03 Oct 19. QinetiQ more than doubles US presence. QinetiQ (QQ.) has agreed to acquire US sensing solutions specialist MTEQ in a deal worth $105m (£84m) upon completion, with the potential for a further contingent fee of $20m depending on the meeting of financial targets over the next three years. The defence contractor will see the value of its US operation rise to annual revenues of approximately $300m and its headcount there climb to around 750 employees. US revenues will account for around a quarter of QinetiQ’s overall turnover. Returns from the acquisition are expected to exceed QinetiQ’s cost of capital in the third year of the tie-up.
On a call with analysts and investors, QinetiQ management said both the parent company and MTEQ have moved towards taking on longer-term contracts, thereby enhancing the rationale for the deal. MTEQ will be expected to ramp up its production capacity, and QinetiQ is prepared to help the business with shared facilities and investment.
The deal is expected to complete in the second half of QinetiQ’s 2020 financial year.
QinetiQ shares rose 5 per cent following the announcement of its acquisition, which is expected to immediately contribute to earnings. What’s more, QinetiQ will be left in a net cash position following the deal’s completion, helped along by an underlying cash conversion rate of 102 per cent. This translates into improved ‘optionality’ on the M&A front, meaning that more scale-enhancing deals remain eminently possible in the near term. QinetiQ’s latest foray into the world’s largest defence market has strengthened our investment case. Buy at 307p. Last IC View: Buy, 310p, 23 May 2019. (Source: Investors Chronicle)
03 Oct 19. Boeing-Embraer Strategic Partnership Taking Shape. Boeing [NYSE: BA] and Embraer [B3: EMBR3, NYSE: ERJ] continue to work closely together to establish their strategic partnership, positioning both companies to deliver greater value to airline customers and the flying public, and to accelerate growth in global aerospace markets.
Since receiving approval for the partnership from Embraer shareholders in February this year, the companies have undertaken diligent planning for the creation of a joint venture made up of the commercial aircraft and services operations of Embraer. Boeing will own 80 percent of the new company, to be named Boeing Brasil – Commercial. Embraer will hold the remaining 20 percent.
The transaction remains subject to regulatory approval; the two companies are actively engaged with authorities in relevant jurisdictions and have obtained a number of regulatory approvals. Following a detailed assessment by the U.S. Federal Trade Commission, the parties’ strategic partnership has received clearance to close in the United States. The European Commission recently indicated it will open a Phase II assessment in its review of the transaction, and Boeing and Embraer look forward to assisting with that review. Based on this development, however, the companies now expect the transaction to close in early 2020.
Boeing and Embraer are also preparing to launch a joint venture to promote and develop markets for the multi-mission medium airlift KC-390. Under the terms of the proposed partnership, Embraer will own a 51 percent stake in the joint venture and Boeing will own the remaining 49 percent. Two KC-390 milestones were recently achieved by Embraer: the first KC-390 was delivered to the Brazilian Air Force, and the first international purchase was announced by Portugal.
The comprehensive Boeing-Embraer strategic partnership, embodied through these two joint ventures, will position the companies to compete in the global marketplace, to deliver greater value to customers, and to boost the Brazilian aerospace industry as a whole.
03 Oct 19. 2019 Capital Markets Day: Thales sets out its action plan following the integration of Gemalto and updates its medium-term financial objectives.
- Gemalto integration
— Thales becomes the global leader in digital identity and security
— Unique strengthening of the Group’s digital positioning
— Average organic sales growth  in the “Digital Identity and Security” (DIS) operating segment: 4% to 6% over 2020-2023
— DIS EBIT margin  to reach 12.5% to 13.5% by 2023
— Significant additional group synergies across other operating segments
- Solid progress made on Ambition 10 strategic priorities
— Powerful operational performance levers implemented delivering significant increase in margins
— Further R&D step-up, reinforcing the Group’s technological leadership and
long-term growth profile
- 2019-2023 Group financial targets
— Average organic sales growth: 3% to 5%
— EBIT margin to reach 11.5% to 12% by 2023
Thales (Euronext Paris: HO) is today hosting its 2019 Capital Markets Day with investors and financial analysts.
