03 May 19. KBR, Inc. (NYSE: KBR) announced the unveiling of a new look to reflect today’s dynamic and modern KBR. The launch of the new KBR brand includes a new logo, colors, and website. The company will continue to operate as KBR to preserve the legacy of the KBR name and its value in the Government Solutions and Energy industries.
Beginning in 2014, KBR executed a deliberate and strategic plan to transform the company into a global provider of differentiated professional services and technologies across the asset and program lifecycle within the Government Solutions and Energy sectors. The new bold and forward-looking brand reflects this evolution and positions KBR as an innovative leader and solutions provider to customers across multiple domains.
“It’s a great time to be part of KBR,” said Stuart Bradie, KBR President and CEO. “We have a unique culture driven by our smart, resourceful, pioneering people. We’ve transformed our company, delivering nine straight quarters of growth and are poised for dynamic, innovative growth for the foreseeable future.
“We are excited about the future and it is the perfect time to introduce a fresh look that reflects today’s KBR.”
The new logo and colors – designed by KBR employees – tells the story of the new KBR. Each element of the logo has significance.
The squares symbolize KBR’s focus on and expertise in digitalization. The colors of the squares represent the environments in which we work: green represents land, dark blue represents water, light blue represents the sky and black represents outer space.
The globe illustrates our global reach while connecting the current KBR back to our roots. This year Brown & Root and thus KBR are celebrating our 100 year anniversary. The sun and the globe with their vantage point from space represents our never ceasing operations and our beyond global capability. At any time somewhere around the world our team is working to meet the needs of our customers.
KBR’s new website is modern and inspirational and will better serve our customers, our employees and those looking to join KBR. The site is easy to navigate and better tells the KBR story.
“KBR will continue to evolve, it will continue to grow and we will continue to add further value to our customers while providing more opportunities for our people,” said Bradie.
About KBR, Inc.
KBR is a global provider of differentiated professional services and technologies across the asset and program lifecycle within the Government Solutions and Energy sectors. KBR employs approximately 37,500 people worldwide (including our joint ventures), with customers in more than 80 countries, and operations in 40 countries, across three synergistic global businesses:
- Government Solutions, serving government customers globally, including capabilities that cover the full lifecycle of defense, space, aviation and other government programs and missions from research and development, through systems engineering, test and evaluation, program management, to operations, maintenance, and field logistics
- Technology Solutions, including proprietary technology focused on the monetization of hydrocarbons (especially natural gas and natural gas liquids) in ethylene and petrochemicals; ammonia, nitric acid and fertilizers; oil refining and gasification
- Energy Solutions, including onshore oil and gas; LNG (liquefaction and regasification)/GTL; oil refining; petrochemicals; chemicals; fertilizers; differentiated EPC; maintenance services (Brown & Root Industrial Services); offshore oil and gas (shallow-water, deep-water, subsea); floating solutions (FPU, FPSO, FLNG & FSRU); program management and consulting services
KBR is proud to work with its customers across the globe to provide technology, value-added services, integrated EPC delivery and long term operations and maintenance services to ensure consistent delivery with predictable results. At KBR, We Deliver.
02 May 19. 3 AIM companies taking a slice of a trillion dollar defence spending pie. Defence spending hit $1.82trn in 2018, the highest level since the Cold War, according to a report by the Stockholm International Peace Research Institute.
The United Kingdom’s defence spending reached $50bn (2% of GDP), but a recent defence committee report recommended increasing the budget to 3% of GDP, roughly $78bn.
Japan plans to splash out $245bn over the next five years, (roughly $49bn annually), which is an 11% rise over the past five years.
Few nations’ defence spending, however, has surged quite like China’s. Its annual defence spending amounted to $250bn in 2018, a 5% increase from the previous year. Its defence budget has increased by roughly a third between 2013 and 2017.
NATO, as well as other world nations, will be under pressure to match these efforts. Demand for military equipment will be one the key drivers for short term defence sector growth. So, for those in the defence business, this is good news.
While earnings season saw Lockheed Martin boost its financial guidance for 2019, soaring past Wall Street expectations, BAE Systems delivered slightly lower revenues, citing fierce competition, and Boeing revenues took a hit after the 737 failures.
But these companies are large and diversified, deriving their revenues from a wide area of business divisions, not just military equipment.
According to a report by Deloitte, large blue chip prime contractors are expected to consider acquiring small to mid-sized companies to gain access to new technologies and markets.
The report highlighted that original equipment manufacturers will put pressure on suppliers to reduce costs and increase production rates, which, in turn, is pushing many suppliers to consolidate for scale, cost-effectiveness, and higher negotiating power.
Recent examples include Aerospace supplier United Technologies Corp paying $30bn to buy avionics and interiors maker Rockwell Collins. Two major communications and electronics contractors, L3 and Harris, merging in a $33.5bn deal, one of the biggest-ever mergers in the defence sector. And most recently, Bombardier, the Canadian-based aerospace and rail manufacturer, planning to sell its operations in Northern Ireland.
So while the bluechip names are poised to benefit from the defence sector growth, there are 3 AIM listed defence companies who specialise in military equipment who may be directly positioned to take a slice of the trillion dollar pie.
TP GROUP (TPG)
(£47m mkt cap) is a specialist services and engineering group that designs and develops advanced technologies, equipment, systems, and support services.
It’s customers include bluechip defence contractors like BAE Systems, Baker Hughes, Rolls-Royce, Babcock, Leonardo, Qinetiq Group, and many more. It was recently reclassified from Industrial Engineering to Aerospace & Defence at the end of 2018 as the majority of its revenue and profits come from defence, intelligence and space sector clients.
COHORT (CHRT)
(£150m mkt cap) is a defence technology group operating 4 different companies that apply advanced technology in the defence, security, and related markets.
It works on systems and equipment ranging from electronic warfare operation support to cyber security to signals intelligence technology. The company runs decentralised management structure and emphasizes in its annual report a focus on niche product and service offerings.
CHEMRING (CHG)
(£412m mkt cap) is a technology business that designs, manufactures, supplies and supports high technology detection systems, countermeasures and energetic products and technology services.
Its customers include national defence and security agencies, and defence prime contractors across the UK, US, Australia and Norway. The company operates in markets where it has niche technology, intellectual property, expertise and high barriers to entry.
As geopolitical tensions are continuing to intensify, strong demand for military equipment is expected to continue, so savvy investors will be watching this space. (Source: Google/https://www.voxmarkets.co.uk)
02 May 19. Downer takes final steps toward integrating AGIS and Envista. Downer EDI is taking the final steps to expand its capability in the defence and national security sector, with the rebrand of AGIS Group and Envista to operate under the Downer brand.
AGIS, acquired in June 2016, and Envista, acquired in March 2018, have been operating as part of Downer’s Defence and National Security business delivering a broad range of professional and managed services to customers across the defence and national security sectors.
Brett Sangster, managing director of Downer Defence and National Security, said, “We are pleased to finalise the integration of two great companies under the Downer brand. As a fully-integrated defence and national security business unit owned by an Australian company, we are committed to building sovereign Defence capability.”
Canberra-based AGIS provides specialist professional services across a range of project and capability life-cycle services in the disciplines of:
- Project/program management;
- Engineering and technical services;
- Integrated logistics support;
- Business and commercial support;
- Capability development; and
- Information communication technology.
AGIS focuses on supporting the Department of Defence, supporting a range of state-of-the-art emerging and in-service capability programs across the land, maritime, air and joint systems environment.
“Our customers are at the heart of everything we do so as we integrate, we remain agile and focused on our defence and national security customers,” Sangster added.
