19 Mar 20. Ultra Defense Corp Acquires MAST Technology. Ultra Defense Corp (UDC) of Tampa, Florida has completed the acquisition of MAST Technology, Inc. of Warrensburg, Missouri in a transaction that closed Feb 29, 2020. MAST Technology was founded in 1990 in Las Vegas, Nevada and remains a key fixture in the defense industry.
UDC will enhance its dominance in the domestic and international markets by adding the exquisite and specialized Department of Defense manufacturing capabilities of MAST. “In combining the well-established competencies of UDC and MAST we have aligned both entities under the National Security Innovation Base. This is the first step of many towards accomplishing our goal of becoming a key supplier of next-generation overmatch capability to the US warfighter supporting the National Defense Strategy and Great Power Competition,” said UDC CEO Matthew Herring.
UDC-MAST will operate as a new division of UDC and remain in Warrensburg. It will continue to load, assemble and pack items like 40mm munitions, small caliber ammunition, M81 igniters, and numerous other niche products. Additionally, UDC-MAST will focus on its proven roots in ammunition manufacturing methods and equipment enabling development and production of next-generation ammunition and pyrotechnics. A significant physical expansion of the Warrensburg operation is planned in the coming months.
Jay Bell, former CEO of MAST, will stay on and serve as the General Manager of UDC-MAST. “I am unbelievably excited for future opportunities. Matt’s experience, knowledge, and integrity are well established in the defense community. Matt and I together are going to be a very formidable combination. I believe we can multiply our capabilities and obtain exponential growth.”
The addition of the MAST team further expands UDC’s growing portfolio of products and services. UDC’s US Government customers include Army Contracting Command – New Jersey, United States Special Operations Command, US Army Aviation and Missile Command, US Army Tank, Automotive, and Armament Command, and other classified customers and programs enabling current and future national security requirements. UDC’s contractor base has expanded to over 50 key sub-contractors around the globe. UDC’s core business areas remain centered on providing non-type qualified ammunition, small arms, and weapon systems to the US military and allied militaries worldwide. (Source: PR Newswire)
18 Mar 20. Avon Rubber offers defensive growth. Avon Rubber (AVON) started its life in 1883 as a tyre maker, but it’s now focused on two very different divisions – personal protection gear for military and law enforcement and milking equipment for the dairy industry. It has been picking up new contracts while adjusted cash profit (Ebitda) margins and return on capital employed have both been maintained above 20 per cent, and analyst upgrades have been rolling in (see chart).
The ‘protection’ division accounted for almost three-quarters of the $179m (£146m) of revenue reported in 2019. Just over two-thirds of protection sales are to military customers, with the US Department of Defense (DoD) being the largest client. This provides a defensive end market. Revenue was previously underpinned by a 10-year contract to supply its M50 respiratory masks that ended in 2018. A ‘sustainment’ agreement at improved commercial pricing is expected this year, but in the meantime Avon has developed the new M69 and M53A1 mask systems, securing a combined $340m of long-term contracts. These more technologically advanced products boosted protection’s adjusted cash profit margin by 1.6 percentage points at constant currencies to 24.5 per cent in 2019.
The $91m acquisition of 3M’s (US:MMM) ballistic protection business, Ceradyne, has expanded Avon’s offering to ballistic helmets and body armour, and brought along more multi-year DoD contracts. It also enabled the group to secure a place on a $265m framework to supply next-generation body armour to the US army.
The purchase will push Avon from £48.3m of net cash into a modest net debt position in 2020. However, because of strong cash generation it previously guided to a return to net cash in 2021, although the coronavirus is likely to impact all past forecasts. The balance sheet remains in good shape for acquisitions and research and development.
Growth at the ‘milkrite-Interpuls’ dairy business is more variable as demand hinges on animal feed and milk prices. A weak first quarter saw 2019 sales stay flat at constant currencies at £50.9m. Despite a 1.3 percentage point decline, the adjusted cash profit margin was still a respectable 20.6 per cent. While orders were up 10 per cent in the first quarter of the 2020 financial year, the coronavirus outbreak could impede manufacturing operations in Italy.
As a leader in niche markets with limited competition, Avon Rubber benefits from pricing power and high margins. Multi-year contracts also provide more predictable revenue and cash flows. Rising global defence spending should support military sales and the group is widening its customer base beyond the US and Europe – military sales to the rest of the world surged from £13.4m to £32.4m in 2019. Meanwhile, law enforcement should return to growth this year following a hit from the US government shutdown. Following the recent market sell-off, the shares are trading at 20 times forecast 2020 earnings, which isn’t overly demanding for the long-term quality and growth on offer. Buy. Last IC View: Buy, 1,870p, 13 Nov 2019. (Source: Investors Chronicle)
18 Mar 20. We asked defense companies how they’re impacted by the coronavirus. Here’s what they said. Like everyone else in America, the defense industry is still reeling from how quickly the new coronavirus, known as COVID-19, went from a potential issue to a city-shuttering pandemic. But as major economic hubs like San Francisco and New York City struggle with curfews and restrictions on public gatherings, companies — and the Defense Department — still appear to be sorting out if any shutdowns related to work are imminent.