Six months after Gemalto’s integration into Thales, this meeting will mainly focus on the new “Digital Identity and Security” (DIS) global business unit, consisting of Gemalto and a number of digital businesses previously assigned to the “Defence & Security” operating segment.
Patrice Caine, Chairman and Chief Executive Officer, and members of the management team will also give a progress update on the Group’s key strategic priorities defined at the June 2018 Capital Markets Day, and will update the Group’s medium-term financial objectives.
“Together with the other members of Thales’s management team, I am delighted to update the financial community on the progress we have made with the strategic priorities unveiled in June 2018, and on the numerous development opportunities arising from the acquisition of Gemalto, which was finalised just six months ago.
The Ambition 10 plan is running in line with our expectations. We are continuing to implement operational performance initiatives and are accelerating our R&D investments. The results for both 2018 and the first half of 2019 were ahead of the dynamics needed to deliver on our 2021 targets.
Our new ‘DIS’ global business unit is already the world leader in the fast-growing digital identity and security markets, addressing key challenges in the digital transformation of our customers’ intelligent systems.
Across the whole Group, our teams have identified many business synergy opportunities that will generate several hundred million euros in revenues by 2023.
In a more uncertain economic and geopolitical environment, we are initiating this new growth phase for Thales with a robust balance sheet and enhanced resilience thanks to a broader customer base and a technology portfolio that has been strengthened with regard to critical capabilities.
Our unique position combining a world-class technology portfolio and deep domain knowledge of our five key markets will allow us to sustain our profitable growth ambition.” Patrice Caine, Chairman and Chief Executive Officer
Unique strengthening of the Group’s digital positioning
The integration of Gemalto delivers a major acceleration of Thales’s digital strategy.
It enhances the differentiation of the Group’s business portfolio by adding market-leading expertise in three key technological domains relating to digital security: digital identity and biometrics, IoT secure connectivity, and data protection and encryption.
These capabilities are essential to ensure the end-to-end security of critical decision chains as they become digital. They address growing needs in an ever more connected world and have applications in all Group markets.
The teams have already identified application opportunities in many of the Group’s businesses, including, amongst others, the pooling of cybersecurity capabilities, the design of security solutions for airports, large cities and critical sites, UAV management and surveillance, and the implementation of the Internet of Things in the military domain and in rail signalling.
The Group is fully mobilized to capture these synergies, supported by a rigorous organisation. Just six months after Gemalto’s integration, several hundred specific customer opportunities have been identified, notably leveraging Thales’s global commercial footprint. The Group considers that, by 2023, the incremental revenues induced by Gemalto’s acquisition (revenue synergies) will amount to between €300m and €500m, with a significantly higher potential thereafter.
Expansion in fast-growing digital identity and security markets
Thanks to the acquisition of Gemalto, Thales has become the global leader in the digital identity and security markets. These markets, at the junction of secure object and people identification and cybersecurity, offer high growth prospects, in the region of 10% per annum until 2023, driven by the development of digital services and solutions.
In these markets, the Group will implement a differentiated growth strategy:
- targeting high-value opportunities in the fast-growing segments: embedded SIM (eSIM) software and services, data protection in the cloud, public and commercial biometrics, secure IoT connectivity for the most critical industrial applications
- strict cost control and value maximization in the mature smart card businesses
This strategy will benefit from robust synergies with the rest of Thales, whether in terms of creating an undisputed global leader in data protection or the Group’s privileged relationships with its customers in its five major markets.
Based on detailed action plans, the implementation of cost synergies is fully in line with expectations. They should reach €120m on a run-rate basis (2022), of which €20m in 2019 and around €60m in 2020.
As a result, the Group anticipates organic sales growth for the DIS operating segment in the range of 4% to 6% per annum over the 2020–2023 period and an EBIT margin of 12.5% to 13.5% by 2023. These objectives include only a portion of the synergies expected at Group level  .
