BUSINESS NEWS

01 Aug 19. Inmarsat plc (LSE: ISAT.L), (“Inmarsat”, the “Group”), the world leader in global mobile satellite communications, today announces unaudited financial results for the half year and second quarter ended 30 June 2019. Summary and Financial Highlights

Inmarsat delivered a robust performance in the first half of 2019, supported by our diversified growth portfolio, with revenue growth delivered in a focussed set of core end markets, where we lead with sustainable differentiation.

Operational Highlights – H1 2019:

• Group Revenue increased $16.1m, 2.2%, to $733.3m. Revenue, excluding Ligado and RigNet settlement, up $29.9m, 4.6%, to $682.3m, driven by growth in Aviation and Government

o Maritime: continued revenue decline in the mid-market partly offset by on-going double-digit revenue growth in fast-growing VSAT segment

o Government: strong performance against particularly tough comparator for US business in Q2

o Aviation: further double-digit revenue growth in In-Flight Connectivity, with steady revenue growth from Core business

o Enterprise: continued decline of products in legacy markets

o GX-generated revenues: increased 60.1 to $176.4m (H1 2018: $110.2m), including $90.7m in Q2 2019 (Q2 2018: $60.2m) o Ligado and other: includes $50.8m revenue relating to settlement of arbitration case with RigNet

o Q2 Group Revenue: increased $14.6m, 3.9%, to $386.4m. Revenue, excluding Ligado and RigNet settlement, down $3.5m, 1.0%, to $335.6m, due to revenue declines in Maritime and Enterprise more than offsetting revenue growth in Aviation and Government

• Group EBITDA: increased by $11.6m, 3.1%, to $384.6m. EBITDA (excluding Ligado, RigNet settlement and costs relating to recommended offer for the Group) increased by $46.3m, 15.0%, to $354.5m, reflecting revenue growth and lower costs:

o Q2 Group EBITDA: increased $34.1m, 17.2%, to $232.2m. EBITDA (excluding Ligado, RigNet settlement and costs relating to recommended offer for the Group), increased by $19.9m, 12.0%, to $185.3m, reflecting lower costs

• Profit / (Loss) After Tax: improved by $6.6m, reflecting the forgoing and an increased change in the unrealised conversion liability on the 2023 Convertible Bond of $220.8m, as well as costs relating to recommended offer for the Group 1 Comprises revenue contribution from Central Services, Ligado Networks and income received as a result of the final settlement of the RigNet arbitration case. Further details on each of these elements can be found in Central Services section of this report. 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. 2 GX network development:
• Design and build of 5 new satellites, to be launched from 2022, announced during the period:

o GX7, GX8 and GX9 satellites, in partnership with Airbus Defence and Space, to materially enhance GX’s network capacity, capabilities and operational agility o GX10A and GX10B satellite payloads, in partnership with Space Norway, to provide unique coverage of the Arctic region

Recommended offer for the Group

• Transaction approved by Inmarsat’s shareholders and expected to complete during Q4 2019, subject to receiving certain regulatory conditions as set out in the scheme document. There is good progress on the regulatory processes.

Rupert Pearce, Chief Executive Officer, commented on the results: “Inmarsat produced a robust performance in the first half of the year, supported by continued traction with Global Xpress, as we continue to focus on building and defending market share in our target markets.”

Future Guidance The Board remains confident about the future prospects and outlook for the Group and reiterates the following guidance, 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, excluding 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 Aug 19. M&A in Defence and Security Market Reaches Record High of USD130bn in Q2 2019, Says Jane’s by IHS Markit. The merger of Raytheon and United Technologies Corporation catapulted the value of mergers and acquisition activity in the defence domains to a record USD130bn high, although pressure from regulators may hamper future transformational activity.

Mergers and acquisitions (M&A) activity in the defence and security domains was valued at USD130 bn during the three months to 30 June 2019, according to Jane’s by IHS Markit (NYSE:INFO), a world leader in critical information, analytics and solutions. This compared with USD5.4 bn during the prior three months and an average of USD10 bn each quarter over the prior ten years.

The merger of Raytheon and United Technologies Corporation (UTC) in a USD121bn all-stock transaction was announced in June this year to create Raytheon Technologies Corporation with combined sales in the region of USD74bn. The deal will create which will be one of the largest defence organisations worldwide and followed UTC’s absorption of Rockwell Collins in 2017.

“Even with the merger of Raytheon and UTC excluded, activity during the three months to 30 June was strong,” said Guy Anderson, associate director at Jane’s by IHS Markit. “Other transactions were valued at a total of USD9 bn and included CapGemini’s USD3.5 bn purchase of engineering and research and development group Altran and Parker-Hannifin’s USD3.6bn acquisition of military adhesives and coatings group Lord Corporation.”

Beyond market shifting activity at the top of the US defence sector, activity during the quarter pointed towards nascent consolidation in Saudi Arabia, ongoing consolidation in India and continuing moves by defence primes to acquire a presence in ‘disruptive’ sectors such as alternative propulsion and artificial intelligence.

Ongoing hard line by regulator hampers transformational activity in North America

Despite the scale of transformational activity in the US, deal activity in North America dipped during the second quarter to the lowest level in five years and accounted for just 31% of transactions (based on the location of targets). This marked a decline from a five-year average of 50%. As noted in previous reports, this appears to reflect the ongoing hard line by US regulators in scrutinising mergers and acquisitions on anti-competition grounds.

Jane’s notes a contrast in European activity, which jumped to the highest level in two years (38% of global transactions). Beyond Europe and North America, activity in the Asia Pacific region jumped to the highest quarterly level ever recorded by Jane’s with 24% of transactions.

“Further transformational activity cannot be discounted over the course of the year, although competition and inward investment oversight in the world’s largest defence market may act as a partial brake,” said Anderson

“Greater consolidation can be expected in both Asia Pacific and the rest of the world as markets continue to mature and governments seek to invigorate domestic defence activity.” (Source: BUSINESS WIRE)

01 Aug 19. Bombardier posts quarterly loss as rail division struggles. Bombardier Inc reported a quarterly loss on Thursday, compared with a year-ago profit, as the Canadian plane and train maker wrestled with challenges in its key rail division.

The company posted a net loss of $36m, or 4 cents per share, in the second quarter ended June 30, compared with a profit of $70 m, or 2 cents per share, a year earlier.

Bombardier also reduced its adjusted core earnings forecast for the full year to a range of $1.20bn to $1.30bn, from $1.50bn to $1.65bn that it had forecast earlier.

The company said the cut reflected its plans to consolidate its three existing aerospace units into a single Bombardier aviation business segment from the third quarter and additional investments, costs and timings of project in its rail business. (Source: Reuters)

31 Jul 19. Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Highlights:

• Reported diluted earnings per share (EPS) of $1.86, with Adjusted diluted EPS of $1.90 (defined below), up 11% and 6%, respectively, compared with the prior year;
• Net sales of $639m, up 3%;
• Reported operating income of $106m, with Adjusted operating income of $108m;
• Reported operating margin of 16.5%, with Adjusted operating margin of 16.8%;
• Reported free cash flow of $76m, with Adjusted free cash flow of $80 m; and
• Share repurchases of approximately $13m.

Maintaining Full-Year Adjusted 2019 Business Outlook (compared with Adjusted full-year 2018):

• Sales growth of 4 – 6%
• Adjusted operating income growth of 6 – 9%
• Adjusted operating margin range of 16.2% to 16.3%, up 40 – 50 basis points
• Adjusted diluted EPS range of $7.00 to $7.15, up 10 – 12%; and
• Adjusted free cash flow range of $330 to $340 m, representing a free cash flow conversion rate of approximately 110%.

“Our second quarter results were led by strong 11% sales growth in our defense markets, improved profitability in the Commercial/Industrial and Power segments, and the benefits of our ongoing margin improvement initiatives,” said David C. Adams, Chairman and CEO of Curtiss-Wright Corporation. “Our results also included a $4 m planned ramp up in research and development investments to support our long-term organic growth.”

“Looking ahead to the remainder of 2019, we are reaffirming our full-year guidance for sales, operating income, operating margin, diluted EPS and free cash flow. We are projecting another solid operational performance including higher sales in all end markets, strong margin expansion and solid free cash flow generation, as we continue to deliver significant long-term value to our shareholders.”

