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15 Nov 18. RADA Electronic Industries Ltd. reestablishes its position as a world leader in advanced tactical radars solutions with Q3 financial results that bring revenue for 2018 to $30m. Rada’s continued growth in revenue and in profit margin, as well as its increased investment in R&D are influenced by the company’s recent expanded presence in the United States marketplace. A $12m sales announcement earlier this week and the recent orders of $ 5m for its software-defined radars for counter rocket artillery and mortar (C-RAM) and counter UAV and short range air defense (SHORAD), demonstrate Rada’s expansion both financially and technologically.
“2018 represents a year of solid progress for RADA, globally, but especially in the United States – where our continued investment throughout this year confirmed our business presence and improved our abilities to well respond to the market needs”, says Dov Sella, RADA’s Chief Executive Officer. “Rada currently enjoys a positive momentum, having won some highly strategic as well as some follow-on orders with key customers”. Sella further notes that Rada expects follow-on orders to become a dominant part of the Rada total awarded contracts in the near future. “Our efforts and increased continues investment in both markets and technology produce satisfied customers who show their trust in us by placing follow-on orders”. According to Mr. Sella, this will influence results for next year and years to come. “2017 was one of Rada’s strongest years, with a record revenue, an achievement mainly based on a specific large order. 2018’s revenue is more diversified, and we expect it to be proven an even better year than 2017. Yet our real excitement lies with 2019 and the years to follow, during which – as we begin to realize – our full potential will materialize”, he concludes.
14 Nov 18. BEI Precision Systems & Space Company, Inc. Announces Acquisition of Thistle Design (MMC) Limited. BEI Precision Systems & Space Company, Inc. (“BEI PSSC”), a portfolio company of J.F. Lehman & Company (“JFLCO”), announced today the recent acquisition of Thistle Design (MMC) Limited (“Thistle”) by one of its affiliates. Headquartered in Loanhead, Scotland, Thistle is a supplier of encoders, resolvers, and other positioning and measurement sensors for the defense and industrial markets, primarily in the UK.
BEI PSSC is a leader in high-accuracy positioning sensor technologies, providing advanced design, manufacturing and testing for reliable and resilient products and systems. BEI PSSC’s core product lines, which are used primarily in mission-critical defense and space applications, include optical encoder-based positioning systems, scanners for situational awareness requirements and precision accelerometers. BEI PSSC is headquartered in Maumelle, Arkansas, and has a longstanding track record of technological innovation, with corporate roots dating back to 1862.
“Thistle is BEI PSSC’s first add-on acquisition and represents an important step in executing BEI PSSC’s strategy of augmenting organic development with complimentary add-on acquisitions,“ said Steve Brooks, Partner at JFLCO. “Thistle’s dedicated engineering talent, proprietary suite of products, and focus on customer service represents a strong strategic fit with BEI PSSC’s core operating principles. We are looking forward to further serving our collective customer bases with this broadened portfolio of solutions,” added Will Hanenberg, Principal at JFLCO.
KippsDeSanto & Co. served as financial advisors to BEI PSSC and JFLCO and Jones Day (lead counsel) and Miller & Chevalier Chartered (international trade, government contracts and defense security compliance matters) provided legal counsel.
15 Nov 18. Chemring Group PLC (“Chemring” or “the Group”) today provides a post year-end statement in respect of the year ended 31 October 2018 (“FY18”).
Key Points
- Underlying trading for FY18 was in line with expectations
- FY18 year-end net debt was £82m
- Significant progress in Sensors, with positions now secured on all targeted Programs of Record. Countermeasures market continues to recover, primarily driven by the US
- Strategic decision to exit from commoditised Energetics businesses and treat as discontinued activities
- FY18 year-end order book was £462m, of which £68m relate to discontinued activities
- Non-underlying items, primarily non-cash, of c.£130m to be included in FY18 results (FY17: £29m)
Michael Ord, Chief Executive, commented, “We finished the year in line with our expectations for underlying trading and net debt with progress in all businesses and the recovery in the UK Countermeasures business well underway. We have taken two strategic decisions which are reflected in the full-year results. The decision to exit the commoditised Energetics businesses will simplify the Group and enable a greater focus on our growing and differentiated Sensors and Countermeasures positions, where we have recently made significant progress. We also took the decision to review a number of balance sheet items, which in light of the strategic review, are no longer considered fully recoverable. Together, these are necessary actions and part of us building a stronger business for the future. Further detail on my views of the Group and its future direction will be provided in January.”
Strategic review of the Group’s portfolio
The Group retains strong market positions in the global Sensors and Countermeasures segments. Recent successes on major US Programs of Record, together with Roke’s innovation and engineering business growth, provide a strong underpin to the continuing Group. Following a strategic review of the Group’s Energetics portfolio the Board has concluded that the future focus within the Energetics segment should be on the niche specialist energetic materials businesses in Chicago, Ardeer and Norway. It has therefore made the decision to exit the commoditised Energetics businesses located in Derby and Florida. These businesses will be treated as discontinued in the 2018 financial statements.
The discontinued businesses contributed £139m (2017: £240m, 2016: £173m) to revenue, £8m (2017: £24m, 2016: £17m) to underlying operating profit, and £10m (2017: £26m, 2016: £20m) to EBITDA. The order book of the discontinued businesses at 31 October 2018 was £68m (2017: £153m, 2016: £285m). The businesses will be classified as held for sale and the Group expects to record a non-cash impairment charge against these businesses of approximately £68m in the 2018 financial statements.
FY18 outturn
With the exception of the impact of the CCM UK incident, trading across the Group in the final quarter of FY18 remained in line with the Board’s expectations and led to total full year revenue of £436m (2017: £547m), of which £139m (2017: £240m) related to discontinued businesses.