2023 financial objectives focused on shareholder value creation
Thanks to the smooth roll-out of the Ambition 10 plan, the long-term robust momentum in most of its markets, and the integration of Gemalto, Thales updates its medium-term objectives:
- organic sales growth of +3% to +5% on average over the 2019-2023 period, with the strengthening of the Group’s growth potential relating to digital investments and to the integration of Gemalto largely offsetting a more uncertain outlook in the commercial space market and no growth in transport over 2019-2023 after strong performance in 2018 (+18%). The phasing of these different factors is expected to translate into lower growth in the first part of the period, and progressive acceleration thereafter.
- an EBIT margin of 11.5% to 12% by 2023, benefiting from the competitiveness initiatives and Gemalto synergies (200 to 240 basis points improvement compared to a pro forma 2018 EBIT margin of 10%), partly offset by the reinvestment in self-funded R&D (30 to 50 basis points).
In addition to the two levers outlined above, adjusted EPS will rise thanks to the anticipated reduction in the effective income tax rate, expected to fall from 27% in 2018 to 23-24% by 2023, and thanks to the more efficient use of the balance sheet following Gemalto’s acquisition.
Furthermore, the Group will pursue its efforts to maximise cash generation, and thus aims to maintain a high cash conversion ratio  . It should thus stand at around 95% before one-offs  on average over the 2019-2023 period, in spite of a less favourable cash/expense tax gap, of the Group’s development in service activities, which have longer cash generation profiles than project activities, and of the additional working capital required by the growth of the DIS global business unit.
03 Oct 19. SCISYS Group PLC (“SCISYS” AIM SSY; ESM: SCC), the supplier of bespoke software systems, IT-based solutions and support services to the space, media & broadcast, government, defence and commerce sectors, is pleased to note the announcement this morning by the CMA of its clearance of the anticipated acquisition by CGI Group Holdings Europe Limited of SCISYS Group plc (“Acquisition”). The Acquisition received clearance from the German merger control authority (Bundeskartellamt) in July 2019. The Acquisition remains conditional on the required regulatory approval by the German Federal Ministry of Economics and Energy (Bundesministerium für Wirtschaft und Energie, BMWi), for which the review process is ongoing and further announcements will be made in due course, as appropriate. The Acquisition and the Scheme, which were approved by SCISYS Shareholders on 7 August, remain subject to the satisfaction or (if capable of waiver) waiver of the remaining conditions as set out in Part 5 of the Scheme Document, including the sanction of the Scheme by the High Court. Capitalised terms used but not defined in this announcement have the meanings given to them in the Scheme Document.
02 Oct 19. Raytheon Company (NYSE: RTN) makes a $2.6bn annual economic impact to Arizona, according to a new study conducted by Arizona State University’s Seidman Institute. The research firm analyzed Raytheon contributions to the state in the form of wages, taxes, suppliers and other key indicators.
The latest study shows Raytheon’s annual impact across Arizona has grown by more than $500m in the last three years. Increased sales, new hiring and additional infrastructure have helped to fuel the increase.
“Raytheon’s continued growth in Arizona is having a substantial, positive effect around the state,” said Wes Kremer, Raytheon Missile Systems president. “With nearly 13,000 employees now working in Arizona and a strong, statewide network of over 500 suppliers, the company provides a significant boost to Arizona’s economy.”
In 2018, Raytheon executives along with federal, state and local leaders formally dedicated six new buildings at the company’s Tucson plant site. The company has since completed infrastructure expansion and hired more than 2,000 new workers. Raytheon plans additional hiring over the next three years, as well as investments and improvements in manufacturing, engineering technology and facilities infrastructure in order to meet growing customer demand.
“Raytheon is one of our state’s most valuable assets,” said Arizona Gov. Doug Ducey. “This high-tech powerhouse is a major jobs creator, and its products help to defend freedom around the globe. Arizona will continue to foster a pro-growth tax and regulatory environment that allows Raytheon to thrive in our state for years to come.”