The fluid nature of the situation is reflected in a series of industry statements, captured below by Defense News reporters. In many cases, when contacted by reporters and asked directly if any production lines were being slowed or halted by the attempt to reduce the rate of infection, spokespeople responded with general comments about challenges with the disease.
That’s not a huge surprise to Byron Callan, an analyst with Capital Alpha Partners, who noted that there are many moving parts for companies to work through.
“Maybe it’s too soon for a lot of these guys,” Callan said. “When you think about it, we’re into the second week of this [as a national emergency]. By the time they do earning calls in April, they should definitely have a better grip on what’s happened in the last few weeks and what might they be looking at.”
That could potentially include anything from supply chain issues to delays in delivery of defense articles to a massive bailout of the commercial aerospace industry and issues with pension requirements, Callan warned.
“It’s like a giant rock you drop in a lake. It’s got all these waves. The people who work in restaurants or hotels are the ones feeling it immediately, but it’s going to wash up and ripple through all these sectors, and we just don’t know how or when the impact will be,” Callan said. “You’re pilling up unknowns and unknowns here.”
Todd Harrison of the Center for Strategic and International Studies noted that the design of modern production spaces shouldn’t preclude people being able to work there, noting that for “a lot of those manufacturing jobs, they’re set up, and the way a lot of people are doing work, they have adequate social distancing anyway.”
“If you’ve been in these facilities, they’re not like sweatshops where people are in crowded, unventilated areas. It’s pretty spread out, and a lot of the jobs in defense manufacturing are basically operating machinery,” he said. “I think what would be more affected would be the engineering and design functions, where the engineers tend to operate in more cubicle-like spaces — and you probably don’t want to be doing that right now.”
The Pentagon is also early in the process of getting a handle on what those impacts may look like.
The department’s top acquisitions official, Ellen Lord, has instituted a daily phone call with the Aerospace Industries Association, National Defense Industrial Association, Professional Services Council, National Association of Manufacturers, and Chamber of Commerce to “ensure the security, reliability and resilience of our defense-industrial base” and “and get feedback on COVID-19 impacts on industry,” according to a department spokesman.
The first call, which happened Tuesday, was chaired by Deputy Assistant Secretary of Defense for Industrial Policy Jennifer Santos and included representatives from the Industrial Policy office, the Defense Contracting Management Agency, the Defense Logistics Agency, and the Defense Pricing and Contracting office.
One potentially vulnerable part of the defense-industrial base is the ongoing modernization of America’s nuclear arsenal, which the head of U.S. Strategic Command said last month is approaching a “point of no return” should there be even small delays in the upgrade effort.
On Tuesday, Capt. Bill Clinton, STRATCOM’s chief of public affairs, said the combatant command is “confident the services, along with industry partners, are able to keep production related to modernization of our nuclear forces on track, while taking appropriate precautions to keep their workforces safe and healthy. … While our nation is working diligently to solve this acute public health crisis, I am confident we can continue modernizing our nuclear forces on time as planned.”
Over the past few days, Defense News reached out to a number of key defense players whose production lines could be impacted by the virus. Here is a collection of their responses:
BAE Systems spokeswoman Kelly Golden:
BAE Systems has robust business continuity plans which have been implemented and are under constant review as the situation evolves. We continue to ensure we are providing a safe work environment for our employees, customers and suppliers while minimizing impact to our operations. We have also asked our suppliers and contractors to implement measures that are consistent with those we have put in place to protect our employees.
Boeing spokesman Larry Chambers:
Boeing has issued updated guidance directing all employees who are able to perform their work from home effectively to telecommute until further notice. Some Boeing sites were already partially or fully operating under these guidelines in accordance with local or national government mandates.
Production continues at this time, and the company has enhanced cleaning procedures in work spaces, common areas and on high-touch surfaces. We’re assessing the safety of all of our sites and their alignment with local, state and national government guidance as we continuously monitor this evolving situation.
Leadership at each of our sites is working closely with their employees to implement the guidance, and will make all decisions necessary to follow evolving government direction and to ensure the health and wellbeing of their teams and communities.
Electric Boat spokeswoman Liz Power:
Electric Boat remains open for business. Our ongoing mission is to provide our Navy with the high-quality submarines they require to complete their missions. We have initiated all government-recommended measures to mitigate spread of the disease and continue to work closely with our employees, customers, suppliers, stakeholders and our community to keep them informed.
Fincantieri spokesman Eric Dent:
Fincantieri Marine Group has customers with important missions — naval and commercial — and together we’re dealing with the Coronavirus pandemic and working to prevent or reduce its impact to our mission and our people. So far, we have experienced no production delays. Obviously like other businesses and shipyards, we have to balance force health protection and production as we work through this. We’ve taken several mitigating actions, such as extensive cleanings of common areas, scrutinizing the self-reported health of every guest or visitor in the yard, eliminating all but critical travel outside the local area. In some circumstances, we are encouraging employees to work from home if possible. Through this all, we continue to reinforce the need for stringent personal hygiene and social distancing protocols, as well as eliminating large gatherings. We continue communicating with our employees so they understand the importance of their health is to us and their families, and if they exhibit symptoms or are caring for someone with flu-like symptoms, they should not risk the potential spread of it and stay home in accordance with our personnel policies.