The Group’s trading performance for the year to 31 October 2018 is expected to be in line with the revised guidance given in the trading update on 4 September 2018.
At 31 October 2018, net debt was £81.8m (2017: £80.0m).
Amortisation of acquired intangibles totalled £14m (2017: £15m), of which £2m (2017: £3m) related to discontinued operations.
In addition, the Group expects non-underlying items from continuing operations of a further £48m. These items comprise:
– the revaluation of deferred tax assets in the USA following the new tax legislation enacted in December 2017 (£17m – as previously announced)
– legal costs associated with on-going investigations (£13m)
– non-capital costs of the Tennessee transformation project, including the write-off of assets and demolition costs (£8m)
– following a strategic product portfolio review the Group has recognised an impairment charge in respect of certain products where capitalised development costs are no longer considered fully recoverable (£7m)
– deferred consideration on acquisitions (£4m)
– other (£3m)
– deferred tax credit on the above – £4m
Update on CCM UK Incident
The investigation into the incident is on-going and the Group continues to work closely with the regulatory bodies. The Group has taken the decision not to re-open the damaged production line; instead, it will over time transition all MTV mixing to the automated facility on site. A phased re-start of the CCM UK site started in September, with the shipping of finished goods and production of non-Energetic products.
Further guidance of the impact of the phased re-start on FY19 will be given as it becomes available.
Order book
The on-going Group order book at 31 October 2018 was £394m (2017: £325m). The discontinued businesses order book was £68m (2017: £153m). The on-going order book principally reflects a number of significant orders that were received in both the Countermeasures and Sensors segments. A number of these awards were on long-term Programs of Record, reflecting the Group’s move to focus on higher margin, niche market positions, and which give confidence in the Group’s prospects.
The closing order book by segment shows: Countermeasures £183m (2017: £179m), Sensors £75m (2017: £53m), Energetics (continuing) £136m (2017: £93m) and Energetics (discontinued) £68m (2017: £153m).
FY18 Results and update on Chief Executive’s Review
The Group’s FY18 results are scheduled to be announced on 17 January 2019. At the time of these results Michael Ord, Chief Executive, will provide an update on his review of the Group’s businesses and future strategy.
15 Nov 18. Significant orders put defence group Qinetiq on track for growth. Qinetiq on Thursday said a number of “significant” orders secured in the first six months meant it was “well placed to meet” its expectations for the full year. The company on Thursday reported underlying revenues of £420m for the six months to September, up from £393m a year earlier. Underlying profit after tax for the period was fell 10 per cent to £46m, however, down from £52m. Qinetiq secured orders worth £298m in the first six months. Its total order backlog was £1.9bn, compared with just over £2bn in the same period the year before. One of the highlights during the period, said Qinetiq, was securing a programme to provide battlefield communications worth up to £95m, its largest competitive win. Steve Wadey, chief executive, said the company was now “positioned for sustainable and profitable growth”. The company was spun out of the UK Ministry of Defence which remains one of its biggest customers. Mr Wadey said Qinetiq was “working hard to overcome well flagged headwinds in the UK created by changes to the profit rate for non-completed work”. The company has previously flagged that it anticipated the changes in the profit rate to create a £6m headwind to profitability in the financial year 2019. Qinetiq, however, expected this headwind to “moderate in the full-year 2020 and beyond”, said Mr Wadey, “enabling growing revenue to deliver increased profitability”. (Source: FT.com)
15 Nov 18. RUAG and Elbit Systems Sign MOU to Form a Joint Venture in Switzerland. RUAG and Elbit Systems announced today that they have signed a Memorandum of Understanding (MOU) to form a Joint Venture Company (JVC). The two companies will establish this entity in Switzerland, under a joint team comprised of professionals from both companies who have already begun to work in collaboration.
The JVC will enable the companies to synergize and leverage their respective competences and serve as a national Communication and System Competence Center of Excellence. The Competence Center will cater to the needs and requirements of the Swiss Federal Department of Defence, Civil Protection and Sport (DDPS). Furthermore, it will act as a knowledge center to support the companies’ joint efforts with regard to a DDPS’ communication program of the Ministry of Defense of Switzerland (Swiss MOD) and other joint endeavors in the future.
Andreas Berger, CEO RUAG Defence: “We at RUAG Defence are looking forward to working with Elbit Systems and we are convinced that this collaboration will allow us to support the Swiss Army with our proven competence and professionalism.”
Haim Delmar, Senior Vice President Elbit Systems C4I & Cyber: “It is a privilege to be in a position to offer technologically advanced and operational solutions for the Swiss Armed Forces. We are proud to join forces with RUAG and believe that this collaboration will strengthen local support and engineering capabilities through transfer of knowhow.”
14 Nov 18. Avon Rubber Plc Unaudited Preliminary Results For The Year Ended 30 September 2018. Paul McDonald, Chief Executive Officer “I am pleased to report another successful year, delivering strong growth whilst further building the order book to provide excellent visibility into 2019. The results reflect the ongoing benefits of the strategic actions we are taking to grow our presence in our core markets and to invest further in product development to meet the needs of our expanding customer base across both businesses. The positive momentum in both Avon Protection and milkrite | InterPuls provides a strong foundation for growth and leaves us well positioned to deliver further success during 2019.”
