08 Aug 19. Thales Takes Over Steyr Motors. The French Thales Group has acquired the insolvent Austrian engine manufacturer Steyr Motors. Following the takeover by a Chinese financial investor in 2012, Steyr Motors ran into liquidity problems with the Chinese managing director appointed in 2018 and had initiated re-structuring proceedings.
Steyr Motors supplies engines for numerous military vehicles. For example, the Duro value maintenance programme in Switzerland came under pressure due to delivery difficulties. In the programme, the Steyr engine was replaced by a Fiat engine. This results in additional costs of around €7m. The Thales 4×4 Hawkei, of which 1,100 have been built for the Australian armed forces since 2017, has already been equipped with a Steyr engine.
With the takeover of Steyr Motors and its 140 employees, Thales ensures the supply of engines for its vehicles. According to Thales, the order books are fully booked for the next two years. (Source: ESD Spotlight)
BATTLESPACE Comment: Steyr engines were promoted in the UK by Ricardo Plc. for a number of military programmes by and was chosen for the Foxhound vehicle. The company also offered a CVR(T) with a Steyr engine option which lost out to Cummins.
07 Aug 19. Magellan Aerospace Corporation Announces Financial Results. Magellan Aerospace Corporation (“Magellan” or the “Corporation”) released its financial results for the second quarter of 2019. All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:
A summary of Magellan’s business and significant updates
Magellan is a diversified supplier of components to the aerospace industry. Through its wholly owned subsidiaries, Magellan designs, engineers, and manufactures aeroengine and aerostructure components for aerospace markets, advanced products for defence and space markets, and complementary specialty products. The Corporation also supports the aftermarket through supply of spare parts as well as performing repair and overhaul services.
Magellan operates substantially all of its activities in one reportable segment, Aerospace, which is viewed as one segment by the chief operating decision-makers for the purpose of resource allocations, assessing performance and strategic planning. The Aerospace segment includes the design, development, manufacture, repair and overhaul, and sale of systems and components for defence and civil aviation.
On May 14, 2019, Magellan announced that it will continue producing F-35 Lightning II (“F-35”) horizontal tail assemblies under an agreement with BAE Systems. The agreement is the continuation of contract awards previously granted to Magellan by BAE Systems and with the additional quantities awarded, Magellan will now on a go forward basis produce more than double the horizontal tails from what has so far been produced for the program. Annual deliveries will ramp up to 60 per year within the three year period. Magellan, through its operations in Winnipeg, Manitoba, and BAE Systems have been working together to produce horizontal tails for the global F-35 program for more than a decade, signing the original Letter of Intent for this agreement in 2006.
For additional information, please refer to the “Management’s Discussion and Analysis” section of the Corporation’s 2018 Annual Report available on www.sedar.com.
Results of Operations
A discussion of Magellan’s operating results for second quarter ended June 30, 2019
The Corporation reported revenue in the second quarter of 2019 of $264.1m, a $22.9m improvement from the second quarter of 2018 of $241.2m. Gross profit and net income for the second quarter of 2019 were $45.1 m and $21.7m, respectively, in comparison to gross profit of $41.3m and net income of $23.5m for the second quarter of 2018.
Consolidated revenues for the three months ended June 30, 2019 were $264.1m, an increase of $22.9m from the $241.2m recorded for the same period in 2018. Revenues in Canada increased 23.8% in the second quarter of 2019 in comparison to the same period in 2018, primarily due to higher volumes in repair and overhaul services and proprietary products, and the strengthening of the United States dollar relative to the Canadian dollar when compared to the prior period. On a currency neutral basis, Canadian revenues in the second quarter of 2019 increased by 21.6% over the same period of 2018.
Revenues in United States slightly decreased 0.5% in the second quarter of 2019 compared to the second quarter of 2018 when measured in Canadian dollars mainly due to single aisle aircraft volume decreases on the Boeing 737 Max, offset in part by favourable foreign exchange impact due to the strengthening of the United States dollar against the Canadian dollar. On a currency neutral basis, revenues in the United States decreased 3.8% in the second quarter of 2019 over the same period in 2018.
European revenues increased 5.9% in the second quarter of 2019 compared to the corresponding period in 2018 primarily driven by increased production rates for single aisle and wide body aircraft, and the strengthening of the United States dollar relative to the British pound, offset partially by the unfavourable foreign exchange impact due to the weakening of the British pound against the Canadian dollar. On a constant currency basis, revenues in the second quarter of 2019 in Europe increased 3.7% when compared to the same period in 2018.
Gross profit of $45.1m for the second quarter of 2019 was $3.8m higher than the second quarter of 2018 gross profit of $41.3m, and gross profit as a percentage of revenues of 17.1% for the second quarter of 2019 was consistent with the same period in 2018. The gross profit in the current quarter was primarily driven by higher volumes in repair and overhaul services and proprietary products in Canada, and the favourable foreign exchange due to the strengthening year over year of the United States dollar against the Canadian dollar and the British pound, offset partially by lower production volumes in the United States.
Administrative and General Expenses
Administrative and general expenses increased $2.1m to $16.3m in the second quarter of 2019 compared to $14.2m in the second quarter of 2018 mainly due to costs incurred for the phased implementation of a new ERP program, and higher costs in relation to the Corporation’s India facilities. In the second quarter of 2018, a one-time gain of $0.5m was recorded related to facility rental costs. (Source: Google/https://business.financialpost.com)
08 Aug 19. DroneShield (ASX:DRO) has received funding from institutional, professional and sophisticated investors to raise A$9,550,000 via a placement on the Australian Securities Exchange (ASX).
Peter James, the Company’s Chairman, said “We are pleased to see strong investor support with demand for the placement in excess of the funds the Company sought to raise. We welcome the new investors, including several large institutions, onto our register. As the Company is now well positioned on the cusp of transformational growth, the new capital will be deployed to ensure we can secure and deliver on the new contract wins”.
Net proceeds from the Placement will be used to fund:
- bonding requirements for new contracts (where required) , as they are secured;
- further development and integration of detection and countermeasure technologies, consistent with end-user requirements;
- an increase in stock levels (detection and countermeasure products);
- an increase in manufacturing capabilities;
- expansion of the Company’s sales and marketing effort globally; and
- general working capital.
