30 Apr 20. Eaton Reports First Quarter Earnings Per Share of $1.07. Adjusted Earnings per Share of $1.09 for the First Quarter Excluding Charges of $0.02 Per Share Related to Acquisitions and Divestitures Completed Sale of Lighting Business for $1.4 Bn and Expect to Complete the Hydraulics Business Sale for $3.3bn by End of 2020. 2020 Full Year Free Cash Flow Expected to be between $2.3bn and $2.7bn
Power management company Eaton Corporation plc (NYSE:ETN) today announced that earnings per share were $1.07 for the first quarter of 2020. Excluding charges of $0.02 per share related to acquisitions and divestitures, adjusted earnings per share were $1.09. Adjusted earnings per share were reduced by $0.14 due to the impact of the COVID-19 pandemic.
Sales in the first quarter of 2020 were $4.8bn, down 10 percent from the first quarter of 2019. Organic sales were down 7 percent, including a reduction of 4 percent from the impact of the COVID-19 pandemic. Acquisitions added 2 percent to sales, which was offset by 3½ percent from divestitures. Negative currency translation reduced sales by 1½ percent.
Craig Arnold, Eaton chairman and chief executive officer, said, “At our annual investor day on March 2, we indicated that our first quarter would be impacted by the COVID-19 pandemic. At that time, the pandemic was largely limited to China with little direct impact on other parts of the world. As we all know, things have changed dramatically since that time and the pandemic is now affecting all countries. At the start of the year, we expected organic sales in the first quarter to be down 3 percent. The COVID-19 pandemic reduced our sales by an additional 4 percent, resulting in a 7 percent reduction in organic sales for the quarter.”
“Despite the lower revenues, we are pleased with our first quarter segment margins, which were 15.8 percent. The margin was impacted by a restructuring charge we took at quarter end to deal with some of the anticipated impact of COVID-19,” said Arnold. “As we go forward, we will continue to focus on ensuring the safety of our workforce, implementing cost controls to offset the volume declines, and maximizing our free cash flow. Among the cost actions we have already taken are significant reductions in salaries and incentive compensation, elimination of merit increases for the year, sharp reductions in all categories of discretionary expenses, and elimination of all nonessential capital spending.”
“Operating cash flow in the first quarter was $325m,” said Arnold. “We returned substantial cash to our shareholders in the quarter, raising our quarterly dividend by 3 percent in February and repurchasing $1.3bn of our shares. As most of you know, we have paid dividends every year since 1923. We ended the first quarter with only $330m of commercial paper outstanding, and our undrawn bank facility has $2bn of capacity. With only a small term debt maturity in 2020, late in the fourth quarter, our liquidity remains quite strong.”
“We continued our work during the quarter on the previously-announced portfolio changes,” said Arnold. “We closed the sale of the Lighting business on March 2. And we expect the Hydraulics sale to close by the end of the year, which will be another source of substantial liquidity.”
“While most of our plants are still operating and our businesses are deemed essential by almost all governments around the world, the reduction in global growth and economic uncertainty will have a significant impact on our outlook for Q2 and the rest of the year,” said Arnold. “As a result, we are withdrawing our full year 2020 adjusted earnings per share guidance. We do, however, have much more visibility into our cash flow for the year. We now expect full year free cash flow for 2020 to be between $2.3bn and $2.7bn, down modestly from our February guidance.”
Business Segment Results
Sales for the Electrical Americas segment were $1.8bn, down 9 percent from the first quarter of 2019 driven by a 7 percent impact from the divestiture of the Lighting business. Organic sales were down 2 percent, as a result of the impact of COVID-19. Negative currency translation was 1 percent, which was offset by a 1 percent increase from the acquisitions of Innovative Switchgear and Power Distribution, Inc.
“On February 25 we completed the purchase of Power Distribution, Inc.,” said Arnold. “The acquisition provides us with additional high-value products for data center and industrial markets.”
Operating profits were $308m, down 8 percent from the first quarter of 2019.
“Operating margins in the first quarter were 17.2 percent, up 20 basis points over the first quarter of 2019,” said Arnold. “Excluding Lighting, the twelve-month rolling average of our orders in the first quarter was up 3 percent. In the first quarter, growth was strongest in the data center, utility, and residential markets, with weakness shown in industrial markets.”
Sales for the Electrical Global segment were $1.1bn, down 8 percent from the first quarter of 2019. Organic sales were down 6 percent, all driven by the impact of COVID-19. Negative currency translation was 3 percent, partially offset by a 1 percent increase from the acquisition of Ulusoy last year. Operating profits were $166m, down 13 percent from the first quarter of 2019.
“Operating margins were 14.5 percent, a decrease of 80 basis points from the first quarter of 2019. Operating margins were impacted by a restructuring charge we took at quarter end to deal with the impact of COVID-19,” said Arnold. “The twelve-month rolling average of our orders in the first quarter was down 1 percent. In the first quarter, we saw good growth in data centers, but that was more than offset by declines in global oil and gas markets.”
Hydraulics segment sales were $507 m, down 16 percent from the first quarter of 2019 driven by a 14 percent decline in organic sales, with the impact of COVID-19 driving 3 percent of the decline. Negative currency translation was 2 percent. Organic revenue declined due to continued weakness in the global mobile equipment market and destocking at both OEMs and distributors. Operating profits were $55 m, down 7 percent from the first quarter of 2019.
“Operating margins in the first quarter were 10.8 percent, up 100 basis points over the first quarter of 2019,” said Arnold. “Orders in the first quarter decreased 11 percent from the first quarter of 2019, driven primarily by continued weakness in the global mobile equipment market.”
Aerospace segment sales were $680m, up 13 percent over the first quarter of 2019, driven by a 14 percent increase from the acquisition of Souriau-Sunbank last year. Organic sales were down 1 percent, driven by a 3 percent decline from the impact of COVID-19. Operating profits were $147m, up 7 percent over the first quarter of 2019.
“Operating margins in the quarter were 21.6 percent, down 110 basis points from 2019,” said Arnold. “The twelve-month rolling average of our orders in the first quarter was down 1 percent. In the first quarter, we saw strength in military fighters and the military aftermarket, and particular weakness in orders for commercial transports.”
The Vehicle segment posted sales of $598 m, down 26 percent from the first quarter of 2019. Organic sales were down 20 percent, partly driven by the impact of COVID-19 which reduced sales by 5 percent. The divestiture of our automotive fluid conveyance business at the end of last year reduced revenues by 4 percent, and currency translation was negative 2 percent. Operating profits were $81 m, down 34 percent from the first quarter of 2019.
“Our revenue in Vehicle declined due to the impact of COVID-19 shutdowns, lower Class 8 OEM production, and continued global weakness in light vehicles,” said Arnold. “Operating margins were 13.5 percent, down 160 basis points from the first quarter of 2019.”
eMobility segment sales were $72m, down 13 percent from the first quarter of 2019, driven by a 12 percent decline in organic sales, of which 4 percent was due to the impact of COVID-19. Negative currency translation was 1 percent. Operating profits in the first quarter were $1m, driven by lower volumes due to continued weakness in legacy internal combustion engine platforms, and research and development expenditures and manufacturing start-up costs for new electric vehicle programs.
Eaton’s mission is to improve the quality of life and the environment through the use of power management technologies and services. We provide sustainable solutions that help our customers effectively manage electrical, hydraulic, and mechanical power – more safely, more efficiently, and more reliably. Eaton’s 2019 revenues were $21.4 bn, and we sell products to customers in more than 175 countries. We have approximately 95,000 employees. For more information, visit www.eaton.com.
