01 Jul 19. Autonomous Maritime Patrol Company, Marble Aerospace, Receives Investment & Seeks Additional Strategic Co-Investors. Chippenham-based aerospace innovator circles £400,000 in new funding to demonstrate and build awareness of its capabilities.
Existing maritime surveillance methods involve expensive equipment and require direct operational input. Marble Aerospace’s low cost proprietary UAV hardware and software allow the company to provide near-autonomous maritime patrol services at a significantly reduced cost than current incumbents and offer a much greater range than conventional radar systems.
The company sells maritime surveillance as a service using low-cost, fixed-wing unmanned aerial vehicles which will, in time, be deployed from robotic hangers. Globally, upwards of $7.5bn is spent annually on maritime surveillance, principally in relation to law enforcement: drug smuggling, people trafficking, illegal fishing and border control.
The team behind Marble Aerospace has a rich aerospace background with professional experience gained at Airbus, BAe Systems and Zipline. Initially the company is focusing on “small island jurisdiction” markets where traditional forms of maritime surveillance have historically been too expensive. They will commence missions over the Caribbean region over the next few months.
Marble Aerospace has now secured the vast majority of a four-hundred thousand pound funding package led by Britbots, a specialist investor in UK-based robotics businesses; and is looking for a small number of additional strategic co-investors to complete the round. Interested participants can subscribe for shares by visiting: https://britbots.envestry.com/deals/2679 or by contacting Dominic Keen of Britbots directly ().
29 Jun 19. United Technologies shareholder launches rebellion against merger with Raytheon. A significant owner of United Technologies Corporation shares has issued a public broadside against the proposed merger with Raytheon, calling the move “ill-conceived and unlikely to create value.”
In a letter posted online Friday, Third Point LLC CEO Daniel Loeb said he would vote against the merger and urged other shareholders to push back against the proposed tie-up, which is expected to create one of the largest aerospace and defense firms in the world.
Loeb, through Third Point, owned about 8.4 million shares in the company as of February, according to Reuters. He has been a vocal critic of UTC’s leadership in the past.
At the core of his argument against the merger is Loeb’s belief that Raytheon brings “very little applicable technology to UTC’s aerospace offerings,” a contrast to statements from both companies at the announcement of the merger. “The benefits of Raytheon’s cyber and data analysis capabilities are not quantifiable and could be replicated through commercial collaboration or supply agreements.”
Loeb also throws doubts at financial projections, saying the “paucity of financial details was peculiar and alarming.” And he specifically questions the integrity of Raytheon CEO Tom Kennedy, noting that “the person with the best information on Raytheon’s outlook eagerly decided to sell the company at no premium, even forfeiting his change-of-control compensation to seal the deal.”
“Since there is no strategic or financial rationale for this transaction, we can only conclude that the merger was motivated by empire building and [UTC head Greg Hayes’] desire to extend his already long overdue tenure as head of a Fortune 100 Company,” Loeb concluded. “We have witnessed this form of corporate autocracy before, and it is rarely in the interests of shareholders for a Board to permit such behavior.”
In a corporate statement to press, United Technologies said it does “not agree” with the conclusions from Third Point and essentially said the deal is done and will remain on track to close in the first half of 2020.
“We have been advised by other shareowners that they recognize and agree with us as to the desirability of the merger,” the statement reads. “The United Technologies Board of Directors unanimously approved the transaction following a careful and thorough review process and remains confident that the merger will create a premier systems provider with advanced technologies to address rapidly growing segments of aerospace and defense, and create significant long term value for both companies’ shareowners.” (Source: Defense News)
27 June 19. Israel’s largest defense company moves slowly toward IPO. The largest defense company in Israel is working toward an initial public offering, but “for the time being, the state of Israel comes before anything else,” said its CEO. Currently government-owned with only bonds trading on the Tel Aviv Stock Exchange, Israel Aerospace Industries reported $3.7bn in revenue for 2018 — a 5 percent increase compared to the year before, but reflecting a net loss of $44m.
The company completed at the start of last year a major business and corporate restructuring, consolidating three divisions and another business enterprise into a single division, and rolling out a new strategy to enable growth.
Part of that strategy is the IPO, which was approved in December by acting Defense Minister and Prime Minister Benjamin Netanyahu, said CEO Nimrod Sheffer. But politics may slow the process.