Envista provides strategy, architecture and delivery solutions in complex and security sensitive client environments
Since its foundation in 2005, Envista purposefully set out to assemble a team of professionals who collectively represent the highest levels of experience and expertise in the industry. Envista looks for talented individuals who have significant experience delivering outcomes for large and complex ICT programs and projects including production/operational environments, both domestically and internationally.
“We are also taking this opportunity to extend our services to the critical infrastructure sector. As Australia’s leading integrated services provider, Downer is uniquely positioned to apply the expertise and experience of AGIS and Envista to our critical infrastructure customers,” Sangster said.
Downer’s Defence and National Security business plans, delivers and manages capability by providing a range of professional and managed services across program management, information and communication technology, systems engineering, integrated security (including cyber security and crisis management), and emerging technology (including artificial intelligence and machine learning). (Source: Defence Connect)
02 May 19. Bombardier to sell Belfast operations. The aerospace firm, Bombardier, is putting its Belfast operation up for sale as part of a reorganisation of the business. The company, which also has factories in Morocco, is selling its entire aerostructures operation. The Canadian aircraft manufacturer employs about 3,600 people across several locations in Northern Ireland. The company said it would be working closely with employees and unions, through any future transition period. In a statement, Bombardier announced the “strategic formation of Bombardier Aviation, consolidating all aerospace assets into a single, streamlined and fully integrated business”.
The statement added: “Our sites in Belfast and Morocco have seen a significant increase in work from other global customers in recent years.
“We are recognised as a global leader in aerostructures, with unique end-to-end capabilities – through design and development, testing and manufacture, to after-market support.”
It said Bombardier was committed to finding the right buyer.
It added: “There are no new workforce announcements as a result of this decision.
“But our management team will continue to drive ongoing transformation initiatives to improve productivity and increase our competitiveness, to give more weight to our unique value proposition to potential buyers.”
It is not yet clear who could buy the Belfast operation but it may be attractive to global engineering firms who are ‘Tier 1’ aerospace suppliers.
Industry watchers point to firms like Spirit Aerosystems or GKN.
The Belfast plants don’t just make parts for Bombardier, they also supply external customers such as Airbus.
Bombardier Belfast director, Michael Ryan, previously said the Belfast factory would be capable of functioning as an outside supplier to Bombardier’s business-jets division.
It is understood that Business Secretary Greg Clark spoke to representatives of the company before the announcement was made.
A government spokesperson said that it was disappointed that Belfast was no longer a part of Bombardier’s future.
Bombardier, which is based in Montreal, has more than 68,000 employees in 28 countries.
Last month, it slashed its full-year revenue forecast from $18bn (£13.7bn) to $17bn (£13bn) due to timing of aircraft deliveries, production challenges in its train-making division and unfavourable currency conversions.
The rail unit is meant to generate $10bn (£7.6bn) but Bombardier has cut its full-year revenue forecast for the division by almost 8% to $8.75bn (£6.7bn).
Bombardier’s president and chief executive Alain Bellemare said that the company expected to meet its aircraft delivery and financial performance targets for the year in its aerospace businesses. (Source: BBC)
01 May 19. Boeing supplier Spirit AeroSystems suspends outlook. Boeing Co’s largest supplier Spirit AeroSystems Holdings Inc reported strong first-quarter results on Wednesday, while following the planemaker in suspending its full-year outlook in the face of the global grounding of 737 MAX jets. The crisis with Boeing’s most popular aircraft has thrown into doubt orders for a raft of parts makers who have been investing heavily to meet record-breaking demand from the world’s biggest planemaker over the past two years.
Spirit, which makes fuselage, structural engine components and wing parts for the MAX, did a deal with Boeing last month to stick to its current parts delivery schedules for now, and its profits in the first quarter were up 30 percent, according to Wednesday’s quarterly results.
Boeing however has announced cutbacks in its monthly production of MAX jets to 42 from 52 and while it says it is nearing certification for a software fix for the jet, airlines are assuming the planes will not be back in the air before August.
Spirit said with the uncertainty around MAX production it could not stand by its previous full-year outlook which had factored production for MAX jets rising to 57 units per month in June.
“As we now expect to remain at 52 aircraft per month for some period of time, (prior) guidance does not reflect our current outlook,” Spirit Chief Executive Officer Tom Gentile said, adding he was waiting for more clarity from Boeing on MAX’s return to service. MAX’s other major supplier General Electric Co, which makes engines with Safran SA of France, on Tuesday stuck to its full-year forecasts, while highlighting risk due to MAX’s reduced production.
Another MAX supplier United Technologies Corp last month included an up to 10 cents per share impact in its full-year profit outlook from the groundings of the jet, assuming Boeing produced at 42 aircraft per month for the rest of the year.
Spirit, whose shares are down about 10 percent since the fatal crash of the Ethiopian Airlines’ jet on March 10, rose as much as 3.5 percent to $89.96 in morning trade. (Source: Reuters)
01 May 19. Federal shutdown hits Avon Rubber. The six-week partial US government shutdown hit revenues in Avon Rubber’s (AVON) law enforcement division, while challenging dairy market conditions added to a difficult first half for the specialist in respiratory protection systems and milking point solutions
The impact of the shutdown was two-fold. The US Department of State, which approves export licences for Avon Rubber’s rest-of-world military customers, closed, creating an administrative backlog. Federal funds for US government work was also delayed. Business is returning to normal, according to chief executive Paul McDonald, but “what we haven’t seen is that catch-back of that missing six weeks”. Avon Protection revenues are now expected to grow in mid-single digits on a constant currency basis for the full year.
Weak market conditions reduced revenues for Avon’s milkrite | InterPuls. But milk prices and farmer confidence are rebounding. The ratio of milk price to feed costs, the two critical components to the dairy business, is now in positive territory at a multiple of 1.6, according to Mr McDonald, effectively yielding a one-third contribution of free cash flows to fund the rest of the business. Avon’s cash pile is rising, and the company is tracking around 30 businesses for potential M&A activity. It expects to deploy about £150m over the next two to three years, Mr McDonald said.
Broker Peel Hunt forecasts full-year 2019 adjusted pre-tax profits and EPS of £29.3m and 77.5p for its September 2019 year-end, rising to £31m and 81.9p in 2020.
IC View
The intransigence of President Trump – or a Democrat-controlled lower house – shouldn’t detract from Avon Rubber’s underlying business, which secured two lucrative five-year mask orders with the US Department of Defense. With the dairy market roaring back into life and a host of exciting M&A opportunities on the horizon, we remain buyers.
Last IC view: Buy, 1,255p 27 Mar 2019. (Source: Investors Chronicle)
01 May 19. Inmarsat profits fall in first quarter. Post-tax profits crashed $326m lower after a change to liabilities over a convertible bond and costs relating to the takeover offer. Inmarsat shareholders will vote on the take-private offer on 10 May. Inmarsat Plc (LON:ISAT) reported soft sales and profits at the start to the year but said it remained confident about hitting full-year targets as it awaits being taken private.
The satellite operator, which is being taken private in a US$3.4bn deal by a private equity-led consortium, generated revenue of US$346.9mln in the first quarter, up 0.4% on the same period a year ago. For the full year it maintained guidance of $1,300mln-$1,400mln.
READ: Inmarsat shares rocket higher after agreeing US$3.4bn takeover by private equity-led consortium
Underlying earnings (EBITDA) fell 12.9% to US$152.4mln. Excluding Ligado and costs relating to the takeover offer, EBITDA increased 18.7% to $169.4m.
Post-tax profit crashed $326m lower, which Inmarsat said mainly reflecting a change in the unrealised conversion liability on its 2023 convertible bond of $297.9m, as well as US$17mln costs relating to the offer.