Notice of conference call: Eaton’s conference call to discuss its first quarter results is available to all interested parties as a live audio webcast today at 11 a.m. United States Eastern Time via a link on Eaton’s home page. This news release can be accessed under its headline on the home page. Also available on the website prior to the call will be a presentation on first quarter results, which will be covered during the call.
This news release contains forward-looking statements concerning full year 2020 free cash flow, the closing date for the Hydraulics divestiture, and our strategy to address the impact of COVID-19. These statements should be used with caution and are subject to various risks and uncertainties, many of which are outside the company’s control. The following factors could cause actual results to differ materially from those in the forward-looking statements: the course of the COVID-19 pandemic and government actions related thereto; unanticipated changes in the markets for the company’s business segments; unanticipated downturns in business relationships with customers or their purchases from us; competitive pressures on sales and pricing; unanticipated changes in the cost of material and other production costs, or unexpected costs that cannot be recouped in product pricing; the introduction of competing technologies; unexpected technical or marketing difficulties; unexpected claims, charges, litigation or dispute resolutions; strikes or other labor unrest; natural disasters; the performance of recent acquisitions; unanticipated difficulties completing or integrating acquisitions; new laws and governmental regulations; interest rate changes; changes in tax laws or tax regulations; stock market and currency fluctuations; and unanticipated deterioration of economic and financial conditions in the United States and around the world. We do not assume any obligation to update these forward-looking statements.
Financial Results
The company’s comparative financial results for the three months ended March 31, 2020 are available on the company’s website, www.eaton.com. (Source: BUSINESS WIRE)
30 Apr 20. Boeing Statement on Bond Offering. We’re pleased with the response to our bond offering today, which is one of several steps we’re taking to keep liquidity flowing through our business and the 17,000 companies in our industry’s supply chain. The robust demand for the offering reflects strong support for the long-term strength of Boeing and the aviation industry. It is also in part a result of the confidence in the market created by the CARES Act and federal support programs that have been put in place – a testament to the Administration, Congress and the Federal Reserve.
As a result of the response, and pending the closure of this transaction expected Monday, May 4, we do not plan to seek additional funding through the capital markets or the U.S. government options at this time. The bond offering includes debt instruments with an aggregate principal amount of $25bn across seven tranches with maturities ranging from three to 40 years.
30 Apr 20. Q1 results: Covid-19 savages commercial wings; defence remains stable. Northrop Grumman’s Q1 finances have remained steady despite the impact of the Covid-19 pandemic, reporting sales increases across the board and net earnings of $868m. The results come as defence contractors Airbus and Boeing reported sweeping losses, largely due to their stagnant commercial operations.
Image courtesy of Boeing.
Across the sector, defence operations have stayed relatively steady, with Boeing president and CEO Dave Calhoun saying that its Defence, Space and Security division would ‘‘limit the overall depth of the cut” caused by the continued effects of Covid-19.
Defence contractors have sought to free up cash to maintain their operations during the crisis. Already some companies have had to temporarily pause operations on some systems, whilst the US government has looked to free up funding to keep defence contractors afloat during the pandemic.
This, however, has not stopped some contractors feeling the pinch with the damage to commercial operations outweighing the steady heading of their defence divisions.
Northrop stays steady, but are there signs of cracks?
Bucking the trend seen in other companies’ reports, Northrop Grumman saw growth across all of its business segments in Q1 of 2020. Across all of its business divisions, Northrop Grumman reported total sales of $8.6bn, a 5% increase on the same period in 2019.
Northrop Grumman’s space division saw the biggest growth in sales of 8% compared with last year, increasing to $1.9bn.
Commenting on the results, Northrop Grumman chair, chief executive officer and president Kathy Warden said: “Our results this quarter reflect the strength of our business, our portfolio’s alignment to the highest-priority global security threats, and the dedication of our team to deliver for our customers and our shareholders in a challenging environment,”
During the quarter, Northrop Grumman increased its cash flow by $80m, however, the company said that this was largely in line with the prior year’s cash use, not as a result of Covid-19.
Despite staying relatively steady, Northrop Grumman updated its 2020 guidance in light of the pandemic and its effects on the market. The company updated its projected sales, decreasing it from $35.3bn-$35.8bn to $35bn-$35.4bn.
GlobalData associate aerospace and defence analyst Madeline Wild said: “The military orientated sales portfolio of Northrop has buffered the company against the effects of Covid-19 compared to more commercially led companies such as Boeing and Airbus. During the pandemic, Northrop has continued to push forward with product development, testing, for instance, their OmegA rocket on schedule despite the Covid-19 crisis.
“Subsequently, sales have grown for Northrop along lines of relatively secure investment. The US awarded Northrop Grumman a US$165 million contract on 24 April for the production of Lot 9 Full-Rate Production (FRP) of the AGM-88E advanced anti-radiation guided missile (AARGM).”
Despite the positive signs, the company’s operating income for its aeronautics systems and defence systems divisions fell by 16% and 3% respectively. In Q1 of 2020, its aeronautics systems wing posted an operating income of $259m, down from $308m in the same period of last year. Similarly, income from defence systems fell from $202m to $196m.
Wild added: “These figures suggest that there has been some level of supply chain disruption due to Covid-19. Not only physical disruption due to reduced workforce but also cost increases in the aeronautics related to the collapse of air travel and the struggle of commercial aviation.
“Northrop mentioned, for instance, EAC adjustments for Autonomous Systems that have lowered operating income figures. Nevertheless, if Northrop manages to support smaller companies within its supply chain and to maintain production schedule, the company should withstand the lasting effects of the pandemic.”
Airbus feels the pinch
Airbus chief executive officer Guillaume Faury said of the company’s Q1 results: “We saw a solid start to the year both commercially and industrially but we are quickly seeing the impact of the Covid-19 pandemic coming through in the numbers.”
Airbus saw business across the board fall dramatically, contributing to around $526m (€481m) in losses. Faury added that the company was ‘in the midst of the gravest crisis the aerospace industry has ever known’.
Across the board, Airbus revenue fell by 15% from $13.6bn (€12.5bn) to $11.5bn (€10.6bn). The company’s defence business took a big hit in this period, with its EBIT-adjusted results falling 85% from $101m to $16.3m.
Airbus said: “EBIT Adjusted at Airbus Defence and Space decreased to €15m (Q1 2019: €101m), reflecting the lower business performance, including in Space Systems. Due to the severity of the coronavirus pandemic, the incremental impact on the business is being assessed and the restructuring plan at Defence and Space will be adjusted accordingly.”
GlobalData aerospace and defence analyst Anthony Endresen told Army Technology: “With major primes like Airbus straddling defence and commercial aerospace, the collapse of the commercial passenger market is a hammer blow to company finances in the short-medium and long terms. These issues do not represent an existential threat to Airbus, given its significance to several key European states, in addition to its role in vital defence programmes.
“Important Airbus measures such as planned output reduction to maintain production whilst preserving cash in the commercial sector will be of importance great use to the company. I
would like to see Airbus address a number of issues now, from logistics in terms of delivery of finished aircraft – mentioned as a looming issue – to proposing some measures to allow defence work to take up the slack where commercial work has stalled. The latter would entail initiatives such as those pointed to by the assistant secretary of the US Navy for research, development and acquisition James Geurts this week.”