“For the time being, I’m not sure that the Israeli government could make major decisions because we are going though elections” scheduled for September, he said. “Everything will be a little bit slower than I want it to be.”
According to Israeli news site CTech, the country will list 25 percent of IAI’s securities, according to a post-IPO valuation of $4bn. No shareholder could acquire a stake larger than 4.99 percent, and only the state will have the right to appoint board members.
But the public offering will provide the company with the influx of cash needed to generate growth, according to leadership. And while government will maintain a controlling share of the company, there will still be a shift from current operations.
“When the public holds shares of the company, owns parts of the company, it can be a little bit more difficult,” Sheffer said. “But [Israel Defense Forces] is going to have exactly the same support, maybe even better. First and foremost we support Israel’s national defense needs, and that’s not going to change.”
IAI’s chairman, Harel Locker, has been candid about IAI’s challenges in public statements, saying at a conference in December: “We need to start making a profit, otherwise we’ll end up with the liquidator.” He has also been a vocal advocate for the IPO, emphasizing the potential for improved performance and the potential for the company to be — in the words of Sheffer — “part of the market and not just a defense company.”
Along with the IPO, IAI sees expanded cooperation with the United States as a means of growth, largely through its IAI North America subsidiary. Sheffer pointed to the U.S. Army’s decision to buy a limited number of Iron Dome batteries — which are built by Israel-based Rafael in partnership with Raytheon, but utilize IAI’s Elta radar — as an example of the many opportunities for cooperation. IAI is also teaming up with Lockheed Martin for the U.S. Army’s upcoming “sense-off” demonstration of possible radars for its Lower Tier Air and Missile Defense System. Sheffer also said that IAI is “in the midst of a big test with the United States,” but could not elaborate.
The issue for the U.S., he said, is that the offerings must be produced in America.
“So we have to find a way to say: ‘OK, we understand, we can make this an American radar with our partners in the United States,’ ” Sheffer said. “That’s OK because I have the [intellectual property]. That’s one of the main reasons why we have IAI North America — to give us the capability to transfer technology into the United States to be used” as part of American-made systems. (Source: Defense News)
27 June 19. Serco grows sales at top end of expectations after five years of decline. The defence contractor and business process outsourcer said revenues for the full year were likely to be towards the top of its £2.9bn-£3bn range. Serco’s £3bn-plus of order intake in the first six months included a contract for the Dubai metro system. Serco Group PLC (LON:SRP) has said it expects a return to revenue growth in the first half of the year to drive underlying profits at least 20% higher.
The FTSE 250-listed defence contractor and business process outsourcer said revenues for the full year were likely to be towards the top of its £2.9bn-£3bn range, representing growth of roughly 6% following declines for every year since 2014. Revenues in the first half are expected to grow by around 6% to £1.5bn, with underlying trading profit of around £50mln benefitting from favourable currency movements.
Profit for the full year is still expected to be close to £105mln, up 13% on last year, which benefited from some non-recurring items.
Chief executive Rupert Soames said, after the “inflection point” last year for Serco, the £3bn-plus of order intake in the first six months of the year has already exceeded management’s revenue forecast for the whole of 2019.
“The strategic advantage of having a strong international footprint shows clearly in these results, with strong revenue growth in North America and AsPac; I am also delighted to see improvement in the trading performance of our UK division, which is showing the benefit of the Carillion health facilities management acquisition completed in 2018,” he said.
Another key event in the period was the agreed acquisition of US Navy design and engineering supplier NSBU in May, with a £140m placing and bank financing in place to complete the deal in the second half of the year. Net debt at 30 June, excluding proceeds from the placing, are expected to be in the range of £210m-£230m, rising to around £250mln at the year end.
Two-year high
Broker Peel Hunt noted that profit growth has been led by the Americas, in particular the CMS (Center for Medicare & Medicaid Services) contract and an unusually high volume of variable work there.
But analysts were keeping their forecasts unchanged as the second half last year benefited from non-recurring trading items, and against this, 2019 will be muted.
Russ Mould at AJ Bell said the return to growth represents a “significant milestone in the repair job Rupert Soames has done” since taking over in 2014 amid Serco’s prisoner tagging scandal.