Oleg Vornik, DroneShield’s Chief Executive Officer, commented: “Following three consecutive record quarters, we are excited about the near term significant contract opportunities in front of us. The proceeds from this placement will allow DroneShield to take advantage of these opportunities through meeting the requisite bonding, scale of manufacturing, and global business development resourcing requirements”.
07 Aug 19. SCISYS Group PLC announced that at the Scheme Meeting and EGM held today Scheme Shareholders voted by the requisite majorities to approve the Scheme to implement the Offer made by CGI group Holdings Europe Limited. In addition the resolutions to approve and facilitate the Scheme, proposed at the subsequent EGM, were duly passed. Upon the Scheme becoming Effective Scheme Shareholders will receive 254.15 pence in cash for each SCISYS Ordinary Share which they hold at the Scheme Record Time. The number of Scheme Shares in issue at 7.00 p.m. on 5 August 2019 (being the Voting Record Time) was 29,690,160.
Effective Date and Timetable
Completion of the Acquisition remains subject to the satisfaction or (if capable of waiver) waiver of the remaining Conditions, including the sanction of the Scheme by the High Court as set out in Part 5 (pages 40 to 46) of the Scheme Document. The expected timetable of principal events for the implementation of the Scheme remains as set out on page 11 of the Scheme Document. Each of the dates set out in the expected timetable remains subject to change. If any of the key dates set out in the timetable change, SCISYS will give notice of this change by issuing an announcement through a Regulatory Information Service and by making such announcement available on its website at https://www.scisys.co.uk/who-we-are/investors/soa.html.
07 Aug 19. Avanti Communications slides despite successful launch of HYLAS 3. The satellite will undertake a series of planned in-orbit acceptance tests over the coming months. Shares in Avanti Communications Group plc (LON:AVN), a provider of satellite data communications services, fell back after the successful launch of a new satellite.
HYLAS 3 was launched from Kourou, French Guiana on Ariane Flight VA249 on Tuesday 6 August 2019. Shares in Avanti fell 7.9% to 1.405p on the news; imagine the share price reaction if the launch had failed. (Source: proactiveinvestors.co.uk)
07 Aug 19. Ultra short squeeze doesn’t prove return to health. Working capital has been a major bugbear at Ultra Electronics (ULE) since the new chief executive flagged it as a problem last year. The bid to optimise working capital is reflected in an increase in 12-month average working capital turn, achieved through a reduction in trade payables (the money the company owes to suppliers) combined with a slight increase in receivables (the money owed by customers). This aided cash generation but, given the underlying operating cash conversion rate stands at 25 per cent (up from 14 per cent in 2018), a little more discipline is probably required. Ultra certainly isn’t out of the woods. Inventories (another component of working capital) should be carefully watched as the order book creeps upwards, while the Brexit cloud hangs over the supply chain. Global political issues also impacted margins in the first half as sales were delayed in China. Still, Ultra investors – excluding those who were shorting the stock prior to these results – have more to celebrate than they have for some time. An increase in US defence spending boosted revenues in the aerospace and communications divisions by 13 per cent and 3 per cent, respectively. Asia Pacific tensions also had a positive impact on demand in the maritime business, with revenues up 9 per cent and the order book rising by a fifth. Analysts expect the recovery to continue, with consensus EPS forecasts of 114p and 122p in 2019 and 2020, respectively (from 105p in 2018).
Squeezing out the short sellers with a series of decent announcements sent Ultra’s share price up strongly in the first half of 2019. But we’re not inclined to jump on the bandwagon. The overhanging threat of a fraud investigation and dependence on notoriously fickle markets keeps us at sell. Last IC View: Sell, 1,420p, 7 Mar 2019. (Source: Investors Chronicle)
07 Aug 19. Parrot Pulls Plug on Airinov. The Parrot Group has decided to pull the plug out of drone service supplier Airinov, because of disappointing financial results. On its website Airinov has published a statement: ‘Airinov has launched a discussion with its shareholder, the Parrot Group, on the future of its activities. The conclusions of this reflection have been reached and it is with great sadness that we announce the closure of Airinov.’
Parrot took Airinov over
French company Airinov was founded in 2010. The ambitious start-up wanted to become the largest agricultural drone service company. It reportedly had some 12,000 clients. Drone manufacturer Parrot took over Airinov in 2014, after which development more or less grounded to a halt.
One of the problems Airinov faced was that only a limited number of growers saw a need for highly detailed drone imagery of high-yielding crops.
As a result, the company’s profit was plummeting. In 2019, Airinov accounted for € 200,000 in revenue, a mere 1% of Parrot’s total business and almost 70% less than in the first quarter of 2018, according to Dutch website Boerenbusiness. Meanwhile Parrot’s other subsidiaries, MicaSense (sensors), SenseFly (eBee drone) and Pix4D (drone software) performed much better, with MicaSense even doubling its revenue.
Drone leasing service
To turn things around, Airinov tried other strategies, such as a drone leasing service, launched at this year’s SIMA show, to make the technology ore affordable to farmers.
Unfavourable circumstances in the agricultural sector are another reason for Airinov’s decline. According to Parrot, much less rapeseed has been sown in France, so less hectares have been scanned. The weather conditions also didn’t help. The Airinov team is at farmers’ disposal for last requests or questions until the end of July. (Source: UAS VISION/Future Farming)
BATTLESPACE Comment: Expect more of the same as a number of private equity investments reaching the billions unwind in an already over supplied drone market where margins become tighter by the day.
07 Aug 19. 3M to Sell its Advanced Ballistic-Protection Business. Sale includes helmet, body armor and flat armor products. today announced that it has entered into an agreement with Avon Rubber p.l.c. to purchase 3M’s advanced ballistic-protection business for $91m, subject to closing and other adjustments. A further contingent consideration of up to $25m is payable depending on the outcome of pending tenders. Avon Rubber is a provider of advanced chemical, biological, radiological and nuclear respiratory protection systems for military, law enforcement and fire customers. 3M’s ballistic-protection business is part of its advanced materials business.
