06 Mar 20. Babcock Sells Context Information Security To Accenture For £107m; Stock Dips. Shares of Babcock International Group plc (BAB.L) were losing around 3 percent after the aerospace and defence company said Friday that it has sold Context Information Security, a cyber defence consultancy, to Professional services company Accenture Plc (ACN) for a cash consideration of £107m.
London-based Context provides high-end cyber defense across a range of industries including financial services, government, aerospace and defence and critical infrastructure. It employs over 250 people across the UK, Germany, USA and Australia. Babcock said the deal continues its strategy of streamlining portfolio by realising value from businesses outside its core strategy.
In a statement, Accenture said the acquisition strengthens Accenture Security’s existing portfolio and becomes part of Accenture’s cyber defense offerings. The addition of Context’s more than 250 employees will further deepen Accenture Security’s services to clients.
Kelly Bissell, a senior managing director at Accenture, who leads Accenture Security, said, “The deal signals continued aggressive growth for Accenture Security and gives us a new branch of talented family members to help clients grow their business with confidence and resilience.”
Earlier in January, Accenture agreed to acquire Symantec’s Cyber Security Services business. In London, Babcock shares were trading at 415 pence, down 2.95 percent. (Source: Google/RTTNews)
05 Mar 20. AeroVironment expects revenue growth in FY 2020 despite down quarter. US-based AeroVironment had a financially difficult third quarter in fiscal year (FY) 2020 but foresees an uptick in the fourth quarter, according to the unmanned aircraft company. Revenue fell 18% to USD61.9 million in the third quarter, mainly due to lower product sales, AeroVironment said on 3 March, but for the first nine months of the year, revenue was still up 3%, to USD232.1m. With several contract awards from US and foreign customers expected in the fourth quarter, AeroVironment projects that revenue for all of FY 2020 will total between USD350m and USD370m, up from USD314m in FY 2019. (Source: Jane’s)
05 Mar 20. Flybe/state aid: UK sets good precedent as coronavirus bites. It is not the role of taxpayers to underwrite bad business propositions rejected by the markets. Pterosaurs, winged reptiles from about 100m years ago, barely looked airworthy. You could say the same of Flybe, a small UK airline heading for extinction itself. After months of talks with the government over emergency funding, it has collapsed into administration. Weighed down with a heavy cost structure, Flybe will join the fossilised remains of Monarch Airlines and Thomas Cook. Coronavirus gets the blame for Flybe’s immediate cash shortage. But this was always a subscale company with a weak business plan. The epidemic will push other weak enterprises to the brink. They too will demand bailouts. The current government should give them short shrift, even as it supports business broadly by extending tax payment deadlines and speeding payment on state contracts. Flybe, extant since 1979, has a history of lifting off from one financial mess and landing in another. A restructuring in 2013-14 was meant to create a regional airline competing against trains. Unfortunately, having the highest share of seats from Belfast to Manchester would never guarantee Flybe’s survival into the next decade. By September 2018 Flybe’s tangible equity per share of £0.50 had hardly changed from five years before, according to S&P Global.
Its cost per passenger (ex-fuel) of £52.90 per flight pretty much equalled the equivalent revenue per customer. In contrast, easyJet has costs just over £40 per flight on routes that are longer. Blame Flybe’s fleet of 54 fuel-guzzling planes. Connect — a consortium of Virgin Atlantic Airways, Stobart Air and hedge fund Cyrus Capital — injected £30m to rescue Flybe about a year ago. This week, the Financial Times reported the government had declined to stump up a £100m loan. That will play badly with employees, who are understandably distressed. It will also trigger complaints Prime Minister Boris Johnson does not really care about the regions. The same arguments were rehearsed following the credit crunch. Labour prime minister Gordon Brown dead batted calls for state support back then. They came from LDV, a van company that collapsed, and Jaguar Land Rover, which found the money elsewhere. Mr Johnson is right to flee commitment this time round. It is not the role of taxpayers to underwrite bad business propositions rejected by the markets. The prime minister has set a precedent. It will prove useful when coronavirus prompts other poorly adapted organisms to seek help in staying aloft. (Source: FT.com)
BATTLESPACE Comment: Our readers will ask why BATTLESPACE is publishing a reference to the Flybe collapse? The reason is that Flybe has the contract to support the RAF’s A400M aircraft in the UK. There has been a distinct silence from the MoD regarding any connection between Flybe and the A400M Support Contracts and what the remedies are. Will Marshall Aerospace and Defence bid to take this over, they are the most likely candidate.