Defence buoys Boeing’s losses
In its Q1 results, Boeing posted a loss of $641m and burned through $4.3bn in cash as the company tries to stay afloat and see its way through the ongoing crisis.
In response to this, Boeing has tightened its belt, reducing operating costs, cutting spending, further suspending stock buybacks and dividend payments, and deferring research and development spending to later quarters.
In a letter, Boeing president and CEO Dave Calhoun said: “The ongoing stability of our defence, space and related services businesses will help us limit the overall depth of the cut. And in the end, because there are so many unpredictable drivers for this crisis, we’ll have to monitor continuously what’s happening in our markets, and we will make adjustments whenever needed to ensure we’re matching the size of our business to the changing demand in the market.”
The majority of the damage to Boeing’s finances came from its commercial aircraft division, which was already recovering from the ongoing damage from the 737 MAX; revenues for this section of Boeing dropped by 48% and posted an operating loss of $2bn.
In comparison, Boeing Defence, Space and Security saw a smaller drop in revenues, decreasing by 8%. Across the division Boeing posted operating losses of $191m compared with earnings of $852m for the same period last year.
On top of this, Boeing’s global services wing in Q1 delivered earnings of $708bn, the only wing of the company to not lose money during the quarter largely due to military support contracts. In its results, Boeing said: “During the quarter, Global Services was awarded a P-8A integrated logistics services and site activation support contract modification from the US Navy and the government of Australia and secured a logistics, components and services contract for the US Army AH-64 Apache fleet.”
GlobalData aerospace and defence analyst Nicolas Jouan said the future of Boeing could lie in a shift to focusing more on defence, at least in the short term.
Jouan said: “The German press reported that the Federal Government was ordering 30 additional F/A-18 Super Hornet and 15 EA-18G Growler to Boeing in order to replace ageing Tornado and Typhoon. The two F-18 variants can conveniently fill Germany’s capability gaps without engaging in a new program such as Lockheed Martin’s F-35 as the country is also involved in its own next-generation fighter programme in partnership with France: the FCAS. Boeing benefits from this, and will likely see the defence and space share of its business growing in 2020.
“Defence represented 34% of revenues against 42% for commercial aeroplanes in 2019, but could very well become Boeing’s most important revenue stream in 2020. More cancellations of the 737 should be expected in the months to come, which will tip the balance in favour of the company’s defence portfolio.” (Source: army-technology.com)
30 Apr 20. Thales Reports Its Q1 2020 Order Intake And Sales.
- Order intake: €2.7bn, up 17% (down 15% on an organic basis1)
- Sales: €3.9bn, up 16% (-4.7% on an organic basis)
- First impacts of the disruptions caused by the Covid-19 crisis
- Implementation of the global crisis adaptation plan announced on 7 April.
Thales (Euronext Paris: HO) announces today its order intake and sales for the first quarter of 2020.
“Q1 2020 order intake and sales are marked by the first impacts of the Covid-19 crisis, hiding the good dynamics of both Defense & Security and Digital Identity & Security segments. All Thales teams are fully mobilized to implement the global adaptation plan announced on 7 April.
Coming out of this unprecedented crisis, Thales will benefit from its unique positioning: a solid and diversified client base, a worldwide footprint and a portfolio of key technologies at the highest scientific and technical levels, especially in the digital field. These key structural assets will enable us to quickly return to a profitable growth trajectory”.
Patrice Caine, Chairman and Chief Executive Officer
Order intake
In the first quarter of 2020, order intake amounted to €2,663m, up 17% compared to Q1 2019, following the integration of Gemalto’s businesses (consolidated from 1st April 2019). At constant scope and currency3, it was down 15% compared to Q1 2019.
The impact of the disruption related to Covid-19 is estimated at around €190m for the first quarter, of which €80 m is related to civil aeronautics businesses and approximately €110 m is related to other businesses, largely due to delayed orders. Adjusted for this impact, order intake was down by approximately 8%, reflecting the natural volatility of large contract signatures.
During the quarter, the Group booked one large order worth more than €100m, namely for an air surveillance system in a Middle Eastern country. By comparison, the Group booked 3 large orders in Q1 2019.
Orders with a unit value of less than €10m totalled €1,462m, up 4% from Q1 2019 excluding the impact of the Gemalto consolidation.
From a geographical4 point of view, order intake was up 5% in mature markets and up 54% in emerging markets compared to Q1 2019, driven by the integration of Gemalto. On an organic basis, order intake was down 18% in mature markets and down 5% in emerging markets, reflecting the geographical mix of large orders booked in the 2 periods. Thanks to a strong performance in avionics from January to mid-March 2020, order intake in the Aerospace segment was up 16%, amounting to €778m vs €672m in Q1 2019, despite the negative impacts from the Covid-19 crisis. Space order intake was stable compared to Q1 2019.
Compared to a robust Q1 2019, order intake in the Transport segment was down 37% to €156m, impacted by delays in finalising contracts.
Order intake in the Defence & Security segment fell sharply (-26%), totalling €960m versus €1,301m in Q1 2019. This decline reflects the natural volatility of large orders and delays caused by the Covid-19 crisis.
Orders in the Digital Identity & Security segment are structurally close to sales, as the majority of the businesses in this segment operate on short cycles. The difference between order intake and sales during the first quarter was due to the booking of two significant biometric orders.
Sales
Q1 2020 sales came in at €3,899m versus €3,361m in Q1 2019, up 16% on a reported basis and down 4.7% at constant scope and currency5. Adjusted for the estimated impact of disruptions caused by the Covid-19 crisis, sales were up slightly, in line with expectations.
The impact of the Covid-19 crisis on Q1 sales is estimated at around €200 m, of which €60m is related to civil aeronautics businesses and €140 m to other businesses, the latter largely due to the impact of sanitary measures on productivity.
From a geographical6 point of view, this decrease was primarily observed in emerging markets (down 23.0% on an organic basis), while mature markets recorded an organic growth of 2.3%, driven mainly by the strong performance of the French market (+9.8%).
In the Aerospace segment, sales totalled €1,083m, down 11.3% compared to Q1 2019 (-11.9% at constant scope and currency). This decline was notably due to a €60m impact of Covid-19 related disruptions on civil aeronautics businesses and to a lesser impact on the rest of the segment, reflecting the first disruptions in France and Italy. Space sales continued to decline in line with expectations, reflecting the phasing of institutional orders and the slowdown in the commercial market that began in 2017.
In the Transport segment, sales came in at €347m, down 12.9% compared to Q1 2019 (-13.1% at constant scope and currency). Most of this decline was due to the phasing down of the four major urban rail signalling contracts signed in 2015 and 2016 (London, Doha, Dubai and Hong Kong). Despite some difficulties related to on-site deployment, the Covid-19 crisis had only a moderate impact this quarter, since most teams are based in countries relatively unaffected by the sanitary measures in the first quarter.
Sales in the Defence & Security segment were €1,724m, up 2.3% compared to Q1 2019 (+2.4% at constant scope and currency). Growth in the segment was affected by a high basis of comparison (strong performance in 2019) and by the first effects of production delays related to Covid-19, particularly on French sites.
Sales in the Digital Identity & Security segment totalled €727m, up 5% compared to Q1 2019 on a pro forma basis. This growth was driven by another dynamic quarter for EMV payment cards and a modest decline in SIM card sales. The Covid-19 crisis mainly affected biometric solutions and IoT modules, with very little impact in the rest of the segment.