As a part of ongoing portfolio management, 3M has decided to sell this business and focus on other businesses within its Advanced Materials Division. The ballistic-protection business consists of ballistic helmets, body armor, flat armor and related helmet-attachment products serving government and law enforcement. It has annual global sales of approximately $85m.
“I would like to extend my sincere appreciation to every member of the team for their hard work and dedication to this business,” said Tim Koenig, vice president and general manager, 3M Advanced Materials Division. “Through their efforts, this business is well known as a trusted leader in the industry and we believe Avon Rubber is a very good fit to carry it forward.”
The Advanced Materials Division, a part of the Transportation & Electronics Business Group, remains focused on serving its customers with innovative, value-creating materials including fluoropolymers, ceramics, glass bubbles and other highly engineered materials and products.
The transaction, which is subject to customary closing conditions and regulatory approvals, is expected to be completed in late 2019 or early 2020. Approximately 280 3M employees, who primarily support the business, are expected to join Avon Rubber as a result of the sale. 3M expects the earnings per share impact of this divestiture to be neutral. William Blair acted as financial advisor to 3M. (Source: BUSINESS WIRE)
06 Aug 19. Rolls-Royce engine repair costs rise. Rolls-Royce’s (RR.) free cash outflow rose to £429m in the first half, significantly above the £72m it posted at its 2018 half-year results. The aerospace engineer experienced higher in-service cash costs for its embattled Trent 1000 engine programme and the “non-recurrence of an unusually high level of aftermarket deposits” in civil aerospace last year.
The group is still spending heavily to fix its Trent 1000s, which have been dogged by compressor issues. Rolls increased its in-service cost estimates by £100m across the next three years, recognising that it has failed to reduce the number of aircraft grounded by engine issues as quickly as originally anticipated. The group expects the full-year 2019 impact to now sit around £450m-£500m, before falling by £50m-£100m in 2020 and “stepping down materially thereafter”, with all fixes fully embodied into its Trent 1000 Package B/C fleets by 2022.
“We expect a significant improvement in cash in the second half as we unwind inventory… and benefit from improved trading,” chief executive Warren East said. The group’s provisions, meanwhile, fell by £242m over the half, largely due to the Trent 1000 disruption (provision taken in 2018) and contract losses, using provisions of £219m and £34m, respectively.
Rolls-Royce also recognised the cost of the aviation market’s shift from large jumbo jets to more nimble aircraft. Airbus’s decision to cease producing its flagship A380 jet in 2021 meant a reduction to a Trent 900 order agreed with airline Emirates to provide engines and aftercare. Following an exceptional charge of £186m at its full year, Rolls has added an exceptional £59m charge in the period under review, taking total A380-related exceptional costs to £245m.
On the day prior to the release of Rolls’ results, JPMorgan Cazenove forecast adjusted full-year EPS of 20.7p, rising to 30.8p in 2020.
Rolls-Royce’s shares eventually fell through the £8 threshold on its results day in spite of narrowing pre-tax losses and a 70 per cent improvement in its net cash position (excluding the impact of new accounting standards that apply to lease liabilities), with investors seemingly deterred by the group’s spiralling cash costs and revised expectations connected to its engine issues. Rolls’ average unit losses are falling and its margins are improving, but it remains a lossmaking, cash-hungry machine. Sell. Last IC View: Sell, 911p, 19 Jun 2019. (Source: Investors Chronicle)
06 Aug 19. Meggitt restructuring accelerates revenue growth. Lower-than-expected aftercare revenues from the Boeing 737 Max barely dented the top-line performance of Meggitt (MGGT) in the first half of 2019. Even though the plane – to which the company supplies seals, composites and parts of the safety system – isn’t expected to take to the skies again until December, management has upgraded revenue guidance to between 4 per cent and 6 per cent as the outlook for the rest of its civil business improves.
Boeing remains an important customer of the engineering group. Both the 787 and 737 Max jets demanded more parts in the first half, helping to send revenue in the original equipment business up 11 per cent to £260m. Aftercare markets – tapered slightly by the grounding of the 737 – were similarly strong, with revenue up 7 per cent.
Management plans to accelerate growth further through increased availability of stock. That and a build in buffer stock, partly to mitigate potential Brexit damage, sent inventories up 12 per cent to £482m. Despite this, free cash flow was boosted by a reduction in capitalised development costs and the £21m sale of land and buildings. In the second half of the year, as the move to the group’s new ‘super site’ nears completion, capital expenditure is expected to ramp up significantly.
Consensus analyst forecasts are for adjusted earnings per share of 35.8p in the year to December 2019, rising to 39.2p the following year (from 33.7p in 2018).
Meggitt’s transformation into a customer-facing business is proving beneficial for the top line. But there is a long way to go before this converts into better margins and then, more importantly, reliable cash flows. At a forward price/earnings ratio of 17 times, we’re happy to hold. Last IC View: Hold, 544p, 26 Feb 2019. (Source: Investors Chronicle)
07 Aug 19. Ontic buys Thales DVS product line. BBA Aviation subsidiary Ontic has acquired manufacturing and aftermarket rights in the UK for Thales doppler velocity sensors (DVSs).
The DVSs are used on military helicopters and aircraft for functions such as navigation, weapons targeting and sonar dropping.
“The companies have now entered a transition period where the Doppler technology and associated products transfer will take place,” Ontic announced on 7 August. “The aim is to complete the transition by early 2020.”
Financial terms of the deal were not disclosed. On completion, Ontic will introduce the DVS product line into its Cheltenham facility (Source: IHS Jane’s)
06 Aug 19. Meggitt first half revenue reaches over £1bn mark. Aerospace supplier Meggitt, which is building a £130m HQ in Coventry, saw revenue rise to over £1bn in the first half of 2019 which it attributed to “ robust growth” in both civil original equipment and defence divisions.
The company reported a 12% rise in group revenue of £1,070.9m for the first half of 2019, up from £952.2m in the same period last year.
The company posted a 31% fall in first-half profit of £73m, down from £105m owing to lower gains from asset sales, but underlying profit before tax rose to £145m from £136m.