Raytheon employees volunteer thousands of hours annually in Arizona classrooms, tutoring students in math and science. The company sponsors numerous outreach efforts to help spark student interest in science, technology, engineering and math. Raytheon also supports military veterans and their families through various programs.
As Raytheon continues to grow in Arizona, so will the company’s need for top talent. Raytheon is investing in statewide programs designed to help cultivate STEM skills that lead to rewarding careers for Arizona’s future innovators.
02 Oct 19. FLIR Acquires Tethered Drone Assets and Technology from Aria Insights. FLIR Systems, Inc. (NASDAQ: FLIR) announced that it has acquired the intellectual property (IP) and certain operating assets of Aria Insights, Inc. Terms of the deal are not being disclosed. Previously known as CyPhy Works, Inc., Aria pioneered the development of tethered small unmanned aerial systems (sUAS). Founded in 2008 by iRobot co-founder Helen Greiner and backed by several top technology investors, Aria notably developed the Persistent Aerial Reconnaissance and Communications (PARC) tethered drone. The company ceased operations in March 2019.
Tethered drones connect to a base station or vehicle by microfilament wire, which provides both continuous power and secure communications. For certain applications, a tethered drone offers advantages over a free-flying UAS, enabling sustained operations on longer missions and persistent situational awareness so users can perform intelligence, surveillance, and reconnaissance (ISR) functions.
The Aria assets will be integrated into FLIR’s Unmanned Systems and Integrated Solutions Division, augmenting the company’s industry-leading technology portfolio built from its acquisitions of Prox Dynamics in 2016 and Aeryon Labs and Endeavor Robotics earlier this year.
“Tethered UAS systems are becoming an increasingly valuable tool for force protection, border security, and critical infrastructure protection,” said David Ray, president of FLIR’s Government and Defense business. “Aria’s innovative technology and IP assets will enable us to enhance current capabilities and advance the range of solutions we can deliver to customers in this growing market segment.”
“We’re pleased to complete the sale of our assets to FLIR Systems,” said Lance Vandenbrook, former CEO of Aria Insights. “We are proud of the technology our team developed through the operations of CyPhy Works and Aria, and we believe FLIR offers the best opportunity to see it make a difference and support critical missions in the years ahead.”
02 Oct 19. QinetiQ more than doubles size of US operations with acquisition of MTEQ. QinetiQ announces that it has entered into an agreement to acquire Manufacturing Techniques Inc. (MTEQ) on a cash-free, debt-free basis for $105m to be paid in cash on completion and an earn-out of up to $20m payable in cash and shares dependent on delivering stretching financial targets over three years.
MTEQ is a leading US provider of advanced sensing solutions with a strong reputation for mission-led innovation, rapidly developing and fielding operationally relevant solutions to deliver information advantage to the warfighter. In the 12 months to 31 August 2019, MTEQ generated $167.4m of revenue, $11.4m of EBITDA, and $11.0m of EBITA on an unaudited basis.
MTEQ employs 360 people in Virginia and has strong customer relationships, particularly with the US Army, supporting a number of its modernisation priority programmes. The business develops next generation sensing solutions, including integrating outputs from multiple sensors, to provide information that enables operational advantage in the modern battlespace. MTEQ is renowned for disruptive and agile innovation across the full cycle of sensor solutions development and use, including design, development, integration, low-volume production, deployment and analytics. Following completion, the business will continue to be led by its existing management team.