Outlook
As stated in the 7 April 2020 press release, the global environment in the first half of 2020 has been profoundly changed by the Covid-19 public health crisis, which is affecting Thales like all companies, thus invalidating the 2020 financial outlook issued in February.
The measures implemented to limit the spread of the virus have a significant impact on the Group’s production, project execution, supply chains and customers’ ability to take delivery of products and systems.
In addition, this crisis is affecting demand across the Group’s markets. The greatest impact is expected to be on civil aeronautics businesses, which generated sales of approximately €2.15 bn in 2019.
In this context, and while keeping as number one priority the health and safety of its employees, Thales has launched a global adaptation plan7 in order to (1) maintain its productive capacities at the service of its customers, (2) limit the financial impact of this crisis and (3) strengthen its funding capacity in the event that the crisis persists or worsens.
At this stage, it is impossible to quantify the financial impact of this crisis on the Group’s financial statements. The impact will depend in particular on the scope and duration of the sanitary measures imposed in the various countries where the Group operates.
Considering that a large part of the world is under some form of partial or full lockdown, the Group expects the crisis to have a very significant impact on its activity during Q2 2020 and on its H1 2020 financial statements.
As soon as it is able to do so, Thales will provide an update on the financial impact of this crisis on its financial statements and adjust its financial outlook.
29 Apr 20. Safran sales fell 8.8% in first-quarter, says has enough liquidity. France’s Safran (SAF.PA) reported an 8.8% drop in like-for-like first-quarter revenue to 5.38bn euros ($5.84bn) as the coronavirus crisis began to weigh on its aircraft engines and interiors business. The world’s third-largest aerospace supplier said the month of March, when lockdowns were first implemented in Europe to halt the spread of the disease, saw a 20.4% drop after a slight decrease in the first two months in line with earlier forecasts.
In the widely watched civil aftermarket for engine spares and servicing, Safran said revenue was down 3.3% in dollar terms, having grown in line with targets in January and February followed by a 20% drop in March.
Safran co-produces engines with General Electric (GE.N) for all Boeing (BA.N) and some Airbus (AIR.PA) narrow-body passenger jets.
Chief Executive Philippe Petitcolin told reporters Safran remained on “solid” foundations with 3.2 bn euros of cash and cash equivalents on March 31.
The company said it had finalised a bridge loan of 3 bn euros available for up to two years which it announced in March.
Safran aims to maintain positive cash generation over the full year “despite significant potential headwinds” in the second and third quarters from the crisis.
Safran is making significant cost cuts, Petitcolin said. (Source: Reuters)
29 Apr 20. General Dynamics profit misses estimates as pandemic delays Gulfstream deliveries. Defense contractor General Dynamics Corp (GD.N) missed Wall Street estimates for quarterly profit on Wednesday as travel restrictions linked to the new coronavirus pandemic delayed deliveries of its Gulfstream business jets. Shares were flat on Wednesday as the company flagged a $549m (441.42m pounds) decline in revenue at its aerospace segment, with Gulfstream deliveries totaling 23 jets in the first quarter, down from 34 a year earlier.
“For the year, we had anticipated delivery of somewhat in excess of 150 aircraft. It now appears that we will be between 125 and 130 deliveries,” Chief Executive Phebe Novakovic said on a post earnings call with analysts.
She said that the supply chain had slowed its production and there was a shutdown of at a Gulfstream facility in the midst of the pandemic.
Revenue at its aerospace unit fell 24.5% to $1.69bn. Profit margins at the unit also fell slightly.
Earnings per share for the year are now expected to be between $11.30 and $11.40, Novakovic said on the call. In January the company forecast 2020 earnings per share of between $12.55 and $12.60.
During the quarter, the company issued bonds and boosted its cash position to more than $5bn, up from just under a billion.
Defense contractors like General Dynamics are expected to see much less disruption linked to the outbreak of the coronavirus as most of their revenue is from government contracts, which are considered to be reliable as governments are unlikely to reduce spending during the pandemic.
The Pentagon, General Dynamics’ biggest customer, increased interim payments to defense contractors and is also paying for sick time for quarantined employees, which is expected to buoy the defense industry as the pandemic affects the economy.
During the quarter, the company’s Combat Systems business unit, which makes tanks, was awarded a $300m contract from the U.S. Army to upgrade its M1A2 Abrams tanks. The unit saw revenue up 4.4% over the same quarter a year earlier.
The U.S. Navy awarded General Dynamics a contract worth $875m for refueling ships during the quarter. The Marine Systems unit, which makes ships and submarines for the U.S. Navy, saw revenue up 9.1% from the same period last year.
Net earnings fell to $706m, or $2.43 per share, in the first quarter ended March 29, from $745m, or $2.56 per share, a year earlier. (Source: Reuters)
29 Apr 20. Boeing cuts jobs and production as coronavirus slashes demand. Collapse in air travel prompts group to reduce output across the board. Boeing had shut plants in Washington state, South Carolina and suburban Philadelphia for weeks due to the spread of Covid-19. Boeing plans to cut its workforce by 10 per cent, as the coronavirus pandemic throttles global demand for jets and forces the manufacturer to lower production rates for nearly its entire portfolio of commercial aeroplanes. The company had total of 160,000 employees at the end of last year. The commercial aeroplane division, which makes up about two-thirds of Boeing, will bear the brunt with a 15 per cent cut in jobs. Chief executive David Calhoun said in a memo to staff that the cuts would come through a mix of voluntary and involuntary lay-offs. The Chicago-based company on Wednesday posted a $641m net loss in the first quarter compared with $2.1bn in net income for the same period last year. Revenue fell more than a quarter to $16.9bn. Boeing also reported a flurry of charges totalling $2.3bn.
The aerospace manufacturer shut plants in Washington state, South Carolina and suburban Philadelphia for weeks due to the spread of Covid-19. Though they have since reopened, the company’s airline customers continue to suffer from plummeting demand for air travel, prompting them to defer deliveries on jets. “The Covid-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity and supply chain stability,” said Mr Calhoun. The 737 Max will have a “slower than planned” ramp-up once production resumes, increasing to 31 a month in 2021. Boeing slowed the production rate to 42 a month last year from 52 after two fatal crashes resulted in a worldwide grounding. It halted production in January. The wide body 787 Dreamliner unit will halve production. Boeing said previously that it would cut the rate from 14 a month to 10 a month by 2021.
Now, it will reach the lower figure by the end of this year, and it will fall to seven by 2022. The 777 and 777x production will go from five planes a month to three in 2021. The company will continue to make 767s and 747s at the same rates. Recommended Boeing Co Boeing investors could wait ‘years’ for dividend to return The charges reported by the group included an additional $1bn in “abnormal production” costs on the 737 Max, due to Covid-19. Last quarter the company estimated these charges at $4bn, and about $800m of the figure was expensed in the first quarter. Boeing logged another $137m charge due to the shutdown of its operations in Washington state unrelated to the Max. It is taking a $336m charge for repairing the so-called “pickle fork” on its 737 NG planes, which are in widespread use, and a pre-tax $827m charge on the flawed KC-46A tanker that the US Air Force has insisted Boeing pay to repair. Boeing also reported a free cash outflow of $4.7bn, compared with a positive free cash flow of $2.3bn in the first quarter last year. Free cash flow, a measure of cash minus capital expenditures, is a key metric by which investors judge the aerospace manufacturer. (Source: FT.com)
29 Apr 20. KBR, Inc. First Quarter 2020 Financial Results Underscore Business Resilience.
– Strong business continuity; safe and effective transition to teleworking amidst COVID-19
– Healthy liquidity profile and cash flow underscore business resilience; credit rating upgrade
– Operating Cash Flow $41 m, Adjusted Operating Cash Flow $65 m
– Simplifying and Restructuring Energy Solutions; Q1 charge
– Diluted loss per share $(0.73), Adjusted EPS $0.39 and Adjusted EBITDA of $112m
KBR, Inc. (NYSE: KBR), a global provider of differentiated, professional services and technologies across the asset and program life cycle within the government services and energy industries today announced first quarter 2020 financial results.