Orders grew from 1.2bn from just over £1bn.
Free cash flow increased by 80% to £49m inclusive of the sale of land and buildings associated with the company’s move to the Ansty Park site in Coventry, which will provide a base for up to 1,000 employees and will serve as the new home for Meggitt’s international headquarters.
Tony Wood, chief executive, said: “Trading in the first half was strong, with robust growth in both civil original equipment and defence and good performance in our civil aftermarket business, despite an easing in air traffic growth and lower demand for initial provisioning spares following the grounding of the 737 MAX. As a result, we have increased our full year organic revenue growth guidance to 4 to 6% and remain on track to deliver a margin improvement of between 0 and 50 basis points in 2019.
“We continue to make good progress in the operational transformation of the Group, including our centre-led approach to purchasing, footprint rationalisation programme and driving improved operational performance at our Engine Composites product group. We have strengthened and focused our portfolio, with further investment in priority technology areas such as thermal systems, optical sensing, fire protection and braking systems and the completion of two non-core divestments.
“The acceleration in growth and our continuing confidence in the prospects for the Group underpins our interim dividend increase of 5% to 5.55p.”
The company also announced this morning that Philip Green, executive director, commercial and corporate affairs,will retire at the end of December.
Green has served on the Board for 18 years and is currently responsible for legal, commercial, trade compliance and government relations matters.
Sir Nigel Rudd, chairman, said: “The board thanks Philip for his commitment and tremendous contribution over the past 25 years working for Meggitt, and particularly during his 18 years as a board director. Philip has played a significant role in the growth and development of Meggitt through his management of legal, trade compliance, commercial and other matters over the years. We wish him all the best in his retirement.” (Source: Google/https://www.thebusinessdesk.com)
06 Aug 19. Meggitt PLC 2019 Interim results. Organic revenue growth outlook upgraded; on track to deliver margin improvement of 0 to 50 basis points in 2019 Meggitt PLC (“Meggitt” or “the Group”), a leading international engineering company specialising in high performance components and sub-systems for the aerospace, defence and selected energy markets, today announces unaudited interim results for the six months ended 30 June 2019.
- Organic revenue growth of 9% reflects strong trading performance in civil OE and defence. Reported revenues increased by 12% due to organic growth and currency, partly offset by non-core divestments.
- Full year organic revenue growth guidance increased to 4 to 6% following better than anticipated trading in H1 and strong order intake with organic book to bill of 1.13x.
- Underlying operating profit increased by 7% to £161m. Underlying operating margin reduced to 15.0% reflecting additional investment in Engine Composites and the growth in our installed base which was partly offset by the growing financial contribution from strategic initiatives.
- Statutory operating profit decreased by 26% to £91m, principally as a result of lower gains from disposal of businesses compared to the prior period.
- Free cash flow increased by 80% to £49m inclusive of the sale of land and buildings associated with our move to the Ansty Park site.
- Strong progress on key strategic initiatives: o Continued investment in differentiated technologies with good progress made in priority areas such as thermal systems, optical sensing, fire protection and braking systems;
o Factory consolidation and expansion activity ahead of plan; three sites exited since the beginning of the year with footprint reduced by 25% compared to the 2016 baseline;
o Good momentum in reducing purchased costs sustained, with 2% purchased cost decrease achieved in the first half; and o Completed two further non-core divestments to focus the portfolio, with 75% of revenue now in attractive growth markets where Meggitt has a strong competitive position.
- Interim dividend up 5% to 5.55p reflecting our continued confidence in the prospects for the Group. 1
- Organic numbers exclude the impact of acquisitions, disposals and foreign exchange. 2
- Underlying profit and EPS are used by the Board to measure the trading performance of the Group as set out in notes 4 and 9. 3
- Underlying EBITDA represents underlying operating profit adjusted to add back depreciation, amortisation and impairment losses.
Meggitt PLC 2019 Interim results 2 Tony Wood, Chief Executive, commented: “Trading in the first half was strong, with robust growth in both civil original equipment and defence and good performance in our civil aftermarket business, despite an easing in air traffic growth and lower demand for initial provisioning spares following the grounding of the 737 MAX. As a result, we have increased our full year organic revenue growth guidance to 4 to 6% and remain on track to deliver a margin improvement of between 0 and 50 basis points in 2019. “We continue to make good progress in the operational transformation of the Group, including our centreled approach to purchasing, footprint rationalisation programme and driving improved operational performance at our Engine Composites product group. We have strengthened and focused our portfolio, with further investment in priority technology areas such as thermal systems, optical sensing, fire protection and braking systems and the completion of two non-core divestments. “The acceleration in growth and our continuing confidence in the prospects for the Group underpins our interim dividend increase of 5% to 5.55p.”