Second Quarter 2019 Operating Results

• Sales of $639m, up $19m, or 3%, compared with the prior year (3% organic, 1% acquisitions, 1% unfavorable foreign currency translation);
• From an end market perspective, total sales to the defense markets increased 11%, or 10% organically, led by strong growth in ground and naval defense, while total sales to the commercial markets decreased 3%, as higher commercial aerospace sales were more than offset by reduced power generation sales, compared with the prior year. Please refer to the accompanying tables for a breakdown of sales by end market;
• Reported operating income was $106m, up 4% compared with the prior year, while reported operating margin was flat at 16.5%;
• Adjusted operating income of $108m, nearly flat compared with the prior year, principally reflects higher defense revenues in the Commercial/Industrial and Power segments, offset by reduced operating income on flat sales in the Defense segment and higher non-segment expenses;
• Adjusted operating margin of 16.8%, down 80 basis points compared with the prior year, primarily reflects reduced profitability and higher research and development expenses in the Defense segment, partially offset by favorable overhead absorption on higher naval defense revenues in the Power segment, as well as increased operating income and the benefits of our ongoing margin improvement initiatives in the Commercial/Industrial segment;
• Operating results included a gain on the sale of a building that was originally expected in the third quarter of 2019 and provided a $4m benefit to current quarter results; and
• Non-segment expenses of $10m increased by $3m compared with the prior year, primarily due to higher corporate expenses.
• Reported net earnings of $80m, up $5m, or 7%, reflecting higher segment operating income and lower interest expense, partially offset by higher corporate expenses;
• Reported diluted EPS of $1.86, up $0.18, or 11%, compared with the prior year, reflecting higher segment operating income, lower interest expense and a lower share count, partially offset by higher corporate expenses;
• Adjusted net earnings of $82m, up $2m, or 2%, and Adjusted diluted EPS of $1.90, up $0.10, or 6%, compared with the prior year; and
• Effective tax rate (ETR) of 22.7% was essentially flat with the prior year quarter.

Reported Free Cash Flow

• Reported free cash flow of $76m, defined as cash flow from operations less capital expenditures, decreased $11m, or 13%, compared with the prior year, primarily driven by timing of supplier payments and higher capital expenditures;
• Capital expenditures increased by approximately $6m to $16m compared with the prior year, primarily due to higher capital investments within the Power segment, including a $4m investment related to the new, state-of-the-art naval facility for the DRG business; and
• Adjusted free cash flow, which excludes the facility investment in the current period, decreased $7m to $80m, principally due to the timing of supplier payments.

New Orders and Backlog

• Year-to-date, new orders of $1.3 bn increased 3% compared with the prior year period, led by strong organic growth in naval defense orders; and
• Backlog of $2.2bn increased 10% from December 31, 2018.

Other Items – Share Repurchase

• During the second quarter, the Company repurchased 109,436 shares of its common stock for approximately $13m; and
• Year-to-date, the Company repurchased 216,708 shares for approximately $25m.

Commercial/Industrial

• Sales of $318m, up $6m, or 2%, compared with the prior year (3% organic, 1% unfavorable foreign currency translation);
• Strong sales growth in the aerospace and naval defense markets was led by higher sales of actuation systems on the F-35 program and higher sales of valves on the Virginia class submarine program, respectively;
• Commercial aerospace market sales growth was led by higher OEM sales of sensors;
• Lower power generation market sales reflect reduced international sales of surface technology services and valves;
• General industrial market sales were essentially flat, as solid demand for industrial valves and industrial controls were offset by reduced sales of surface treatment services; and
• Reported operating income was $56m, up 9%compared with the prior year, while reported operating margin increased 110 basis points to 17.7%, principally driven by the benefits of our ongoing margin improvement initiatives and the aforementioned gain on the sale of a building, partially offset by increased research and development expenses and the impact from tariffs.

Defense

• Sales of $145m, down $1m, or 1%, compared with the prior year ((3%) organic, 3% acquisition, 1% unfavorable foreign currency translation);
• Aerospace defense market sales were essentially flat, as higher sales of tactical data link equipment (TCG acquisition) were offset by lower sales of embedded computing equipment on various programs;
• Ground defense market revenues increased principally due to higher sales on the Abrams tank platform;
• Lower naval defense market revenues were the result of reduced sales of embedded computing equipment on various programs;
• Lower general industrial market revenues reflect reduced industrial controls sales due to the timing of an automotive contract completed last year;
• Reported operating income was $30m, with Reported operating margin of 20.5%; and
• Adjusted operating income of $31m, down $8m, or 21%, compared with the prior year, while Adjusted operating margin decreased 540 basis points to 21.0%, reflecting unfavorable mix and higher research and development expenses in the current year, as well as favorable contract adjustments within our naval defense business in the prior year which did not recur.
• Sales of $176m, up $14m, or 9%, compared with the prior year;
• Strong naval defense market sales were driven by higher Virginia class submarine and CVN-80 aircraft carrier revenues, as well as solid spares and service center revenues;
• Reduced power generation market sales reflect timing of production on the China Direct AP1000 program and lower domestic aftermarket revenues;
• Reported operating income was $30 m, with Reported operating margin of 17.1%; and
• Adjusted operating income was $31 m, up $5 m, or 19% compared with the prior year, while Adjusted operating margin increased 160 basis points to 17.8%, principally reflecting favorable overhead absorption on higher naval defense revenues.

01 Aug 19. Rheinmetall increases sales and earnings.

• Consolidated sales increase by 2.2% to €2,814m with an improved operating margin, despite declining automotive markets
• Consolidated operating earnings up 5.8% to €163m
• Earnings per share rise by 36.3% to €2.44
• Automotive posts robust development in a weak market environment – operating margin at 7.1%
• Defence increases sales by 8.8% or €112m to €1,375m; operating earnings more than doubled to €69m
• Order backlog for the Group reaches €8.8bn
• Group forecast for operating margin confirmed

The Rheinmetall Group in Düsseldorf ended the first half of 2019 with increased sales, another improvement in consolidated operating earnings and a higher operating margin. This performance is being driven by the technology group’s Defence sector, which is achieving profitable growth in a dynamic market environment and increasing its operating earnings significantly. Although the automotive business outperformed global automotive production, which experienced a decline of around 7%, it was influenced by the weak industry environment.

Rheinmetall specified its forecasts for the Automotive and Defence sectors according to the relevant market developments. The forecast for the Group operating margin has been confirmed at the same figure of around 8%.

Armin Papperger, Chief Executive Officer of Rheinmetall AG: “In the current fiscal year, the two-sector corporate structure once again puts Rheinmetall on a solid and profitable footing. Although, as expected, Automotive is unable to distance itself entirely from the downward trend on global automotive markets, the Group remains on track for growth with respect to sales and earnings. In the Defence sector, we are increasingly feeling the effects of the considerable backlog of demand in military procurement in many countries. This is especially true in Germany as well, where we are a key partner to the German armed forces in terms of modernizing equipment and bridging the gaps. The comparatively robust business performance of our Automotive sector shows that we are in a good position with our extremely flexible cost management policy to remain highly profitable even in adverse market situations.”

The Rheinmetall Group increased its sales by €61m or 2.2% year-on-year to €2,814m in the first half of 2019 (previous year: €2,753m). Adjusted for currency effects, sales growth amounts to 2.0%.

Consolidated operating earnings increased by €9m or 5.8% in the same period to €163m (previous year: €154m), bringing the operating margin at Group level up slightly from 5.6% to 5.8%.

Earnings per share rose by 36.3%, from €1.79 in the previous year to €2.44 in the first half of 2019.

The order backlog in the Rheinmetall Group rose significantly year-on-year, reaching €8.8bn (June 30, 2019), after €7.0bn the year before.

At 72%, the international share of business activities was lower than the previous year’s figure (77%). The resurgent significance of the German market can be attributed in particular to the growing volume of orders with the German armed forces, whose efforts to modernize equipment are linked to increasing national sales in the Defence sector.

Automotive: weak market situation impacting sales and earnings – margin remains high

In the first half of 2019, Rheinmetall Automotive again outperformed the international automotive industry, but was unable to escape the downward trend on global automotive markets. The global production of light vehicles (vehicles under 6 t) declined by 6.7% in the first half of 2019. Rheinmetall Automotive posted sales of €1,441m, a figure that was €50m or 3.4% lower than the previous year’s figure of €1,491m and far less than the decline in production of the industry as a whole. Adjusted for currency effects, sales declined by 4%.