“The latest update represents a significant achievement when you consider the dire position Soames inherited. However, a strategy of growth for its own sake is not a healthy one and investors must hope further opportunistic M&A activity is balanced against the need to not over-extend the balance sheet.
“Frequent acquisitions can be a danger sign. Deals are just as likely to destroy as to create shareholder value as the costs of integration are often underestimated, the potential benefits are overestimated, or management fail to acknowledge the impact of cultural differences. In this context Babcock’s rebuttal of Serco’s merger proposal earlier this year may prove to be a blessing in disguise.”
Mould also reminded investors to remain cautious about the structural, regulatory and political risks facing outsourcing firms, particularly ones like Serco that are heavily exposed to public spending.
Serco shares were up 6% to 143.6p on Thursday morning, earlier hitting a two-year high of 146.5p. (Source: proactiveinvestors.co.uk)
27 June 19. Kromek Group plc (“Kromek” or the “Group”), Final Results. Kromek (AIM: KMK), a worldwide supplier of detection technology focusing on the medical, security screening and nuclear markets, announces its final results for the year ended 30 April 2019.
Financial Highlights
- Revenue increased 23% to £14.5m (2017/18: £11.8m)
- Product sales accounted for 83% of total revenues (2017/18: 81%), representing a 25% increase in value
- Gross margin improved to 57.2% (2017/18: 56.4%)
- Adjusted EBITDA* increased fourfold to £2.0m (2017/18: £0.5m)
- Loss before tax for the year reduced to £1.3m (2017/18: £2.5m loss)
- Cash and cash equivalents at 30 April 2019 were £20.6m (30 April 2018: £9.5m), following a successful fundraising of £21.0m during the second half of the year
*Adjusted EBITDA defined as earnings before interest, taxation, depreciation, amortisation, other income and share-based payments. For a reconciliation, see the Financial Review below.
Operational Highlights
Milestone year with growth driven by SPECT products in medical imaging and D3S platform in nuclear detection – and delivered key target of increasing adjusted EBITDA
- Increasing commercial traction across Kromek’s portfolio of product families with the award of high-value, multi-year contracts from commercial and large government customers worldwide giving greater visibility
- Successfully commenced operations from new high-volume manufacturing facility in US following relocation to purpose-built premises in Pittsburgh to cater for increased demand in medical imaging
- Fundraise in second half enables the Group to significantly expand future capacity and efficiencies in US and UK manufacturing
- 11 new patents were filed and 16 were granted during the year
Medical Imaging
- Awarded a significant contract, expected to be worth a minimum of $58.1m over a seven-year period, by an existing OEM customer to provide CZT detectors and associated advanced electronics to be used in state-of-the-art medical imaging systems
- New OEM customer in the nuclear medicine instrumentation market awarded a $700k contract to be delivered over 18 months
- Received repeat orders from customers in the Bone Mineral Densitometry and gamma detection markets
- Continued to advance towards full clinical validation of Kromek’s CZT-based SPECT detector system
Nuclear Detection
- D3S platform sold in 18 countries across Europe and Asia as well as in the US
- Awarded a $1.8m contract by DTRA for two-year project to develop ruggedised, small form-factor D3S platform for military use
- Awarded a $2.0m contract by DARPA to develop, over a 12-month period, a proof-of-concept device for a vehicle-mounted biological-threat identifier – Kromek’s first contract for biological threat detection
- Secured a new nuclear security OEM customer with a three-year contract worth at least $1.4m
- Won several new customers in the civil nuclear sector, including the Spanish Army, and added new distributors in Europe and Asia
Security Screening
- Awarded a two-year $1.5m contract by the US Department of Homeland Security to develop CZT detector modules for commercial off-the-shelf detectors for advanced X-ray systems for passenger baggage screening
- Won a new five-year $7.8m contract from an existing OEM customer to provide customised detector modules for incorporation in baggage screening products
- Received a $2.7m order expansion under five-year security screening contract, increasing the total value to a minimum of $5.8m
Dr Arnab Basu, CEO of Kromek, said: “This was a milestone year for Kromek as we delivered on all of our objectives, including our key target of growing adjusted EBITDA. We made progress across our business segments as we continued to execute on previously-signed agreements as well as win new, multi-year contracts from commercial and large government customers worldwide. We significantly strengthened the foundations of our business with the successful relocation of our US operations to a new purpose-built facility, and raised £21m to enhance our UK and US manufacturing capabilities and to support expansion in our key growth areas of SPECT in medical imaging and our D3S products in nuclear detection.