We suspended all international travel Mar. 4, and all non-critical domestic travel on Mar. 9. We suspended intracompany travel Mar. 13, to reduce the chance of exposure across multiple Fincantieri shipyards in Wisconsin.
General Dynamics Land Systems:
We are open for business. Our ongoing mission is to provide our Soldiers with the critical platforms and capabilities that they require to complete their mission. We have initiated all government-recommended measures to mitigate spread of the disease and continue to work closely with our employees, customers, suppliers, stakeholders and our community to keep them informed.
Huntington Ingalls Industries spokeswoman Beci Brenton:
At HII we are taking actions that are designed with the health and safety of our employees at the forefront of our decision making, and this extends across the enterprise. We are having multiple meetings 24/7 with leadership and diligently monitoring the ever changing situation, as well as following CDC’s guidelines. This is rapidly evolving and some measures are division specific while others are universal. [HII has put a video statement from its CEO online addressing several issues.]
Lockheed Martin spokesman Trent Perrotto
As we monitor global developments we continue to use best practices to mitigate risks related to Coronavirus (COVID-19).
The health and well-being of our employees and partners is our top priority. Across Lockheed Martin, employees with potential exposure are instructed to work remotely and self-quarantine. We have provided guidance to employees and their managers to accommodate flexible work schedules and alternative arrangements where possible. We continue to follow travel guidance from the U.S. government and other countries where we do business, and are limiting all other international and domestic travel unless necessary for business. We also pre-screen visitors to company locations and limit guests to ensure visits are necessary for business. When the circumstances warrant, we deep clean work areas and common spaces in any facility with elevated exposure to COVID-19 and regularly share exposure-prevention protocols to reinforce healthy behaviors.
Additionally, we are mitigating any potential impacts to customers and implementing business continuity plans as required, including secure telework for our customer support teams. There are no specific impacts to our operations or supply chain at this time. We will continue to monitor and coordinate with customers should issues arise.
Northrop Grumman spokesman Tim Paynter:
We continue to closely monitor this rapidly evolving situation so we can quickly address concerns and impacts to our employees, operations and customers, and we are ready with contingency plans as the situation continues to develop.
The safety and well-being of our employees is our top priority and we are continuing to provide our employees as much information as possible.
We are taking additional steps to protect the well-being of our employees, including halting travel, limiting non-essential visitors to work environments, reducing density and increasing separation distance where possible, providing personal hand sanitizers and cleaning our workplaces on a daily basis and disinfecting as needed.
Oshkosh Defense spokeswoman Alexandra Hittle:
Oshkosh Defense is committed to preventing the spread of COVID-19 and is closely following the Center of Disease Control’s (CDC) guidelines and recommendations. The safety and wellbeing of our team members and our customers is of the utmost importance, therefore we have taken critical steps to ensure we are taking care of our people while maintaining continuity of operations.
Raytheon spokesman John Patterson:
We are actively monitoring the COVID-19 pandemic and have taken a variety of immediate steps to ensure the safety and wellbeing of our employees. This includes domestic and international travel restrictions, restrictions on face to face meetings, and new work-from-home and social distancing protocols in all our facilities. (Source: Defense News)
19 Mar 20. British engineer Meggitt working to make ventilators. British engineer Meggitt said it was leading a consortium of UK aerospace suppliers to develop and produce in large volumes a ventilator to help tackle coronavirus. It also said it could not give earnings guidance for the remainder of the year due to the global macro-economic situation. The FT reported that three industrial consortia have tagged together to try to develop medical ventilator prototypes by next week in a bid to solve a shortage in the NHS. One from the aerospace sector is being led by Meggitt and includes GKN, Airbus, Thales, and Renishaw. Two from the automotive sector will be steered by Nissan and McLaren respectively. (Source: Reuters)
19 Mar 20. Boeing-Embraer deal on knife-edge as markets tumble. Brazil has upheld proposals by Boeing Co (BA.N) to buy the jetmaking arm of Embraer (EMBR3.SA), but plunging markets have raised urgent questions over the fate of the $4.2bn (3.65bn pounds) deal as aviation reels from the coronavirus crisis.
Brazil’s anti-trust watchdog dismissed prosecutors’ objections to the politically sensitive deal on Wednesday.
A slump in Embraer shares and cash concerns at Boeing driven by the impact of the coronavirus on air travel dealt a blow to the deal’s fragile economics, however, compounding uncertainty caused by delays in winning European Union regulatory approval.
Shares in the world’s third-largest planemaker fell 14% on Wednesday, giving it a market value of about $1.3bn after falling by two thirds since the deal was first aired in 2018, according to Refinitiv Eikon data.
At such prices, Boeing would gain control of the commercial unit of Embraer but only after paying three times the value of the whole company, which also makes military and business jets.
Boeing has offered to pay $4.2bn in cash for 80% of Embraer’s commercial unit, which builds jetliners in the 70- to 150-seat segment and competes with the Canadian-designed A220 programme recently acquired by Europe’s Airbus.
Recent trends “have increased the chances that this deal does not get done,” Canaccord Genuity analyst Ken Herbert said.