“I am pleased to announce the company’s first quarter 2020 financial results,” said Stuart Bradie, President and CEO of KBR. “With more than 85% of our portfolio supporting mission critical government services and delivering proprietary technology solutions, our business continues to be resilient amidst the COVID-19 pandemic and energy market downturn,” Bradie said.
Today, the company continues to maintain a healthy liquidity profile and produced strong free cash flow in the first quarter 2020. Our $500m revolving credit facility remains essentially untapped, and based on expected free cash flow for the year, we do not plan to draw on this source of funds for operating purposes in 2020. Additionally, management plans to maintain its regular quarterly dividend at $0.10 per share, reflecting the 25% increase announced earlier this year.
“We produced excellent cash flow in the quarter and core operating results were in line with our expectations. Strong liquidity combined with our ability to generate healthy free cash flow in the current environment is an indicator of the long-term sustainability and durability of our company,” Bradie said.
Operational Update
“During these unprecedented times, our primary focus continues to be the health, safety and wellbeing of our people,” Bradie continued. “With operations in China and South Korea, we took the threat of coronavirus seriously early. In January we stood up our global crisis management team, began planning for various scenarios, tested our business resilience plans and IT infrastructure and started transitioning our people to telework arrangements. Today over 90% of our office personnel are successfully working from home,” continued Bradie. “Operationally, we remain laser focused on serving our clients. With a significant majority of our portfolio supporting mission critical operations for the U.S., U.K. and Australian governments, our people swiftly and deftly mobilized to ensure continuity of service,” Bradie continued.
Government Solutions delivered 1.3x book-to-bill (BTB), excluding the workoff of PFIs, defending its largest recompete of 2020 and achieving BTB of greater than 1x in each of its three major service lines. “Our Government Solutions customers across the world have been hugely supportive, and the vast majority of our government work continues on pace with our 2020 expectations. Our clients have worked closely with us as we transitioned and have gone to great lengths to support business as usual during unusual times,” said Bradie.
In February, the company acquired certain contracts from SMA in Australia under which we will deliver technical training, curriculum development, technical documentation, and data analysis to the Royal Australian Navy. Our Government Solutions Australia team has been successful in leveraging our highly specialized, technology-enabled capabilities as the Australian Department of Defence modernizes and renews its platforms. The addition of these contracts providing white-collar, professional services is highly strategic as it further expands our footprint in this growing market.
The Technology business continues to benefit from strong 2019 backlog. As expected, bookings in the first quarter were lower due to COVID-19 and have been further impacted with the disruptions in the energy market. We have begun to see activity in this sector picking up and expect a modest but temporary dip in performance in this business. Our long-term outlook remains strong.
Energy Solutions
Our Energy Solutions business has been adversely impacted by the energy market downturn and COVID-19-related demand reductions. Management is closely monitoring capital investment and spending modifications across its client base and has taken the following proactive measures to immediately reduce costs and increase resilience for the future:
- Streamlining and restructuring Energy Solutions, including reducing excess real estate capacity and overhead ahead of the curve;
- Simplifying the Energy Solutions business under one KBR brand and management structure.
As a result of these actions, the company recorded a pretax charge of $178m during the first quarter 2020, of which almost 90% was non-cash to impair goodwill, equity investments, real estate and other assets. This charge had a minimal impact on financial liquidity.
The KBR Board and CEO are taking a voluntary 15% salary reduction in the second quarter 2020, and the leadership team across KBR is taking a 10% reduction.
Looking Forward
“We believe our preparedness for COVID-19 has enabled continuity of service to our customers and stakeholders, the resilience of our Government and Technology Solutions businesses and our actions to better position our Energy business will enable continued delivery of predictable, stable and sound financial results. We are proud of our employees’ unwavering commitment, focus and agility and are confident of our team’s ability to deliver during this tumultuous time,” Bradie concluded.
29 Apr 20. Airbus chief says aerospace in ‘gravest crisis’ industry has known. French plane manufacturer swings to quarterly loss as coronavirus takes toll on sector. Airbus’s chief executive said the coronavirus pandemic had led to the “gravest crisis” the industry has known as the aircraft manufacturer reported a net loss in the first quarter. Airbus reported a consolidated net loss of €481m, against a €40m profit for the same period a year earlier, and adjusted earnings before interest and taxes fell 49 per cent to €281m. Consolidated revenues slipped 15 per cent year on year to €10.6bn, reflecting 40 fewer aircraft delivered in the first quarter, the plane maker said. “We saw a solid start to the year both commercially and industrially but we are quickly seeing the impact of the Covid-19 pandemic coming through in the numbers,” said chief executive Guillaume Faury.
“We are now in the midst of the gravest crisis the aerospace industry has ever known.” The manufacturer did not give new guidance because of what it described as “limited visibility”. Recommended Aircraft manufacturing Airbus is ‘bleeding cash’, says chief executive The global aviation industry has been particularly badly hit by the Covid-19 pandemic as travellers stay home and countries introduced strict entry restrictions, forcing airlines to ground fleets and delay or cancel orders of new aircraft. The group reported negative cash flow of €8.03bn, which included a €3.6bn fine paid to regulators in France, the UK and the US over a bribery scheme. This month Mr Faury told the workforce of 133,000 that the company was “bleeding cash”, which threatened the existence of the company. Airbus also said this month that it would cut aircraft production by a third, slashing production of the A320 single-aisle jet from 60 to 40 a month, reducing the output of A350s to six a month from 10 previously and produce just two A330 jets a month from expectations of 40 a year. (Source: FT.com)
29 Apr 20. Airbus first-quarter core profit plunges 49% as coronavirus crisis starts to bite. Planemaker Airbus (AIR.PA) on Wednesday posted a 49% slump in first-quarter adjusted operating profit to 281m euros ($304. m) as revenue dropped 15% to 10.631bn euros amid the “gravest crisis the aerospace industry has ever known”.
Europe’s largest aerospace group also reported a negative cashflow of 8.03bn euros, including a previously published record fine of 3.6bn euros to settle bribery and corruption investigations in Britain, France and the United States.
Planemakers, airlines and suppliers have been left reeling by the coronavirus pandemic, which has crippled passenger travel and catapulted major economies into recession.
Airbus suspended its profit outlook, scrapped its dividend and negotiated new commercial credit lines last month as the spread of the coronavirus began to impact airline operations and almost halted the delivery of aircraft.
Several other top aerospace firms are also expected to report weaker results on Wednesday, including U.S. rival Boeing (BA.N), which is also hit by the continued grounding of its 737 MAX, though the impact of the coronavirus is mostly expected in the second quarter.
Airbus said it would focus squarely on saving cash.
The France-based group will reduce 2020 capital expenditure by around 700m euros to around 1.9bn euros and defer or suspend activities which are “not critical to business continuity” or meeting other commitments.