If shareholders vote on 10 May to approve the offer and there are regulatory hiccups, the board expect the deal to be completed by the end of the year.
The trading update came ahead of the group’s annual shareholder meeting on Wednesday, an event that last year saw investors vote down the executive pay policy, following rebellions against pay at AGMs in 2012, 2013 and 2015.
Chief executive Rupert Pearce said the first quarter was “a strong underlying performance… building on the positive momentum achieved during 2018″, saying the group continued to “build and aggressively defend market share in our target markets”.
Revenue from the Maritime arm, the group’s largest division, was down 9.5%, while the Government and Aviation segments saw sales up 28.6% and 53.4%. The Enterprise arm was down 13.8% and cash from the deal with US network Ligado was down 90.1%. (Source: proactiveinvestors.co.uk)
01 May 19. Inmarsat plc (LSE: ISAT.L), (“Inmarsat”, the “Group”), the world leader in global mobile satellite communications, today announces unaudited financial results for the three months ended 31 March 2019. Summary and Financial Highlights Inmarsat delivered further revenue growth in the period, building on the positive momentum achieved during 2018. This was driven by the success of our diversified growth portfolio in a focussed set of core end markets, where we lead with sustainable differentiation.
Operational Highlights
- Group revenue increased by $1.5m, or 0.4% to $346.9m.
Excluding Ligado, Group revenue increased by $33.4m, or 10.7% to $346.7m, mainly reflecting strong growth in Government and Aviation: – Maritime: continued double-digit revenue growth in the fast-growing VSAT segment.
Challenges remain in the mid-market but actions taken now favourably impacting vessel losses – Government: further customer take-up of key products in both our US and Global Government businesses – Aviation: material increase in In-Flight Connectivity (“IFC”) revenues, driven by substantial equipment sales and continued growth in GX airtime revenues.
Continued revenue growth from Core business – Enterprise: continued decline of products in legacy markets – GX-generated revenues: increased by 71.4% to $85.7m (Q1 2018: $50.0m) – Ligado: revenues of $0.2m (Q1 2018: $32.1m), as expected
- EBITDA decreased by $22.5m, or 12.9%, to $152.4m. EBITDA (excluding Ligado and costs relating to recommended offer for the Group) increased by $26.6m, or 18.7%, to $169.4m, reflecting revenue growth
- Profit After Tax declined by $326.0m, mainly reflecting a change in the unrealised conversion liability on the 2023 Convertible Bond of $297.9m, as well as costs relating to recommended offer for the Group of $17.0m
- Free Cash Flow of $96.2m (Q1 2018: $13.2m outflow) driven by improved working capital and reduced levels of capital expenditure Recommended offer for the Group:
- Subject to shareholders’ vote on 10 May 2019 and regulatory approvals. Transaction expected to be completed during Q4 2019 1 Comprises revenue contribution from Central Services and Ligado Networks. 2 In response to the Guidelines on Alternative Performance Measures (‘APM’s) issued by the European Securities and Markets Authority, we have provided additional information on the APMs used by the Group, including definitions and reconciliations to statutory measures, within Appendix 1 of this document.
Rupert Pearce, Chief Executive Officer, commented on the results: “Inmarsat produced a strong underlying performance during the first quarter of the year, building on the positive momentum achieved during 2018. We continue to successfully build and aggressively defend market share in our target markets, supported by our diversified product portfolio, enabling the business to capitalise on the significant growth opportunities in these markets.” Future Guidance The Board remains confident about the future prospects and outlook for the Group, reflecting the market opportunity and Inmarsat’s capabilities. Consequently, the Board reiterates the following guidance, which is unchanged from March 2019:
- A target of mid-single digit percentage revenue growth on average over the five year period, 2018 to 2022, with EBITDA and Free Cash Flow generation improving steadily1
- 2019 revenue, ex Ligado, of $1,300m to $1,400m
- Annual GX revenues at a run rate of $500m by the end of 2020 • Cash Capex of $500m to $600m per annum for 2019 and 2020 • Capex is expected to meaningfully moderate after 2020, falling initially to within a range of $450m to $550m in 2021
- Ratio of Net Debt to EBITDA to normally remain below 3.5x This guidance excludes any impact from any successful acquisition of, or any unsuccessful attempt to acquire, the Group. The reference to EBITDA and Free Cash Flow generation over the five year period 2018 to 2022, in the first bullet point above, constitutes an ordinary course profit forecast for the purposes of Rule 28.1 of the City Code on Takeovers and Mergers (the “Takeover Code”) (the “Inmarsat Profit Forecast”). The basis of preparation and assumptions in respect of the Inmarsat Profit Forecast are set out in Part 5 of the scheme document published by Inmarsat dated 18 April 2019 (the “Scheme Document”). In accordance with Rule 27.2(d) of the Takeover Code, the Inmarsat Directors have considered the Inmarsat Profit Forecast and confirm that it remains valid as at the date of this announcement.
01 May 19. KBR Announces First Quarter 2019 Financial Results.
– KBR Revenue growth of 29% to $1.3bn and Net Income Attributable to KBR of $40m
– 22% industry leading Government Solutions organic revenue growth; 48% for Technology
– GAAP EPS of $0.28 and Adjusted EPS of $0.36
– Operating cash flow of $48m
– Re-affirming 2019 guidance
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 first quarter 2019 financial results.
“Combined with our recently announced LOGCAP V win I am pleased to report that KBR has come out of the blocks strong in 2019,” said Stuart Bradie, KBR President and CEO. The Company reported a 29% increase in consolidated revenue compared to the first quarter 2018, driven by industry-leading organic growth of 22% from Government Solutions and 48% from Technology Solutions. Consolidated book-to-bill of 1.1x, excluding the workoff of our long-term PFIs, reported in the quarter was underpinned by a robust 2.4x delivered by Energy Solutions. “All three of our segment end markets are buoyant, and we look forward to continuing the positive momentum,” Bradie continued. “While exciting to report top line growth and healthy book-to-bill, the conversion of operating cash achieved across each business reflects both the quality of the portfolio and our continued focus on cash efficiency. I wish to thank each member of our team for their contributions in delivering outstanding results yet again,” said Bradie.
First Quarter Financial Results
Financial highlights
Summary results for the quarter ended March 31, 2019 are as follows:
- Overall revenue growth of 29%
- Revenue growth in Government Solutions of 44%, 22% organic, underpinned by on-contract growth and new work awarded under our portfolio of well-positioned contracting vehicles:
- Expansion of systems engineering, test and evaluation, modernization, systems integration, and program management services in our engineering business;
- On-contract growth across our logistics business as additional activities are added to our scope; and
- Continued disaster recovery work for the U.S. Air Force at Tyndall Air Force Base supporting restoration efforts in the wake of Hurricane Michael;
- Acquisitive revenue and earnings growth from SGT, acquired in the 2nd quarter 2018;
- Strong organic revenue growth in Technology Solutions of 48% attributable to increasing demand for our innovative solutions across the chemical, petrochemical, refining and ammonia markets, including increased proprietary equipment sales;
- Equity earnings during the quarter was impacted by an impairment recorded on a joint venture in Latin America as well as the net impact of legal adjudications and settlements related to Ichthys;
- A gain on consolidation of the Aspire subcontracting entities recognized in the first quarter 2018 that did not recur in 2019;
- Interest expense in line with expectations;
- Income tax rates higher than normative due to discrete charges in equity earnings; and
- Operating cash flow of $48m primarily attributable to cash earnings and working capital effectiveness across each segment.