At stake is a key plank of Boeing’s strategy for expanding its engineering and industrial base just as it faces talks over $60bn of U.S. support for the U.S. aerospace industry.
While Boeing could, analysts note, seek a lower price, pledges baked into the deal during months of sensitive negotiations leave Embraer’s shareholders little room for manoeuvre barring a sharp rebound.
Embraer plans to pay a $1.6bn special dividend to its shareholders out of the proceeds from the transaction.
After allowing for taxes, the plan would place Embraer’s commercial arm led by John Slattery in a new Boeing-led venture competing with Airbus’s A220 and keep aside some $1 bn of net cash for Embraer’s remaining defence and private-jet units.Embraer’s battered market value threatens to upend those calculations, barring an unlikely decision to forego the special dividend or saddle the old Embraer with debt, analysts said.
Boeing’s new chief executive, Dave Calhoun, said in January he was committed to the deal. He must now convince Boeing’s board to pursue it while also facing critics in Congress who are questioning how potential U.S. taxpayer funds would be deployed.
“They are going to Washington with their hands out for a bailout and then on the other hand looking at spending $4.2bn to complete the deal,” Herbert said.
Calhoun’s $7m performance bonus, part of a three-year package tethered to Boeing’s share price, hangs in part on his ability to close the Embraer deal, assuming regulatory approval.
“We don’t comment publicly on discussions between the parties or market speculation. We are addressing the regulatory approvals process and outstanding closing conditions,” a Boeing spokeswoman said.
Embraer declined to comment.
Embraer’s options should the deal fail have not been widely discussed and potential alliance partners are scarce.
Before the health scare hammered markets, some airlines had urged the EU to lift what then seemed the only serious obstacle to the deal, fearing Embraer’s jetliner business would struggle on its own now that Airbus owns a competitor.
But Embraer has expressed confidence in its portfolio and continues to push hard to market its latest plane, the E195-E2, which it showcased in England this week.
Brazil’s Azul SA (AZUL.N), the top customer for Embraer’s new line of jets, said last week it could delay some orders due to the coronavirus crisis, putting stress on the planemaker that was counting on its star customer to help market the aircraft. (Source: Reuters)
18 Mar 20. Rheinmetall: Strong Defence sector compensates for weak Automotive market.
- Consolidated sales grow by 1.7% to €6,255m
- Consolidated operating earnings increase to new record of €505m
- Order backlog rises to nearly €11bn
- Operating free cash flow climbs to €314m
- Dividend to be raised from €2.10 to €2.40
Outlook 2020 before effects of corona developments
- Group operating margin of approximately 7% anticipated
- Automotive expects an operating margin of approximately 5% as the market continues to decline
- Defence anticipates sales growth of between 5% and 7% and a margin of between 9% and 10%
- Annual forecasts will be adjusted if and when necessary due to the potential consequences of the global spread of the coronavirus
Following an overall successful fiscal year, Rheinmetall AG in Düsseldorf plans to raise its dividend by €0.30 to €2.40. The technology group once again recorded growth in both sales and income in fiscal 2019. This is primarily due to the positive business performance of the Defence sector, but Automotive showed robust performance in a weak market environment with overall declining passenger car production.
Armin Papperger, Chief Executive Officer of Rheinmetall AG: “With our profitability and full order books in Defence, our cost efficiency in Automotive and the Group’s financial resources, we are well prepared for the challenges we face. In Defence, we see good opportunities for continuing growth and high profitability. We want to make consistent use of the possibilities provided by military customers around the globe and to keep building on our leading positions. In Automotive, we are in a good position to build on our earlier success once the global automotive markets stabilize after the corona crisis. We will continue to benefit from rising demand for environmentally friendly mobility with our products for reducing consumption and emissions. At the same time, we are selectively expanding our activities in the field of alternative drives, so that we can continue playing an important role as a development partner to the international automotive industry in the future.”
Consolidated operating earnings exceed €500m for the first time ever in 2019 – proposed dividend of €2.40 per share
In fiscal 2019, Rheinmetall increased its consolidated sales by €107m or 1.7% year-on-year to €6,255m. Adjusted for positive currency effects and sales from M&A activities, consolidated sales grew by 0.5%.
The sales growth in fiscal 2019 can be attributed exclusively to increased revenue in the Defence sector, which increased its sales by €301m or 9.4%. By contrast, sales in the Automotive sector were €194m lower than the previous year’s figure owing to the declining trend in global automotive production in 2019.
At 69%, the international share of consolidated sales in fiscal 2019 was slightly lower than in the previous year (72%).
In fiscal 2019, Rheinmetall increased its consolidated operating earnings (EBIT before special items) to over €500 m for the first time ever. At €505m, they were up 2.9% compared with the previous year’s figure of €491m. The operating margin also improved slightly compared with last year to 8.1% (previous year: 8.0%).
Including positive special items of €7 m net, reported EBIT for the Group 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 is therefore only slightly lower than the previous year’s figure of €518m, which included large, positive special items of €27m net due chiefly to real estate transactions. At €354m, earnings after taxes were the same as in the previous year. After deduction of earnings of €19m attributable to non-controlling interests (previous year: €49m), earnings attributable to shareholders of Rheinmetall AG were €335m. This represents an increase of 9.8% compared with the previous year’s figure of €305m. Excluding the earnings attributable to non-controlling interests, earnings per share for 2019 amounted to €7.77, compared with €7.10 in the previous year.