- MTEQ has a strong track record and further growth potential in an expanding sensors market
o Delivers next-generation sensor solutions, which are in increasing demand to counter emerging threats in the modern battlespace
o Drives a customer-centric approach to rapidly innovate and field new capabilities
o Investing to improve profitability and win longer-term programmes
- Accelerates our growth in the US, the world’s largest defence and security market
o Creates a US operation of c.$300m and c.750 employees, which will deliver solutions critical to next generation warfighting capability through the combination of MTEQ’s expertise in advanced sensors with our existing capabilities in robotics and autonomy
o Transitions MTEQ’s sensors solutions into larger production programmes, leveraging our manufacturing capabilities in the US
o Deepens our US Army relationship and broadens our US customer base
- Strengthens implementation of our international growth and innovation strategy across the Group
o Increases our US home country to c.25% of Group revenue
o Builds our rapid development capability to rapidly create and field new products and services
o Creates further growth opportunities by leveraging QinetiQ’s technical capabilities into the US, and routes to UK and international markets
- Delivered double digit revenue growth each year over the past three financial years
- Revenue of $167.4m and EBITDA of $11.4m in the 12 months to 31 August 2019, unaudited
- Revenue of $131.0m and EBITDA of $8.4m in the year to 31 December 2018, audited
- Will enhance QinetiQ’s earnings per share in the first full financial year
- Acquisition evaluated through our rigorous capital allocation methodology; returns expected to exceed QinetiQ’s cost of capital in year three
- Funded from QinetiQ’s available cash resources with the balance sheet expected to remain in a net cash position post completion providing further capacity to invest in growth
Steve Wadey, QinetiQ CEO, said: “The acquisition of MTEQ is a significant step towards achieving our ambition to build an integrated global defence and security company, more than doubling the size of our operations in the largest defence and security market in the world. MTEQ is a growing business that is thriving because of its ability to apply state-of-the-art sensing technology to enhance information and intelligence that are so critical to modern warfare. I am excited that MTEQ will be joining QinetiQ as its core proposition of rapidly creating new and disruptive capabilities to respond to emerging threats is so well aligned to our own. I look forward to welcoming MTEQ expert employees and high quality leadership team to QinetiQ.”
Mary Williams, MTEQ President and CEO, said: “We are excited to be joining QinetiQ, a company renowned for its technical expertise. The combined businesses will have a leading position in technologies that are critical to next generation warfighting capabilities, enabling us to offer solutions to evermore complex and challenging customer requirements. Most importantly for me, QinetiQ and MTEQ share a common philosophy of partnership and collaboration with our customers, which will continue to be the foundation for our future success.”
The transaction is subject to certain regulatory and legal approvals and is expected to close in the second half of QinetiQ’s financial year 2020. This announcement contains inside information and the person responsible for making this announcement is Jon Messent, Company Secretary.
01 Oct 19. Canberra-based Electro Optic Systems has announced the acquisition of a major Australian microwave satellite space communications company to support the development of the newly announced EOS Communication Systems. Space Connect can today confirm the acquisition of Brisbane-based microwave satellite communications business EM Solutions to form part of EOS Communication Systems.
EOS has recently announced the creation EOS Communication Systems and that it had achieved a number of advances which together enable next-generation optical communication to and from space at bandwidths up to 20 times higher than microwave technology, and at lower cost.
However, the company has long recognised that over $400bn is currently invested in microwave communication infrastructure in space, and that this sunk cost and the all-weather capabilities of microwave technology will ensure a long-term role for microwave technology in space communications.
EMS is a world leader in on-the-move satellite communications. It is a major provider of satellite communication systems for the Australian Defence Force, including Royal Australian Navy ships, and has been widely recognised for its advanced technology, winning awards such as the Essington Lewis Trophy (2018) Department of Defence SME Team of the Year for innovation in defence communication.
EMS’ on-the-move radio and satellite products deliver high speed telecommunications anywhere in the world to its customers. It is a trusted provider of secure and resilient communications for key customers such as defence forces and government agencies internationally.