30 Sept 2018 30 Sept 2017 (Restated)2 % Increase Reported % Increase Constant Operational highlights
- Continuing demand for US DOD M50 mask systems, with 2019 covered by current order book
- Good customer demand for new products: powered air range and MCM100 underwater rebreather
- UK MOD General Service Respirator 5 year contract received with deliveries commencing in 2019
- Growth in Law Enforcement revenue, converting customers from competitors’ legacy products
- Good momentum in Military orders and Law Enforcement underpins 2019 revenues • milkrite | InterPuls growth across all product lines with strong Interface recovery in second half
- Acquisition of Merrick’s calf nurser product line for $2.1m
- Divested non-core Avon Engineered Fabrications for $9.25m
- West Palm Beach electronics assembly facility relocated to our Cadillac facility Financial highlights at constant currency
- Strong financial delivery – revenue, operating profit, EPS and cashflow ahead of expectations • Orders received up 8.1% and ahead of revenue
- Revenue up 8.7% and adjusted operating profit up 11.8%
- High volume sales of US DOD M50 mask system resulted in adjusted EBITDA margins of 21.3%
- Adjusted1 basic earnings per share of 77.1p (0.8% down) due to lower tax provision release in 2018 compared to 2017
- Strong cash generation (108.2% of EBITDA) and divestment proceeds resulted in net cash of £46.5m, up £21.8m
- Final dividend per share of 10.68p resulting in full year total dividend of 16.02p, a 30% increase • Opening order book for 2019 of £37.8m providing good forward revenue visibility Page 2 of 30 Notes: 1 The Directors believe that adjusted measures provide a more useful comparison of business trends and performance. Adjusted results exclude exceptional items, defined benefit pension scheme costs, the amortisation of acquired intangibles and discontinued operations. The term adjusted is not defined under IFRS and may not be comparable with similarly titled measures used by other companies.
Investors Chronicle Comment: Avon Rubber primed for M&A.
Arguably, a strong dollar has been the most significant story in financial markets in 2018. For Avon Rubber (AVON), which reports in sterling but whose US customers account for over 70 per cent of group sales, one might have expected a currency tailwind in its full-year results. But timing is everything, and a stronger pound in the year to September held back adjusted operating profit, which rose 4.6 per cent to £27.3m. All things being equal, the increase would have been 11.8 per cent.
Regardless, this was another decent outing for the respiratory protection and milking equipment specialist. In protection, Avon continues to make inroads with clients in law enforcement and the military, as strong sales from the M50 gas mask helped to boost the top line and pushed up the closing order book a third to £35.3m. And in the dairy business, where orders and investment plans appear to be stalling, margins nonetheless held up and 2017’s £8m contribution to adjusted operating profits was matched.
Robust inventory management and invoicing also meant cash conversion came in at 108 per cent at the group level. Together with disposal proceeds, net cash has now jumped 88 per cent in a year, which combined with $40m (£31m) of undrawn banking facilities raises the prospect for “meaningful” M&A in the year ahead, said chief executive Paul McDonald.
Peel Hunt expects adjusted pre-tax profit of £29.3m and EPS of 77.5p for the year to September 2019, up from £27.2m and 76.6p in FY2018.
IC View: Is a PE ratio of 18 too expensive for this sort of momentum? On balance, we think not, particularly given the stronger underlying demand for mask systems, and the potential catalyst of a mid-size deal. Buy. Last IC View: Hold, 1,360p, 2 May 2018.
14 Nov 18. Astronics Corporation (Nasdaq: ATRO), a leading supplier of advanced technologies and products to the global aerospace, defense, and semiconductor industries, today provided initial 2019 revenue guidance for its Aerospace segment and affirmed recent Aerospace 2018 revenue guidance.
“In our third quarter press release, we revised our Aerospace segment revenue guidance for 2018 to $670 to $675m, which we are affirming today. The midpoint of this range would show 26% growth over 2017,” commented Peter J. Gundermann, President and CEO. “We are also issuing initial Aerospace segment revenue guidance for 2019 of $710 to $745m, which suggests organic growth next year of approximately 6% to 11%. We are encouraged by our strong booking performance of $617m in the first nine months of 2018, and the continued strength of our aerospace markets.”
The Company also announced today the sale of assets related to its Semiconductor Test business, which is subject to usual closing conditions including a Hart-Scott-Rodino review.
Mr. Gundermann stated, “We are not issuing 2019 guidance today for our Test segment, given the pending sale and other developments in the business. We anticipate doing so by the end of the year. We have a backlog of $72m, most of which is Aerospace and Defense, and are in negotiations for a large program expected to be worth $30 to $50m, as previously announced. We expect the next 45 days will bring clarity about our Test segment in 2019.”
The Company also affirmed its Test segment revenue guidance of $120 m to $125m for 2018. The Company expects to release its fourth quarter and full year 2018 financial results in late February 2019. (Source: BUSINESS WIRE)
14 Nov 18. Cobham plc (‘Cobham’ or ‘the Group’) today issues a trading update covering the period 1 January 2018 to the end of October 2018. The Group’s performance in the first ten months of the year has been as expected. Cobham continues to make progress in executing its turnaround programme. At a Sector level, underlying operating profit* in Mission Systems and Communications and Connectivity has been stronger than in the prior year, which offsets weaker performances in Advanced Electronic Solutions and Aviation Services. Overall, the Board’s expectations for the full year 2018 remain unchanged from those set out in the Interim Results on 3 August 2018. As in prior years, there remains significant trading activity in the final two months of the year. On the KC-46 progamme, Cobham had delivered a total of 18 production standard Centerline Drogue Systems by the end of October. Qualification of the Wing Aerial Refuelling Pods remains in its early stages with risks relating to schedule and cost. Discussions with Boeing have continued regarding its unquantified damages assertions and payment withhold. Cobham is holding a Capital Markets Day in London on the morning of 28 November 2018, focusing on the Mission Systems Sector. The Group’s preliminary results for the year ended 31 December 2018 will be announced on 7 March 2019.