06 Aug 19. Rolls-Royce operating profit up but cash drain bigger than expected. Aero-engine group takes extra charge from Airbus decision to stop superjumbo production. Rolls-Royce suffered a large drain on cash in the first half even as the aero-engine group posted a rise in underlying operating profit. The FTSE 100 group on Tuesday reported revenue for the year to end June up 7 per cent to £7.35bn. Underlying operating profit rose 32 per cent to £203m. The group said its earnings per share showed a 1.6p loss, down from 2.5p in the same period the year before. Reported statutory pre-tax losses narrowed in the first half to £791m compared with a loss of £1.2bn in the same period the year before. The aero-engine group saw a large cash outflow of £429m in the first half, down from a £72m outflow in the first half last year, due to higher in-service cash costs for its Trent 1000 engines as well as increased inventory levels in its civil aerospace and power systems businesses. Shares in the group fell as much as 1.6 per cent in early Tuesday trading in London. Warren East, chief executive, said the group expected a “significant improvement in cash in the second half as we unwind inventory built up to support customer deliveries and benefit from improved trading in both Power Systems and Civil Aerospace”. The company took a £100m charge against the Trent 1000 engine which powers Boeing’s 787 Dreamliner, to be taken over three years, and reflecting the grounding of more aircraft than expected due to repairs of turbine blades. Rolls-Royce also revealed an additional £59m charge from Airbus’ decision to stop production of its A380 superjumbo aircraft, taking its total hit from the move to £245m. But the group reiterated its 2019 guidance for underlying operating profit and free cash flow of £700m, plus or minus £100m. Mr East said: “We delivered further progress across the group in the first half in line with our full-year expectations.” He added: “We have made good progress on resolving the Trent 1000 compressor issue, though, regretfully, customer disruption remains. “Progress on our restructuring programme is in line with the plan we outlined a year ago,” he said. (Source: FT.com)
Investors Chronicle Comment: Rolls-Royce (RR.) recognised exceptional charges of £59m for its Trent 900 engine programme in its interims, following Airbus’s decision to close its A380 production, taking total exceptional costs to £245m. The aerospace engineer, meanwhile, continues to invest in resolving its issues with its stricken Trent 1000 programme – the pace of decline has been “slightly below our original plans” and “in-service cost estimates increased by a total of £100m across the next three years”. Sell. (Source: Investors Chronicle)
06 Aug 19. BBA Aviation to focus on Signature business. BBA Aviation (BBA) could soon operate its airport services business Signature on a standalone basis. In July BBA announced the sale of its Ontic business, which provides parts for legacy aerospace platforms, to private equity fund CVC Fund III for an enterprise value of $1.37bn (£1.13bn), or 11.4 times underlying cash profits for 2018. Ontic’s performance was “ahead of expectations” with underlying operating profit growth of nearly a third to $31.7m. The engine repair and overhaul (ERO) business has been classified as discontinued operations, though it increased its underlying operating profit by 40 per cent to $18.8m.
Group free cash flow improved 12.8 per cent to $129m, while leverage remained stable at 2.8 times net debt to cash profits and within the target range of 2.5 to three times. Management is planning to return between $750m and $850m to shareholders once the sale of Ontic to CVC completes in the fourth quarter of 2019, while the remainder of the proceeds will be used to keep debt towards the lower end of the target range. Hold. Last IC View: Hold, 241p, 5 Mar 2019. (Source: Investors Chronicle)
05 Aug 19. Senior battles Boeing disruption. Senior’s (SNR) aerospace operating margins were hampered by Boeing’s decision to lower its production of its stricken 737 Max jet, which is currently grounded after two crashes that killed 346 people. The engineering group also flagged uncertainty surrounding the Boeing 777x jet, which has been delayed by engine problems. In April, Boeing reduced its monthly production of Max planes from 52 to 42, having previously anticipated ramping up to 57 jets. The decision prompted Senior, which makes airframe and engine components for the Max, to warn of the resulting risk to margins that month. At its half-year results, aerospace adjusted operating margins fell 150 basis points from last year to 9 per cent.
At its July second-quarter results, Boeing maintained its late 2020 target for its first delivery of the 777X, but flagged “significant risk to this schedule given engine challenges”, which are delaying the jet’s first flight until early 2020. Senior makes a host of components for the Boeing 777 and the 777x, and chief executive David Squires said that the delay would likely leave the group “making the existing 777 parts for a bit longer, before we switch across to the 777x”.
Bloomberg consensus forecasts predicted full-year 2019 earnings per share of 15.4p, rising to 16.9p in 2020.
The 737 Max debacle and new product launches drove Senior’s working capital up by 8 per cent to £169.3m, but the company managed to keep this down to 14.9 per cent of sales, beneath its target of 15 per cent. Management reiterated its full-year outlook in spite of aerospace challenges and its flexonics division’s vulnerabilities to the US-China trade dispute and forecasts of low production growth in North American heavy-duty diesel trucks. There was a muted market reaction to the external challenges facing the business, while growth in other parts of Senior’s civil and military aerospace activities leave us confident that the Boeing factor is priced in. Hold. Last IC View: Hold, 229.6p, 25 Apr 2019. (Source: Investors Chronicle)
05 Aug 19. Textron Inc. (NYSE: TXT) today announced that it is reviewing strategic alternatives for its Kautex business unit, which produces fuel systems and other functional components. Textron plans to consider a range of options, including a sale, tax-free spin-off or other transaction. Kautex operates over 30 plants in 14 countries and generated over $2.3bn in revenue in 2018.
Kautex, headquartered in Bonn, Germany, is a leading developer and manufacturer of blow-molded plastic fuel systems and advanced fuel systems for cars and light trucks, including pressurized fuel tanks for hybrid applications. The unit also develops and manufactures camera/sensor cleaning solutions for automobiles, selective catalytic reduction systems used to reduce emissions from diesel engines as well as produces cast iron engine camshafts, crankshafts and other engine components.
“Kautex is a leading Tier One supplier to global OEMs. It has a long history of product innovation, world-class operations and strong financial performance,” said Scott C. Donnelly, Textron Chairman and Chief Executive Officer. “We are exploring strategic alternatives to see how we can position Kautex to best serve its customers for ongoing success while simultaneously unlocking potential value for our shareholders.”
No decision has been made and there can be no assurance that the process will result in any transaction being announced or completed in the future. The Company has not set a definitive timetable for completion of its review of strategic alternatives and does not intend to make any further announcements related to its review unless and until its Board of Directors has approved a specific transaction or the Company otherwise determines that further disclosure is appropriate. Textron has retained Goldman Sachs & Co. LLC as financial advisor to assist in its review.
05 Aug 19. Milkor launches Integrated Systems division. As it continues to grow and expand its capability offerings, Milkor has launched a new division, Milkor Integrated Systems. The new division’s product system and solution areas cover communications, controls, autonomy and navigation, platform integration and integrated mission systems.
“This is a critical investment by Milkor Integrated Systems as the need to integrate communications, vehicle automation, control and navigation products with new and improving technologies in platforms, propulsion, energy management, weapons and payload systems continues unceasingly,” the company said.
“Also, there is a growing adaptation market where there are needs to optimise and scale systems to meet deployment constraints. A prime example of this is an integrated communications signals acquisition, analysis and monitoring system that Milkor Integrated Systems scales and optimises for specific tactical deployments.”
