both of the company’s Bankstown and Geelong sites to improve efficiency, improve margins and reduce operating costs.
  • Secured new partner: Quickstep manufactured and delivered the first F-15 part for Boeing.
  • Employee share ownership: Quickstep recently announced an Employee Share Plan to help recognise the contribution that its employees make to the growing success of the business.

The company’s revenue growth was driven by project highlights, including:

  • Boeing Defense: Quickstep continued development work for two Boeing contracts for both F-15 and F-18 combat aircraft. These contracts add a new ‘prime’ customer, as well as new aircraft platforms and part families for Quickstep’s portfolio. Quickstep has ‘approved supplier’ status with Boeing, which opens up significant future business opportunities across the scope of Boeing’s operations.
  • Chemring: In July 2018, Quickstep was awarded a new defence project to establish production for F-35 countermeasure flare housings. The contract, funded via Chemring from the F-35 Joint Program Office, and an additional NACC-ISP grant of $1 m to complement the investment made by Quickstep.
  • General Atomics: The company’s partnership with General Atomics’ ‘Team Reaper’ tender may lead to additional project opportunities with General Atomics.
  • Lockheed Martin: In August 2018, Quickstep signed an MoU with Lockheed Martin associated with the supply of wing flaps for C-130J amd LM-100J for an additional five years. This extended the existing contract, due to end 2019, strengthening the supply chain relationship. Additionally, Quickstep has been buoyed by the increasing production run of the F-35 numbers, as part of larger block buys announced by the Pentagon.

“This was a strong quarter with Quickstep reporting record revenue. Our program of lean and continuous improvement is producing results, including a profit for the quarter. Focus on the aerospace sector has helped business development. We delivered our first part to Boeing Defense and were very pleased to welcome Chemring Australia as a new client during the quarter,” Quickstep CEO and managing director, Mark Burgess said.

Quickstep anticipates that the business will continue to improve in FY19, buoyed by F-35 deliveries and production ramps up to peak production volumes in the next two years.

Quickstep has significant growth potential through winning composite manufacturing contracts, primarily in the aerospace sector, using traditional techniques and its proprietary advanced manufacturing Qure and QPS technologies. Quickstep continues to focus on winning new customers and contracts, and supporting growth through partnerships to build scale.

The company plans to accelerate its business development activities to win additional business through its tiered growth strategy, focusing on key areas, including:

  • Core defence aerospace: Increasing revenue and diversifying the company’s customer base within the defence/aerospace sector utilising existing Bankstown facilities, while expanding core capabilities.
  • Aerospace Qure/advanced manufacturing deployment: Strategic growth within the aerospace and other sectors, using Qure and innovative technology solutions to attract new business opportunities.
  • Step-change growth: Step change to commercial aerospace supply. Securing of large global programs and/or inorganic growth across the wider defence, commercial aerospace and automotive industries.

Quickstep is an independent aerospace‐grade advanced composite manufacturer in Australia, operating from state‐of‐the‐art aerospace manufacturing facilities at Bankstown Airport in Sydney and a manufacturing and R&D/process development centre in Geelong. The group employs more than 200 people in Australia and internationally. (Source: Defence Connect)

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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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