05 Mar 20. Airbus publishes agenda for 2020 Annual General Meeting. Airbus SE (stock exchange symbol: AIR) has published the agenda for its 2020 Annual General Meeting to be held on 16 April, with resolutions including the proposed appointment of Mark Dunkerley and Stephan Gemkow as independent non-executive directors to its Board of Directors. As communicated previously, Denis Ranque and Hermann-Josef Lamberti are due to step down from the Board at the close of the AGM.
Mark Dunkerley, who has extensive experience of the commercial airline and aviation industry and is currently a Member of the Board of Spirit Airlines, Inc., is proposed for a three year term as a Board Member, as is Stephan Gemkow, a Member of the Board of Amadeus IT Group and a former airline executive with 22 years at Deutsche Lufthansa AG including six as the company’s Chief Financial Officer.
As previously stated, Denis Ranque requested to leave the Board to pursue other interests when his current Mandate ends at the close of the 2020 AGM, when he will have served for seven years as Chairman. In April 2019, it was announced that the Board had selected René Obermann to succeed Denis Ranque as Chairman of the Airbus Board of Directors, subject to his appointment to this post at a Board meeting immediately after the 2020 AGM. René Obermann has been an independent non-executive director on the Airbus Board since April 2018 and is a former Chief Executive Officer of Deutsche Telekom AG.
Hermann-Josef Lamberti, a former long-standing Chairman of the Audit Committee, informed the Board previously that he didn’t wish to seek a renewal of his Board mandate after the 2020 AGM. Among the other AGM resolutions are the reappointment of Ralph D. Crosby, Jr. and Lord Drayson (Paul) as non-executive Board Members, each for a period of three years.
Airbus has a policy of ‘staggered’ Board terms whereby one third of the 12 directors are reappointed or replaced every year to ensure a smooth transition and to be in line with best practices. This also avoids large block replacements at any single shareholder meeting.
Other resolutions include the approval of the proposed 2019 dividend of € 1.80 per share, which represents a 9% increase compared to 2018.
Documents for the AGM, including the Information Notice with a full agenda, are available online at: https://www.airbus.com/investors/annual-general-meetings.html.
04 Mar 20. Tods Aerospace’s falls into administration. Mounting pressures in the aerospace industry caused the company challenges, administrators said. A Somerset-based manufacturer that supplies aerospace and defence industry giants including Airbus and BAE Systems has fallen into administration, with the immediate loss of 25 jobs. Advanced composite maker Tods Aerospace in Crewkerne, near Yeovil, has appointed Andrew Sheridan and Geoff Rowley of specialist business advisory firm FRP as joint administrators. The business is continuing to trade while administrators market its assets for sale and 111 employees are being retained to support the ongoing operation of the company.
Tods Aerospace called in administrators after a “sustained period” of suffering with cash-flow issues, as well as a “weakened order book” amid widespread challenges in the aerospace sector, FRP said.
Andrew Sheridan, joint administrator and partner at FRP, said: “Tods Aerospace is part of the complex supply chain supporting international aviation and its challenges reflect the mounting pressures facing many manufacturers in the industry.
“We are now working with the management team to maintain trading and operations as usual, while we look to find a buyer. We are also working with the Redundancy Payments Service to support all affected employees.”
Tods Aerospace’s site in Somerset provides full product design, build, print and analysis that is supported by a suite of tooling and machining facilities. The business is part of the Unitech Aerospace group, which is not part of the administration. And none of Unitech’s other subsidiaries are affected. (Source: News Now/https://www.business-live.co.uk/)