The sector’s operating earnings decreased by €31m to €102m. Nevertheless, the operating margin remained at a comparatively high level of 7.1% (previous year: 8.9%).

Sales in the Mechatronics division came to €808m after the first six months of 2019, which is €38m lower than in the previous year. This decline is largely attributable to the downward trend on passenger car markets and in particular to the persistently weak market performance for diesel passenger vehicles, which was not counterbalanced by the higher sales in truck and pump business. Operating earnings declined from €90m in the previous year to €66m in the first half of 2019.

Despite the difficult market environment, in the first half of 2019 sales in the Hardparts division were on a par with the previous year at €503m (previous year: €504m). The market-driven decline in plain bearings business was offset by higher sales for large-bore pistons and an equipment sale. Operating earnings amounted to €22m after €35m in the previous year.

In the Aftermarket division, sales fell by €12m year-on-year to €177m in the first six months of 2019. The sales regions of Western Europe and North America were particularly weak. Despite the decline in sales, stable profit contributions and a strict cost management policy resulted in operating earnings of €17m, like in the previous year, after the first six months of 2019.

Relatively stable sales development in China, despite strong decline in passenger car production

In a significantly declining market environment – light vehicle production in China fell by 13.5% compared with the same period of the previous year – the joint ventures in China, which are not included in the Automotive sector’s sales figures, achieved growth in sales of €10m or 2.2% in the first half of 2019 to €457m (previous year: €447m). Adjusted for acquisitions, the joint ventures in China reported a slight downturn in sales of 1.3%. However, this was far less than the decline in passenger car production in China as a whole.

Defence: growth in sales and strong rise in operating earnings

The Defence sector is continuing its growth trajectory, posting growth in sales of €112m or 8.8% in the first half of the year to €1,375m, after €1,263m in the same period of the previous year. Adjusted for currency effects, the growth is 9.0%.

Defence increased its operating earnings by €38m to more than double the previous year’s figure from €31m to €69 m. This resulted in a considerable improvement in the operating margin, from 2.5% to 5.0%.

Incoming orders for the Defence sector came to €1,065m in the first half of 2019, which was lower than the high comparative figure for the previous year (€1,427m). However, the weaker incoming orders for the first half of 2019 were offset as early as July by a major order from the German armed forces with a gross order volume of over €470m (net order volume: €397m).

Sales in the Weapon and Ammunition division went down slightly by €4m year-on-year to €384m. At €-1m, the division’s operating earnings remained €5m lower than the previous year’s figure. The main reason for this was lower sales of high-margin products.

The Electronic Solutions division increased its sales by €46m or 14.2% to €369 m. The main driver of this in operating terms was the delivery of soldier systems (Future Soldier System) to the German armed forces. Operating earnings improved by €23m to €27m due not only to increased sales, but also to positive product mix effects and the elimination of losses from a foreign subsidiary.

The Vehicle Systems division reported an increase in sales of €46m or 6.8% to €718m in the first half of 2019, having expanded its military truck business in particular. The improved utilization of capacity linked to this volume effect increased operating earnings by €11m year-on-year to €45m.

Outlook specified due to market developments in Automotive and Defence – Group forecast for operating earnings margin remains the same

In fiscal 2019, the Rheinmetall Group expects to continue its growth trajectory, despite the persistently weaker trend for global automotive production. Sales growth is currently expected to remain in line with original expectations, albeit at a somewhat more modest figure than previously forecast.

Starting from around €6.1bn in fiscal 2018, the Rheinmetall Group’s annual sales are expected to grow organically and before currency effects by around 4% in the current fiscal year. This corresponds to the lower end of the previous growth forecast for consolidated sales (4% to 6%).

In the Defence sector, sales are expected to grow organically and before currency effects by around 11%, which corresponds to the upper end of the previous growth forecast (increase of sales in the region of 9% to 11%).

On the other side, there has been a deterioration in experts’ forecasts for future global automotive production in the second half of the year, in which a tangible market recovery was expected to take place. The experts at IHS Markit have lowered their 2019 forecast to a production downturn of 3.7% for the time being. A number of major automotive manufacturers and important suppliers are now anticipating a decline in global automotive production of between 4% and 5% against the previous year’s figure. Rheinmetall is following this assumption. In light of these gloomier market expectations, for 2019 as a whole Rheinmetall is no longer anticipating a stagnant to slightly positive sales performance in the Automotive sector, but a slightly negative sales performance of between -2% and -3%.

Based on these market expectations for the automotive business and the new sales forecast derived from that, Rheinmetall anticipates an operating margin of around 7% in the Automotive sector in 2019. The previous forecast, which was still based on a considerable market recovery in the second half of the year, was around 8%.

Rheinmetall anticipates a further improvement in operating earnings in the Defence sector in fiscal 2019 and forecasts an improved operating margin of around 9% (the previous forecast was between 8% and 8.5%).

Taking into account holding costs, the Rheinmetall Group’s expected operating margin for 2019 as a whole comes to around 8%, which means that the previous forecast is unchanged.

31 Jul 19. The moral of Advent. It is axiomatic that a company is always worth more to a buyer of 100 per cent of its equity than to a buyer of 1 per cent. If that’s true – and it’s stated almost as much as a contention as an axiom – then why has the agreed £4bn cash bid for defence supplier Cobham (COB) been greeted with such an underwhelming response?

The axiom should withstand scrutiny because of the difference between being an active and a passive investor; between being a business shaper and a situation taker. Clearly, the party buying all of the equity will be in a position of control; a position to shape, meld, trim and hack to its heart’s content. That should bring benefits – at least if the acquirer knows what it is doing – for which it should be willing to pay a premium. Meanwhile, the buyer of the tiny holding – that’s you and me, in case you hadn’t cottoned on – is lumbered with what he has bought. If the investment does not work out, his only options are to wait for something good to happen (the business-shaping acquirer to come along, for example) or to sell.

Related to this, the business shaper should have done more homework than the passive business taker. It is putting more skin into the game and its preparation should reflect that. Granted, there is the counter argument that the passive investor should apply equal effort, since that encourages him to think like an owner manager. In theory, that’s fine, but it rarely works out in practice. The party able to commit really big bucks will get the better understanding of a business.

These things being so, I would have expected better both from Advent International, the US private equity house wanting to buy Cobham, and from the bosses of Cobham itself, who unanimously recommend the bid. True, Cobham’s bosses are in a familiarly difficult position. Simultaneously, they have to say their company is wonderful as it is, but that it should be handed to new owners.

They make a hash of that. Cobham’s chairman for all of the past eight weeks, Jamie Pike, says Advent’s offer of 165p a share “represents an opportunity for shareholders to realise their investment in Cobham in the near term”. Well, yes, but that option is always available via the stock market listing, albeit at a price. What Mr Pike didn’t mention is that many – perhaps most – shareholders would be realising their investment at a loss. After all, Advent’s offer is lower than the level Cobham’s price hit at any time between 2006 and 2016, and 57 per cent below its all-time high in 2015.

Then chief executive David Lockwood chimed in with the thought that the bid “is an endorsement of our turnaround strategy and our hard-working people”. Quite possibly, but a turnaround in which the current owners may no longer share, which might be a bit rich, given that – for the most part – it was they who stumped up the £512m in a 2017 rights issue that helped rescue Cobham from multiple fixes. Chief of these was a long-running spat with the mighty Boeing (US:BA) over supplying in-flight refuelling equipment for Boeing’s KC-46 Pegasus tanker aircraft. This was finally settled in February by a £49m payment to Boeing and it may be no coincidence that Advent showed up so soon afterwards.

Meanwhile, Advent, which runs about £30bn-worth of private equity money, says it is “uniquely positioned to acquire Cobham”. Debatable. True, in its 35-year history, Advent has controlled 345 companies spread over 41 countries, whose interests ranged far and wide. It is probably best known in the UK for buying – and subsequently selling – retailers Poundland and DFS Furniture; and retailing, along with healthcare, is an area of expertise. It has also controlled a fair few engineers, including the formerly London-listed Laird, which it bought for £1bn a year ago, but nothing quite like Cobham. So “uniquely positioned”? Well, it has the fire power, but then so do however many other private equity managers currently dashing around.