($1 = 0.9223 euros)(Source: News Now/Reuters)
29 Apr 20. Airbus reports First Quarter (Q1) 2020 results.
- Market environment strongly impacted by COVID-19 situation, particularly in commercial aircraft
- Q1 2020 financials partially impacted by COVID-19
- Revenues €10.6 bn; EBIT Adjusted € 281 m
- EBIT (reported) €79m; loss per share (reported) €-0.61
- Free cash flow before M&A and customer financing €-8.0bn / €-4.4bn before payment of €3.6bn penalties
- Strong focus on matching production to demand and cash containment
- Assessment of COVID-19 implications on outlook in progress. No new guidance issued given limited visibility
Airbus SE (stock exchange symbol: AIR) reported consolidated financial results for its First Quarter (Q1) ended 31 March 2020.
“We saw a solid start to the year both commercially and industrially but we are quickly seeing the impact of the COVID-19 pandemic coming through in the numbers,” said Airbus Chief Executive Officer Guillaume Faury. “We are now in the midst of the gravest crisis the aerospace industry has ever known. We’re implementing a number of measures to ensure the future of Airbus. We kicked off early by bolstering available liquidity to support financial flexibility. We’re adapting commercial aircraft production rates in line with customer demand and concentrating on cash containment and our longer-term cost structure to ensure we can return to normal operations once the situation improves. At all times, the health and safety of Airbus’ employees is our top priority. Now we need to work as an industry to restore passenger confidence in air travel as we learn to coexist with this pandemic. We’re focused on the resilience of our company to ensure business continuity.”
Net commercial aircraft orders totalled 290 (Q1 2019: -58 aircraft) with the order backlog comprising 7,650 commercial aircraft as of 31 March 2020. Airbus Helicopters booked 54 net orders (Q1 2019: 66 units), including 21 H145s, 15 UH-72 Lakotas for the US Army and 2 Super Pumas. Airbus Defence and Space’s order intake of € 1.7 bn included military aircraft-related services, new contract wins in telecommunications and in connected intelligence. Also included is the Phase 1A demonstrator contract for Europe’s Future Combat Air Systems programme.
Consolidated revenues decreased to €10.6bn (Q1 2019: € 12.5bn), reflecting the difficult market environment impacting the commercial aircraft business with 40 less deliveries than a year earlier, partly offset by a better mix and more favourable foreign exchange environment. A total of 122 commercial aircraft were delivered (Q1 2019: 162 aircraft), comprising 8 A220s, 96 A320 Family, 4 A330s and 14 A350s. Airbus Helicopters delivered 47 rotorcraft (Q1 2019: 46 units) with its 19% increase in revenues reflecting the favourable delivery mix and growth in services. Revenues at Airbus Defence and Space were stable year-on-year. One A400M transport aircraft was delivered in the quarter.
Consolidated EBIT Adjusted – an alternative performance measure and key indicator capturing the underlying business margin by excluding material charges or profits caused by movements in provisions related to programmes, restructurings or foreign exchange impacts as well as capital gains/losses from the disposal and acquisition of businesses – declined to € 281 m (Q1 2019: € 549 m), mainly driven by Airbus.
Airbus’ EBIT Adjusted of € 191m (Q1 2019: € 463m(1)) mainly reflected the lower commercial aircraft deliveries and associated costs, partly offset by positive foreign exchange effects.
Airbus delivered further industrial progress in the first quarter, however around 60 aircraft could not be delivered due to the COVID-19 pandemic. As announced in early April, due to the COVID-19 situation average monthly aircraft production rates are being adjusted to 40 for the A320 Family, 2 for the A330 and 6 for the A350. This represents a reduction of roughly one third compared to pre-crisis average production rates. On the A220, the Final Assembly Line in Mirabel, Canada, is expected to progressively return to a monthly rate of 4 aircraft.
Airbus Helicopters’ EBIT Adjusted increased to €53m (Q1 2019: €15m), reflecting the favourable delivery mix and growth in its services business.
EBIT Adjusted at Airbus Defence and Space decreased to €15m (Q1 2019: €101m), reflecting the lower business performance, including in Space Systems. Due to the severity of the coronavirus pandemic, the incremental impact on the business is being assessed and the restructuring plan at Defence and Space will be adjusted accordingly.
Consolidated self-financed R&D expenses totalled €663m (Q1 2019: €654m).
Consolidated EBIT (reported) was €79m (Q1 2019: €181m), including Adjustments totalling a net €-202m. These Adjustments comprised:
- €-33m related to A380 programme cost;
- €-134m related to the dollar pre-delivery payment mismatch and balance sheet revaluation;
- €-35m of other costs, including compliance costs.
The consolidated reported loss per share of € -0.61 (Q1 2019 earnings per share: € 0.05) includes the financial result of € -477m (Q1 2019: €-43m). The financial result includes a net € -245m related to Dassault Aviation financial instruments and €-136m from the full impairment of a loan to OneWeb, which filed for Chapter 11 bankruptcy proceedings in late March. The consolidated net loss(2) was € -481m (Q1 2019 net income: €40m).
Consolidated free cash flow before M&A and customer financing amounted to €-8,030m (Q1 2019: € -4,341m) and included the payment of €-3.6bn in penalties related to January 2020’s compliance agreement with the authorities. Despite the lower commercial aircraft deliveries and the significant inventory build-up, free cash flow before M&A and customer financing was at a similar level compared to the first quarter of 2019 when excluding the penalty payment. Consolidated free cash flow was € 8,501m (Q1 2019:
€-4,448m). The consolidated net cash position was €3.6bn on 31 March 2020 (year-end 2019: €12.5bn) with a gross cash position of €18.4bn (year-end 2019: €22.7bn).
Given the current COVID-19 environment, various measures were announced in late March 2020 to protect the Company’s financial liquidity and continue to fund its operations. These included securing a new credit facility amounting to €15bn, withdrawing the 2019 dividend proposal and suspending the voluntary top up in pension funding. In addition, a €2.5bn bond was issued, partially terming out the €15bn credit facility, and settled on 7 April 2020. In coming quarters, the Company will continue to focus on cash preservation and will be reducing cash outflows. Besides reducing expected 2020 capital expenditure by around €700m to around €1.9bn, the activated measures also include the deferral and suspension of activities which are not critical to business continuity and to meeting customer and compliance commitments.
The 2020 guidance was also withdrawn in March. The impact of COVID-19 on the business continues to be assessed and given the limited visibility, in particular with respect to the delivery situation, no new guidance is issued.
29 Apr 20. Boeing eyes major bond issue to raise funds – sources.
- Boeing Co (BA.N) is working with investment banks on a multibillion-dollar bond-fueled financing package, aiming to shore up its balance sheet amid a sharp travel downturn from the pandemic, three people familiar with the matter said on Tuesday.
The preparations reflect Boeing’s confidence that it can tap the capital markets to strengthen its finances, even as the largest U.S. planemaker weighs seeking government aid.
Boeing has lined up investment banks to potentially market an offering to bond investors in the coming days, provided that market conditions are favorable, the sources said, cautioning that the exact timing and size of the offering had not been decided. The proceeds could amount to $10bn or more, depending on investor demand, one of the sources added.
The sources asked not to be identified because the matter is confidential. Boeing declined to comment. The company is expected to elaborate on its funding options when it unveils its first-quarter earnings on Wednesday.