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 of almost €10,846m on its books, which equates to growth of 20% compared to the order backlog of €9,055m in the previous year (December 31, 2018).
The Executive Board and Supervisory Board will propose increasing the dividend to €2.40 per share at the Annual General Meeting on May 5, 2020. This corresponds to a distribution ratio of approximately 31%. A dividend of €2.10 per share was paid in the previous year.
Automotive robust in a weak market environment – operating margin of 6.7%
Rheinmetall Automotive’s performance was influenced by weaker business in the international automotive industry again in 2019. Automotive’s sales sank from €2,930m in 2018 to €2,736m in 2019, a reduction of 6.6%. According to the latest market data, global automotive production shrank by nearly 6% in the same period.
All three sector divisions suffered a decline in sales compared with the previous year. Due to the weak performance of the international automotive industry, the ongoing drop in demand for diesel products for the passenger car market was not offset, as in the previous year, by other product groups such as applications for trucks and gasoline drives. As a result, new product launches were postponed or took place on a much smaller scale than anticipated.
In the Mechatronics division, sales declined in the Automotive Emission Systems and Solenoid Valves product areas in particular. In the Hardparts division, sales of small-bore pistons declined in the markets of North America and Brazil, while the European sales market proved weak with regard to plain bearings. In contrast, the Aftermarket division performed well in its global markets overall, with only a slight drop in sales.
The joint ventures in China, which are not included in Rheinmetall AG’s consolidated sales, generated sales totaling €1,010m in fiscal 2019. Compared with the previous year, this represents growth of 16%. Once again, the companies therefore significantly outperformed the Chinese passenger car market, which registered a 4% decline in production in 2019.
As a result of the drop in sales, the operating earnings of Rheinmetall Automotive (EBIT before special items) amounted to €184m in the past fiscal year, after a record high of €262m in the previous year. The operating margin consequently fell to 6.7% after 8.9% in the previous year.Defence increases margin to 9.8% with significantly higher earnings
Excellent order intake and backlog
The Defence sector’s business performance in 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.
Rheinmetall Defence increased its sales to €3,522m in the past fiscal year, growing by €301m or 9.4% compared with the previous year’s figure. Taking into account exchange rate changes and M&A activities, organic growth was 7.6%.
This rise in sales was achieved through, among other factors, the launch of the major Land 400 Phase 2 project for the Australian armed forces and the shipment of transport vehicles to the German armed forces. In addition, the start-up of the major “Future Soldier System” project with the German armed forces contributed to a significant increase in sales in the Electronic Solutions division. The Weapon and Ammunition division, in contrast, suffered a slight year-on-year drop in sales – due primarily to export restrictions in the processing of international orders.
The sector’s order intake remained at a high level. For the second year in a row, the sector received orders for 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.
Order intake in fiscal 2019 was largely influenced by the acquisition of the major Mechanised Infantry Vehicle (MIV) project, with a value of €1.4bn, for the delivery of Boxer vehicles to the British armed forces. The book-to-bill ratio in 2019 was 1.5, underscoring the Defence sector’s excellent growth prospects over the coming years.
The order backlog as at December 31, 2019, was €10.4bn. Compared with the previous year’s figure of €8.6 bn, this represents an increase of €1.8bn or a good 21%.
The sector also significantly increased its earnings in 2019. The sector’s operating earnings (EBIT before special items) amounted to €343m in fiscal 2019, after the previous year’s figure of €254 m. This represents an increase of €90m or 35%. The operating margin therefore climbed from 7.9% to 9.8%.
Outlook 2020: Defence and Automotive develop differently
Due to the comparative lack of clarity regarding the development of global automotive production over the next few months, which is currently declining due to the global economic risks associated with the spread of coronavirus, the Rheinmetall Group, too, is subject to greater forecast uncertainty regarding sales and earnings performance.
Because of the prevailing uncertainties, the possible effects of the corona virus situation have not been taken into account in the current forecast data for the 2020 financial year.
Thanks to the ongoing dynamic growth of our Defence sector, Rheinmetall expects moderate group sales growth overall. Annual sales in the Rheinmetall Group are expected to grow organically and before currency effects by between 1% and 3%. This expectation is based exclusively on the stable growth prospects for the Defence sector. In contrast, with the decline in the automotive market for the third year in a row and based on the most recent experts estimates for the development of global automotive production, lower sales are expected in the Automotive sector in 2020.
Besides the risk of weaker macro-economic development in the eurozone countries, the results of tightened CO2 regulations in the European Union, and effects of Brexit, which cannot be fully assessed, the current situation in the automotive industry is characterized by volatility risks due to unresolved trade conflicts. Added to that are the risks caused by the currently unforeseeable economic consequences of the coronavirus.
Against a background of these uncertainties regarding the development of production in all important automotive markets, Rheinmetall agrees with the expert forecasts and also expects to see global automotive production decline over the course of 2020.