Changes in reporting, effective January 1, 2019:
- We changed the name of our Government Services segment to “Government Solutions”, our Technology segment to “Technology Solutions”, and our Hydrocarbons Services segment to “Energy Solutions”.
- Effective January 1, 2019, we have elected to classify certain indirect costs incurred as overhead (included in “Cost of revenues”) or general administrative expenses for U.S. GAAP reporting purposes in the same manner as such costs are defined in our disclosure statements under U.S. Government Cost Accounting Standards. We reclassified $34m from “Cost of revenues” to “Selling, general and administrative expenses” for the quarter ended March 31, 2018. There was no impact on consolidated or segment operating income or net income as previously reported.
Notable New Business Awards/Developments:
Quality bookings continue to support the Company’s long-term outlook. Consolidated first quarter 2019 book-to-bill was 1.1x, excluding the workoff of our long-term private finance initiatives, or PFIs. Our Energy Solutions business led the Company in bookings, adding quality projects aligned with our commercial strategies and deep technical expertise. Notable bookings in the first quarter include a reimbursable contract with ExxonMobil to provide detailed engineering, procurement, and construction services for the offsites and interconnecting units as part of the recently announced crude expansion project in Texas, and a refinery debottlenecking project with SATORP, a joint venture between Saudi Aramco and Total.
In mid-April, we were awarded multiple prime contracts to provide logistics support services to the U.S. Army, coalition partners and other federal agencies under the $82bn LOGCAP V contract. This indefinite-delivery/indefinite-quantity contract has an initial five-year ordering period and options for five additional one-year ordering periods. Under LOGCAP V, KBR won three of the seven major contracts the U.S. Army awarded, including a large performance task order to provide LOGCAP logistics support services in Afghanistan and contracts for setting the theater and associated performance task orders to support the U.S. European Command and Northern Command. Each task order has its own period of performance. This award has not yet been booked into backlog.
Liquidity and Capital Structure
- March 31, 2019 operating cash flow to net income attributable to KBR conversion of 120%;
- Gross and net debt leverage as of March 31, 2019 of 3.1x and 1.4x, respectively, is in line with management expectations; and
- Previously disclosed Ichthys funding expectations remain unchanged.
Reaffirming Guidance
The company reaffirms 2019 GAAP EPS guidance with a range of $1.29 to $1.44, and Adjusted EPS guidance with a range of $1.58 to $1.73 per share. Our guidance of earnings per share is on an Adjusted EPS basis, which excludes legacy legal costs for U.S. Government contracts, non-cash imputed interest on the conversion option of the convertible debt, acquisition and integration related costs, amortization related to the consolidation of Aspire, and incremental 2019 interest expense associated with funding the legacy Ichthys project. A reconciliation of GAAP EPS to Adjusted EPS guidance is included at the end of this release.
Operating cash flows for 2019 are estimated to range from $175m to $205m. Our estimated effective tax rate for 2019 is estimated to range from 23% to 25%.
01 May 19. Piaggio Aerospace Invites Submissions for Expression of Interest (EOI). The Extraordinary Commissioner of Piaggio Aerospace, Vincenzo Nicastro, wants to implement an initial analysis in order to evaluate the market’s interest in buying the company or one of its business units (Aircraft and Engines) or to conduct a reorganization, in accordance with the “Marzano Law”.
Piaggio Aerospace (in Extraordinary Receivership since last December) published today a paid notice in a selected number of financial newspapers after authorization from the Ministry of Economic Development. A copy of the announcement can be found on the website where a short presentation of the company is also available.
“The goal of this action,” declares Nicastro, “is to better understand who the interested candidates are as a way to evaluate their characteristics in order to maintain business continuity for Piaggio Aerospace, thus moving forward with subsequent initiatives according to the law”.
In particular, the Aircraft business unit focuses on the design, construction and maintenance of civil and military aircraft, along with customer service activities. The Engine business unit revolves around the design, construction and maintenance of aero-engines.
During a meeting held in Rome on April 24, 2019, the Italian Ministry of Economic Development and the Ministry of Defence agreed on a plan to support Piaggio Aerospace business activities.
The Italian Government indicates the goal on Piaggio Aerospace to conduct all engine maintenance out of one single hub, confirming Piaggio Aerospace as a reliable partner in this specific field. The plan also foresees new contracts for the engine maintenance with a ten-year plan; a contract for the retrofitting of nineteen P.180-Avanti operated by various Italian Institutions and the purchase of ten new P.180-Avanti.
Finally, the plan also includes the completion of the P.1HH HammerHead (the Unmanned Aerial System) certification process, along with the subsequent acquisition of two systems and the development of further technology to support Piaggio Aerospace to compete in the international market arena. Each system is made out of a Ground Control Station and two aircraft. More systems would be acquired in the medium- term.
All EOI, which are non-binding, should be sent (in English or Italian) to the Extraordinary Commissioner by 6 pm CEST on Wednesday, May, 15, 2019 via email at (Source: UAS VISION)
30 Apr 19. Eaton Reports First Quarter Earnings per Share of $1.23. First Quarter Adjusted Earnings Per Share of $1.26, Up 15 Percent Over the First Quarter of 2018, Excluding 2019 Acquisition and Divestiture Transaction Costs
Operating Cash Flow in First Quarter of $551m, A Record for a First Quarter
Raising Earnings Guidance for 2019 to Reflect Accretion from Ulusoy Acquisition
Power management company Eaton Corporation plc (NYSE:ETN) today announced that earnings per share were $1.23 for the first quarter of 2019. Adjusted earnings per share were $1.26, which excludes charges of $0.03 per share for acquisition and divestiture transaction costs. This represents an increase of 15 percent over the first quarter of 2018.
Sales in the first quarter of 2019 were $5.3bn, up 1 percent over the same period in 2018. The sales increase consisted of 4 percent growth in organic sales, partially offset by 3 percent negative currency translation.
Craig Arnold, Eaton chairman and chief executive officer, said, “We had a very strong first quarter with good growth and better than expected margins. Organic growth came in at 4 percent, in line with our guidance. Our segment margins in the first quarter were 16.0 percent, up 80 basis points over the first quarter of 2018, and above the high end of our guidance range.
“Operating cash flow in the first quarter was $551m, a record for a first quarter,” said Arnold. “We returned substantial cash to our shareholders in the quarter, raising our quarterly dividend by 8 percent in February and repurchasing $150m of our shares in the quarter.
“Factoring in accretion from our new Ulusoy acquisition, we now expect 2019 adjusted earnings per share to be between $5.72 and $6.02, representing at the midpoint a 9 percent increase over 2018, excluding the 2018 arbitration decision,” said Arnold. “We anticipate adjusted earnings per share for the second quarter of 2019 to be between $1.45 and $1.55, an 8 percent increase at the midpoint over the second quarter of 2018.”
Business Segment Results
Sales for the Electrical Products segment were $1.8bn, up 2 percent over the first quarter of 2018. Organic sales were up 5 percent, partially offset by negative currency translation of 3 percent. Operating profits were $331m. Excluding costs related to the spin-off of the Lighting business, adjusted operating profits were $332 m, up 8 percent over the first quarter of 2018.
“Operating margins in the first quarter were 18.9 percent, up 120 basis points over 2018,” said Arnold. “Orders in the first quarter were up 4 percent over the first quarter of 2018, driven by continued growth in both industrial and residential markets in the Americas.
“We announced during the first quarter that we will be spinning off to shareholders our Lighting business later this year,” said Arnold. “The spin-off process is proceeding as we had expected.”
Sales for the Electrical Systems and Services segment were $1.5bn, up 6 percent over the first quarter of 2018. Organic sales were up 8 percent, partially offset by negative currency translation of 2 percent. Operating profits were $192m, up 15 percent over the first quarter of 2018.