“Looking ahead, we entered the 2019/20 fiscal year in a stronger position than ever before. With the increasing market adoption of customers’ next-generation products that incorporate our radiation detection solutions, we are receiving increasing demand from existing customers as well as interest from potential customers – and we are well-placed to capitalise on these opportunities. The momentum of new contract wins has continued, providing us with greater visibility over revenue. As a result, we are confident of delivering growth for full year 2019/20, in line with market expectations, and continue to look to the future with confidence.”
27 June 19. Cohort, the independent technology group, will be announcing its final results for the year ended 30 April 2019 on Tuesday 23 July 2019. This is a change of date from that originally advised (2 July).
The Group has decided to allow for extra time to complete the audit of the results, reflecting the impact of the acquisition of Chess Technologies (Chess) on 12 December 2018 (the Group’s largest acquisition to date) and the greater complexity around the introduction of IRFS15 (Revenue from Contracts with Customers).
The Board believes the delay in completing the audit does not reflect any issues concerning the underlying trading or economic position of the Company. The Board confirms that it believes the Group’s financial performance for the financial year ended 30 April 2019 has been consistent with its expectations, including Chess since its acquisition. Order intake during the year totalled a record £189.9m. Net debt as at the year end stood at £6.4m, significantly lower than anticipated (having paid initial cash consideration of £20.1m for Chess in December 2018).
There are no matters in connection with the delay in completing the audit which, in the view of the Board, need to be brought to the attention of shareholders.
27 June 19. Accenture bolsters defence, national security and public safety services. Accenture has entered into an agreement to acquire BCT Solutions, a privately held technology consultancy that specialises in command and control, cybersecurity, cyber defence services and expertise, supporting the delivery of defence, national security and public safety mission-support capabilities.
Accenture has worked to support the objectives of Australia’s government for more than 20 years, and the acquisition of BCT will further bolster Accenture’s deep cybersecurity, cyber defence and technical expertise and advance its strategy to be a leading provider of end-to-end capabilities for its government clients.
Catherine Garner, who leads Accenture’s health and public service practice in Australia and New Zealand, said: “BCT will complement Accenture’s defence, national security and public safety capabilities in Australia, extending the reach and scale of our business to transform bold ideas into breakthrough outcomes for our public sector clients.”
“BCT’s impressive experience and capabilities will enable us to enhance the services we provide to government agencies in Australia – ultimately helping improve the lives of citizens,” Garner added.
Founded in 2015 by Defence Force veterans Patrick Batch and Angus Heatley, BCT has offices in Canberra and Brisbane. In March 2019, BCT was recognised in the Prime Minister’s Veterans’ Employment Awards for its work supporting Australian Defence Force (ADF) veterans. With 87 per cent of its workforce having served in the ADF, BCT is uniquely positioned to service the sector.
Matthew Gollings, Accenture’s global defence lead, said: “We are very proud to welcome the BCT team to Accenture, and we commend their work in supporting the local defence community. BCT is a strong match with Accenture’s values, culture and people – and we look forward to combining our skills to serve the needs of government agencies.”
Heatley, a director at BCT Solutions, welcomed the announcement, saying: “We are excited to join forces with Accenture to address the pressing challenges facing the defence and broader public sector landscape.
“Most of the BCT workforce are veterans and have the deep, firsthand defence and national security industry experience, skills and understanding to better equip the men and women of Australia’s Defence force. Together with Accenture, we can further tailor services to our clients’ ever-changing security needs and ensure they are building resilience from the inside out,” Heatley added.
Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialised skills across more than 40 industries and all business functions – underpinned by the world’s largest delivery network – Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders.
BCT Solutions is an award-winning professional services organisation that provides advisory services to the defence and national security sector. BCT focuses on the classified technology domain, with a specialisation in: cyber, electronic warfare and intelligence capabilities.