CEO of Milkor Integrated Systems Ghaazim Rylands said that it is important to be the master of subsystem layers, especially communications, controls, automation and navigation, as this allows subsystems to be optimised, upgraded and modified with internal capability and an engendered self-reliance. He added that Milkor Integrated Systems is open to working with integrators and international partners who have identified the strategic value in doing the same.
Rylands said communications, controls and navigation will be core focus areas of Milkor Integrated Systems. In the past, defence research has driven advances in communications, but now commercial research is developing the sector. An example of this is the evolution of 5G communications. “Defence and security forces need a bridge between commercial capabilities so they can get better features and products.”
Milkor Integrated Systems believes it will be a supplier of choice to countries that require solutions from independent self-reliant suppliers, especially countries with emerging industries that struggle to access technology, products and solutions. “We believe we can service those requirements,” Rylands said, adding that Milkor works within the prescripts of the South African National Conventional Arms Control Committee.
Although Milkor Integrated Systems is just launching, it already has interested partners and clients that are waiting for it to come online to meet their specific requirements, Ghaazim said, with “good discussions” locally and internationally.
“To begin with, Milkor will be a centre of excellence for controls and communications, to claim the unmanned platform space. Several exciting development projects have already started with the establishment of certain key technology capability areas,” he said.
The senior team at Milkor Integrated Systems collectively represent more than 100 years of experience in the industry, having worked on radar, aircraft, UAVs, naval platforms and data management systems.
Milkor has been growing rapidly, moving from solely producing grenade launchers to developing unmanned aerial vehicles, armoured vehicles, cyber security capabilities, patrol boats and small arms. Rylands said the establishment of Milkor Integrated Systems shows that Milkor is committed to growing the defence industry through an entrepreneurial approach and that the company is committed to the defence, aerospace and security sectors. “Milkor is not dabbling,” he said. (Source: Google/https://www.defenceweb.co.za)
05 Aug 19. Queensland defence and commercial aviation engineering and maintenance company TAE Aerospace has made its third foray into the US market with the purchase of Ag Air Turbines. The acquisition of the Idaho-based maintenance, overhaul and repair (MRO) company follows recent deals to buy Arizona-based Copper State Turbine Engine Company and Missouri-based Propulsion Controls Company earlier in 2019. TAE Aerospace chief executive, Andrew Sanderson said combining the strengths of the US businesses with the company’s experience with the Honeywell TPE331 (turboprop) engine in the Asia Pacific region put the company in the best position globally to look after those engines for operators.
Further, Sanderson said the three US companies were reputed for their maintenance, repair and overhaul (MRO) work on the engine and its associated fuel controls and components.
“We are now recognised by Honeywell as the world’s largest authorised TPE331 provider and we are also the only licensed repair facility in the world for both the Woodward and Honeywell fuel controls fitted to this engine,” Sanderson said in a statement on August 1.
Between the US and Australian facilities, Sanderson said TAE Aerospace could now service engine models of the TPE331 as well as repair engine part pieces and assemblies, fuel controls and LRU (line replacement units) components.
“Accessing all these capabilities from one place is a big advantage for operators around the world who rely on fast turnaround to get back to business and keep flying,” Sanderson said.
As a result of its US expansion, TAE Aerospace also announced it has established separate divisions to run its Asia-Pacific and US operations under the TAE Aerospace brand.
The company said Paul Morris would run its APAC division, while Larry Lowry would be in charge of the US division. Sanderson would continue to to lead the global TAE Aerospace group.
Lowry said said the acquisition of Ag Air Turbines brought valuable market knowledge to its US business, noting that TAE serviced 90 per cent of the Australian agricultural operators with TPE331 engines.
“Ag Air Tubines’ existing customers will also benefit from the wider range of services we can provide, including PT6 engine and component MRO,” Lowry said.
The former owner of Ag Air Turbines Katie Bane will lead the new US ag division of TAE Aerospace, along with her husband Garrett Bane and her father Bruce Hubler. She said the sale to TAE gave the business the capacity to offer more support to customers.
TAE Aerospace employed about 350 staff across across its US and Australian sites. The latest US acquisition brings to five the number of sites it has in the US, the other two being in Anchorage, Alaska and New Braunfels in Texas. It has Australian sites in Ipswich, Brisbane, Adelaide, Williamtown and Melbourne. Air New Zealand sold the TAE business to its Australian management team in 2015. (Source: Google/https://australianaviation.com.au/)
05 Aug 19. British engineer Senior profit hit by 737 MAX groundings. British engineering firm Senior (SNR.L) posted a 16% drop in first-half profit on Monday, as margins in its aerospace unit were hit by Boeing’s (BA.N) production cuts of its best-selling 737 MAX planes following the global grounding of the jet. Senior, which makes a wide variety of components used in commercial jets and counts Boeing as one of its top customers, said pretax profit fell to 26.5m pounds in the six months ended June 30 from 31.4m pounds a year earlier.
“Notwithstanding the reported 737 MAX production rate cuts and the ongoing uncertainty around the current geopolitical and macro-economic backdrop, overall the Board expects to meet current expectations for 2019,” Chief Executive Officer David Squires said in a statement.
The company warned in April that the groundings would impact its aerospace unit’s margins for the rest of 2019. The division accounts for 71% of total revenue and supplies parts directly to Boeing as well as engine suppliers and other customers.
Senior said on Monday it had been able to mitigate some of the 737 MAX revenue impact through stronger sales from other civil and military programmes.
“The outlook for the civil aerospace market remains positive as new, more efficient, aircraft programmes continue to ramp-up in production. Nevertheless, this sector has been impacted by the grounding of the 737 MAX fleet,” Senior said.
General Electric Co (GE.N), MAX’s other major supplier that makes engines with Safran SA (SAF.PA) of France, said last week it had cut production of the LEAP-1B engines that power Boeing’s single-aisle jets to “meet the planemaker’s revised aircraft build rate”.
Senior said it expects to make progress across its aerospace division in the second half of the year, while watching developments at Boeing.