“Operating margins were 13.1 percent, an improvement of 100 basis points over 2018,” said Arnold. “The twelve-month rolling average of our orders in the first quarter was up 8 percent over 2018, led by strong growth across all regions.
“We were pleased to close our purchase of an 82 percent interest in Ulusoy Electric on April 15,” said Arnold. “This acquisition will provide us a powerful platform to serve customers in Europe and Asia.”
Hydraulics segment sales were $686m, down 3 percent from the first quarter of 2018. Organic sales were up 1 percent, more than offset by negative currency translation of 4 percent. Operating profits in the first quarter were $80m, down 11 percent from the first quarter of 2018.
“Organic sales rose slightly over 2018, reflecting continued growth in construction equipment, partially offset by declines in agricultural and industrial equipment,” said Arnold. “Operating margins in the quarter were 11.7 percent, down 100 basis points from 2018. Orders in the first quarter decreased 11 percent from the first quarter of 2018, driven by weakness in the global mobile equipment market.”
Aerospace segment sales were $502m, up 10 percent over the first quarter of 2018. Organic sales were up 11 percent, while negative currency translation was 1 percent. Operating profits in the first quarter were an all-time record $116m, up 30 percent over the first quarter of 2018.
“Operating margins in the quarter were 23.1 percent, 370 basis points over 2018, an all-time quarterly record,” said Arnold. “The twelve-month rolling average of our orders in the first quarter was up 18 percent over 2018. We saw particular strength in orders for commercial transports, military fighters and transports, and both commercial and military aftermarkets.”
The Vehicle segment posted sales of $810m, down 9 percent from the first quarter of 2018. Organic sales were down 6 percent and currency translation was negative 3 percent. Operating profits in the first quarter were $122m, down 8 percent from the first quarter of 2018.
“Our revenue growth in Vehicle was affected by revenues transferring over to the Eaton Cummins joint venture. The joint venture’s revenues grew 27 percent in the first quarter of 2019,” said Arnold. “Operating margins for Vehicle in the quarter were 15.1 percent, an improvement of 30 basis points over 2018.
“In the first quarter, we announced our intent to sell our Automotive Fluid Conveyance business and that process is ongoing,” said Arnold.
eMobility segment sales were $83m, up 8 percent over the first quarter of 2018. Organic sales were up 9 percent, partially offset by negative currency translation of 1 percent. Operating profits in the first quarter were $5m, down 55 percent from the first quarter of 2018 due to increased investment in research and development.
“Operating margins in the quarter were 6.0 percent,” said Arnold. “We are excited by our wins in this business so far, and particularly by the decision of PSA to use our inverter on a key new platform. We expect our mature year revenue from this platform to be about $100m.” (Source: BUSINESS WIRE)
30 Apr 19. GE cautious as profit rises, cash burn slows; shares, bonds rise. General Electric Co said on Tuesday it generated more profit and lost less cash than expected in the first quarter, suggesting an improving outlook under its new leader that sent its shares and bonds higher.
New Chief Executive Larry Culp cautioned, however, that the results stemmed largely from the timing of payments to suppliers and from customers, and did not alter GE’s financial outlook for the year.
“One quarter is a data point not a trend,” Culp said on a conference call with analysts.
GE’s profit from continuing operations more than tripled as sales rose in GE’s aviation, oil and gas, and healthcare units. At the same time, negative cash flow from industrial business was $1.2 bn, much less than the $2.16bn outflow that analysts, on average, were expecting.
Culp had set low earnings targets in March and warned that GE’s industrial cash flow could be negative by as much as $2bn.
GE’s shares rose 4.5% to close at $10.17 (7.8 pounds), after the call. They had risen more than 10% before the market opened.
GE bonds also rallied, extending a recovery in more than $100 bn of GE debt. Yields on dozens of longer-dated issues were at their lowest since Nov. 1. A $1bn GE Capital bond with a 4% coupon due in July 2035 was up more than 1.5 cents at nearly 87 cents and a yield of 5.2%, compared with a low of 63 cents on the dollar last November to yield more than 8%.
Investors have been keen for a turnaround since GE named Culp last October to restore earnings and improve a stock price that has fallen by more than two-thirds since 2016.
GE took a string of multibillion-dollar writedowns last year, so the slowing in cash outflows in the latest quarter raised hopes that its fortunes have started to improve.
GE’s industrial free cash flow showed a “much smaller outflow than we expected,” said Julian Mitchell, an analyst at Barclays, and “should drive a positive reaction in the stock.”
But while the Boston-based conglomerate stuck to its full-year financial forecast, it noted “new risk” from Boeing Co’s 737 MAX jet, for which GE engines with partner Safran SA of France. The plane model was grounded worldwide last month after a second fatal accident in less than five months.
Profit margins also contracted at GE’s aviation, power and renewable energy businesses, the three core units that GE plans to retain as it undergoes a break-up announced last year.
A 1.6 percentage point drop in GE’s industrial margins in the quarter is a “stark reminder of the challenges that the company still faces,” said Rene Lipsch, lead GE analyst at Moody’s. He added that he expects margins to be flat or slightly improved by year-end.
GE’s cash balance was boosted mainly the $2.9bn sale of locomotive business to Wabtec Corp.
Culp has said the 2019 “reset” of GE would result in negative cash flow at its most-troubled business, power, through 2020 before turning positive in 2021. GE wrote down $22bn in goodwill at the unit last year.
In the latest quarter, power orders fell 14% and profit fell 71% to $80m on revenue of $5.7bn, down about 22% from a year earlier, GE said.
Some saw signs that the power unit’s prospects will improve. “This was a business that everyone gave up as dead … but (it) is more than able to fend for itself,” William Blair & Co analyst Nicholas Heymann told Reuters.
Earnings from continuing operations attributable to GE shareholders rose to $954m in the first quarter ended March 31 from $261m a year earlier.
On an adjusted basis, GE earned 14 cents per share. Analysts had expected 9 cents per share, on average.
Total revenue fell 2% to $27.29bn, above analysts’ average estimate of $27.05bn. (Source: Reuters)
30 Apr 19. Skyborne Technologies secures US$2.45m in US cap raise. Queensland-based Skyborne Technologies has confirmed the successful completion of a US$2.45m capital raise to support the development of the company’s Cerberus GL micro tactical UAV. The capital raised is from a private institutional investor based in Abu Dhabi, UAE, who seeks opportunities with tech start-ups in the early stages of growth. Skyborne’s existing shareholders welcomed the new investor as a shareholder and investor board member.
The investment will grow the company over the next 24 months to further develop and mature the target and firing weapon system on Skyborne’s Cerberus GL UAV that will lead to commercialisation.
The US$2.45m Series A capital raised will be used as much needed working capital to develop Skyborne’s bespoke targeting and firing control system. The funds will support the expansion of the team from three to 10 full-time employees, securing a commercial premise (mixed office and workshop) and procurement of hardware for the development and testing of the integrated system.
The investment establishes an aggressive tech development timeline to get Cerberus GL to market. Within six months a live firing demonstration will be performed to demonstrate the capabilities of Cerberus GL. The following 18 months will allow Skyborne to refine the platform for commercialisation efforts in anticipation of customer trials and sales.
The investment is the largest amount of capital the company has raised to date and is an important milestone. The success is off the back of the 12-month Queensland state government Advance Queensland Ignite Ideas Fund awarded to the company to design and assemble two flying prototypes of the Cerberus GL.
The recent investment into the Queensland economy has ensured Queensland’s defence industry strengthen and allows SMEs, like Skyborne Technologies, to participate and innovative hardware products.