13 Nov 18. Pentagon official: ‘No fundamental concern’ over defense consolidation. The U.S. government is still reviewing a merger of Harris Corp and L3 Technologies, a top Pentagon official said on Tuesday, adding that she had no fundamental concerns about further consolidation in the U.S. defense sector. Undersecretary Ellen Lord told Reuters that the Defense Department was carrying out a detailed process together with antitrust authorities to determine if the proposed merger would “be problematical in terms of the competitive landscape.”
“We’re working through the process. We look at deals based on the individual merits,” Lord said on the sidelines of a NATO industry conference. She said the chief executives of both companies had contacted her about their plans “very professionally” before announcing the deal.
Harris and L3, maker of military communications equipment and other weapons, on Oct. 14 said they planned an all-stock merger that will create the sixth-largest U.S. defense contractor with a market value of $34bn.
The combined company, L3 Harris Technologies Inc, will have about 48,000 employees and customers in over 100 countries, the companies said. The merger is expected to close in mid-2019.
Asked if she was concerned that the merger would result in excessive consolidation in the sector, Lord said, “I have no fundamental concerns.”
Asked whether a subsequent merger involving the new company would spark concerns, she said: “No conjecture.”
For years, the Pentagon discouraged consolidation among top-tier weapons makers, while welcoming deals among smaller players. In 2015, then-Defense Secretary Ash Carter warned that further consolidation in the weapons industry could lead to higher costs, decreased innovation and less competition.
Those comments came days after the U.S. Justice Department approved Lockheed Martin Corp’s $9bn acquisition of Sikorsky Aircraft, a unit of United Technologies Corp, which at the time was one of the biggest acquisitions in the weapons industry in years.
Mergers have been increasing in recent months given rising military spending under U.S. President Donald Trump, with contractors keen to bulk up so they can bid for bigger projects.
In June, Northrop Grumman Corp acquired Orbital ATK Inc for about $7.8bn, and General Dynamics Corp bought CSRA Inc for $9.7bn to expand its government services in April. (Source: glstrade.com/Reuters)
13 Nov 18. Naval Group announces subsidiary in the Netherlands. Naval Group has launched its subsidiary in the Netherlands, Naval Group Netherlands, led by Mark van Rooij, to serve the group’s commitment to establish long-term industrial activities. This Netherlands subsidiary strengthens Naval Group’s global footprint and constitutes a strategic step in the context of future international naval programs. Naval Group is an international high-tech company that designs, builds, and maintains surface ships and submarines whilst providing services for shipyards and naval bases. Naval Group’s new subsidiary, represents a pivotal step towards building long-term strategic partnerships with the Netherlands and with the maritime sector. If selected, the subsidiary will be key in connecting Naval Group and its Netherlands partners as well as in managing the future submarine manufacturing process for the Walrus replacement program. The creation of this entity reflects the group’s commitment to pursue its international development and strengthen its presence in the Netherlands through long-term ties created with Netherlands actors from the naval sector.“Naval Group is strongly committed to strengthen the ties in the Netherlands with all potential partners, SMEs and larger entities as well as knowledge centers leveraging their technical excellence, both for the Walrus class replacement program and other business opportunities within Naval Group.”, Hervé Guillou, Naval Group Chief Executive Officer states.
“Within the frame of the ongoing Walrus class replacement program, Naval Group has developed an industrial cooperation plan that currently includes the participation of more than 70 Dutch companies and knowledge and research centers. To this respect, the Dutch Golden Triangle brings a robust ecosystem for the construction and the maintenance of a new generation of conventional submarines manufactured for the Netherlands, in the Netherlands and by the Netherlands.”, Mr. Guillou emphasizes.
Since the first industrial day organized on February 6th, Naval Group has actively interacted with potential Netherlands partners and these discussions have strengthened the group’s approach to become a contributive part of the Netherlands’ industry.
“It is an opportunity for the Netherlands’ companies to be part of a high-added value industrial project. The project total lifecycle will span over 40 years and will build up valuable knowledge basis that can be applied across various sectors and industries,” Mark van Rooij, CEO of Naval Group Netherlands stated.
Naval Group Netherlands’ main goals will be to engage with the strategic Netherlands partners for all its business opportunities, and to set up the final assembly for the future submarines, leveraging the Netherlands industrial and R&D ecosystem.
13 Nov 18. The US military’s chaff and flare industry is on fragile ground. The two companies responsible for producing chaff and flares for U.S. military aircraft could be poised for a major shakeup, and the Pentagon and congressional critics have begun sounding the alarm about this small, vulnerable segment of the defense-industrial base.
In an October report to the White House on the health of the defense-industrial base, the Pentagon relayed concerns about the small number of domestic chaff and flare producers, and stated that weakened demand — especially for flares — could leave companies little incentive to make internal investments.
Only one producer of chaff exists in the United States: Esterline Defense Technologies, also known as Armtec.
Esterline, which also makes flares, is joined by one other domestic flare manufacturer: Kilgore Flares Co., a part of Chemring Countermeasures USA, which itself is a subsidiary of a firm based in the United Kingdom.
This already precarious industrial situation may be further rattled by TransDigm Group Inc.’s proposed acquisition of Esterline, two lawmakers said.
In an Oct. 29 letter to Defense Secretary Jim Mattis, Reps. Jackie Speier, D-Calif., and Walter Jones, R-NC, called on the Defense Department to block the deal until its inspector general completed an investigation into TransDigm’s business practices. The letter was first reported by The Capitol Forum.
“TransDigm has repeatedly purchased companies that are the sole providers of Department of Defense items and engaged in price gouging,” Speier and Jones wrote. “The abuses have been sufficiently common and severe enough to warrant a DoD inspector general investigation. Unsurprisingly, Esterline is the sole DoD chaff provider and one of two flare providers. The alarm bells should be ringing.”