The company was founded by ex-servicemen and women, with over 87 per cent of employees being veterans. BCT’s excellence in service delivery, growth and performance has been recognised by: being named the Prime Minister’s Veteran’s Outstanding Employer of the Year, ranking in AFR fast starter lists, and winning Small Business Champion Awards (Growth). (Source: Defence Connect)
27 June 19. Big 4 banks to help Australia’s growing space industry. Australia’s big banks have moved away from a traditional reluctance to fund tech start-ups, with NAB and Westpac launching new services primarily aimed at funding the technology sector – and that includes the booming space business. Neither specifically mentioned space in their product launch literature, but both banks have confirmed that space was certainly included. A spokeswoman said NAB’s $2bn financing commitment aimed to support emerging technology companies across industries.
“There are exciting developments in the space industry and we are working with government and university partners to better understand how we can help small to medium enterprises access capital to participate in the space sector,” she said.
“As per any funding discussion, we are open to exploring opportunities with organisations that are at the right stage of development, have an appropriate risk profile and good commercial prospects.”
A spokeswoman for Westpac confirmed that space was on their radar.
“The emerging industries division has been set up to look after all the new emerging industries and the businesses driving their growth within,” she said.
“We are very excited about the emerging space industry in Australia and are looking forward to engaging productively with this sector and helping them in their growth.”
Australian tech start-ups have traditionally found it challenging to secure both seed and growth funding and that appears to especially apply to the new space sector.
That contrasts with the US, with its long tradition of venture capital firms willing to take a risk on newcomers, and China where space start-ups can call on vast private sector and government funding. Even the most modest of American and European launch companies can gain $10m assistance from their governments. Earlier this month, Australian space entrepreneur Adam Gilmour said there were plenty of people willing to give them a pat on the back but not write a cheque.
“We are competing against American companies that can get $1 or $2m from 10 different funding organisations. Of all my rocket competitors, the stingiest of them has got about $10m from their government,” he told Space Connect.
NAB launched its fund last week, allocating $2bn over five years to support Australian tech-innovators by providing loans, facilitating access to capital markets and supporting companies though transactional banking and risk management.
Anthony Healy, NAB chief customer officer for business and private banking, said NAB wanted to boost productivity in Australia’s technology sector by supporting companies at a critical stage of their life cycle.
“This commitment is about giving technology companies with demonstrated potential for growth the shot-in-the-arm they need to be bigger and better,” he said.
“These tech-driven companies are often already profitable but need further capital and banking expertise to grow.
“NAB can support technology companies at every stage of their development – from NAB Ventures, which backs start-ups through to big business. This now includes a new team focused purely on high-growth technology companies. We believe this is a unique proposition from a major Australian bank.”
Westpac launched its scheme in February. The bank is looking more to fund tech companies at the scale-up rather than the start-up stage.
Both Westpac and NAB released studies making useful observations on the challenges confronting the Australian innovation and technology ecosystem.
Westpac’s Emerging Industries: Towards 2030 report observed that Australia’s capital markets were hindered by short-term thinking, which made them risk averse, though that was improving.
“However, compared to the US, which raised US$84.2bn last year, Australia represents a tiny tadpole in the global venture capital pond,” it said.
NAB’s Australian National Outlook 2019 report said Australia had been very fortunate, with nearly three decades of economic growth, but there were sound reasons to question whether this good fortune would continue into the future.
“The world is changing and Australia will need to adapt much more rapidly than in the past if it is to keep up. Nowhere is this more evident than in the role that new technologies, such as artificial intelligence, automation and life sciences, are playing in transforming established industries and creating new ones,” it said. (Source: Space Connect)
27 June 19. Fintech partners with SA government to support space tech. Asia’s largest fintech innovation hub, Stone & Chalk, has announced an agreement with the South Australian government to establish a start-up hub at Lot Fourteen, the largest innovation precinct in the southern hemisphere. Stone & Chalk has been appointed as a key anchor tenant and operator of the start-up hub, and was selected, through a robust selection process, for its record and leadership in building thriving innovation ecosystems that create exciting new employment and investment opportunities.
Premier Steven Marshall said the SA government was pleased to announce Stone & Chalk as a strategic innovation partner to help South Australia stake its claim in the innovation age.
“We look forward to commencing our partnership with Stone and Chalk, a global innovation leader, as a key anchor tenant for Lot Fourteen and operator of the start-up hub to fulfil our ambition to have the highest rate of business start-ups of any state in Australia,” Premier Marshall said.