The investment has also created additional jobs in the Queensland economy, which is one of the key goals for the state government. The Australian government’s 2016 Defence White Paper and Integrated Investment Program projected an increase in defence spend over the decade to 2025-26 to close to $450bn.
Skyborne’s Cerberus GL is the lightest armed micro tactical unmanned combat aerial vehicle (UCAV), at around six kilograms. It provides both law enforcement and defence force an airborne direct fire support UAV with multi-threat engagement, in addition to providing standard intelligence, surveillance and reconnaissance (ISR) small UCAVs on the market.
Cerberus employs a unique tri-tilt rotor platform design allows for the airframe to be used the primary gimbal to gross aim an armament, such as 40mm grenades (HE, smoke, flashbang, tear gas), without the need for a low-slung, heavy gimbal system. The unique airframe design allows for a small light weight armed UAV. (Source: Defence Connect)
30 Apr 19. Airbus details Saudi charges, reaffirms output plans. Airbus took 297m euros (£256.7m) of charges related to a Saudi border contract after Germany extended a ban on defence exports to the Gulf kingdom, chief financial officer Dominik Asam said. The sum includes a core impairment charge of 190m euros, with the balance related to foreign exchange, he told reporters. Asked whether Airbus saw an opportunity to raise production due to worries expressed by some airlines about the grounded Boeing 737 MAX, Chief Executive Guillaume Faury said the mid- to long-term picture for the competing A320neo was unchanged. He reaffirmed existing plans to raise output to 63 A320neo planes a month in 2021 and said Airbus would assess later this year whether supply chain capacity would allow it to raise production further, beyond 2021. At this stage, there is no easing of supply chain conditions, he said. (Source: Reuters)
30 Apr 19. Airbus keeps outlook as first-quarter core earnings rise. European planemaker Airbus stuck to its full-year financial targets after reporting slightly higher-than-expected core first-quarter profits, overshadowed by a heavy drain on cash as it stocked parts to ease industrial bottlenecks.
Quarterly revenues rose 24 percent from a year ago to 12.55bn euros (£10.8bn), while adjusted operating profit jumped to 549m euros from 14m last year, driven by higher commercial jet deliveries.
A Reuters poll had given a mean forecast for revenues of 12.99bn euros and an adjusted operating profit of 520m.
Higher deliveries of A320neo jets, which sell at a premium to earlier models, and progress in reducing costs on the larger A350 contributed to the sharp rise in profits. But Airbus still faces snags in producing a longer-range A321 with new cabins.
“Airbus is working to improve execution in its internal industrial systems and monitoring engine performance,” it said in a statement. Engine delays have also weighed on deliveries.
Excluding adjustments, earnings fell 9 percent partly as a result of a row over Germany’s suspension of export licences to Saudi Arabia and costs for the A380 superjumbo, which Airbus has said it plans to shut down in 2021 due to poor sales.
Airbus suffered a cash outflow of 4.3bn euros in the quarter as it built inventories but the company is expected to see that reverse course later in the year. It reaffirmed 2019 targets including positive free cashflow of 4bn euros and a 15 percent rise in operating profit.
Last week, Airbus’ rival Boeing abandoned its 2019 financial outlook, halted share buybacks and said that lowered production due to the grounding of its 737 MAX jet after two crashes had cost it at least $1bn so far. (Source: Reuters)
30 Apr 19. Airbus reports First Quarter (Q1) 2019 results.
- Commercial aircraft environment robust
- Q1 2019 financials mainly reflect A320 Family ramp-up and delivery phasing
- Revenues €12.5bn; EBIT Adjusted €549m
- EBIT (reported) €181m; EPS (reported) €0.05
- 2019 guidance maintained
Airbus SE (stock exchange symbol: AIR) reported First Quarter (Q1) 2019 consolidated financial results(1) and maintained its guidance for the full-year.
“The first quarter underlying financials mainly reflect our commercial aircraft ramp-up and delivery phasing,” said Airbus Chief Executive Officer Guillaume Faury. “The commercial aircraft market remains robust and we continue to see good prospects in the helicopters and defence and space businesses. The new management team is in place and focused on delivering on our commitments.”
Gross commercial aircraft orders totalled 62 (Q1 2018: 68 aircraft) and included
38 A350 XWBs. Net commercial aircraft orders of -58 (Q1 2018: 45 aircraft) after
120 cancellations mainly reflect the winding down of the A380 programme and the commercial agreement with Etihad as communicated in the Full-Year 2018 disclosure.
The commercial aircraft backlog stood at 7,357 aircraft as of 31 March 2019. Net helicopter orders of 66 units (Q1 2018: 104 units) included 20 Super Puma Family and 16 H145s. Airbus Defence and Space’s order intake by value totalled €1.1 bn.
Consolidated revenues increased to € 12.5 bn (Q1 2018: €10.1 bn), mainly reflecting the higher commercial aircraft deliveries as the production ramp-up continued. At Airbus, a total of 162 commercial aircraft were delivered (Q1 2018: 121 aircraft), comprising 8 A220s, 126 A320 Family, 5 A330s, 22 A350s and 1 A380. Airbus Helicopters delivered 46 units
(Q1 2018: 52 units) with increased revenues reflecting the higher volume in services. Revenues at Airbus Defence and Space reflected the overall stable business performance.
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, restructurings or foreign exchange impacts as well as capital gains/losses from the disposal and acquisition of businesses – increased strongly to €549m (Q1 2018: €14m), driven by Airbus.
Airbus’ EBIT Adjusted improved to € 536m (Q1 2018: €-41m), mainly reflecting the A320neo ramp-up and premium as well as further progress on the A350 financial performance.
A total of 96 A320neo Family aircraft were delivered in the quarter. The ramp-up of the Airbus Cabin Flex version of the A321 continued in Q1 but remains challenging. Airbus is working to improve execution in its internal industrial systems and monitoring engine performance. The overall A320 Family programme is on track to reach 60 aircraft per month by mid-2019 and preparing for rate 63 in 2021. On the A330 programme, 5 aircraft were delivered in the first quarter, including 3 NEOs. A330neo deliveries continue to ramp-up and Airbus is working closely with its engine partner and suppliers to deliver in line with customer commitments. The flight test campaign of the A330-800 variant is progressing.
Airbus Helicopters’ EBIT Adjusted totalled €15m (Q1 2018: €-3m), reflecting lower deliveries and higher volume in services.
Airbus Defence and Space’s EBIT Adjusted of €101m (Q1 2018: €112m) reflected the Division’s overall stable business performance.
One A400M military transport aircraft was delivered in the first quarter, bringing the in-service fleet to 75 aircraft. Development activities continued as agreed in the revised capability roadmap, with certification flights successfully completed for the Cargo Hold Tanks refuelling unit in the first quarter. A400M retrofit activities are progressing in line with the customer agreed plan. The approval process of the Contract Amendment is progressing.
Consolidated self-financed R&D expenses totalled €654m (Q1 2018: €616m).
Consolidated EBIT (reported) amounted to €181m (Q1 2018: €199m), including Adjustments totalling a net €-368m. These Adjustments mainly comprised:
- A negative €-190m as a consequence of the prolonged suspension of defence export licences to Saudi Arabia by the German government;
- A negative impact of € -83m relating to the dollar pre-delivery payment mismatch and balance sheet revaluation;
- A negative €-61m related to A380 programme cost.
Consolidated reported earnings per share of €0.05 (Q1 2018: €0.37) included a negative adjustment for foreign exchange hedges in the financial result corresponding to the prolonged suspension of defence export licences. The financial result was €-43m (Q1 2018: €39 m). The financial impacts recorded in the Q1 2019 Financial Statements relating to the prolonged suspension of defence export licences also impacted the effective tax rate. Consolidated net income(2) was €40m (Q1 2018: €283m).