05 Mar 20. Melrose Industries PLC today announces its audited results for the year ended 31 December 2019.
- The results for 2019 were comfortably ahead of the Board’s expectations for both profit and cash generation
- Adjusted1 diluted earnings per share (“EPS”) were 14.3 pence, up 13% on last year (statutory EPS: 0.9 pence) and adjusted free cash flow3 was £591m, up 72%4 on an annualised like-for-like basis
- Group net debt and leverage have both been improved and were reduced to £3.28bn and 2.25x respectively
- Net trade working capital in the Group was reduced by £95m (5%) in the year, with adjusted profit conversion to cash1 of 104%. More progress in net trade working capital to come, in line with achieving the previously announced £400m target within the Melrose ownership period
- Loss-making contracts have been improved materially with the losses from 2018 reducing by 11% in 2019. In addition, c.25% of the remaining provision has been released (as previously stated this release is not included in adjusted1 operating profit) due to improvements implemented by management this year. These improvements impact future trading in GKN positively
- The GKN UK defined benefit pension schemes are significantly better funded, aided by over £240 m5 of cash contributions from the Group so far during Melrose ownership, fully in line with the plan agreed with the Trustees. Along with better investment returns, the remaining contributions required to make these schemes well funded has reduced from up to £1 bn at acquisition to c.£500m
- A proposed final dividend of 3.4 pence per share (2018: 3.05 pence) is 11% up on last year, giving a full year dividend of 5.1 pence per share (2018: 4.6 pence) up 11%
- During 2019, a record total level of investment has been made in new product development; technology; environmental, social & governance (ESG); and capital and restructuring projects – all designed to improve the quality of the businesses and their future performance
- The effects of the COVID-19 outbreak are not fully known at present. However, whilst there will clearly be some impact, the opportunities to improve GKN in 2020 and beyond position Melrose well to deliver positive returns for shareholders in the future
- Aerospace sales grew by 7% in 2019 and the adjusted operating margin rose to 10.6%, up from 9.9% in 2018. The second half margin was 11.1%, fully on track to achieve the target previously set
- Aerospace is implementing its extensive restructuring project, “One Aerospace”, as announced in September 2019, to achieve further performance enhancements and is investing in new technology to improve aircraft efficiency in the future. North American Aerostructures became profitable in 2019; only two years ago this part of Aerospace made a £43m loss
- Automotive sales reduced by 6% over the full year in 2019 in line with the market, but saw an improved trend in the second half, being 4% down, despite the General Motors strike in the autumn. An exciting new commercial partnership in eDrive has been signed with Delta Electronics Inc to accelerate the development of electric vehicles
- The Automotive adjusted operating margin in the full year was 7.7% with the second half margin rising to 7.9% up from 6.8% in 2018, a very encouraging performance. This meant the adjusted operating profit actually rose by 14% in the second half compared to the same period in 2018 despite the macro Automotive headwinds
- The Automotive and Aerospace businesses are now totally separate from a head office, legal, tax and pensions perspective. Melrose will be holding an Investor Day for Automotive in New York in October this year to update the markets on its future strategy
- Nortek Air Management continues to benefit from its leading edge sustainable StatePoint Technology® to reduce energy and water consumption in data centres. Nortek Security had a tough year but is rebuilding under new management. Ergotron ended the year strongly with its second half profit being 26% ahead of the previous year
- Melrose has appointed advisers to explore the strategic options for Nortek Air Management, although clearly recent events may have some bearing on timing. In the event of a significant disposal, a further reduction to net debt would be made along with an exceptional repayment to shareholders and a further contribution to the GKN UK defined benefit pension schemes
Justin Dowley, Chairman of Melrose Industries PLC, said: “We are delighted with the Melrose performance in 2019 and the substantial value that is being unlocked. Notwithstanding any implications of the COVID-19 outbreak, the bedrock has now been built for the GKN businesses to attain results which were not previously achievable, and, in addition, the shareholder value built up in our longer held assets is closer to being realised. This shows, once more, that the Melrose model thrives by investing properly in businesses and giving management the entrepreneurial freedom to succeed. This is just the start of what is possible for GKN.”
Investors Chronicle Comment: Manufacturing turnaround specialist Melrose (MRO) saw adjusted revenue rise over a third to £11.6bn in 2019 with adjusted operating profit up 36 per cent to £1.1bn. Both came in ahead of analyst expectations. Sales from the aerospace division increased by 7 per cent and the adjusted operating profit margin expanded by 0.7 percentage points to 10.6 per cent. The downturn in the global automotive sector saw revenue from the automotive segment drop 6 per cent, but good cost control bolstered the margin by 0.9 percentage points to 7.7 per cent. Including £582m in lease liabilities, net debt ticked down to £3.3bn equivalent to 2.25 times adjusted cash profits (Ebitda). Buy. (Source: Investors Chronicle)
04 Mar 20. Senior previews tough year ahead. Aerospace and industrial equipment manufacturer Senior (SNR) had already warned that the grounding of Boeing’s 737 Max jet would hit earnings in 2019. The group makes components for companies in the Max’s supply chain and Boeing cut its monthly build rate from 52 planes to 42 in April. Senior’s adjusted operating profit dropped 6 per cent at constant currencies to £89m, with a 0.5 percentage point contraction in the margin to 8 per cent.