The industrial base issues, however, extend far beyond TransDigm’s proposed acquisition.
A small but critical market
Chaff and flare are countermeasures used by military planes and helicopters to help evade a missile attack by an enemy aircraft. For the non-stealthy fourth-generation assets that make up the bulk of the services’ inventory, these systems are pivotal to that aircraft’s defense.
Chaff — which comprises “millions of tiny aluminum or zinc-coated fibers” — is stored onboard an aircraft in tubes and ejected behind the plane to confuse radar-guided missiles, the Pentagon’s defense-industrial base report stated.
Meanwhile, flares distract heat-seeking, infrared-guided missiles “by ejecting magnesium pellets from tubes to ignite in the wake behind an aircraft,” the report states. Those pellets are so hot — more than 2,000 degrees Fahrenheit — that the temperature exceeds that of the aircraft’s engine or exhaust, tricking an infrared-guided missile about the path of the aircraft.
According to the industrial base report, “defense unique requirements and decreasing DoD demand drove out other suppliers, leaving a single qualified source for chaff.”
Peter Navarro, the White House’s director of the Office of Trade and Manufacturing Policy, called attention to the fragile chaff supply base during a Nov. 9 speech at the Center of Strategic and International Studies, calling it a “single point of failure.”
Meanwhile, the outlook for flare companies seems even more grim, with the report noting a number of explosions that had plagued both Esterline and Kilgore over the past several years, often leading to factorywide shutdowns that delayed deliveries of product to the Defense Department.
“Both companies have experienced quality and delivery problems since the accidents,” the report stated. “As program offices look to improve quality and cost, they are beginning to look offshore at more modern facilities, where there are fewer quality and safety concerns.”
One of the biggest problems facing chaff and flare manufacturers is the fluctuating demand signal from the Defense Department — their only customer for the product — based on the military’s operational needs, the Association of Old Crows, a professional organization centered on electronic warfare and other countermeasures, said in a statement to Defense News.
“Spending on countermeasures flares in the U.S. and among several NATO allies surged during Operation Enduring Freedom and Operation Iraqi Freedom and then dropped sharply as these conflicts reduced their operations tempo or wound down,” the organization stated.
“The industrial base is small, yet it must be able to meet big fluctuations in customer demand. This creates a tremendous challenge that could be managed more successfully with better coordination among U.S. military customers or even between NATO partners.”
A history of safety issues and scandal
Though chaff and flare companies usually fly under the radar of the defense trade press, when they do appear in the media, it’s usually related to life-threatening accidents at manufacturing facilities or the like.
In May 2016, Esterline was forced to temporarily halt operations at its plant in East Camden, Arkansas, after an explosion injured two employees. Local newspaper El Dorado News Times reported that one of the victims suffered “a blast to the face,” which left burns on the hands, chest and face, and took shrapnel to the elbow, according to a Facebook post by the victim’s relative.
Kilgore Flares also sustained several high-profile accidents in recent years, most notably a 2014 explosion that killed one employee at its factory in Toone, Tennessee. The same plant was the site of a 2016 explosion where no one was injured, according to WBBJ 7 Eyewitness News.
According to the Occupational Safety and Health Administration investigation of the 2014 incident, the worker had been removing residual flare materials that ignited, prompting the explosion.
“The investigation identified noncompliance in process safety information, process hazard analysis and … operating procedures. The employee suffered severe burns on multiple areas of his body and was transported to a hospital, where he received medical treatment and burn therapy, but died from his injuries,” the administration had said.
Kilgore also came under the scrutiny of the U.S. Justice Department in 2016 for selling the Army flares made with magnesium that a supplier — ESM Group Inc. — illegally imported from China. The company was fined $8m for violating a requirement that all magnesium used to make flares be sourced from American or Canadian suppliers, reported the Memphis-based CBS affiliate WREG.
Kilgore and Esterline did not respond to multiple requests for comment.
Pat Kumashiro, former head of the maintenance division for the Air Force’s Logistics, Engineering and Force Protection Directorate and currently director of the Air Force market at LMI, said China is paying attention to weaknesses in the American defense-industrial base.
“They are pretty savvy as it relates to understanding global supply chains, and when they have opportunities to buy mineral rights — and you see them doing a lot of work and being very aggressive in Africa — they are doing it for a reason,” he said.
If an adversary such as Russia or China identifies that there are a limited number of sources for chaff and flare, they can find ways to impact U.S. suppliers — which in turn degrades the mission capability of fourth-generation planes, Kumashiro said.
“Operational pilots are not going to go into harm’s way without an operational chaff [and] flare system,” he said.
The evolving landscape for chaff and flare
Big changes appear to be coming down the pipeline for both Esterline and Kilgore Flares.
For the former, the question is whether the Defense Department allows TransDigm to acquire Esterline.
“Our general goal in this area is to promote competition among contractors but also ensure that DoD is paying fair prices for the best, most usable products that it can get,” a staff member of Rep. Speier told Defense News.
But Speier and his colleague Jones believe TransDigm could artificially inflate prices by claiming there is a commercial market for those products, which would limit the ability of Defense Department procurement officers to have full access to pricing data, the staffer said.
Should the Defense Department decide to allow the TransDigm deal to go forward, Speier may push to add language to next year’s defense authorization bill that would pose additional limitations on what products are deemed “commercial,” or it could call on the Pentagon to study the level of competition throughout the industrial base, the staffer said.
For Kilgore Flares, the changes appear to be more conventionally positive. This May, Chemring Group said it would spend $40m to expand Kilgore’s production facility in Toone and grow the plant’s employment numbers from about 280 to 375 people.