Sales of the Automotive sector will be decisively influenced by the development of production in the European, North American, and Asian automotive markets – and above all there, in China, the largest global market. On the basis of current market expectations, Rheinmetall anticipates that sales in the Automotive sector – compared with the previous year’s figure and before currency effects – will fall by between 2% and 3% in the current fiscal year.
For the Defence sector, Rheinmetall expects – assuming continuing, restrictive export approvals for key European locations – to see sales growth before currency effects of between 5% and 7%. This growth forecast is essentially based on the expected program and delivery schedules from existing orders in the Defence sector for the current fiscal year.Group operating margin expected to be approximately 7%
For the Automotive sector, Rheinmetall expects an operating margin of around 5% in fiscal 2020 based on the expected decline in global automotive production and the resulting sales forecast for the sector.
Rheinmetall expects a further improvement in operating earnings in the Defence sector in 2020 and an operating margin of between 9% and 10%. Taking into account holding costs, the Rheinmetall Group’s operating margin amounts to around 7%.
The global spread of coronavirus means that, as things stand, the economic risks for fiscal 2020 are growing. Rheinmetall will monitor the potential impact and adjust the annual forecasts if and when necessary.
17 Mar 20. Trump: Boeing could get financial bailout for coronavirus. The U.S. government is considering providing financial assistance for Boeing in light of the challenges posed by the coronavirus pandemic, President Donald Trump said Tuesday.
“We have to protect Boeing,” Trump said during a news conference at the White House. “We absolutely have to help Boeing. They were doing a job well, and all of a sudden this hits. So when the airlines aren’t doing well, Boeing’s not going to be doing well, so we’ll be helping Boeing, yeah.”
Boeing has found itself in financial disarray as a novel strain of coronavirus known as COVID-19 has worked its way across the globe, prompting countries including the U.S. to issue travel bans, flight restrictions and guidance instructing citizens to stay home and avoid traveling. The pressure on the airline industry has raised questions about whether planned orders for Boeing jets will ultimately come through.
The COVID-19 pandemic struck as Boeing struggles to get its bestselling 737 Max airliner back into operation with commercial airlines. The Max has been grounded since March 2019, after two plane crashes in less than a year resulted in more than 300 deaths.
Trump did not provide specifics on what sort of short-term funding could be made available to Boeing, whether its supply chain would also be eligible for assistance, or whether such a bailout will be needed to buoy Boeing’s defense business or other defense contractors. However, a financial boost for Boeing’s commercial side could hypothetically help insulate its defense products from company-wide pressures.
Byron Callan, an analyst with Capital Alpha Partners, noted that given the amount of money aerospace companies have spent on dividends in recent years, it would be politically difficult for any company right now to get a straight handout without taxpayers getting anything back. That may be particularly true for Boeing, coming off the very public 737 MAX issue.
As a result, he predicts some sort of shareholder pain would be involved in any buyout. But given the potential for commercial airlines to shutter in the coming months, Boeing’s issues may linger — and if they do, it could result in dramatic action from the company.
“In the most severe case, is this the event that finally puts Boeing’s defense business in play? If a year from now Boeing is still struggling and have to start selling assets off, it could lead to another restructuring in the defense world,” Callan said.
In his comments on Tuesday, Trump lauded Boeing despite recent difficulties.
“Boeing got hit hard in many different ways. Boeing never had a problem, for years they were an incredible — it was unthinkable what happened to Boeing. Probably I would consider it the greatest company in the world prior to a year ago. Then they got hit in 15 different ways,” Trump said.
“They have different management [now]. I’ve met the new people running Boeing, and I think it’s going to be outstanding,” he added, presumably referring to the company’s new CEO Dave Calhoun, who replaced Dennis Muilenburg in December.
Trumps comments come after the commercial arm of Boeing asked the government to make available “short-term access to public and private liquidity” to help sustain operations and get the airline industry back on its feet, according to CNBC.
Boeing has made no such pleas on behalf of its defense arm — at least publicly — and operations of its defense business appear to be continuing without major disruption.
“Boeing has issued updated guidance directing all employees who are able to perform their work from home effectively to telecommute until further notice,” said Larry Chambers, a spokesman for Boeing’s defense business. “Production continues at this time, and the company has enhanced cleaning procedures in work spaces, common areas and on high-touch surfaces.” (Source: Defense News)
16 Mar 20. SAIC Completes Acquisition of Unisys Federal. Science Applications International Corporation (NYSE: SAIC) completed its acquisition of Unisys Federal on March 13, 2020 for $1.2bn in cash. First announced on Feb. 6, this highly strategic and value-creating transaction further differentiates SAIC in the government services market as a leader at the forefront of IT modernization.
Unisys Federal, an operating unit of Unisys (NYSE: UIS), is a top provider of infrastructure modernization, cloud migration, managed services, and enterprise IT-as-a-service through scalable and repeatable solutions serving U.S. federal civilian agencies and the Department of Defense. Together, SAIC and Unisys Federal will deliver digital transformation to the U.S. government through market-leading, technology-enabled, intellectual property-based solutions.