Despite the Max woes, aerospace revenue still grew 6 per cent to £835m, with stronger sales to other civil and military programmes. The market for narrow-body aircraft remains strong and US defence spending is underpinning demand for aircraft such as the F-35. But with Boeing suspending all Max production from January, Senior is guiding aerospace revenue will come in a fifth lower in 2020.
Over in ‘flexonics’ – which make products for vehicle emissions and thermal management – revenue dropped 16 per cent amid softer truck and off-highway markets. Margins were bolstered by cost-cutting in 2019, but are expected to be squeezed in 2020 as cyclical end market weakness persists.
As part of its ‘prune to grow’ strategy the group sold three non-core businesses, but the £22m loss on these disposals was behind the big drop in statutory pre-tax profits.
Berenberg forecasts adjusted operating profit will fall to £30m and EPS to 7.94p in 2020, rising to £55m and 10.3p in 2021.
Senior has been clear its struggles will continue in 2020, with sales and margins declining despite its self-help measures. While it expects to return to growth in 2021, any further deterioration in trading conditions (coronavirus has now been thrown into the mix) could set them back further. Sell. Last IC View: Hold, 180p, 7 Nov 2019. (Source: Investors Chronicle)
03 Mar 20. Chemring issues the following update on current trading and outlook for the year, to coincide with the Company’s Annual General Meeting .
Outlook and current trading
The Board’s expectations for the current year are unchanged.
The Group continues to make good progress in the execution of its strategy and is well placed to take advantage of the growth opportunities that are available. Current trading has been in line with our expectations in both segments.
In Sensors & Information, Roke continues to see growing demand for its services and the US Programs of Record continue to progress in line with our expectations.
In Countermeasures & Energetics, our Australian facility has successfully delivered its first batches of training countermeasures for the F-35 program to the US DoD and has commenced production of the first batch of operational countermeasures. Our UK facility continues to ramp up output following the phased restart in 2019 and is now focused on operational efficiency. In the US, our focus has been on our capital investment programme in Tennessee which, when commissioned in H2/FY21, will provide additional automated capacity for the manufacture of F-35 countermeasures.
The Covid-19 outbreak is not currently having any material impact on our businesses or their supply chains. However, we are monitoring the situation closely.
The backdrop of continued geopolitical unrest supports the need for government spending on defence and national security in all our target markets.
In the key US market, current defence spending, future 2021 budget and longer-term projections to 2025 remain at high levels (see note 1). The 2020 Defence budget may lead to the US DoD procuring additional F-35 Joint Strike Fighters, which should be a medium term positive for the Group’s supply of countermeasures to the F-35 program.
Continuing order intake in the period to 29 February 2020 was £132m (2019: £120m), with a book to bill ratio of 125% (2019: 154%). Expected FY20 revenue is now 88% (2019: 86%) covered by period to date revenue and the order book, split 92% (2019: 93%) in Countermeasures & Energetics and 80% (2019: 72%) in Sensors & Information. The order book for continuing operations stood at £478m at 29 February 2020 (2019: £421m).
In line with our strategic priority of securing longer term high quality customer relationships and orders, during the period the Group secured a number of notable order wins:
After two years of extensive trials Chemring has secured its first order to supply its Resolve electronic warfare product into the US market. Establishing a foothold in the electronic warfare market in the US was a key strategic objective for the Sensors & Information sector in FY20. Further orders are anticipated as the equipment is deployed.
The US Sensors & Information business received a further delivery order of $32m under the 3 year HMDS IDIQ contract which provides visibility on this Program of Record well into FY21.
Chemring Countermeasures USA was awarded four contracts totalling $50m to supply expendable countermeasures to the US Air Force and US Navy. Deliveries under these contracts will be made in FY20 and FY21.
Under the $60m Undefinitised Contract Action (“UCA”) for F-35 countermeasures announced on 10 May 2019, Chemring Australia has agreed a definitisation of this contact at a total value of $98.5m. Deliveries are expected to be fulfilled in FY20 and FY21.