From 2018-2022, the company plans to improve existing facilities, construct new buildings and buy modern equipment, including a new flare extruder and assembly facility, the company said in a news release. In total, those expenditures will triple the plant’s production capacity.
Kilgore’s investment may indicate that chaff and flare manufacturers see some relief on the horizon. Industry officials who spoke to Defense News about this sector said they were hopeful the Defense Department’s industrial base report could indicate a heightened level of Pentagon interest.
The department already has certain levers it can pull to address problems in its supply base. One such effort, called the Industrial Base Analysis and Sustainment program, involves targeted investments to sustain certain manufacturers who produce a critical capability. Another resource is the Defense Production Act Title III program, which offers grants, purchase commitments, loans or loan guarantees to portions of the industrial base that are weakening.
The Defense Department called for an expansion of those programs in recommendations to the White House submitted as part of the industrial base report. A classified annex also includes detailed fixes for certain critical industries. So far, however, it’s unclear what assistance could be coming down the pipeline for the chaff and flare industry. (Source: Defense News)
12 Nov 18. Babcock under MoD watch over submarine contract. Move raises fresh questions over performance of UK’s second-biggest defence supplier. Babcock has been asked to deliver regular updates on its maintenance of the UK’s Vanguard-class submarines, such as the HMS Vengeance. Babcock has been placed under extra scrutiny by the Ministry of Defence over its handling of the contract to support and refit the submarines that carry the UK’s Trident nuclear deterrent, raising questions over the performance of Britain’s second-biggest defence supplier. In a sign of increasingly strained relations between the defence ministry and the company, government officials said Babcock had been asked to provide more regular progress reports on its maintenance of the UK’s four Vanguard-class submarines. The MoD has so far stopped short of introducing special measures, which could include sending officials to oversee the complex engineering programme at the Royal Navy’s Devonport base in Plymouth. “They really need to pull their finger out,” said one official. “There is real concern.” While the exact reasons for the MoD’s concerns are not clear, one of the four submarines, HMS Vanguard, has been in dock at Devonport for the past three years for unplanned refuelling at a cost of at least £200m. This included fitting a new nuclear reactor core, which powers the boat, for a second time amid concerns that the original replacement had a design defect. Last week, Gavin Williamson, defence secretary, said similar work on another submarine, HMS Victorious, would not be necessary, suggesting that there was no problem with the reactor design. Professor Trevor Taylor from the Royal United Services Institute, a think-tank, said the contract to refit HMS Vanguard “may be in some difficulty”. The MoD move comes as some shareholders want Babcock to start the search for a new chairman to replace long-serving Mike Turner, who has been in the role for about a decade. Babcock said it would not comment on “the detail of individual programmes” but said it worked “closely with our customers, and all our contracts are monitored and reviewed regularly with us”. It added that it met the MoD “on a regular basis” and “our relationship remains as strong as ever”. While the MoD refused to comment on the increased scrutiny of the Vanguard programme, the ministry issued a statement on Monday in response to speculation about Babcock’s wider financial health. “We monitor the health of all our strategic suppliers, including Babcock, and remain committed to working with them on a wide range of programmes,” the government said. Some disgruntled Babcock investors are calling for the group’s long-serving chairman Mike Turner to be replaced Mr Taylor said it was “quite unusual” for the MoD to ask for extra information and reporting. “It’s a sign of how worried they are,” he added. One senior military official said relations between the company and the MoD were “strained”. Shares in Babcock have fallen 9 per cent since a highly critical report by an unknown group called Boatman Capital last month listed allegations about the defence group’s performance. Recommended Lombard Matthew Vincent Babcock finds defence is not best form of attack Babcock on Monday sought to reassure investors that its financial position was sound, describing some of the claims in the report as “false” and “malicious”. It said that the group continued to “enjoy a healthy financial position with cash generation in line with expectations” in the six months to the end of September. It added that it expected to reduce its debt during the year. The shares closed up 2 per cent on Monday to 616p. A top-10 shareholder told the Financial Times it was time that Babcock brought in someone from the outside to lead the group. “We would like to see a succession plan put in place for the chairman over the next six to 12 months. It would help having a highly respected outsider come in,” the investor said. “I am comfortable with the fundamentals of the business but there is an issue with the management’s relations with the City,” he added. Babcock this month announced that it would close its Appledore shipyard in Devon after failing to secure more work and despite being offered a £60m package by the government. The company is among two consortiums competing to build the Type 31e frigates for the Royal Navy. (Source: FT.com)
13 Nov 18. Melrose Industries PLC (“Melrose” or the “Group”) publishes the following trading update for the four months from 1 July 2018 to 31 October 2018 (the “Period”). All numbers are calculated at constant currency. Melrose is trading in line with the Board’s expectations for 2018. In the Period, Melrose has seen strong revenue growth in Aerospace and Powder Metallurgy with flat revenue in Automotive. Melrose is confident the GKN businesses offer an outstanding opportunity for value creation over the medium term.
Divisional highlights
Aerospace
Aerospace is performing well, revenue was up over 6% on last year in the Period and good progress has been made on margin including improvement in the performance of North America. With an experienced and incentivised management team, the Aerospace business is making the improvements necessary to achieve the acquisition objectives.
Powder Metallurgy
This business has achieved revenue growth in the Period of 9% compared to last year with improved margins. This good momentum gives confidence that the 14% margin target can be achieved in the medium term.
Automotive
In the Automotive division, revenue has been flat in the Period compared to last year despite some well publicised industry factors. Consistent with previous reporting periods, margin was lower but Melrose remains confident that operational improvements identified on acquisition are achievable and will positively impact performance in 2019 and beyond.
Liam Butterworth was appointed CEO of the Automotive division on 5 November 2018. He is assembling a new management team from internal and external sources to significantly enhance the performance of the business.