He added, “Each state in Australia has a limited window of time within which it can create a new and sustainable source of competitive advantage. South Australia provides an ideal environment for entrepreneurs to grow their ideas and take them to market, and the start-up hub will support our local innovators and entrepreneurs to thrive in fast-growing industries such as cyber security, defence, space, artificial intelligence and robotics.”
Lot Fourteen is situated alongside the Adelaide Botanic Gardens, within five minutes walking distance from the University of Adelaide, the University of South Australia and the Adelaide CBD.
Stone & Chalk CEO Alex Scandurra said that the Lot Fourteen start-up hub will connect start-ups, scale-ups, mentors, corporations, researchers, investors, creatives and academia in a curated ecosystem that forms a “marketplace for supply and demand in innovation”.
“Stone & Chalk might be most readily known for its leadership in nurturing and scaling high-growth fintech companies that are transforming the way we consume financial services,” Scandurra said.
“Together with our government and corporate partners, and our key industry associations, Stone & Chalk is creating a national innovation capability and marketplace which is driving the future development of our industries and ultimately the economy. When people talk about the future of work, we are already helping to create it one start-up and scale-up at a time.
“We look forward to supporting the South Australian government with their innovation agenda and seeing the impact of bringing the ecosystems of Sydney, Melbourne and Adelaide together.”
Stone & Chalk will soft launch at Lot Fourteen in the third quarter of 2019, and will soon commence the interview and selection process for residency within the precinct.
Stone & Chalk is Australia’s leading start-up innovation hub, home to 800 residents in over 100 full-time start-ups, and supported by 27 local and international corporate partners. As Asia’s largest fintech hub, and one of the leading fintech hubs globally, Stone & Chalk is helping Australia lead the charge in creating the next wave of jobs of the future in the financial services.
Together with its 142 alumni, Stone & Chalk start-ups and scale-ups have secured over $330m of direct equity investment in less than four years, and have directly created 600 new jobs in the areas of fintech, cyber security, insurtech, data science and connected devices. Stone & Chalk supports its residents through a wide variety of established resident and corporate innovation programs, investor programs, pitch coaching, mentorship and training.
The seven-hectare redevelopment site aims to drive jobs growth in these fast growing industries as well as blockchain, robotics and related technologies, with around 1,000 people expected to be working at Lot Fourteen by late 2019, with more than 40 businesses, including aerospace, technology and innovation giant Lockheed Martin, recently announcing tenancy at the site. (Source: Space Connect)
21 Jun 19. Harris and L3 Technologies Set Closing Date for Merger.
- Regulatory approvals obtained; merger closing set for June 29, 2019
- Combined company will be named L3Harris Technologies
- Shares will trade on NYSE under ticker symbol “LHX”
Harris Corporation (NYSE:HRS) and L3 Technologies (NYSE:LLL) announced that they have received the necessary regulatory approvals for their all-stock merger and have set a closing date of June 29, 2019.
Upon closing, Harris will be renamed L3Harris Technologies, Inc., and shares of L3Harris common stock will trade on the NYSE under ticker symbol “LHX”. L3 shares will cease trading upon market close on June 28 and convert into 1.3 L3Harris shares for each L3 share.
“Receiving these approvals marks the successful completion of a thorough regulatory review process – clearing the way for one of the largest mergers in defense industry history,” said William M. Brown, Chairman, CEO and President of Harris.
“Today’s announcement positions us to close the merger and establish L3Harris as an agile aerospace and defense technology innovator that delivers value for all of our stakeholders,” said Christopher E. Kubasik, Chairman, CEO and President of L3.
The regulatory process requires the divestiture of Harris’ Night Vision business, which is expected to be completed following the merger, pursuant to Harris’ previously announced sale agreement with Elbit Systems Ltd. (Source: ASD Network)
24 Jun 19. Saudi arms ruling raises questions over future BAE business. The UK government will not grant new licences for the sale of arms to Saudi Arabia and its coalition partners that might be used in the Yemen conflict, while it prepares to contest a judgment from the Court of Appeal. The court has ruled British arms sales to the kingdom unlawful, throwing the possibility of certain future contracts between Saudi Arabia and key supplier BAE Systems (BA.) into doubt.