Senior also said its flexonics division’s end markets were less certain and somewhat dependent on factors such as the ongoing trade war between the United States and China. (Source: Reuters)
04 Aug 19. Cobham family blasts takeover bid by Advent International. American private equity deal ‘against the national interest.’ The founding family of defence company Cobham has urged the government to block its £4bn takeover by an American private equity firm, claiming the deal jeopardises the national interest. The board of the FTSE 250 stalwart, the country’s third-biggest independent defence manufacturer, has backed the acquisition by Advent International.
Lady (Nadine) Cobham, whose late husband Sir Michael ran the firm and was the son of founder Sir Alan Cobham, has written to defence secretary Ben Wallace and business secretary Andrea Leadsom asking them to intervene.
Dorset-based Cobham, which was founded in 1934 as an air-to-air refuelling company, has about 10,000 staff, including 1,700 in Britain. Its technology is used to refuel most of the West’s fighter jets. It also makes satellite communications and electronic warfare equipment.
Lady Cobham, 76, whose family owns 1.5% of the shares, is understood to have warned that selling to Advent could further hollow out the UK defence industry as well as put national security at risk. She also said that any assurances given by the private equity firm about preserving jobs and skills in Britain should be treated with scepticism.
Lady Cobham highlighted the decision to close a GKN aerospace factory in Birmingham after the British company’s contentious £8bn takeover last year by the listed buyout company Melrose.
Advent has said it has no plans to cut jobs, research or factories. The Ministry of Defence declined to comment.
Sir Michael ran Cobham from 1969 to 1992 after succeeding his father. Shareholders have endured a torrid time in recent years, including handing over £1bn of rescue cash in 2016 and 2017. Lady Cobham said in her letter that Advent would reap the rewards of years of investment in refuelling technology. Cobham’s board has belatedly invited rival bids after being approached by Advent in early May and opening its books to the predator. Silchester International, the biggest shareholder with almost 12%, said the takeover undervalued the company.
David Lockwood, chief executive of Cobham, admitted he had mixed feelings about the deal, but said it was in the best interests of shareholders.
He told The Sunday Times: “I believe the UK should have a strong, locally owned defence industry, but the MoD is less than 5% of [Cobham’s] business. The majority is outside the UK.
“From a personal point of view, I feel disappointed, maybe sad. But [chairman] Jamie Pike led the board through a very thorough process and there was only one logical outcome, and that’s what we are paid to do. We’ve done the right thing for shareholders.”
Shares in similar companies, including Ultra Electronics and Meggitt, surged after the takeover was revealed last week.
Rolls-Royce is set to give an update on its turnaround alongside the first-half results on Tuesday. Analysts expect a year-on-year rise in pre-tax profits from £81m to £95m. The FTSE 100 engineering giant is being revived by chief executive Warren East, who is cutting 4,600 jobs. It is expected to report a huge drain in cash during the first half, making it an uphill task to achieve its target of £700m free cashflow by the end of the year. (Source: The Sunday Times)
02 Aug 19. Capita has long way back to growth. Last year the group completed the first stage of its turnaround strategy – raising more than £1.1bn through a rights issue and disposals – and is now looking to return to growth. The group is targeting double-digit operating profit margins and at least £200m of sustainable free cash flow by 2020. The group has managed to stem its adjusted free cash outflow, which fell to £20.2m at the half-year, against £109m at June 2018. This was achieved despite a 16 per cent rise in net capital expenditure linked to improvements in IT systems and infrastructure.
The order book fell to £6.7bn from £7.1bn back in December, but post-period-end Capita won two major contracts: a £525m fire and rescue service with the Ministry of Defence and a £145m extension to its benefit assessments contract with the Department for Work and Pensions in Northern Ireland.
Broker Panmure Gordon is forecasting adjusted EPS of 12.6p for the full-year, down from 16.2p in 2018.
Capita has made material progress and its contract wins are promising, but the group’s divisional performance was mixed at best. And there is little indication that the market in public sector outsourcing has been rehabilitated in the eyes of the public, politicians and, above all, investors. We share their reservations. Sell. Last IC view: Sell, 107p, 27 June 2019. (Source: Investors Chronicle)
02 Aug 19. Veritas Capital-backed Guidehouse to Acquire Navigant Consulting, Inc. for $1.1bn. Creates leading professional services firm with leverageable capabilities across public and commercial markets. Guidehouse, a portfolio company of Veritas Capital (“Veritas”) and leading provider of management consulting services to government clients, today announced it entered into a definitive agreement to acquire Navigant Consulting, Inc. (NYSE: NCI) (“Navigant”), in a transaction valued at approximately $1.1bn.
Under the terms of the agreement, Navigant shareholders will receive $28 in cash per share. The per share purchase price represents a premium of 16% percent over the company’s closing stock price on August 1, 2019, the last trading day prior to today’s announcement, and 26% percent over the company’s 90-day volume-weighted average share price. The closing of this transaction, subject to regulatory approvals and customary closing conditions, is expected to occur in the fourth quarter of this year.
Upon closing, the newly combined entity will bring together each organization’s strong expertise in highly regulated industries across both the commercial and government sectors, with a focus on supporting client needs in the industries of Healthcare, Financial Services, Energy, National Security, and Aerospace & Defense. Following the close of the transaction, the combined company will be led by Scott McIntyre, Chief Executive Officer of Guidehouse, and practice team leaders from both companies.
“The acquisition of Navigant is the next step in our journey to create the next generation global consultancy,” said Scott McIntyre, Chief Executive Officer of Guidehouse. “Navigant is an exceptionally strong management consulting and managed services firm with some of the best minds in Healthcare, Energy and Financial Services addressing the most complex commercial challenges their clients face. With complementary strengths in our focus areas, we will be strongly positioned to continue delivering innovative solutions to tackle some of the toughest challenges facing government and commercial clients, while building resilience into important missions and services. Bringing together best-in-class portfolios, highly-talented teams, and digital-first business models – we look forward to the merger and the journey to come.”