CEO of EM Solutions Dr Rowan Gilmore welcomed the announcement, saying, “EM Solutions is delighted to become a part of the EOS Group. For our customers, the new group offers a deeper capital base, access to further leading edge research, and much greater support capability offshore.” (Source: Space Connect)
01 Oct 19. Infrastrata rescues Harland and Wolff. London Stock Exchange-listed Infrastrata announced on 1 October that it has agreed to buy the principal assets of Harland and Wolff Heavy Industries Limited and Harland and Wolff Group plc for a total of GBP6m (USD7m). The Belfast shipyard had been placed into administration in August after its Norway-based owner, Dolphin Drilling, filed for bankruptcy. Infrastrata is funding the acquisition with a mix of debt and equity. It has already paid an initial GBP500,000 cash deposit to the administrator, BDO NI, to gain exclusive control of Harland and Wolff’s multi-purpose fabrication facility, quaysides, and docking facilities. Remaining payments of GBP3.3m will be made on 31 October (or 31 December if Infrastrata needs more time to complete due diligence), followed by GBP2.2m by 30 April 2020. (Source: IHS Jane’s)
26 Sep 19. Embraer says Boeing deal faces in-depth European Commission probe. Brazil’s Embraer (EMBR3.SA) said on Thursday the European Commission indicated that it intends to open an in-depth investigation into Boeing’s (BA.N) bid for a controlling stake in the commercial aircraft arm of the Brazilian planemaker. Reuters reported earlier this week that Boeing was set to face an EU antitrust investigation of up to five months into its deal with Embraer. The preliminary review of the deal by the European Commission will end on Oct. 4. If a phase 2 investigation is confirmed, Embraer will evaluate the potential impact on the estimated timeline for deal closure, the Brazilian planemaker said in a regulatory filing here. The Boeing-Embraer deal, which values the Embraer unit at $4.75bn, is scheduled to close by the end of 2019. The deal would give Boeing a foothold in the lower end of the market, enabling it to better compete with the CSeries jets designed by Canada’s Bombardier Inc (BBDb.TO) and backed by European rival Airbus SE (AIR.PA). (Source: Reuters)
26 Sep 19. Westinghouse to buy Rolls-Royce’s North American Civil Nuclear unit. U.S. nuclear energy firm Westinghouse Electric Co said on Thursday it would buy Rolls-Royce Holding’s (RR.L) Civil Nuclear Systems and Services business in North America, to boost its growth in North American and European nuclear markets. Westinghouse, which supplies products and technological assistance to nuclear utilities, said the Rolls-Royce deal would boost its nuclear power plant services and digital offerings. The financial terms of the deal were not disclosed. Rolls-Royce did not immediately respond to a Reuters request for comment outside regular business hours. Rolls-Royce operates 11 sites in Canada, France, the United Kingdom and the United States, Westinghouse said in a statement. The American nuclear business of Rolls-Royce offers services from engineering and software and data solutions to maintenance optimisation and field services, the company’s website shows. (Source: Reuters)
26 Sep 19. Babcock sets sail. A Babcock International (BAB) trading update was the latest in a slew of encouraging announcements that have accompanied a 37 per cent share price rise since the shares bottomed out at 410p in May. The engineering group revealed earlier this month that it had been chosen by the UK’s Ministry of Defence (MOD) to deliver its Type 31 general purpose frigate programme, which will provide the UK with a fleet of five ships for £1.25bn. Babcock said in a trading update covering the period since 1 April that its overall marine programme is performing well, with the Queen Elizabeth Class initiative nearing completion and Type 23 frigate life extension programme on track – it is also making progress in Australia and Canada. Babcock’s defence specific nuclear activities have increased, although the civil nuclear market remains challenging. Peel Hunt forecasts full-year 2020 pre-tax profits of of £450m and earnings per share of 72.6p, rising to £466.8m and 75p in 2021.
Babcock shareholders have had to endure unremitting forecast downgrades over the past five years but, following a major reset in June, there are signs emerging that this trend may have bottomed out, including: plans to lift free cash flow; recent consolidation of nuclear operations; and bid interest from Serco (SRP). Deteriorating geopolitics and rising uncertainty could also lift defence spending, which would benefit a company that holds defence partnerships across the world and recently stated its aim of becoming the British Army’s “strategic readiness partner”. We’re canning our sell tip and moving to hold at 556p. Last IC View: Sell, 484p, 17 Jun 2019. (Source: Investors Chronicle)