Chemring Energetic Devices, Inc. has been awarded a $24m, 7 year indefinite-delivery/indefinite-quantity contract for supply of various Cartridge Actuated Devices/Propellant Actuated Devices for various U.S. and Foreign Military Sales (“FMS”) aircraft. An initial delivery order of $5.6m has been received against this contract.
Chemring Countermeasures UK and Chemring Energetics UK both signed long term framework contract agreements with the UK MOD covering the next five years, with a further two year option. Initial delivery orders under these frameworks are expected later this year.
Net debt at 29 February 2020 was £85.9m (28 February 2019: £84.4m; 31 October 2019: £75.7m). The 29 February 2020 net debt level reflects the initial recognition of a £6.5m finance lease liability as a result of applying IFRS 16 Leases (effective 1 November 2019), and the previously announced high level of capital expenditure in 2020 which has been funded by continued strong operating cash generation.
Interim results date
The Group will report its interim results for the six months ended 30 April 2020 on 3 June 2020.
02 Mar 20. AE Industrial Partners Acquires Adcole Maryland Aerospace, a Specialist in Spacecraft Components and Small Satellite Technology.
AE Industrial Partners, LP (“AEI”), a private equity firm specializing in Aerospace, Defense & Government Services, Power Generation, and Specialty Industrial markets, announced today that it has acquired Adcole Maryland Aerospace (“AMA” or the “Company”), a long-standing leader in the design, manufacture, test, and integration of critical spacecraft components and small satellites, from Adcole Corporation, a portfolio company of Artemis Capital Partners. Terms of the transaction were not disclosed. AMA represents the eighth platform investment closed by AEI in the last 12 months.
Established in 1957 and based in Marlborough, Massachusetts, AMA has been at the forefront of space exploration since its beginning, providing satellite components that are integral to the mission success of hundreds of low-earth orbit (LEO), geosynchronous (GEO) and interplanetary spacecraft. By combining new space technologies with a proven heritage in space flight, AMA is uniquely qualified to meet the complexity and demands of today’s growing and evolving space industry. The Company’s core capabilities include the design and manufacture of mission-critical, high reliability optical sensors for satellites providing guidance, navigation, situational awareness, and control capabilities. Key products include sun sensors, star trackers, and star cameras. AMA has been an essential part of many space missions including voyages to Mercury, Mars, Jupiter, Saturn, and Pluto, and its customers include the Department of Defense as well as other government agencies and leading private companies in aerospace and defense.
“We have been impressed by AMA’s tenure, reputation, and respected flight heritage in the space industry, and we are excited to partner with a truly premier supplier of mission critical technologies,” said Kirk Konert, a Partner at AEI. “AMA represents the first company of AEI’s space technology platform, which will serve the growing demand from both the U.S. Government and the commercial market for space and satellite vehicles.”
“AMA has remained at the forefront of a constantly evolving industry because we are continually investing in state-of-the-art equipment and processes, while drawing on our deep heritage and industry expertise,” said Don Wesson Jr., General Manager of AMA’s Components Division. “We are excited to build upon our successful heritage and team with a dedicated specialist investor like AEI who will partner with us through our next chapter of growth.”
“AMA is uniquely positioned to lead developments in the space industry,” said Peter Cannito, Operating Partner at AEI. “We look forward to partnering with this talented team and to bringing our passion and resources to better position the Company to take advantage of today’s opportunities in the space and satellite industry.”
PwC served as the financial advisor and Akerman LLP served as the legal advisor to AEI. Mesirow Financial was the financial advisor and Morgan Lewis was the legal advisor for Artemis Capital Partners.
About Adcole Maryland Aerospace
Based in Marlborough, Massachusetts, Adcole Maryland Aerospace (AMA) specializes in the design, manufacture, integration, test, and operation of spacecraft components and small satellites. The Company combines new space technologies with a rich heritage in space flight and proven traditional space hardware to meet the emerging needs of the aerospace industry. AMA’s team of engineers have a diverse range of skill sets and decades of mission experience, and combined with its state-of-the-art cleanroom facility, enable the Company to deliver end-to-end space systems that meet exacting quality standards. To learn more, please visit https://www.adcolemai.com.