Perhaps in its haste Advent forgot to consult Cobham’s biggest shareholder, institutional fund manager Silchester International, which most certainly stumped up for the 2017 rights issue and which has made it clear it is unimpressed with Advent’s bid.

That may put a spanner in Advent’s works, but this is where we come full circle and ask what would the archetypal ‘Mr 1 Per Cent’ pay for Cobham’s shares – remember, he’s the guy with limited resources, no influence and in need of a margin of safety? He should struggle to justify paying more than 100p a share. After all, with Cobham’s recovery still hesitant, then 7p of earnings is the best that City analysts expect this year followed by not much growth thereafter. The days when Cobham could boast operating profit margins of 15 per cent may be well and truly over. Indeed, the fact that £750m of restructurings and write-offs followed those years of bumper profits suggests those margins were never very real anyway.

Clearly the market isn’t sure how to respond. At 167p, Cobham’s market price is hardly at a level where investors are salivating for the juicier offer. Obviously, shareholders should want to squeeze a bit more out of Advent or – better still – entice a rival bid. But, with several years’ of growth already priced in, they should enjoy the fun of the takeover and be philosophical – happy, even – with what they eventually get. (Source: Investors Chronicle)

31 Jul 19. GE lifts forecast but warns Boeing grounding may cost $1.4bn. General Electric Co (GE.N) raised its 2019 forecast on Wednesday, but disclosed more than $1bn in potential costs from Boeing’s grounded 737 MAX jetliner, puncturing an early share rally. Boston-based GE, which makes 737 MAX engines in a joint venture, also said Chief Financial Officer Jamie Miller, who was appointed in October 2017, plans to step down after a successor is hired. The company which also makes power plants and medical devices did not specify a time frame.

GE appeared to cheer investors by saying it might generate as much as $1bn in free cash flow this year, compared with a potential outflow of $2bn that it forecast in May. GE also raised its profit outlook by 5 cents a share.

“There should be some relief from the raised EPS and free cash flow” forecast, Barclays analyst Julian Mitchell said.

But GE’s portfolio of low-margin industrial businesses remains a concern. GE posted red ink again after two profitable quarters, due mainly to a $744m goodwill charge for its power grid business. GE spent less on restructuring than analysts expected, which underpinned its performance.

GE also received a tax benefit worth 6 cents a share that more than accounted for its increased profit forecast.

“The EPS increase of 5 cents … is less than this quarter’s 6-cent tax benefit,” Gordon Haskett analyst John Inch said in a note. The cash flow increase “appears to be heavily driven by … reduced cash restructuring drag,” he added.

After surging 4% in premarket trading, GE shares fell less than 1% to $10.45. GE’s industrial businesses suffered another tough three months, with margins falling by as much as 8 percentage points at renewable energy. But they generated more cash than expected, in part because it has become more aggressive in billing customers, collecting payments and reducing inventory, Chief Executive Larry Culp said on a conference call.

GE’s power business, which has long been a drag on earnings, posted a $117m profit. But its relatively strong aviation business suffered as problems stretched on with Boeing’s 737 MAX jetliner, which regulators grounded in March.

CFM International, a joint venture between GE and France’s Safran SA (SAF.PA), supplies engines for the 737 MAX.

The MAX could cost GE $1.4bn in cash if the plane remains grounded all year, as now appears possible, GE said.

“That was not in the previous guidance,” said RBC Capital Markets analyst Deane Dray, who added that investors reacted by selling GE after the conference call.

But airlines will fly older planes in place of the MAX and those use more spare parts, a lucrative product line for GE, Dray said. “We have to believe GE has ample contingency in their free cash flow outlook to have taken a bold, unexpected step to increase guidance,” Dray said. “No one was expecting them to.”

Investors have watched GE’s cash generation as it has failed to keep pace with earnings in recent years, raising concerns that GE’s actual financial performance was falling short of stated results. But in May Culp said he would focus on generating cash and let earnings be “almost like a byproduct,” Dray said.

GE said it now expects higher industrial revenue growth and bumped up earnings per share by 5 cents to between 55 cents and 65 cents. It shifted its forecast for industrial free cash flow to between negative $1 bn and positive $1 bn, from $0 to negative $2 bn.

Loss per share from continuing operations was 3 cents, down from a profit of 8 cents a year ago. On an adjusted basis, GE earned 17 cents per share, including the tax gain, compared with analysts estimates of 12 cents, on average, according to IBES data from Refinitiv. Revenue fell 1.1% to $28.8bn. (Source: Reuters)

01 Aug 19. Mercury Systems To Acquire Display Manufacturer American Panel Corporation. Mercury Systems [MRCY] on Tuesday said it has agreed to acquire American Panel Corporation (APC) for $100 m in cash, adding the development and manufacture of military and commercial aerospace display systems to its C4I business. Mercury said the deal is expected to close in the current quarter. Georgia-based APC had $36m in sales for the one-year period that ended in June. APC makes tactical displays for military aircraft, land systems, maritime systems and commercial aerospace. The company’s products are installed on F-35, F-15, F-16 and F/A-18 fighter jets, the Army’s AH-64 Apache attack helicopter, M1A2 Abrams battle tank, Stryker

wheeled vehicle and Bradley Fighting Vehicle. Mercury announced the pending purchase of APC in conjunction with the release of its fourth quarter fiscal 2019 financial results. The company said its focus on acquisitions is to build “capabilities and scale in the C4I market.”

Mark Aslett, Mercury’s president and CEO, said on the company’s earnings call that the APC “will add a scalable display platform to our C4I business.” He said that APC will complement previous acquisitions that were focused on avionics processing.

“Acquiring APC adds unique capabilities to our growing avionics platform and positions us to play a larger role in military digital convergence,” Aslett said. He also said the acquisition will allow the company to “compete for large avionics opportunities.”

Mercury reported fourth quarter sales of $177m, up 16 percent from a year ago, driven mainly by acquisitions. Organic growth was 3 percent. Net income increased 27 percent to $12.8m, 25 cents earnings per share (EPS).

For its fiscal year 2019, sales increased 33 percent to $654.7m. Organic revenue rose 12

percent. Net income increased 14 percent to $46.8m (96 cents EPS). (Source: Defense Daily)

BATTLESPACE Comment: The Editor has worked with American Panel for two years developing new opportunities for the company. This is a smart move by Mercury as it comes at a time when new long-range targeting systems and thermal cores require better definition 10 Bit displays, as supplied by American Panel, to give better target definition. American Panel has a long standing 25 year R&D agreement with LG in Korea. In addition to the military business American Panel supplies civil displays to a number of key advertising companies such as JC Decaux and Tesco. It recently won the contract to supply all the display for TFL on Oxford Street, London.

01 Aug 19. L3Harris Posts Lower Earnings, Higher Sales In Second Quarter; Introduces Guidance. Reporting for the first time since the close of Harris Corp.’s acquisition of L3 Technologies in late June, L3Harris Technologies [LHX] on Wednesday posted unaudited second quarter financial results with net income down due to merger and integration costs and sales up. Unaudited net income fell 19 percent to $482m, $2.12 earnings per share (EPS), from $592m ($1.75 EPS), due to merger and integration costs associated with the Harris deal for L3. Excluding these costs, adjusted operating income rose 16 percent to $723m and adjusted per share earnings were $2.42, 14 cents EPS above consensus estimates. Operating margin rose 140 basis points to 16.3 percent. L3Harris attributed the higher operating income to higher sales and improved program performance and efficiencies.

The results are unaudited as the deal between Harris and L3 closed on June 29 after the last business day in the second quarter.

Sales increased 7 percent to $4.4bn from $4.2bn on growth across the company’s four segments. Growth drivers included electro-optical airborne imaging systems, intelligence, surveillance and reconnaissance aircraft missionization, avionics and electronic warfare systems on legacy aircraft, classified space, Defense Department tactical radios and public safety radios, fuzing and ordnance systems, airport security equipment, and programs for the Federal Aviation Administration.

Orders were $4.3bn, down 6 percent from a year ago and combined free cash flow was $487m. The company also introduced guidance for 2019, with sales expected to be between $18bn and $18.1bn, up between 9.5 and 10.5 percent from 2018. Earnings per share are expected to between $6.35 and $6.45.