Nortek Air & Security and Other Industrial
Nortek Air & Security has achieved broadly flat sales compared to last year in the Period. The effects of U.S. tariffs in these businesses are materially confined to Security and Ergotron in respect of their factories based in China, and thus tariff issues for these businesses should not have a material effect on the Melrose Group.
Net Debt
Net debt and cash generation are in line with the Board’s expectations.
Melrose will be presenting its full year results on 7 March 2019, and hosting a Capital Markets Day in London on 3 April 2019 focused on the Aerospace and Automotive divisions.
Christopher Miller, Chairman of Melrose said: “Melrose has a proven business model, which has been successful over many years and through several economic cycles. We are confident that there is an outstanding opportunity to make significant and lasting improvements to the performance of the GKN businesses. Whilst certain end markets may be unpredictable, the Group is on track to meet our expectations for this year. We are excited by the future prospects of the Group and look forward to delivering significant value for shareholders.”
BATTLESPACE Comment: This is a certainly measured and bland statement which shows how the bullish statements issued by Melrose at the time of the contested takeover by GKN to ‘significantly add value,’ lie in dust given the reality of current markets. GKN had always factored in a fallow period in both its key markets of aerospace and automotive, so for Melrose, who has no previous experience in these areas to promise GKN shareholders a better world with them now looks like fantasy. The only option Melrose has is to sell some former GKN businesses for what they can get to bring in much needed cash to bolster the rump of the business during this downturn which won’t be short. Those Hedge Funds who bet on Melrose’s advertised expertise in turning businesses round may well be regretting backing the bid. A classis example of the City believing false prophets for short term gain, they should have left the business with the management who understood it! The first sign the Editor had of the new Melrsoe management not understanding the business they had bought was when he asked what they would be saying to the Press about the GKN buy at Farnborough and they said, “Nothing.” The Melrose GKN bid may well be the pointer showing that the bull market was at an end, and a great long-established business was killed in the process! With Brexit, the automotive downturn and Trade Wars any sales of GKN businesses will take longer and be more difficult than forecast at the time.
13 Nov 18. Shares in Melrose Industries (MRO) are nearly a third down on their May peak, as investors remain concerned by signs of global trade rifts. Today, the stock is up, after the company said cash generation and net debt were both trending in line with forecasts. And while revenues in the automotive division remain flat, aerospace and powder metallurgy are up 6 and 9 per cent respectively. Under review. (Source: Investors Chronicle)
12 Nov 18. General Electric seeks urgent asset sales as bond fears rise. General Electric Co (GE.N) will sell assets with “urgency” to reduce its high debt, Chief Executive Officer Larry Culp said on Monday, as GE shares tumbled as much as 10 percent and the cost of insuring its debt hit a six-year high. Culp is facing tough questions about GE’s financial strength and profit outlook after being named CEO on Oct. 1 with a mandate to turn around the 126-year-old conglomerate.
“We have no higher priority right now than bringing leverage levels down,” Culp told CNBC. “We have plenty of opportunity to do that through asset sales.”
Culp said GE also was trying to get “a better grounding in reality” in its ailing power unit.
Last month, GE posted a quarterly loss of $22.8bn (17.74bn pounds), cut its annual dividend to just 4 cents a share and told investors it was facing a deepening federal accounting probe. The power unit lost $631m in the quarter and GE wrote down $22bn in goodwill because expected future profits in the unit now appear unlikely.
Since then, some analysts have questioned GE’s liquidity and slashed their target prices for the stock. Culp said he thought the power business was “getting close” to bottoming out after more than a year of declining revenue and profit.
Some GE bonds are now trading far below par, and its five-year credit default swap rose to a bid price of 176.5 basis points and the upfront price GE5YUSAX=MG GE5YUSAX=R to 3.4 percent on Monday, according to data from IHS Markit and Refinitiv.
The spike in credit default swap costs comes as short positions in GE debt have risen to $958m from $238m in December 2017. The most shorted debt security is the 5 percent perpetual bond, which has no maturity date, and has seen short positions more than double to $442m from mid-September. Analysts at Credit Suisse and CFRA cut price their stock targets prices on Monday from $12 to $10 and $9, respectively, citing uncertainly about GE’s earnings and margins, and potential liabilities and writedowns at its insurance and power units. JPMorgan analyst Stephen Tusa last week cut his target to $6 from $10.
“We do not think the stock ‘works’ until confidence is restored,” Credit Suisse analyst John Walsh wrote on Monday.
GE shares closed down 6.9 percent at $7.99 on the New York Stock Exchange after falling as low as $7.72.
GE had $114bn in debt at the end of the third quarter, 3.7 times its equity and more than four times the industry average debt-to-equity ratio of 0.77, Refinitiv data shows. High debt levels can increase a company’s risk of default.
Former GE CEO John Flannery announced $20bn in planned asset sales a year ago, but many are either still in the works or have not yielded enough cash to bring debt in line with peers. GE’s largest deal so far, merging its railroad locomotive unit with Wabtec Corp (WAB.N), netted just $2.9bn in proceeds and 9.9 percent of the combined company.
Culp said GE was considering potential deals involving its “crown jewel” aviation unit, which shares technology with power, but such moves were not a high priority.
“We wouldn’t say ‘no’ for all time to various options,” but breaking the unit out, monetizing it or raising equity were “not high on our list” of strategic moves, Culp said. (Source: Reuters)
12 Nov 18. Babcock response to speculation and update on trading. Defence contractor Babcock has come out with all guns blazing after coming under attack from “shadowy research firm” Boatman Capital Research. Not Opening Quote’s words, but those of the Sunday Times, which was sent a section of the research firm’s damaging report into Babcock. According to the newspaper, Boatman Capital Research is not traceable at Companies House and refuses to disclose the identity of its directors. But its stealth dossier alleges that Babcock has been “burying bad news about its performance” and that the leadership team is “not up to the job”.