About AE Industrial Partners
AE Industrial Partners is a private equity firm specializing in Aerospace, Defense & Government Services, Power Generation, and Specialty Industrial markets. AE Industrial Partners invests in market-leading companies that can benefit from our deep industry knowledge, operating experience, and relationships throughout our target markets. Learn more at www.aeroequity.com. (Source: PR Newswire)
02 Mar 20. Eaton Completes the Sale of its Lighting Business. Power management company Eaton (NYSE:ETN) today announced it has completed the sale of its Lighting business to Signify N.V. The Lighting business, which had sales of $1.7bn in 2019, is one of the world’s leading providers of LED lighting and control solutions.(Source: BUSINESS WIRE)
02 Mar 20. Aero Precision, a leading military aviation aftermarket distributor based in Livermore, California, announced today it has acquired Kellstrom Defense, a leading aftermarket sustainment solutions provider, headquartered in El Segundo, California. “Through this acquisition, Aero Precision creates one of the largest privately owned military aftermarket distribution businesses in the industry including repair and overhaul, manufacturing, engineering services and logistics management,” said Darryl Mayhorn, Aero Precision President and CEO.
“The combination of Aero Precision and Kellstrom Defense’s aftermarket solutions and expanded global channel will ensure our government and military aviation customers worldwide receive improved mission readiness through ample support capabilities,” said Chris Celtruda, Kellstrom Defense CEO. “We look forward to a rapid integration of the business teams and are working to exceed customer expectations in the coming months.”
Aero Precision and Kellstrom Defense serve a broad portfolio of military aircraft platforms such as C-130, UH-60, F-15, F-16 and F-18. This new bundle of parts and services creates an opportunity to streamline logistics management across the combined organization to provide added value for our customers and partners. In addition, the combination will give Aero Precision access to more legacy aircraft such as the B707 (military applications include E-8/JSTARS and E-3), F-5 and P-3, as well as additional OEM partnerships. “The acquisition of Kellstrom Defense will create great value for our customers and partners through enhanced operational capabilities including repair and overhaul, manufacturing and engineering services,” said Darryl Mayhorn. “The future is bright as we continue to delight customers by chasing and providing limitless military aviation aftermarket solutions.”
Aero Precision Holdings LP, comprised of DAC International Inc., NASAM Inc. and Aero Precision Industries, LLC, is owned by a Fund managed by Odyssey Investment Partners.
About Aero Precision
Aero Precision is a leader in aerospace distribution and services and a premier worldwide stocking distributor of aircraft OEM parts. With over 25 years of reliability, quality products and customer service, Aero Precision facilitates the purchasing and repair & overhaul process by sourcing all military aircraft parts requirements under its unique logistic support model. Aero Precision has stocking distribution agreements with Honeywell, Collins Aerospace (UTAS- Hamilton Sundstrand), CEF Industries, Parker, Eaton, Champion Aerospace, Crane Aerospace, Marvin Test Solutions, Essex Industries, WesTest Engineering and other strategic OEM partners for various product lines and supports 60+ countries worldwide. News and information are available at www.aeroprecision.com.
About Kellstrom Defense Aerospace, Inc.
Kellstrom Defense Aerospace is a global leader for defense aircraft sustainment, deploying an experienced team and complete capabilities to solve customer challenges through OEM strategic distribution, component repair services, engineered products, and logistics solutions for military transporters, fighters, and rotary wing platforms. Kellstrom Defense Aerospace serves the U.S. military and customers in over 60 partnering nations. Current operating locations include Camarillo, CA; Chatsworth, CA; Miramar, FL; Macon, GA; Chula Vista, CA; Cambridge, UK; South Windsor, AU; Singapore, and Abu Dhabi, United Arab Emirates. News and information are available at www.kellstromdefense.com.
02 Mar 20. Rheinmetall continues to grow. Provisional figures for fiscal 2019. Defence earnings improve significantly, Automotive shows robust margin performance.
– Consolidated sales increase by €107m to €6,255m
– Consolidated operating result improves by 2.9% to €505m
– Operating free cash flow rises significantly to €314m
– Automotive: Operating result falls to €184m, operating margin reaches 6.7%
– Defence increases operating result by 35% to €343m – operating margin improves to 9.8%
– Order backlog increases by 20% to new record of nearly €11bn
The Düsseldorf technology group Rheinmetall continued to grow in fiscal 2019, seeing further improvement in both sales and earnings. This development in the year under review was driven by the Group’s activities in the military business. However, the Automotive sector also proved robust in a weak market environment with an overall decline in automotive production.