Boeing has also considered applying to the U.S. Treasury Department for aid under a $17bn program for companies that are critical to national security, according to the sources. But Boeing’s chief executive, David Calhoun, has been wary of the strings attached to such aid, especially the possibility that the company would have to give the government an equity stake.
Boeing is also examining the funding support available to companies from the Federal Reserve, one of the sources said. One of Federal Reserve’s newly established programs, the Primary Market Corporate Credit Facility, will provide support to companies issuing bonds without placing any strict conditions on them, such as limits to dividend payouts or executive compensation.
Calhoun told investors during the company’s annual shareholder meeting on Monday that the company would need to borrow more over the next six months.
Credit ratings agency Moody’s Investors Service Inc estimated this month that Boeing’s funding needs could top $30bn in 2020. The company secured about half of this by drawing down on a $13.8bn credit line in March, Moody’s said. Boeing also suspended its dividend.
Boeing is trying to bring its 737 MAX jet back into service after two fatal crashes, even as the aviation industry is hammered by the coronavirus pandemic, which has dried up demand for passenger air travel.
The 737 MAX jet is expected to remain grounded at least until August, as the manufacturer continues to grapple with software issues, people briefed on the matter told Reuters on Tuesday.
Boeing’s first-quarter deliveries were a third of the 149 seen a year earlier and the lowest since 1984 for the first quarter.
The Chicago-based company also canceled a $4.2bn deal for Embraer SA’s (EMBR3.SA) commercial aviation division over the weekend, prompting the Brazilian company to initiate arbitration.
On Monday, Boeing unveiled new voluntary layoff offers (VLOs) to employees. Boeing spokesman Bernard Choi said on Tuesday that “several thousand employees taking VLO or retiring is our expectation.” (Source: Reuters)
27 Apr 20. FDI in a pandemic: How low will the inflows go? The coronavirus crisis will undoubtedly have a major effect on foreign direct investment (FDI), but which sectors and regions are likely to bear the brunt? As Covid-19 continues to ravage global economies, there is no doubt foreign direct investment (FDI) will be impacted negatively. The only question is the degree of the decline.
On 9 March, the UN Conference on Trade and Development (Unctad) estimated that global FDI flows would shrink by between 5% and 15% during 2020 and 2021. In just under a month, that estimate had been changed to an alarming 30% to 40%.
“The outbreak and spread of Covid-19 will cause a dramatic drop in global FDI flows,” says James Zhan, director of investment and enterprise at Unctad.
As a result of the economic uncertainty unleashed by the global pandemic, multinational enterprises (MNEs) are restricting capital expenditures, directly hitting FDI flows. As MNEs will have to contend with lower profits in their foreign affiliates, there will be less profit for reinvesting. Unctad reports that reinvested earnings make up approximately 40% of total FDI inflows within the economies hardest hit by Covid-19, including the US, EU and Australia.
Furthermore, Unctad reports that the top 5,000 MNEs, which are collectively responsible for a substantial proportion of global FDI, have on average suffered downward revisions of 30% for 2020 earnings estimates. Downward revisions of earnings estimates are more serious in developed countries, which are major sources of outbound FDI. Developed country MNE profit guidance has been revised downwards by 35%, compared with 20% in developing economies. Average downward revisions have been particularly strong in the US (projected profits halved) due to the weighting of energy sector MNEs. Downward revisions in Europe have now also exceeded those in Asia.
The pandemic is also affecting different modes of entry for foreign investors, Mr Zhan says. Greenfield investment and expansions as well as cross-border merger and acquisitions (M&As) are being delayed, and in some cases cancelled.
Hardest hit sectors
As the lockdown on people and industries continues, so does the drop in economic activity, creating an uneven impact across sectors. Those hardest hit by downward earnings revisions include the energy and basic materials industries (-208% for energy), airlines (-116%), and the automotive industry (-47%), according to Unctad.
“Other sectors that are hit by the decline in demand will be next,” says Mr Zhan.
With international travel bans imposed, airlines suffered a rapid decline, with drastic downward earnings revisions across the industry. easyJet announced on 30 March that its entire fleet was to be grounded, and Air Canada and British Airways have furloughed many thousands of staff members.
Covid-19 is exposing how crucial tourism is to the world’s economy, with the sector accounting for 10.4% of global GDP ($8.8trn) in 2019, according to the World Travel and Tourism Council (WTTC), and for one out of every five jobs created between 2014 and 2019.
The automotive sector is facing myriad challenges – supply chain restrictions, workforce safety, warehouse shutdowns and a decrease in demand. In Europe and North America during the week ending 6 April, GlobalData estimates that approximately 3.2 million light vehicles have been dropped from production at a cost of $101.8bn in lost revenue.
Automakers are putting emergency procedures in place, with FCA, Toyota, Daimler, Ford and GM turning to capital markets in a bid to secure credit lines worth a combined $55bn to stay afloat.
Another sector that is suffering is construction. GlobalData expects global construction output to contract by 1.4% in 2020.
“Although the construction industry has in some cases been exempt from restrictions on business activity, few major markets will manage to record an increase in construction output in 2020,” a briefing report from GlobalData states. “Despite the huge stimulus packages, sharp cuts in interest rates, and other unprecedented policy measures across all major markets, the construction industry will be heavily affected by the expected widespread disruption to economic activity and a likely drop in investment, with planned projects being delayed or cancelled.”
GlobalData expects the commercial and industrial sectors to be hit hardest, although the residential sector also will struggle as economic activity weakens and unemployment rises, despite low interest rates and government assistance.
“There is a high risk that a considerable proportion of the early stage projects in these sectors will be cancelled or at least pushed back, with few new projects starting in the second quarter of 2020 as firms review their expansion plans,” the report predicts.
Mirroring the global financial crisis of 2008, commodity prices have dropped and the situation is being aggravated by disagreements on recovery strategy among the main oil producers.
Meanwhile, there are concerns surrounding medical supply chains, with multiple pharmaceutical companies closing manufacturing plants in China. If clinical trials are delayed, licensing deal valuations for biotech companies could drop due to weakened asset and company valuations.
Turning the corner
On a more positive note, GlobalData has reported that although concern over Covid-19 ranks high with businesses, they remain optimistic with regards to their companies’ future growth prospects. Of the 10,906 companies surveyed as of 6 April, 50% said that they were feeling optimistic about their future growth despite Covid-19 concerns, with only 35% leaning towards a more pessimistic position.
A survey conducted between 26 February and 3 March by the China-Britain Business Council (CBBC) further substantiated this. As China’s manufacturing sector slowly begins to recover from the coronavirus crisis, the survey showed that only 3% of exporters are planning to re-evaluate long-term China investment strategies.
“British businesses are keeping their eyes on the horizon while weathering a number of significant impacts from the Covid-19 outbreak,” said CBBC chief executive Matthew Rous.
GlobalData also reports that the Asia-Pacific region is beginning to bounce back. The number of deals – including M&A, private equity, venture financing, partnerships and equity offerings – in the region increased by 56.7% during the week ending 5 April 2020, compared with the previous week. In that week, China saw an increase in deal volume of 52.3%, while the rises in Japan, India and South Korea were 68.6%, 93.3% and 38.9%, respectively.
IPA actions
For government agencies charged with attracting FDI, the crisis has made their tasks infinitely more difficult, and experts are urging an urgent recalibration in their strategies.