Excluding merger and integration costs, adjusted earnings in 2019 are expected to be between $9.60 and $9.70 versus $8 in 2018. The increases this year will come from higher sales, program efficiencies, cost savings synergies, and intangibles and pension from L3, partially offset by higher taxes. Adjusted free cash flow is expected to be between $2.3bn and $2.4bn in 2019. L3Harris also reported standalone results for Harris’ fourth quarter and L3’s second quarter. Harris posted a 12 percent increase in sales to $1.9 bn and 26 percent increase in net income to $268m.

L3’s sales were up 2 percent to $2.6bn while operating income fell 8 percent to $294m due to merger and acquisition costs. L3’s earnings a year ago also benefited from the sale of the Crestview Aerospace and TCS businesses.

William Brown, chairman and CEO of L3Harris, said on the company’s earnings call that he is “encouraged” by the recently negotiated two-year budget deal between congressional leaders and the Trump administration that will raise budget caps on federal spending. He believes the House and Senate will increase funding for national security and expects “growth momentum to continue in the medium term.”

Brown was asked by analysts about potential divestitures and responded that the company is in the early stages of reviewing the portfolio. There is “no predetermined target,” he said, adding that the management team will focus on strategic businesses that “are technology driven, have great returns and we can win.” Brown said that he and Chris Kubasik, vice chairman, president and chief operating officer, will meet with the company’s board in two weeks to discuss potential divestitures. (Source: Defense Daily)

31 Jul 19. MOGAS Acquires Brenco Group, Trusted Australian Provider of Surface Coating and Engineering Processes and Aerospace Technologies. MOGAS Industries, Inc. of Houston, Texas, announced that it has completed the acquisition of Brenco Group, an Australian provider of industrial surface coating and engineering processes and aerospace technologies. The purchase will extend MOGAS’ capabilities in surface technologies, while strengthening investment in the Australasian markets to serve the needs of customers in the region. Brenco Group will now be referred to as Brenco, a division of MOGAS.

“This acquisition allows MOGAS to bring the next generation of patented laser cladding technology in-house. It also allows MOGAS to expand its advanced coating, welding, cladding and material testing technologies to serve a range of customers in the region, especially those in autoclave, mining, minerals processing, oil & gas and aerospace industries,” said Matt Mogas, President and CEO at MOGAS Industries.

“The sale of the company to MOGAS Industries is a natural fit due to Brenco’s long standing relationship with MOGAS. The two companies share a common vision, and with MOGAS’ strong marketing, engineering and financial capabilities, Brenco will be better positioned for growth,” said Quyen Tran, Director at Brenco. (Source: BUSINESS WIRE)

31 Jul 19. KBR Announces Second Quarter 2019 Financial Results.

– Strong Growth | 12% revenue growth underpinned by industry leading organic growth in GS and TS

– Predictable Performance | EPS of $0.34, Adjusted EPS of $0.41 and Adjusted EBITDA of $117m

– Cash Focus | Year to date operating cash flow of $81m; 92% net income conversion; reducing leverage

– Positive Outlook | Quality earnings continue to build in backlog; 1.5x consolidated book-to-bill

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 second quarter 2019 financial results.

“I am pleased to report another strong quarter of earnings, bookings and cash generation,” said Stuart Bradie, KBR President and CEO, as the company announced consolidated quarterly results.  KBR’s 12% top line growth was led by Government Solutions that achieved its sixth consecutive quarter of double digit organic revenue growth and Technology Solutions that delivered 29%  organic growth. Consolidated book-to-bill, excluding the work-off of our long-term privately financed initiatives, was strengthened by a robust 2.2x registered by Energy Solutions comprised predominantly of cost reimbursable services.  “Combined with the stability of earnings afforded by our long-term contracts, our bookings momentum provides line of sight to KBR’s growth into the future,” Bradie said. “Our people continue to demonstrate unwavering commitment to delivering mission critical, top quality service across the globe that underpins the profitable, cash generative results we present today.  I wish to thank each member of our team for their contributions in achieving ten straight quarters of meeting or exceeding expectations,” said Bradie.

Summary Results for the Quarter Ended June 30, 2019

• Overall revenue growth of 12% attributable to the following:
• 19% growth in Government Solutions, 16% organic, underpinned by on-contract growth and new work awarded under our portfolio of well-positioned contracting vehicles; on-contract growth across our logistics business; continued disaster recovery work for the U.S. Air Force at Tyndall Air Force Base; expansion of systems engineering, test and evaluation, modernization, systems integration and program management services in our US engineering business; and growth from SGT, acquired in late April 2018;
• 29% organic revenue growth in Technology Solutions attributable to strong execution across our chemical, petrochemical, refining and ammonia projects and expanded proprietary equipment sales
• Equity earnings favorably impacted by an EPC project close-out and continued strong performance by Brown & Root Industrial Services in our Energy Solutions business;
• SG&A increased related to launch of our new brand and website and some continued ERP implementation expenses; and
• Interest expense and income taxes are in line with expectations.

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 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 $31m and $67m from “Cost of revenues” to “Selling, general and administrative expenses” for the three and six months ended June 30, 2018. There was no impact on consolidated or segment operating income or net income as previously reported.

Liquidity and Capital Structure

• Year-to-date operating cash flow of $81m, or 92% net income conversion;
• Gross and net debt leverage of 2.9x and 1.5x, respectively; continued gross debt de-leveraging attributable to pay down of debt in the quarter of $47m, including $32m of elective payments, and growing EBITDA; and
• Previously disclosed Ichthys funding expectations remain unchanged.

31 Jul 19. Leidos Posts Strong Sales But Income Dips On Higher Taxes. Leidos [LDOS] on Tuesday posted solid second quarter financial results driven by strong revenue growth and orders although net income was down due to higher taxes. Based on the results, Leidos increased its sales and earnings guidance for 2019 and believes the outlook remains bright into the coming years. The outline of a two-year budget deal between Congress and the Trump administration that increases defense and non-defense spending the next two years and “allows for stable, predictable” budgets to create “a supportive foundation for the continued growth of our

business,” Roger Krone, chairman and CEO of Leidos, said on the company’s earnings call. Even though the budget deal proposes a relatively flat budget in fiscal year 2021 versus 2020 when factoring in for inflation, Krone said that overall the expected budgets are positive and given that appropriations can take 18 to 24 months before actually being spent, the funding flow looks good in the out years. He also said that within the expected defense and federal civilian accounts of various agencies “we’re seeing a lot of favorable movement for us; modernization, digital transformation, move to the cloud, back office efficiencies, consolidation across federal government writ large.”

Krone expects Congress to finish work on most of the government’s spending bills, with the possible exception of the Department of Homeland Security, before the start of the federal fiscal year in October.

Net income in the quarter dipped 6 percent to $136m, 93 cents earnings per share (EPS), from $144m (94 cents EPS) a year ago. Adjusted earnings, which exclude various nonoperating costs such as integration and restructuring costs, gains and losses from business sales and other tax adjustments, were $1.16 EPS versus $1.12 a year ago and a nickel above consensus estimates. Operating margin dipped 20 basis points to 7.7 percent.

Sales increased 8 percent to $2.7bn from $2.5bn, with growth across the company’s three business segments. Excluding revenue from a year ago from Leidos’ former commercial cyber security business, which was sold during the first quarter of 2019, organic growth was 9 percent. Leidos said the growth was driven by new awards and increased volume on existing contracts. The company booked $3bn in orders during the quarter, driving total backlog to a record $21.7bn, up 4 percent from the end of last year. Funded backlog at the end of the quarter was $6.3bn, down $111m from the end of last year. With a strong first half of the year combined with a rosy outlook ahead, Leidos lifted and narrowed its sales guidance to between $10.7bn and nearly $11bn versus prior expectations of between $10.5bn and $10.9bn. The company now expects adjusted earnings to be between $4.50 EPS and $4.75 EPS versus the prior outlook of between $4.30 EPS and $4.65 EPS.

On Monday, Leidos announced a two cent, or 6 percent increase, in its quarterly dividend to 34 cents per share, the first dividend hike in the company’s history. Krone said the added pay to shareholders demonstrates the company’s “confidence in our long-term performance.”

The company’s pipeline of potential opportunities is $30bn based on bids awaiting decisions and Krone said Leidos is focusing its business capture efforts on bigger opportunities. The company is pursuing the architecture and network portion of the Navy’s Next Generation Enterprise Network with an award expected in 2020, which is later than the original plan for

this fall, he said.