Julie Howard, Chairman and Chief Executive Officer of Navigant said, “Following a review of strategic alternatives, including soliciting offers from a diverse group of potential strategic and financial partners, Navigant’s Board unanimously agreed that a sale to Guidehouse is in the best interest of Navigant shareholders, delivering immediate and certain value at an attractive premium. The combination of Navigant and Guidehouse will create a powerful, global consulting organization characterized by deep industry expertise and leading technical know-how. Our companies are aligned with similar cultures and strong core values. Through the integration of our two firms, our employees will enjoy expanded growth opportunities, and our combined clients will access a wider array of expertise, tools, and technologies to help them achieve their goals.”
“Guidehouse and Navigant are both leaders in their markets today, and this combination creates a new, highly differentiated platform with capabilities and expertise in both commercial and public sector consulting. We look forward to the next chapter of growth as the new organization goes out to market as one entity with combined expertise and scale,” said Ramzi Musallam, CEO and Managing Partner of Veritas Capital.
Jefferies LLC acted as exclusive financial advisor to Navigant. Sidley Austin LLP served as legal counsel to Navigant.
Schulte Roth & Zabel LLP served as legal counsel to Guidehouse and Veritas Capital.
About Veritas Capital
Veritas Capital is a leading private equity firm that invests in companies that provide critical products and services, primarily technology and technology-enabled solutions, to government and commercial customers worldwide, including those operating in the aerospace & defense, healthcare, software, national security, communications, energy, government services and education industries. Veritas seeks to create value by strategically transforming the companies in which it invests through organic and inorganic means. For more information on Veritas Capital and its current and past investments, visit www.veritascapital.com.
With 2,000 professionals in over 20 locations, Guidehouse is a leading provider of strategic advisory services to customers such as the Department of Defense, Homeland Security, Veterans Affairs, Health and Human Services, and the Department of State, as well as numerous state and local governments and multilateral agencies. Guidehouse is led by professionals with deep commercial and public sector expertise and helps clients solve their toughest challenges. For more information, please visit: www.guidehouse.com.
Navigant Consulting, Inc. (NYSE: NCI) is a specialized, global professional services firm that helps clients take control of their future. Navigant’s professionals apply deep industry knowledge, substantive technical expertise, and an enterprising approach to help clients build, manage, and/or protect their business interests. With a focus on markets and clients facing transformational change and significant regulatory or legal pressures, the firm primarily serves clients in the healthcare, energy, and financial services industries. Across a range of advisory, consulting, outsourcing, and technology/analytics services, Navigant’s practitioners bring sharp insight that pinpoints opportunities and delivers powerful results. (Source: BUSINESS WIRE)
02 Aug 19. Cobham chair defends takeover while ‘seeking other offers.’ Pike says Advent’s £4bn bid is ‘fair price’ despite shareholder criticism. The chairman of Cobham has insisted the board went through a “very tough negotiation” before recommending a £4bn takeover for the defence and aerospace group that has been criticised by its largest shareholder, even as he conceded it was “actively looking for other offers”. In his first interview since Cobham announced the 165p all-cash offer from Advent International, a US private equity group, last month, Jamie Pike said it was a “fair price”. The offer was dismissed as not “compelling” by Silchester International Investors, Cobham’s largest shareholder, with a stake of 11.83 per cent. The investor urged the board to “seek and respond to other parties who might offer better value to . . . shareholders”. Mr Pike, who only took over as chairman of the FTSE 250 group on July 1, said the board had not misjudged the response of shareholders. “We believed [the offer] would command the majority of the market. I have not seen anything to date that doesn’t support that,” he told the Financial Times. Nevertheless, he said the board was now “actively looking for other offers”. Cobham has declined to comment on the exact timing of the approach from Advent apart from saying it was “sometime in May, June” and that it was unsolicited. Artemis Investment Management, which holds 5.13 per cent of the shares, has given a non-binding letter of intent to vote in favour of the deal. The offer needs the backing of investors representing 75 per cent of shares. The takeover has attracted scrutiny in part because of Mr Pike’s relatively short tenure at the company. In his previous role as chairman of plastics packaging group RPC, the board came under fire from some investors for recommending what they said was a too low bid from Apollo Global Management.
Concerns have also been raised about whether the agreed offer from Advent fairly valued Cobham’s recovery over the past 2½ years under chief executive David Lockwood. Cobham has been buffeted by a string of profit warnings and shareholders stumped up money in two rights issues in 2016 and 2017, although both were priced below the 165p offer price from Advent. However, under a turnround plan begun by Mr Lockwood, Cobham has found a more secure financial footing, notably settling a dispute with Boeing, one of its key customers, this year. Advent’s approach — initially made to Mr Pike’s predecessor, Michael Wareing — is pitched at the same level the shares were trading at in early 2016. Cobham said the offer was 50 per cent higher than the company’s average share price of 110p in the past three months. Analysts had published a range of price targets for the group before the bid, all below 165p. Cobham’s shares closed at 166p on Friday. Recommended Lex Cobham/Advent: the buyout of Biggles Mr Pike admitted Advent had “timed [their approach] well,” but cautioned that “we are not out of the woods yet by any stretch of the imagination in our turnround plans”. “We have done a good job . . . There is still plenty of risk associated with the delivery of the rest.” Mr Pike said he did not believe the board had limited the potential upside of a deal by recommending the offer from Advent, adding: “I do not believe we sub-optimised the outcome by not putting the company up for auction.”
He declined to comment on whether Cobham’s management would stay on under the new owner. Mr Lockwood was previously chief executive of Laird but left in 2016 before the electronic components company was taken over by Advent last year. Questions have also been raised about the sale of leading intellectual property and technology to an American private equity group. Cobham is a leader in air-to-air refuelling technology and also a key supplier of parts for the F-35 fighter jet and to the US’s military electronic warfare capability. It traces its roots back to aviation pioneer Sir Alan Cobham. The company generates more than 50 per cent of its revenues in the US. Of its 10,000 employees, 1,700 are based in the UK. Both the Ministry of Defence and the business department are expected to scrutinise the bid. The government has been in touch with Advent in recent days, according to one person close to the situation. Advent is understood to have spoken to all shareholders and the buyout group believes its offer has the wider support, assuming no higher offer comes through, according to people briefed on the situation. The private equity group placed more than one bid before the agreed current offer. It has insisted Cobham is a “growth” investment. Advent declined to comment. (Source: FT.com)