Saudi Arabia has led a coalition of nine nations in a conflict in Yemen since 2015. As of November 2018, 6,872 civilians had been killed and 10,768 wounded, mostly by Saudi Arabia-led coalition airstrikes, according to the Office of the United Nations High Commissioner for Human Rights (OHCHR). The actual number of civilian casualties is likely to be much higher, Human Rights Watch claims.
The UK has licensed the sale of at least £4.7bn in arms to Saudi Arabia since the outbreak of the war. Campaign Against Arms Trade (CAAT) appealed a High Court judgment in 2017 that permitted the sale of arms for use in the conflict. The court found that the government had fallen foul of a legal requirement to deny export licences to companies in the event of a “clear risk” that the equipment “might be used in the commission of serious violations of international humanitarian law”. The court said that the government made “no concluded assessments of whether the Saudi-led coalition had committed violations of international humanitarian law in the past, during the Yemen conflict, and made no attempt to do so”, which the government denies. Following the ruling, CAAT’s Andrew Smith said that “the bombing has created the worst humanitarian crisis in the world”, adding, “UK arms companies have profited every step of the way. The arms sales must stop immediately.” The ruling does not affect existing licences.
BAE Systems, which has had ties to Saudi Arabia since 1966, saw its shares fall as much as 4 per cent on the day of the ruling. The British aerospace and defence company generated 14 per cent of its 2018 group sales in Saudi Arabia. It supplies Typhoon and Tornado jets to the Royal Saudi Air Force, via an agreement with the UK government. BAE leads a pan-European consortium to provide and maintain 72 Typhoon that was thrown into jeopardy after the German government banned arms sales to Saudi Arabia last year, in response the murder of journalist Jamal Khashoggi. In March 2018, BAE signed a memorandum of intent to provide 48 further Typhoon to Saudi Arabia, which would require a new export licence. At its full-year results in February, it cautioned that the German ban may affect its ability to support its Saudi activities and “may have a consequential impact” on its financial performance. BAE does not currently have any firm expectations over the timeline for its second batch of Typhoon jets, a spokesperson told us.
After the ruling, a BAE spokesperson said that the company would assess the UK government’s evaluation of its decision-making on arms sales on the basis set out by the court, once made. “We continue to support the UK government in providing equipment, support and training under government to government agreements between the United Kingdom and Saudi Arabia,” the spokesperson added.
BAE is the most heavily exposed British aerospace and defence company to the kingdom, but it is far from alone. Eurofighter Typhoon aircraft are powered by the EJ200 engine, which was developed by a consortium including Rolls-Royce (RR.), which generated £282m in revenues from Saudi Arabia in its full-year to 2018, or 1.8 per cent of its total revenue. A spokesperson said that the company would study the outcome of the ruling and will discuss next steps “closely with the UK government and our customers”. Meggitt (MGGT), meanwhile, provides $935,000 (£738,104) worth of equipment per Typhoon jet. It recently announced that it was supplying braking systems, including wheels, carbon brakes, landing gear computers and hydro-electric valves, as part of a £5bn order for 24 Typhoon aircraft for the Qatar Air Force, announced by BAE in September 2018. Meggitt declined to comment on this story.
Elsewhere, Chemring (CHG) has historically provided arms to Saudi Arabia, along with decoy technology for aircraft. As recently as 2017, Chemring listed the kingdom’s ministry of defence and aviation as a “principal customer”, while in a 2013 ‘munitions outlook’, it identified Saudi Arabia as an opportunity for sales. It does not, however, mention Saudi Arabia in its 2018 report and its exposure to the kingdom is currently understood to be minimal. Chemring declined to comment on this story.
The UK’s role in providing military training to Saudi Arabia has also proven lucrative business. BAE’s Saudi Development & Training (SDT) programme was first established in 1994. In March 2014, Cobham (COB) was awarded a 30-month contract by BAE to provide air support to operational readiness training for the Saudi air force, as part of the Saudi British Defence Cooperation Programme. The contract ran from 2014 to 2016. Cobham still has exposure to the Saudi kingdom – it lists High Capabilities Telecom, a Saudi-based satellite communications company as a ‘technical service partner’ on its website. High Capabilities Telecom counts Cobham and BAE among its business partners and suppliers. Cobham declined to comment on this story.