Krone also said the company expects awards in the next month or two on two contracts for which Leidos is the incumbent, one for the Department of Energy’s Hanford site and the other for the Defense Information Systems Agency’s Global Solutions Management Operations

(GSM-O). Jefferies aerospace and defense analyst Sheila Kahyaoglu estimates the annual sales to Leidos from Hanford at $360m and more than $550m for GSM-O. (Source: Defense Daily)

31 Jul 19. Airbus earnings fly higher on strong commercial aircraft deliveries. Profits more than double in first six months of 2019. Airbus saw earnings more than double in the first six months of the year as a rise in commercial aircraft deliveries helped underpin a strong set of results. The European aerospace and defence group stuck to its guidance for the full year but warned that the second half of the year remained challenging in terms of deliveries as well as free cash flow. Airbus reported adjusted earnings before interest and tax, which strip out material charges, of €2.5bn, up from €1.16bn the year before. The ramp-up in the A320 production, as well as progress on the financial performance of the A350 helped drive earnings, the company said on Wednesday. Revenues for the period to the end of June surged to €30.9bn, up from €25bn, again mainly reflecting higher commercial aircraft deliveries and favourable exchange rate.

The company said it delivered a total of 389 aircraft, including 294 from the successful A320 family. Its re-engined A320neo represented 234 of the 294 deliveries. Gross commercial orders were 213 but net orders in the period were down substantially, from 206 in the first half last year to 88 this year. Reported earnings for the first six months were €2bn, up from €1.1bn last year, but were affected by adjustments of €436m, including a charge of €208m related to the prolonged suspension of defence export licences to Saudi Arabia by the German government. Earnings per share were €1.54, up from €0.64 the year before. The company suffered a rise in free cash outflow to negative €4.1bn — from negative €3.79bn the year before due to the build-up of working capital supporting deliveries in the second half of 2019. Guillaume Faury, chief executive of Airbus, said the company’s operational focus remains on the ramp-up of the A320 family. “The second half of the year in terms of deliveries and in particular free cash flow continues to be challenging,” he said. (Source: FT.com)

31 Jul 19. Airbus reports Half-Year (H1) 2019 results.

• Commercial aircraft environment robust
• H1 financials mainly reflect A320 Family ramp-up and NEO transition
• Revenues €30.9bn; EBIT Adjusted €2.5bn
• EBIT (reported) €2.1bn; EPS (reported) €1.54
• 2019 guidance maintained

Airbus SE (stock exchange symbol: AIR) reported Half-Year (H1) 2019 consolidated financial results(1) and maintained its guidance for the full-year.

“The half-year financial performance mainly reflects the ramp-up in production of A320 Family aircraft and transition to the more efficient NEO version, as well as further progress on the A350 financial performance,” said Airbus Chief Executive Officer Guillaume Faury. “We continue to see good demand for our competitive product portfolio, including the new A321XLR, as shown by the strong market endorsement at June’s Le Bourget airshow. Our operational focus is mainly on the A320neo Family ramp-up. The second half of the year in terms of deliveries and in particular free cash flow continues to be challenging. In defence and space, we signed the important contract amendment for the A400M programme.”

Gross commercial aircraft orders totalled 213 (H1 2018: 261 aircraft) with net orders of 88 aircraft (H1 2018: 206 aircraft). The order book stood at 7,276 commercial aircraft as of 30 June 2019. Net helicopter orders of 123 units (H1 2018: 143 units) included 23 NH90s for Spain and 11 H145s in the second quarter. Airbus Defence and Space’s order intake by value totalled € 4.2bn, with second quarter bookings including the A400M Global Support Step 2 contract with OCCAR and next generation geostationary Ka-band communications satellites.

Consolidated revenues increased to €30.9bn (H1 2018: €25.0bn), mainly reflecting higher commercial aircraft deliveries and favourable foreign exchange. At Airbus, a total of 389 commercial aircraft were delivered (H1 2018: 303 aircraft), comprising 21 A220s, 294 A320 Family, 17 A330s, 53 A350s and 4 A380s. Airbus Helicopters delivered 143 units (H1 2018: 141 units) with stable revenues driven by programme phasing compensated by growth in services. Higher revenues at Airbus Defence and Space were supported by Military Aircraft activities.

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 – more than doubled to €2,529m (H1 2018: €1,162m), driven by commercial aircraft activities at Airbus.

Airbus’ EBIT Adjusted increased to €2,338m (H1 2018: €867m), mainly reflecting the A320 ramp-up and NEO premium, further progress on the A350 financial performance and an improvement in foreign exchange rates in the second quarter.

On the A320 programme, NEO aircraft represented 234 out of the total 294 deliveries. The ramp-up in production of the Airbus Cabin Flex (ACF) version of the A321 remains challenging. Given the recent commercial success of the A321 ACF and XLR as demonstrated at Le Bourget, Airbus is studying different options to increase the share of the A321 in current A320 Family production capacity. On the A330 programme, the focus is on the ramp-up of the NEO version to secure deliveries in the second half of 2019. A330neo deliveries totalled 13 in the half-year. Good progress was made on A350 recurring cost convergence and the programme is on track to reach the breakeven target for the year. Meanwhile, progress was made in preparing the winding down of the A380 programme and securing in-service support for the next decades.

Airbus Helicopters’ EBIT Adjusted totalled €125m (H1 2018: €135m), reflecting a less favourable delivery mix partially compensated by an increased contribution from services.

EBIT Adjusted at Airbus Defence and Space totalled €233m (H1 2018: €309m), mainly reflecting efforts to support ongoing campaigns.

Seven A400M military transport aircraft were delivered in the half-year, bringing the in-service fleet to 81 as of 30 June. The A400M contract amendment was signed with OCCAR during the second quarter, concluding the discussions on the programme’s Global Rebaselining. With this contract amendment, an agreement has been reached on a new capabilities development plan, a new production delivery schedule, a new retrofit delivery schedule and new financial terms. The anticipated impact of the Global Rebaselining was reflected in the 2018 results. Consolidated self-financed R&D expenses totalled €1,423m (H1 2018: €1,403m).

Consolidated EBIT (reported) amounted to €2,093m (H1 2018: €1,120m), including Adjustments totalling a net €-436m. These Adjustments mainly comprised:

• A negative €-208m related to the prolonged suspension of defence export licences to Saudi Arabia by the German government, of which €-18 m were booked in Q2 2019;
• A negative €-136m related to A380 programme cost, of which €-75m was booked in Q2 2019, as part of Airbus’ continuous assessment of assets recoverability and the quarterly review of onerous contract provision assumptions;
• A total of €-90m of other costs, including compliance.

Consolidated reported earnings per share of €1.54 (H1 2018: €0.64) included a negative impact from the financial result, mainly driven by losses on foreign exchange hedges recognised in the context of the prolonged suspension of defence export licences. The financial result was   €-215m (H1 2018: €-303m). The effective tax rate included the impact from charges related to the prolonged suspension of defence export licences, as well as the reassessment of tax assets and liabilities. Consolidated net income(2) was €1,197m (H1 2018: €496m).

Consolidated free cash flow before M&A and customer financing of €-3,981m (H1 2018: €-3,968m) mainly reflected the working capital build supporting deliveries in the second half of 2019. Consolidated free cash flow was €-4,116m (H1 2018: €-3,797m).

The consolidated net cash position was €6.6bn on 30 June 2019 (year-end 2018: €13.3bn) after the 2018 dividend payment of €1.3bn in the second quarter. The gross cash position on 30 June was €17.8bn (year-end 2018: €22.2bn).

Following a review of demographic and underlying assumptions, the pension provision increased in the second quarter. This reflected the global decrease in the discount rate as well as the change in management’s estimates for the valuation of employee benefits in Germany.

In response to developments in the WTO dispute, the United States Trade Representative (USTR) in April published a list of EU products upon which the USTR intends to apply tariffs, which included new aircraft and helicopters as well as major components for aircraft manufacturing in the US. If the USTR decides to impose tariffs on Airbus products and other products from the EU, this could significantly affect the delivery of new Airbus aircraft and helicopters to the US market and have a negative effect on Airbus’ financial condition and results of operations. The potential decision of the EU to impose tariffs on US products could come at a later stage. Airbus continues to support an outcome through a negotiated solution(3).