Armin Papperger, Chief Executive Officer of Rheinmetall AG: “Rheinmetall has had another record year. In fiscal 2019, our sales reached a new high and we generated an operating result of over €500m for the first time. At the same time, we increased the Group’s operating free cash flow to over €300m. Thanks not least to our excellent performance, we grew the Group’s order backlog to nearly €11bn for the first time. We are also well-positioned for the future in key markets. In our role as an international system provider for armed forces, we are benefiting from the super cycle in the defence technology business gifted to us by the pressing backlog in military procurement. In Automotive, we will continue to push the modernization of automotive drive technologies and be an important partner to international manufacturers – with ambitious contributions with regard to both conventional and alternative drive systems.”
Rheinmetall generated consolidated sales of €6,255m in 2019. This is growth of €107m or 1.7% compared to the previous year’s figure of €6,148m. When adjusted for positive currency effects and portfolio effects, the growth amounts to 0.5%. The Group’s Defence sector more than compensated for the downturn in Automotive with a strong increase in sales and significantly higher profitability.
The operating result (EBIT before special items) reached a new high in fiscal 2019 at €505m. This is growth of €14m or 2.9% compared to the previous year’s figure of €491m.
Including positive special items of €7m net, reported EBIT amounts to €512m. Special items resulted from restructuring costs at a Defence location (€-2m), from a real estate transaction at the Berlin site (€+2m) and due to insurance payouts (€+7m). Reported EBIT amounted to €518m in 2018, but this included positive special items of €27m due chiefly to real estate sales.
The Rheinmetall Group increased its operating margin slightly to 8.1% in fiscal 2019, compared to 8.0% in the previous year.
At Group level, earnings after taxes amounted to €354m in the past fiscal year and were therefore unchanged year on year. Including the earnings attributable to non-controlling interests, earnings per share for 2019 amounted to €7.77 (2018: €7.10).
The Group’s operating free cash flow increased significantly due to considerable improvements in working capital in particular and rose to €314m after €-35m in fiscal 2018.
The Group’s order backlog is more than €10bn for the first time. On December 31, 2019, Rheinmetall had orders worth €10,846m on its books, which equates to growth of €1,791m or 20% compared to the order backlog of €9,055m in the previous year (December 31, 2018).
Automotive: Margin still good despite declining market development
In a global market environment characterized by production declines among automotive manufacturers, especially in China, the Automotive sector saw decreasing orders in fiscal 2019 and accordingly reduced revenue. The sector’s sales sank from €2,930m to €2,736m, a reduction of 6.6%. According to the latest market data, global automotive production shrank by 5.8% in the same period.
The sector’s sales figures do not include the contributions from the joint ventures in China, which increased their sales by €138m or 15.8% to €1,010m despite a decline of 8.4% in automotive production in China.
Due to the sector’s sales decline, Automotive’s operating result amounted to €184m in the past fiscal year (previous year: €262m). The sector’s operating margin fell short of the high level of the previous year, but still reached 6.7% in fiscal 2019 (previous year: 8.9%). This slightly exceeded the most recent forecast, which predicted an operating margin of around 6.5%.
Defence: Significant growth in earnings and margin, record order backlog
The Defence sector’s business performance in fiscal 2019 was again characterized by the high worldwide demand in the military sector and by Rheinmetall’s successful positioning in major markets around the globe.
The sector’s order intake remained at a high level. For the second year in a row, the sector has received orders worth over €5bn. In fiscal 2019, the order intake amounted to €5,186m, after €5,565m in the previous year, in which the largest single order in the company’s history – 211 Boxer vehicles for the Australian armed forces – with a volume of over €2bn helped set a new order intake record.
The order backlog for Rheinmetall Defence increased to a new record of €10,399m as of December 31, 2019, which equates to growth of 21% after €8,577m at the end of the previous year.
In 2019, the sector generated sales of €3,522m. This equates to growth of 9.4% or €301m compared to the previous year (€3,221m). Adjusted for portfolio effects, organic growth came to 7.6%.
The sector also significantly increased its earnings in 2019. The operating result reached €343m in the year under review, surpassing the previous year’s figure by €89m or 35%.
The good business performance is also reflected in the profitability of Rheinmetall Defence. The operating margin rose to 9.8% in fiscal 2019, after 7.9% in the previous year. The most recent outlook, which forecast an operating margin of slightly above 9.5%, has therefore been confirmed.
Rheinmetall will release the final business figures and the outlook for fiscal 2020 on March 18, 2020.