IC View
Given their relatively meagre exposure to Saudi Arabia, it is unlikely that most of the companies above will be too concerned by the government’s decision. And with BAE’s long history of involvement with Saudi Arabia, it may seem like a knee-jerk reaction to downgrade the company in light of some temporary uncertainty surrounding future deals. But its 2018 sales and adjusted profits were down on the prior year. Free cash flow (FCF) more than halved from around £1.3bn to £615m – the company signalled that free cash-flow generation “will not be linear” over a three-year period that targets £3bn in FCF, while net debt is expected to rise in support of its Qatar Typhoon contract and its US operations. Hold. Last IC View: Buy, 474p, 21 Feb 2019.(Source: Investors Chronicle)
24 Jun 19. Chemring (CHG) has completed the sale of its military pyrotechnics business. Chemring Defence UK Limited for a nominal cash consideration to PWD Group. The division was treated as discontinued in the defence company’s 2018 financial statements and was loss-making for the six months to 30 April 2019. (Source: Investors Chronicle)
24 Jun 19. Italian Government Saves Piaggio Aerospace with €700m Orders. During a meeting held last Thursday in Rome, the Italian Defence Ministry confirmed its commitments on multiple orders to Piaggio Aerospace for a total amount of approximately 700m euros. Taking part in the meeting were representatives of the Italian Government, Piaggio Aerospace’s Extraordinary Receiver, local authorities from the Liguria region and the Piaggio Aerospace Unions.
In particular, two contracts relating to maintenance of the engines of the Italian Armed Forces’ fleet – worth a total of 33m euros – have already been signed and funded, while a further commitment to sign two more contracts by the end of June has been confirmed, for an additional total value of 167m euros.
Representatives of the Ministry for Economic Development and of the Ministry of Defence have also confirmed the acquisition of 9 new Avanti EVO aircraft and the upgrade of 19 of the current P.180 fleet. The signing of the relevant contracts – for a total value of 260m euros – is expected at the earliest, and in any case by the end of the year. An additional 96m euros will come from logistic support to the Armed Forces’ fleet, with the relevant contracts due to be signed by the end of September this year.
Finally, the Government has taken a commitment to finalize by mid-July the parliamentary approval process concerning the P.1HH UAS program, which will lead to the certification of the platform and the acquisition of at least one system (two aircraft and one ground control station) as test-bed, for a total investment of 160 m euros. “This will allow the company to get back to the design activity at European level, [in particular] within the MALE program (2020-2025), and preserve the company know-how”, a Government representative stated on Thursday immediately after the meeting.
“The definition of the operational needs of the Italian Armed Forces and the availability of the relevant budgets, communicated yesterday by the Italian Government in Rome, allows the company to restart”, the Extraordinary Receiver of Piaggio Aerospace Vincenzo Nicastro said. “The timetable announced, which foresees the signing of the first new contracts as early as the end of this month, will support the company’s commitment to regaining market share in all the sectors in which it operates. There is still a lot to do”, he added, “but I believe that – just 6 months after the start of the Extraordinary Receivership – we are moving in the right direction. Our goal is to be in a good position after the summer, when the official tender for the sale of Piaggio Aerospace will hopefully start, with a company able to attract a number of qualified potential buyers”. (Source: UAS VISION)
17 Jun 19. MAXAR Considering Sales of MDA Unit? Reuters is reporting that Maxar Technologies, the parent company of MDA, is considering the sale of the MDA business unit to address the firm’s debt load — according to the Reuters article, the sale could garner more than $1bn. A Maxar representative told Reuters in the usual, generic form most companies issue regarding major internal decisions, “as a matter of company policy, Maxar does not comment on market rumors or speculation. As we have previously stated, the company is focused on strengthening our operational and financial performance, developing a strategy to drive long-term revenue, profit, and cash flow growth, and is assessing a variety of options to reduce leverage to achieve a more optimal capital structure for the company. Maxar will continue to communicate transparently with investors and analysts through presentations and public filings, and the Board remains committed to acting in the best interests of all Maxar shareholders.”
The news comes just two days after SpaceX had successfully launched the $1.2bn RADARSAT Constellation Mission, for which MDA was the prime contractor. (Source: Satnews)