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 Jul 19. Aerospace trade body CEO calls on the Government to intervene in the £4bn takeover of defence contractor Cobham. The chief executive of an aerospace trade body has called on the Government to intervene in the £4bn takeover of Cobham.

ADS Group boss Paul Everitt urged ministers to secure ‘appropriate commitments’ from the buyer of the Devon-based defence contractor, which is a leading supplier of air-to-air refuelling technology and satellite hardware.

Under plans revealed last week, Cobham is set to be taken private by US-based private equity group Advent International if enough shareholders support a deal. (Source: Google/https://www.thisismoney.co.uk)

31 Jul 19. BAE Systems Half Year Results Financial highlights. Financial performance measures as defined by the Group

– Order backlog of £47.4bn has reduced marginally over the first half of the year with trading on multi-year, long-term contracts in Air partly offset by further growth in the US businesses.

– Sales increased by 4% on a constant currency basis to £9.4bn.

– Underlying EBITA of £999m increased by 9% on a constant currency basis and excluding the estimated impact of IFRS 16.

– Underlying earnings per share increased by 11% to 21.9p, excluding the one-off tax benefit. The Group’s underlying effective tax rate (excluding the one-off tax benefit) for the first half of the year was 17%, consistent with the prior year.

– Operating business cash outflow of £309m.

– Net debt at £1.9bn (£904m at 31 December 2018).

Financial performance measures defined in IFRS

– Revenue increased to £8.7bn, up 4% on a constant currency basis.

– Operating profit increased to £896m, up 7% on a constant currency basis and excluding the estimated impact of IFRS 16.

– Basic EPS increased to 25.0p, up 69%, driven by the profit performance and the £161m one-off tax benefit.

Pension and dividend

– The Group’s share of the pre-tax accounting net pension deficit increased to £4.3bn (31 December 2018 £3.9bn). The funding position is currently estimated to be approximately £2.0bn lower than the accounting position.

– Interim dividend increased by 4.4% to 9.4p per share.

One-off tax benefit

A one-off tax benefit of £161m was recognised in the first half of the year, arising from agreements reached in respect of an overseas tax matter, net of a provision taken in respect of the estimated exposure arising from the EU’s decision regarding the UK’s Controlled Foreign Company regime.

Operational and strategic key points

Air

– Working closely with industry partners and the UK government to continue to fulfil contractual support arrangements in Saudi Arabia on the key European collaboration programmes.

– The Qatar Typhoon and Hawk programme has been mobilised and the contract amended to accelerate aircraft deliveries.

– The UK Tornado fleet successfully retired from service on schedule in March 2019.

– 500th F-35 aft fuselage was delivered with the business ramping up to full rate production in 2020.

– Next phase of the Tempest next-generation combat air programme was contracted.

– In Australia the mobilisation of the Hunter Class frigate programme commenced.

Maritime and Land UK

– A further £0.8bn of funding was received on the Dreadnought programme.

– The second of the five Offshore Patrol Vessels (OPV) was accepted by the customer and the third OPV is close to acceptance.

– HMS Prince of Wales aircraft carrier sea trials are expected to commence in the second half.

– BAE Systems’ Type 26 design was selected for the Canadian Surface Combatant programme.

– The UK combat vehicles joint venture between Rheinmetall and BAE Systems Land UK was formally launched on 1 July 2019.

Electronic Systems

– Continued production ramp up on F-35 electronic warfare systems and APKWS® product line.

– The business continues to experience growth in classified work.

– Establishing new facilities in Huntsville, Alabama and Manchester, New Hampshire expanding capacity as the business delivers on increased order backlog.

– Acquired Riptide Autonomous Solutions, a developer of unmanned underwater vehicles, securing a flexible platform for integrating our electronic solutions and mission capabilities.

Platforms & Services (US)

– Implementation of process and automation improvements in Combat Vehicles production.

– Armored Multi-Purpose Vehicle Low-Rate Initial Production has commenced.

– M109A7 deliveries progressing as we work towards a revised production schedule, on track to achieve production of eight vehicles per month by year end.

– The first of the Amphibious Combat Vehicles (ACVs) is undergoing acceptance testing in conjunction with the US Marine Corps ahead of the first delivery.

– Investments are ongoing to modernise facilities, manufacturing technologies and processes.

– The US Ship Repair business received orders totalling $427m (£336m) and concluded commercial shipbuilding operations.

Cyber & Intelligence

– Disposal process is underway of the Applied Intelligence ex-SilverSky business together with an exit from the loss making UK-based Managed Security Services business. A restructuring charge of £25m has been recognised in the first half of the year.

– The US-based Intelligence & Security (I&S) business continues to increase its bid pipeline, perform on existing contracts and win new orders, capturing its first Federated Secure Cloud opportunity.

Guidance for 2019

Whilst the Group is subject to geopolitical uncertainties, the following guidance is provided on current expected operational performance. We expect the Group’s underlying earnings per share (excluding the one-off tax benefit) to grow by mid-single digit compared to the full year underlying earnings per share in 2018 of 42.9p, assuming a US$1.30 to sterling exchange rate. Whilst there is no change to Group-level earnings per share guidance, the first half restructuring charge taken at Applied Intelligence, together with slightly higher HQ costs, are expected to be covered by improved operational performance and a slightly lower effective tax rate. In 2019 the Group now expects net debt to be broadly unchanged from the net debt at 31 December 2018. This is a slight improvement from the previous guidance reflecting a net timing mix on the Qatar Typhoon programme and the M109A7 programme. The Group continues to target in excess of £3bn of free cash flow over the three-year period 2019-2021, assuming a US$1.30 to sterling exchange rate.

Investors Chronicle Comment: BAE Systems’ (BA.) first half order intake fell on last year’s comparable period, although the backlog and sales were up for the period. Net debt jumped from £904m at the aerospace and defence giant’s 2018 full year to £1.89bn, although BAE expects its full year level to be broadly unchanged from the end of last year, while the group targets over £3bn in free cash flow between 2019 and 2021. A one-off tax benefit of £161m was recognised, arising from agreements reached in respect of an overseas tax matter. Sell.

31 Jul 19. Profits up but BAE Systems doubles its debt to £1.9bn. Defence giant increases revenue and bags a Brexit bonus. Defence and aerospace giant BAE Systems reported an improved set of interim results with operating profits rising from £896m for the half year to 30 June compared to £792m previously. The increased profits came on the back of revenue which rose to £8.67bn compared to £8.16 bn previously.

The group, a major employer in Glasgow, Fife and Renfrewshire, said there was an underlying EBITA of £999m increased by 9% on a constant currency basis and excluding the estimated impact of IFRS 16.

The operating results were boosted by a one-off tax benefit of £161 m, which was net of a ‘Brexit’ provision – BAE’s estimated exposure arising from the EU’s decision regarding the UK’s Controlled Foreign Company regime.

Underlying earnings per share increased by 11 per cent to 21.9p, excluding the one-off tax benefit. The group’s underlying effective tax rate (excluding the one-off tax benefit) for the first half of the year was 17 per cent, consistent with the prior year. However the group reported net debt of £1.9bn compared to a figure of £904m at 31 December 2018. The group said it expects its underlying earnings per share (excluding the one-off tax benefit) to grow by mid-single digit compared to the full year underlying earnings per share in 2018 of 42.9p, assuming a US$1.30 to sterling exchange rate.

The results include a restructuring charge of £25 m from BAE’s current disposal of the Applied Intelligence ex-SilverSky business together with an exit from the loss making UK-based Managed Security Services business.

BAE chief executive Charles Woodburn said: “The first half performance underpins our guidance for the full year with improvements being made on a number of operational fronts.

“Our priority is to deliver consistent and strong operational performance for our customers and shareholders to enable us to meet our growth expectations over the medium term.” (Source: Google/https://www.insider.co.uk)

30 Jul 19. Indian police open probe into Rolls-Royce’s dealings with three state firms. Indian federal police have opened an investigation into Rolls-Royce Holdings Plc (RR.L), alleging the UK-based engine maker and its Indian arm improperly used a third-party to conduct business with three Indian state-owned companies.

In a report published on Tuesday, India’s Central Bureau of Investigation (CBI) also said officials from the Indian companies – Hindustan Aeronautics Limited (HAL), ONGC (ONGC.NS) and GAIL (GAIL.NS) – may have been involved in improper procurement from Rolls-Royce.