Consolidated free cash flow before M&A and customer financing of € 4,341m
(Q1 2018: €-3,839m), mainly reflected the inventory build to support the production ramp-up, improved engine delivery stream and other changes in working capital. Consolidated free cash flow was €-4,448m (Q1 2018: €-3,656m).
On 1 January 2019, the Company adopted the IFRS 16 ‘Leases’ accounting standard, whereby most operating leases must now be recorded on the balance sheet.
The corresponding commitments are booked as financing liabilities, which being part of the Company’s definition of net cash, means the net cash position is mechanically reduced by around €1.4bn. The consolidated net cash position was €7.5bn on 31 March 2019 (year-end 2018: €13.3bn) with a gross cash position of €18.5bn (year-end 2018: €22.2bn).
Outlook
As the basis for its 2019 guidance, the Company expects the world economy and air traffic to grow in line with prevailing independent forecasts, which assume no major disruptions.
The 2019 earnings and Free Cash Flow guidance is before M&A.
- Airbus targets 880 to 890 commercial aircraft deliveries in 2019.
- On that basis:
Airbus expects to deliver an increase in EBIT Adjusted of approximately +15% compared to 2018 and FCF before M&A and Customer Financing of approximately €4bn.
29 Apr 19. Thales Q1 2019 order intake and sales.
- Solid order intake: €2.3bn, up 4% excluding impact of OneSKY jumbo order in Australia, worth €855m (down 25% on a reported basis)
- Sales: €3.4bn, down 2.0% on an organic basis1 (down 1.5% on a reported basis)
- All financial objectives confirmed
Thales (Euronext Paris: HO) announced today its order intake and sales for the first quarter of 2019.
“Sales and order intake for the first quarter of 2019 are in line with our expectations. Predictably, order intake is lower than in Q1 2018, which was exceptionally high thanks to the booking of OneSKY, an €855m jumbo contract in Australia. The decline in sales is due to a high basis of comparison in each of our operating segments. We confirm all our financial objectives for 2019.” Patrice Caine, Chairman & Chief Executive Officer
1 In this press release, “organic” means “at constant scope and currency”.
2 Mature markets: Europe, North America, Australia, New Zealand. Emerging markets: all other countries.
Order intake
In Q1 2019, order intake amounted to €2,273m, down 25%1 compared to Q1 2018, when the Group booked the contract to modernise Australia’s air traffic management system (OneSKY), worth €855m. Excluding this contract, it is up 4% compared to Q1 2018.
Three large orders worth over €100m were booked for a total of €390m:
- the purchase by the Royal Netherlands Army of new multi-mission mobile radars
- a military support contract in a European country
- the supply of rocket launchers to equip Indian Armed Forces helicopters
Orders with a unit value of less than €100m totalled €1,883m, up 3% from Q1 2018.
From a geographical4 point of view, order intake in mature markets was understandably significantly lower than in Q1 2018, when the OneSKY contract was booked (€1,719m, -31%). At €553 m, order intake in emerging markets was up 3%.
At €672m, compared to €751m in Q1 2018, order intake in the Aerospace segment was down 11%. Order intake in the space business was up compared to last year but remained low. Commercial avionics order intake was up, but down in the military sector. The in-flight entertainment (IFE) and training & simulation businesses were down, with no significant contracts booked, unlike in Q1 2018.
At €249m, order intake in the Transport segment returned to a more normal level after a particularly robust Q1 2018 that benefited from two significant contracts in Poland and Norway. Order intake was down 49% against Q1 2018 (€488m), but up 16% compared to Q1 2017 (€215m).
At €1,335m versus €1,782m in Q1 2018, order intake in the Defence & Security segment was also down (-25%), impacted by the very high basis of comparison resulting from the booking of the abovementioned OneSKY jumbo contract. Compared to Q1 2018 adjusted for this contract, it is up 44%, reflecting the increased commercial momentum the segment has experienced in recent years.
Sales
Q1 2018 sales came in at €3,361m versus €3,412m in Q1 2018, down 1.5% on a reported basis, and down 2.0% at constant scope and currency2 (“organic” change). This drop is explained by a high basis of comparison after 2 years of strong Q1 growth (+11.0% in Q1 2017, +7.2% in Q2 2018). Over 4 years, Q1 sales have increased by almost €800 m, from €2.6bn in 2015 to €3.4bn in 2019 (+30% on a reported basis, +25% organically).
Geographically,3 this decline can be seen both in emerging markets (organic decline of -4.0%, following on from organic growth of +16.6% in Q1 2017 and +8.9% in Q1 2018) and mature markets (organic decline of -1.2%, following on from organic growth of +8.7% in Q1 2017 and +6.6% in Q1 2018).
In the Aerospace segment, sales totalled €1,221m, down 5.0% compared to Q1 2018 (-6.5% at constant scope and currency). This decline was due to the slowdown in the Space business, which generates around 40% of aerospace sales, after two particularly strong years (organic growth exceeding +30% in Q1 2017 and +1% in Q1 2018). Over the full year, the slower than expected recovery of the commercial space market should result in a 5 to 10% decline of space sales. The other businesses in the segment are doing well, with the exception of military avionics.
In the Transport segment, sales came in at €398m, up 3.1% compared to Q1 2018 (+1.3% at constant scope and currency). Logically, growth in this segment slows down after an exceptional year in 2018 (organic growth of +17.9% for the full year 2018 and +29.3% in Q1 2018). Combined with phasing effects, this high basis of comparison should weigh as well on growth in Q2.
At €1,722m, sales in the Defence & Security segment were stable compared to Q1 2018 (-0.4% on a reported basis, +0.2% at constant scope and currency). Growth in this segment was impacted by the strong performance in the first quarter of last year, particularly in surface radars, military aircraft systems and cybersecurity (organic growth in the segment in Q1 2018: +9.5%). The robust momentum in this segment should result in strong sales growth over the full year, especially in H2.
Acquisition of Gemalto
In December 2017, Thales and Gemalto announced the signing of a merger agreement including an all-cash offer for all issued and outstanding ordinary shares of Gemalto, for a price of €51 per share cum dividend.4
At the end of the Post-Closing Acceptance Period on 15 April 2019, more than 97% of Gemalto shares were tendered to the Offer, for an amount of €4.62bn. Thales will initiate statutory buy-out proceedings as soon as possible in order to obtain 100% of Gemalto shares. The Gemalto share will be delisted from Euronext on 29 May 2019.
Gemalto is consolidated in Thales’s financial statements since 1 April 2019.
Outlook
Order intake and sales in Q1 were in line with expectations. Against this backdrop, and in spite of the slower than expected recovery of the commercial space market, the Group confirms all its objectives, which are described below.
These objectives do not take into account the acquisition of Gemalto, nor the ongoing disposal of the GP HSM business5. On 13 June 2019, the Group will update its 2019 outlook to take into account the impact of these two transactions.
Since 1st January 2019, the Group has been applying the IFRS 16 “Leases” standard. Based on the current assessment, this standard is expected to have no material impact on Group EBIT.
In 2019, Thales should continue to benefit from positive trends in the majority of its markets, combined with its unique positioning in digital solutions. In this context, order intake is expected to be around €16 bn.
Sales are expected to continue showing solid momentum and achieve organic growth of 3% to 4% compared to 2018, incorporating the normalisation of growth in the Transport segment after an exceptional performance in 2018.