“This is an exciting time for our company as we continue on our transformative journey to become the leading IT modernization provider to the U.S. government. We are thrilled to welcome approximately 2,000 new colleagues to SAIC,” said SAIC CEO Nazzic Keene. “As one organization, we will make a profound difference for our customers through digital transformation. Our people represent some of the brightest minds in our industry, focused on innovation and excellence, delivering high-demand technology-driven solutions to customers.”
With Unisys Federal, SAIC gains an attractive portfolio of scalable and repeatable IT solutions, greater customer access, a commercial–like service delivery model, and expanded relationships with strategic alliances.
“With compelling financial benefits, including higher growth and profitability profiles, Unisys Federal brings new customers and differentiated solutions in areas of increasing marketing demand. Following our acquisition of Engility and now Unisys Federal, we are well positioned to take the lead in two of the fastest growing segments in government — space and IT modernization,” continued Keene. (Source: ASD Network)
16 Mar 20. MAG Aerospace To Acquire AASKI Technology. MAG Aerospace (“MAG”), an industry leader in providing and enabling real-time situational awareness, today announced that it has entered into a definitive agreement to acquire AASKI Technology (“AASKI”). The addition of AASKI’s advanced engineering capabilities, bench of 400 engineering professionals, and reputation for excellence with its customers solidifies the company’s market position as the go-to provider of full spectrum C5ISR solutions across the globe to the US Government, its allies, and commercial customers. The transaction is expected to close in the second quarter of 2020.
“When considering all our options, the one that stood out the most is the fastest growing company serving the Department of Defense, MAG Aerospace, and the outstanding support that they provide to the Warfighter. It is an honor to join such an exceptional company,” said Bharat Parikh, AASKI CEO. “Joining two cultures that create an environment for continued growth and success for all our employees was a discriminating factor in selecting MAG as our partner for the future,” said Rina Parikh, AASKI President and Founder.
AASKI provides professional services for planning, designing, implementing, securing, and managing highly complex, mission-critical networks and systems. AASKI delivers complete lifecycle communications, infrastructure, and support for the world’s most demanding clients – from the US DoD to leading communication service providers. AASKI is a Prime Contractor with a tremendous track record in bidding, winning, and executing large-scale contracts.
“When we think excellence in end-to-end communications, logistics and lifecycle management, we think AASKI Technology,” said Joe Fluet, MAG CEO. “That reputation has been established over 23 years of Mission Focused, Customer Centric work. We are proud to have AASKI join the MAG Aerospace team with the shared goal of making the world smaller and safer.”
Baird served as exclusive financial advisor to AASKI and legal counsel was provided by Holland & Knight LLP. Legal counsel to MAG was provided by Ropes & Gray LLP and Cooley LLP. (Source: PR Newswire)
13 Mar 20. Mergers: Commission approves acquisition of Raytheon by UTC, subject to conditions. The European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Raytheon by United Technologies Corporation (UTC). The approval is conditional on the divestiture of a remedy package.
The transaction combines UTC’s aerospace businesses and Raytheon’s defence business. Both companies are global suppliers of military systems and equipment to aircraft and guided munition producers, as well as armed forces.
The Commission’s investigation
During its investigation, the Commission gathered extensive information from a broad range of defence contractors, as well as directly from armed forces of the European Economic Area (EEA).
The Commission had concerns that the transaction, as originally notified, would have reduced competition in the markets for military GPS receivers and airborne radios.
Following its investigation, the Commission found that:
- Concerning military GPS receivers, UTC and Raytheon are two of the very few suppliers of the core military GPS technology wolrdwide, thus including in the EEA, which in turn constitutes a critical input for a broad range of military systems. Therefore, the merged entity would have faced very limited competition from alternative suppliers following the transaction.
- Concerning military airborne radios, UTC and Raytheon are two major suppliers of these systems worldwide and, in particular, the only two real options currently available to US military aircraft manufacturers. EEA armed forces procure a variety of military aircrafts from US manufacturers, therefore the Commission was concerned that the concentration would result in harm to EEA armed forces, including higher prices.
The Commission concluded that vertical links between UTC and Raytheon’s activities did not result to harm to competition, mainly because the merged entity would have neither the ability nor the incentives to restrict competitors’ access to essential input or to a sufficient customer base.
The Commission also investigated whether the merged entity could use systems or components in its portfolio to shut out competitors, through practices such as bundling. The Commission concluded that the merged entity would have neither the ability nor the incentives to engage in such strategies and harm competition.
The proposed remedies
To address the Commission’s concerns, UTC and Raytheon offered to divest the following activities:
- UTC’s entire military GPS receiver and anti-jamming business, located in Cedar Rapids and Coralville, Iowa, United States;
- Raytheon’s entire military airborne radios business, based in Fort Wayne, Indiana, United States.
UTC and Raytheon intend to sell both divestment businesses to BAE Systems, the UK-based defence and aerospace company.
The proposed remedies remove the entire horizontal overlap between UTC and Raytheon in both military GPS receivers and military airborne radios globally.
The Commission therefore concluded that the proposed transaction, as modified by the commitments, would no longer raise competition concerns in the EEA. The decision is conditional upon full compliance with the commitments.