Rolls-Royce provided engine spare parts to HAL for servicing gas turbines used by GAIL and ONGC, both of which are involved in the oil and gas sector, the report said.

The report said Rolls-Royce’s appointment of Ashok Patni, director at a Singapore-based firm called Aashmore Private Ltd, as a commercial adviser in dealing with the three government-owned firms violated regulations and the arrangement may have been used for paying kickbacks to officials. In an emailed statement, a Rolls-Royce spokesperson said that the police report related to the use of intermediaries by company’s erstwhile energy business in India, and that no current employee had been involved in those deals.

“We await contact from the CBI and will respond appropriately,” the spokesperson said.

Spokesmen for GAIL and ONGC did not immediately respond to questions from Reuters. Gopal Sutar, a spokesman for HAL, declined to comment.

Aashmore and Patni could not be immediately reached for comment.

Between 2007 and 2011, Rolls-Royce conducted more than 200 transactions with the three companies for the supply of materials and spare parts, for which Aashmore was paid commission of at least 550m rupees ($8m), the CBI report said. (Source: Reuters)

31 Jul 19. Tecmotiv Announces Acquisition by RedNest Partners and Admiral Capital Group. Private Investment Firms Back Tecmotiv Management in Acquisition; Firms to Bolster Capabilities of Key Private Sector Supplier of MRO Services & Components to U.S. Military and Allied Customers Worldwide. Private investment firms RedNest Partners and Admiral Capital Group announced today that they have partnered to acquire Tecmotiv Corporation (“Tecmotiv” or the “Company”). Tecmotiv is a leading provider of maintenance, repair, overhaul and upgrade (“MRO&U”) services and related components for military vehicle platforms including the M113, M109, M60, M88A1 and M88A2 with a specialty in Air-Cooled, V-Configuration, Diesel, Super-turbocharged (AVDS) powertrains. Terms of the transaction were not disclosed.

With operations in Niagara Falls, NY and Concord, Ontario, Tecmotiv has built its reputation by delivering superior quality, advanced technical know-how and timely delivery of critical components and MRO&U services to U.S. military and allied customers around the world. Tecmotiv’s world-class team will continue to be led by long-time Executive Vice President, Gary Sheedy, who will become President and CEO of the Company.

“Tecmotiv’s focus on delivering the highest quality and value to its customers aligns perfectly with our core, customer-centric investment philosophy,” said Jack Nestor of RedNest Partners. “RedNest is well-equipped to help the talented team at Tecmotiv build upon the strong platform and processes they have established over the past 27 years and continue the Company’s expansion.”

Gary Sheedy, President and CEO of Tecmotiv stated, “We’re excited to work with RedNest and Admiral to build on Tecmotiv’s strong platform with new growth opportunities while remaining laser-focused on delivering the highest quality services and components available anywhere. I personally look forward to building new strategic relationships that will complement our portfolio, enable us to expand our offering and grow our network of Teammates.”

Tecmotiv’s core capabilities center around ground fleet maintenance and preparedness. By providing high quality components and best-in-class remanufacturing services, the Company supports its customers in extending the useful lives of powertrain systems in a variety of ground vehicle platforms. Tecmotiv’s ability to up-power these systems enables customers to upgrade existing fleets at substantially lower cost than replacement.

“It’s been a great pleasure working with Tecmotiv’s wonderful team of professionals and getting to know the RedNest and Admiral folks through this process,” said Arthur Hayden, Tecmotiv’s outgoing President & CEO. “I know the Company is in great hands and I look forward to seeing its continued growth and achievement during the years to come.”

“We are excited to join such strong partners and management in acquiring a high-growth business with great mission alignment with Admiral. In Tecmotiv, we are investing in a long-time trusted supplier to the U.S. military, while also investing in an Empire State Opportunity Zone,” added Dan Bassichis, Admiral Capital’s co-founder. “Our partnership with RedNest builds on Admiral’s successful history of partnering with best-in-class operators to invest in private equity and real estate opportunities where Admiral can bring capital, expertise and a strong network to accelerate growth and we look forward to scaling up these efforts.”

Philpott Ball & Werner, LLC was the investment banking advisor to Tecmotiv Corporation. (Source: BUSINESS WIRE)

29 Jul 19. Altamira Technologies Acquired By Investor Group. The national security services company Altamira Technologies Corp. has been acquired by an investor group led by the venture capital firm ClearSky to enhance growth opportunities. Terms of the deal, which was announced on July 24, were not disclosed.

Altamira, which is based in Northern Virginia, provides data and cyber analytics, and software and other engineering capabilities to its customers, which include a number of agencies in the intelligence community, the Army and Air Force, U.S. Cyber Command and Special Operations Command, the Department of Homeland Security and more. Altamira said it has been growing at more than 20 percent the past four years.

“We are very excited by the opportunity that this new partnership will provide to continue to drive strong organic growth, invest in innovative new solutions, as well as for strategic acquisitions,” Ted Davies, CEO of Altamira, said in a statement. “We have carefully constructed

a unique platform built to scale and support core national defense and intelligence missions and are enthused that our investors share our vision for the future.”

ClearSky’s investor group includes McNally Capital and Nio Advisors.

With the investment, ClearSky Managing Director Peter Kuper and the firm’s Chairman Joseph Wright are joining Altamira’s board. Ward McNally, managing partner at McNally Capital, is also joining the board. Altamira’s financial adviser on the deal was KippsDeSanto & Co. (Source: Defense Daily)

23 Jul 19. Cohort checkmates drone. Cohort (CHRT) welcomed an above expectation £10.7m contribution from the December 2018 acquisition of Chess Technologies, which was recently revealed as having used its counter drone technologies to help end the Gatwick Airport crisis that saw around 1,000 flights disrupted by a rogue drone in the vicinity.

The £20.1m acquisition of 81.8 per cent of Chess pushed Cohort into a net debt position of £6.4m. An improvement in working capital left Cohort’s net debt in a better position than expected, however, owing to accelerated receipts and lower supplier payments caused by programme delays. Assuming no further acquisitions, the defence specialist expects net debt to rise over the first half of FY2020 before flattening over the full course of the year, followed by a return to net funds in FY2021.

There was worse news in Cohort’s EID business, as the communication technologies specialist saw revenues slump 37 per cent to £11.5m, yielding just over £1.3m in adjusted operating profit, compared with £4.3m last year. EID’s tactical division experienced slippage of deliveries on a major contract, while the naval arm encountered “various customer driven delays and slippage of orders”. But “EID already has got more on order for the year than it delivered in 2018-19,” chief executive Andy Thomis contended, who expects a return to growth for EID.

Investec forecasts pre-tax profit and EPS of £19.4m and 35.9p, respectively, for the year to April 2020, rising to £21.1m and 40.5p in FY2021.

IC View

Pre-tax profits nearly halved and missed Investec’s £16.1m forecast, while EID’s share of group revenues dropped from 17 per cent to around 9 per cent. But with EID’s revival under way, Cohort’s new acquisition contributing well and an increase in US defence spending on the horizon, we think the share price is due a bounce. Buy. Last IC View: Hold, 410p, 12 Dec 2018. (Source: Investors Chronicle)

30 Jul 19. BBA Aviation sells aircraft parts unit in $1.37bn deal. BBA Aviation Plc (BBA.L) said on Tuesday that it agreed to sell its Ontic aircraft parts and services unit to private equity firm CVC Capital Partners’ CVC Fund VII for an enterprise value of $1.37bn. The aviation services provider said that the deal, which is unanimously supported by its board, should return between $750m and $850m to shareholders. (Source: Reuters)

29 Jul 19. Cobham reports revenue increase, works to overcome “legacy issues.” Cobham has reported an 11% revenue growth in the first half of 2019, something it has attributed in part to the implementation of a number of measures aimed at resolving issues faced over former trading periods. Revenues increased year over year from GBP924.5m (USD1.14bn) to GBP1.03bn, although order intake decreased from GBP1.03bn to GBP970.2m. These reported figures are the result of actions the company has taken to resolve what it terms “legacy issues” with the way the business operated, and most recently has resulted in it receiving charges from Boeing relating to delays in its delivery of the air-to-air refuelling system for the US Air Force’s KC-46 programme. (Source: IHS Jane’s