As announced during the June 2018 Capital Markets Day, the Group will continue to step up its R&D investments, specifically targeting digital technologies. Self-funded R&D expenses are therefore expected to grow slightly faster than sales.
The growth in sales, combined with the impact of the Ambition 10 strategy on competitiveness and differentiation of products and services, should result in Thales delivering an EBIT of between €1,780m and €1,800m (based on February 2019 scope and currency), representing an increase of 6% to 7% compared to 2018.
Over the 2018-2021 period, and based on February 2019 scope, Thales has set the following medium-term targets:
- an organic sales growth6 of +3% to +5% on average over the 2018-2021 period, with each operating segment expected to outperform its market.
- an EBIT margin of 11% to 11.5% by 2021, resulting from a 200 to 240 basis point improvement7 related to competitiveness initiatives, partly reinvested in self-funded R&D, representing approximately 50 to 100 basis points.
25 Apr 19. Italian government agrees timetable for Piaggio Aerospace restart. The Italian government’s Ministry of Economic Development has agreed on a plan for distressed aircraft and unmanned systems company Piaggio Aerospace.
At a meeting on 24 April, chaired by the Deputy Chief Minister Giorgio Sorial and attended by representatives from the Ministry of Defence (MoD), representatives of local regional government, and trade unions, it was agreed that the manufacture and maintenance of the P.180 Avanti II aircraft would be restarted.
Furthermore, the unmanned variant of the aircraft under development, the P.1HH HammerHead, would have its certification completed ahead of the acquisition of two systems by the Italian Air Force.
Further P.1HH HammerHead systems could be acquired in the medium term, which will enable the company to re-engage with European medium-altitude long-endurance (MALE) unmanned system design and development.
Piaggio Aerospace said in a statement that it welcomed the support of the government in both the civil and military sectors. The company’s extraordinary administrator, Vincenzo Nicastro, said that the announcement “represents a first concrete step for the relaunch of the company and will allow it to present itself as an attractive opportunity for potential buyers”.
The Italian government is hoping that the company will be able to create a maintenance hub for the MoD. Beyond the P180 aircraft operated by commercial and government operators globally, the company’s notable maintenance contracts include a range of work on engines including the Rolls-Royce Viper 632-43, which is used in the Aermacchi MB-339. The MB-339 is still used by the Italian Air Force for basic and instructor training and aerobatic displays.
Piaggio Aerospace went into extraordinary administration in November after the UAE’s Mubadala, which owns the company, refused to provide any further funding and sent the company into liquidation. The Italian government exercised its ‘golden power’ rights to step in over the potential future of the company. (Source: IHS Jane’s)
29 Apr 19. UK pulls up Rolls-Royce for slow supplier payments. Engine maker Rolls-Royce said on Monday that it had been suspended from the UK government’s Prompt Payment Code (PPC) after failing to pay suppliers in time. The PPC is administered by the Chartered Institute of Credit Management and sets standards for payment practices including prompt payment as well as wider payment procedures. The company said it was suspended from the Code as it did not pay at least 95 percent of its supplier invoices within 60 days. This month the government warned more than 10,000 businesses that they must pay their suppliers on time or face being prevented from winning further government contracts, in an attempt to level the playing field for small businesses.
“The significant volume of invoices we receive from our large suppliers – and the removal of the consideration of our preferential treatment for smaller suppliers – has pushed us below the compliance criteria,” Rolls-Royce said. (Source: Reuters)
29 Apr 19. One-third of Boeing shareholders vote for boardroom shake-up. Proposal to strip Muilenburg of joint CEO-chairman role falls short after 737 crashes. One-third of Boeing shareholders voted for a boardroom shake-up over the crisis with the 737 Max aircraft, falling short of the majority needed to oust the head of the board’s audit committee and strip Dennis Muilenburg of his joint role as chairman and chief executive. Earlier this month, the influential shareholder adviser Institutional Shareholder Services told its clients that Mr Muilenburg should be stripped of his dual role. It recommended the appointment of an independent chairman to help the aerospace group rebuild its reputation. Glass Lewis, a rival shareholder advisory service, recommended the removal of the board’s audit committee head Lawrence Kellner for failing to foresee safety risks with the 737 Max aircraft. But shareholders voted by a margin of 66 per cent against separating the chairman and chief executive roles. Some shareholders voiced concern about how Boeing is dealing with the Max crisis. At the company’s annual general meeting, one shareholder told Mr Muilenburg: “You don’t have to have 300 people die every time to find out that something is unreliable.” The Boeing chief replied that it is“simply not true” that the company rushed the Max to market. The annual general meeting of the world’s largest commercial aircraft maker took place in Chicago on Monday, as family and friends of one victim of the crash of Ethiopian Airlines flight 302 held a protest outside calling for the criminal prosecution of the company and its executives. Friends and family of victim Samya Stumo, grandniece of consumer activist Ralph Nader, held placards saying “Prosecute Boeing and Executives for Manslaughter.” “Boeing needs to open up and reveal the chain of events within their company and within the FAA that led to the deaths of 346 people. I think it’s quite clear they need to be prosecuted,” said protester Tarek Milleron, uncle of Ms Stumo, who stood with a handful of protesters outside the entrance to the meeting in the pouring rain. “Instead they are playing hide and seek, pretending they are safety conscious”. Mr Nader himself wrote a letter to the Board of Boeing on the eve of the meeting, calling on them to observe a minute of silence for the 346 people who died in two 737 Max crashes in Indonesia and Ethiopia in the last six months. “Shareholders and the travelling public deserve to know what you knew about the 737 MAX design, from the beginning, and when you knew it,” he wrote. As Boeing works to finish a software update aimed at preventing crashes in future, Mr Muilenburg told the AGM that the company made 146 737 MAX flights totalling roughly 246 hours of air time with the updated software, which is due to be submitted shortly to the Federal Aviation Administration for approval. Boeing observed a moment of silence for the victims during the meeting. “When it comes to safety there are not competing priorities,” Mr Muilenburg told shareholders. Asked whether Boeing will recommend simulator training for pilots before the return of the Max to global skies, Mr Muilenburg said: “We are actively working with both FAA and our airline customers. We believe the right training answer is computer-based training, with options for simulator training . . . for recurrent training [after the 737 grounding ends]”. (Source: FT.com)
29 Apr 19. Safran reports rising defence revenue in first quarter. French aerospace propulsion supplier Safran’s defence business achieved sales growth of more than 20% year on year in the first quarter of 2019, according to results published on 26 April. Safran’s defense reporting segment, which includes the company’s offerings in navigation, avionics, and optics, generated EUR360m (USD401m) in revenue in the first three months of the year, compared with EUR298m in the same period in 2018.
The start of 2019 was positive for the entirety of Safran, with increased sales across every business line contributing to total revenues of EUR5,781m, a rise of 36.9%. However, EUR802m of this rise was the result of the company’s acquisition of aircraft interior supplier Zodiac Aerospace, while EUR21m was attributable to the electromechanical systems business that was acquired from Collins Aerospace in February. (Source: Google/IHS Jane’s)
26 Apr 19. Norinco posts strong quarterly gains. The China North Industries Group Corporation (Norinco Group) has posted strong gains in the first quarter of fiscal year (FY) 2019, the state-owned enterprise has announced. In a press release on 24 April, the group said its total profit reached CNY5.43bn (USD805m), a year-on-year increase of 11%. Norinco Group also said its revenue increased by 6.3% during the quarter but did not elaborate. The corporation attributed growth to reforms it is undertaking in areas such as civil-military integration and research and development as well as efforts to expand exports and increase productivity. Such efforts are firmly in line with the stated priorities of the Chinese government to improve strategic industrial capability. (Source: IHS Jane’s)