Given that both companies are very important suppliers of military equipment in the US, the Commission has cooperated closely with the US Department of Justice. Likewise, the Commission has been in regular contact with the Canadian Competition Bureau. (Source: Google/https://ec.europa.eu/)
12 Mar 20. Fincantieri suspends operations amid coronavirus crisis. As Italy’s coronavirus crisis worsens, state shipbuilder Fincantieri has suspended operations for two weeks at its Italian facilities. The announcement on Friday came as Italian authorities reported Italy’s death toll from the virus had reached 1,266, while the total number of cases reached 17,660. This week, the Italian government placed the entire country under lockdown, restricting travel unless for work reasons and shutting down most shops as it attempts to slow the spread of the virus.
Fincantieri said that following a request from unions, it would suspend production in Italy from March 16 to March 29. Fincantieri tried to reduce its exposure to the virus through teleworking and halting of business travel by staff.
Italy’s other major defense company, Leonardo, said this week it could not rule out the “temporary, partial and targeted suspension of operations of certain departments within production sites.”
The firm also said marketing campaigns, supply chains, production and delivery times would likely be affected by the crisis. Leonardo expects to give an up update on impact of the virus on its financial performance soon. It reported revenue of 13.8bn euros in 2019, up 12.6 percent year over year, thanks to healthy performance by its defense electronics and security and aeronautics divisions. (Source: Defense News)
11 Mar 20. Ultra Electronics charts steadier course. A spike in North American revenues helped return Ultra Electronics (ULE) to profit growth, accompanied by an improvement in working capital management during 2019, an issue that has been a bane for the aerospace and technology group in recent years.
A ramp up in US defence spending proved hugely beneficial to the group. North America is Ultra’s largest source of turnover by destination – at £503m, it accounted for 61 per cent of overall revenues in 2019, and climbed 14 per cent on the prior year.
Chief executive Simon Pryce said that incentive schemes at the group prior to his tenure encouraged executives to take a look at cash management only twice a year, for the purposes of reporting results to the market. At the start of 2019, management introduced an ‘average working capital turn’ metric, which compares Ultra’s working capital management against gross revenue over a 12-month period. Despite Ultra’s working capital rising £17m, the average working capital turn measure improved by 12 per cent to a multiple of 7.3 times revenue. The group benefited from a jump in contract-specific advance payments and some of Ultra’s suppliers paid earlier than expected (“not at our request, because they wanted to,” according to Mr Pryce).
Mr Pryce declined to comment on an ongoing Serious Fraud Office (SFO) investigation into the conduct of business in Algeria by Ultra, its subsidiaries, employees and associated persons.
Broker Investec forecasts full-year 2020 pre-tax profits of £110m and earnings per share of 124p, rising to £117m and 132p in 2021.
Ultra’s shares leapt more than a tenth after its results release. While the SFO inquiry remains a significant bear point, Ultra is in the midst of a turnaround that is seeing the business boost its research and development spend and hook into government defence spend increases. Previously-high short interest in the stock has receded, while Ultra should also be resistant to coronavirus, and overall we think it worth hanging on to the shares if you can stomach the risk attached to an adverse SFO finding. Hold. Last IC View: Sell, 1,987p, 7 Aug 2019. (Source: Investors Chronicle)
16 Mar 20. More Millions for SpaceX. Journalist Chris Forrester at the Advanced Television infosite is revealing that Elon Musk has raised $500.06m (€441m) in fresh funding at a share price of an extremely buoyant $220 per share. This is double what SpaceX was looking to raise and means that his rocket company is now worth around $36bn (an improvement on last year’s $33bn valuation). This is, again, proof that investors love just about everything that Musk touches. In 2019 alone, SpaceX raised a total of $1.33bn during three (3) funding rounds.
SpaceX, as well as further developing its Falcon rockets, has other projects in the form of the Starlink mega-constellation, their Crew Dragon astronaut shuttle and the Starship giant rocket.
Jonathan Hofeller, VP at SpaceX, told the SATELLITE 2020 conference in DC this week that the company was building six satellites a day for Starlink, with 60 due to launch this coming weekend (March 14 to 15). (Source: Satnews)
16 Mar 20. Aim-traded shares in SRT Marine Systems (SRT:28p), a global leader in AIS, an advanced identification communications technology used to track and monitor maritime vessels, rallied 50 per cent to achieve my 55p target price at the start of this year. Another buying opportunity has presented itself after the company announced the delay of two Middle East system contracts (aggregate value of £65m) that were scheduled to start during March. This is due to the respective governments’ reprioritising their short-term operational focus on the coronavirus outbreak, a consequence being the restriction of movement of goods and people. It means that £14m-worth of revenues that SRT had expected to book in the financial year to 31 March 2020 in relation to the delivery of its GeoVS data centre systems (within the first few weeks of the contract signings) will fall into the 2020-21 financial year. The balance of the system will then be delivered across multiple milestones over an 18-month period.
The impact on the 2020-21 financial year will be to substantially increase SRT’s revenues and the directors will provide market guidance once these contracts are signed. Analyst Lorne Daniel at house broker FinnCap “feels that these contracts could see revenues exceed £50m to deliver pre-tax profits in double figures.” This means that the £43m market capitalisation company is being priced on four times likely net profit for the 2020-21 financial year even though the contracts have only been delayed due to a global issue. Buy. (Source: Investors Chronicle)