Its firepower is concentrated on Babcock’s Appledore shipyard in Devon, the Sunday Times says. This has failed to win new business since building an offshore patrol vessel for the Irish navy, and Babcock is accused of using Appledore as a “piggy bank” by taking dividends of £11m.
So, this morning, with no clear target to hit back at, Babcock has taken a scatter gun approach to defending its reputation.
It says Boatman Capital’s report includes “many false and malicious statements which the Group strongly refutes”. At the same time, it has sent the patrol boats out “to seek to discover who is behind Boatman Capital”. And it has brought out the big guns from the Ministry of Defence, too, securing a statement of government support.
But with Boatman Capital having secured a palpable hit, investors can expect another torpedo to be fired any moment now. Incoming!
Key numbers:
- £11m dividends taken – claim by Boatman
- 128 contracts -number Babcock is delivering for the UK Government
- £1.7bn – Ministry of Defence spend with Babcock last year
What was said: A UK Government spokesperson said, “We monitor the health of all of our strategic suppliers, including Babcock, and remain committed to working with them on a wide range of programmes. Babcock plays a key part in equipping our world leading armed forces and the MOD spent more than £1.7bn with the company last year, supporting thousands of jobs across the nation.”
OQ verdict: This looks like a classic short-selling attack – the dossier of critical claims from an unheard of research firm hoping to depress a company’s share price. Babcock now has to convince shareholders fast – its shares are already down 16 per cent year to date. Its most recent trading confirmed that underlying earnings were in line with expectations and it is due to give an update on exiting a number of small, low-margin businesses, which includes the Appledore shipyard, on November 21. It may have to fire off some more good news before then. (Source: FT.com)
09 Nov 18. Morgan Advanced Materials sales jump on strong demand for its body armour. The FTSE 250 group, which makes everything from body armour to seals and bearings, saw sales climb 7.2% in the ten months to the end of October. The company used to be known as Morgan Crucible. Sales at Morgan Advanced Materials plc (LON:MGAM) have jumped so far this year, leaving the ceramics and carbon products maker on track to meet its full-year targets. The FTSE 250 group, which makes everything from body armour to seals and bearings, saw sales climb 7.2% in the ten months to the end of October. Continued strong demand for its ceramic armour products was yet again a key driver of growth, but even excluding this, underlying sales were still up 5.4%. Morgan’s thermal products and carbon and technical ceramics divisions were the other stand-out performers, with sales rising 7.0% and 9.2% year-on-year respectively.
Operating margins remained “in-line” with the 11.8% figure Morgan reported in its half-year results back in July. Shares were down 0.8% to 273p shortly after the opening bell having initially opened higher. (Source: proactiveinvestors.co.uk)
09 Nov 18. ThyssenKrupp slumps to lowest level since 2016 on profit warning. The company’s shares suffered their biggest one-day fall since June 2016. ThyssenKrupp shares dropped more than 10 per cent on Friday, their biggest one-day fall since June 2016, after the beleaguered steel and elevators conglomerate issued its second profit warning this year. It is rare for a company on the DAX-30 index of Germany’s largest companies to suffer such a fall, suggesting investors were taken aback by the late-Thursday warning. The decline places ThyssenKrupp’s stock at its lowest intraday level since July 2016. The €11bn conglomerate explained net profit would likely be just €100m this year, versus an earlier prediction that profits would be “significantly” higher than the €271m result last year. Citi analysts, who had been expecting €699m in net income this year, said the second profit warning would, at least, allow the group to begin 2019 with a clean slate. “We see the latest round of writedowns as a continuation of the clean-up under the new CEO,” they said. ThyssenKrupp shares had already been struggling. In the past five years they have essentially been flat despite multiple efforts to restructure the company. Following months of intense pressure from activist investors, both the chief executive and chairman resigned in July. Guido Kerkhoff, the longtime finance chief, was promoted to CEO in September after spearheading a blueprint to split the company into two divisions. Thursday’s profit warning cited two issues: “risks arising from quality issues in the Components Technology business area”; and the company having set aside “risk provisions” in light of “new developments” in an ongoing investigation about whether it participated in a cartel related to heavy plate and flat carbon steel. ThyssenKrupp has been dogged by Germany’s Federal Cartel Office since May 2011. In July 2012 it was fined €103m for conspiring to supply rails to Deutsche Bahn at inflated, anti-competitive prices. The next year it was penalised an additional €88m, bringing to an end the rail cartel issue. ThyssenKrupp has long-flagged the investigation into heavy plate and flat carbon steel, but the new provisions suggest its internal probe found reason to set cash aside for new possible fines. Analysts at UBS called the development unwelcome, but said it was a one-off charge that would not upend the broader restructuring story. “While today’s announcement does not change our positive view on ThyssenKrupp’s restructuring story, it is clearly disturbing,” they told clients. “Over the past three months the company lowered the EBIT guidance three times, which we think reflects poorly on the company as, in our view, the operational issues should have been recognised earlier.” (Source: FT.com)
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Odyssey is an independent corporate finance firm which advises on acquisitions, business sales, management buy-outs and raising finance, typically in the £5m to £100m range. We have extensive experience in the niche manufacturing sector with our most recent completed deal being the sale of MacNeillie to Babcock Plc. Details can be seen at: http://www.odysseycf.com/case-study-macneillie/
As a result of this and related projects we have developed relationships with buyers and funders looking to acquire or invest in the sector. We would be happy to share further insights into the sector and to carry out reviews of businesses whose shareholders are considering an exit, acquisition or fundraise.
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