“The support and preparedness of investment promotion agencies (IPAs) throughout the crisis and recovery might have a lasting effect on their relations with investors,” says Mr Zhan. “In the past weeks, agencies all over the world have been changing their modus operandi, quickly responding to the fast-changing needs of their clients and reassuring investors that they are there to support them. Many IPAs have had their offices and staff working from home. Client services have moved online, and websites and social media have become the main platforms of communication.”
Unctad monitored IPA responses through a survey of 174 national IPAs websites in the critical period between 23 March and 3 April 2020. Most IPAs (64%) responded rapidly to the pandemic-related challenge, and are quickly catching up and developing innovative means and tools to service their clients, Unctad found. While European IPAs are ahead of the curve, in Africa many IPAs are still struggling to move their services online. In Asia and Pacific regions, there was a contrasted IPA response with examples of best practice and a relatively large number of agencies with an inadequate response. Many IPAs in North, Central and South America and the Caribbean have reacted quickly.
“Actions by IPAs vary widely and there are lessons to be learned,” says Mr Zhan. “IPAs are seeing a significant decrease in the new investor enquiries and lead generation, and some IPAs are struggling to redefine their daily activities online. Increased focus by IPAs on investment facilitation and aftercare requires them to keep abreast of policy developments while at the same time understanding the evolving needs of investors. Some IPAs are starting to plan for the post-pandemic period by reviewing their value propositions and target sectors for investments.”
The policy advocacy role of some IPAs has been reinforced during the pandemic crisis, he says, adding that IPAs and MNEs have been key players in national efforts to source equipment and materials in support of combatting Covid-19. (Source: army-technology.com)
27 Apr 20. Embraer takes Boeing to arbitration over failed deal as Brazil eyes China tie-up. Brazil’s Embraer SA (EMBR3.SA) said on Monday it had begun an arbitration process against Boeing Co (BA.N), after the U.S. planemaker abruptly canceled a $4.2bn (3.4bn pounds) deal over the weekend that was years in the making. The deal’s collapse was not well received by investors who appeared to have hoped until the last minute that the takeover would not fall apart. Boeing shares fell to an 8-year low before paring losses and closing 7.5% lower.
But Brazil’s government, which used to own Embraer and is still the company’s largest military client, took a more upbeat tone. It eyed China as a potential new partner for the planemaker, even as several senior Brazilian government figures have attacked the Chinese government recently.
Brazil’s Vice President Hamilton Mourao, a retired army general, called the turn of events a “blessing in disguise.”
“We have the know-how, they have the demand,” Mourao said of China. “This shows once again that a marriage (with China) needs to continue, because it is an inevitable marriage.”
The deal’s sudden collapse was triggered by a midnight deadline that Boeing refused to extend on Saturday, and drew an irate response from Embraer.
Embraer is in a delicate situation, having bet the company’s future on Boeing only to find itself now in isolation and without a Plan B, all while the coronavirus crisis ravages the travel industry.
On Monday, Embraer executives hosted a call with analysts but largely dismissed the angry rhetoric displayed over the weekend.
Still, Embraer tried to reassure investors that it remains a solid company, although CEO Francisco Gomes Neto acknowledged that 2020 would be a “tough” year and that 2021 would be “worse than we had thought.”
He added that Embraer has been able to find $1bn in cash savings for 2020, and that it has not suffered any aircraft order cancellations due to the coronavirus crisis.
Gomes Neto declined to provide more details on the arbitration process and if it will be accompanied by a lawsuit in either a Brazilian or a U.S. court.
Embraer had hoped to sell 80% of its profitable aviation unit to Boeing and benefit from the U.S. planemaker’s marketing power to scale up sales of its E2 regional jets, lauded for their fuel efficiency but also a sales laggard. It would have then used Boeing’s cash to wipe out all of its previous debt and pay a $1.6bn dividend to shareholders.
Boeing, meanwhile, was aiming to compete more directly with Airbus (AIR.PA) in the regional jets segment.
BRAZIL AND CHINA
Embraer maintains a close relationship with the Brazilian government, which kept veto power over strategic decisions at the company following its privatization.
President Jair Bolsonaro also said on Monday that Embraer might be ripe for exploring new buyers.
“Maybe we’ll begin new negotiations with a new company,” Bolsonaro told reporters.
A former army captain, Bolsonaro had supported and approved of the Boeing deal even as others in the military remained suspicious that Boeing’s involvement could affect Brazilian interests.
Gomes Neto did not rule out a potential new sale to a different company, but declined to comment further. He joined Embraer only a year ago and was not a part of the executive team that drew up the deal with Boeing.
On Monday, UBS also suggested China may be interested in buying up Embraer’s commercial planes.
“We believe China still aspires to a global aerospace leadership position and, in our view, (Embraer) would bring both the talent for design and development,” it said in a client note. (Source: Reuters)
27 Apr 20. Boeing says it will need to borrow more money on coronavirus fallout. Boeing Co will need to borrow more money over the next six months and does not expect to pay dividends again for years, as the U.S. planemaker wrestles with industry fallout from the coronavirus and the grounding of its 737 MAX jet, chief executive Dave Calhoun told shareholders on Monday.
“We know we’re going to have to borrow more money in the next six months in order to get through this really difficult moment, to provide the right liquidity to the supply chain that represents our industry,” Calhoun said during the company’s virtual annual general meeting.
“Our first priority is going to be to pay that back, the principle and the interest that goes with it.”
Boeing would continue ordering parts and services from its suppliers to ensure the smaller companies have enough business to keep them afloat during the downturn, he said.
“We have to keep that flow of money going to the supply chain so that they have some predictability around how they operate.”
Boeing is trying to bring its 737 MAX jet back into service after two fatal crashes, even as the aviation industry slumps because of the coronavirus, which has dried up demand for passenger air travel.
Calhoun said Boeing expects it will take two to three years for travel to return to 2019 levels and an additional few years more for the industry’s long-term trend growth to return.
Calhoun warned shareholders he is not confident Boeing will resume paying dividends in the medium-term.
“That process could take three to five years… It’s going to be a while before dividends come back.”
The largest U.S. planemaker, which reports first-quarter earnings Wednesday, last month drew down its entire $13.8bn credit line and suspended its dividend. Boeing’s first- quarter deliveries were a third of the 149 seen a year earlier and the lowest since 1984 for the first quarter. Boeing shares closed down 0.3% to $128.68. (Source: Reuters)
26 Apr 20. Covid-19: Moog pauses M&A pursuits to save cash. Moog has temporarily stopped pursuing potential deals in the mergers and acquisitions (M&A) arena as part of an effort to save money to help it weather the current economic downturn, according to the US-based manufacturer of flight-control systems. Other cost-cutting steps Moog is taking include suspending its dividend and share repurchases, reducing capital expenditures, and freezing hiring and salaries, company officials said on 24 April. While Moog expects its defence business to remain strong, it is bracing itself for a significant decline in its commercial aircraft business because of the air travel slump caused by the coronavirus disease (Covid-19). Moog projects that demand in its commercial aircraft business will be “significantly lower over the coming quarters”, said John Scannell, the company’s chairman and CEO. (Source: Jane’s)
24 Apr 20. Ukroboronprom to implement corporate governance reforms. Ukroboronprom has chosen Ernst & Young (EY) to support the implementation of a number of key corporate governance reforms, the company reported on 21 April. EY consultants will focus on developing a corporate governance target model in order to improve efficiencies within the Ukrainian state-owned defence company. This will include new internal audit processes and internal controls, as well as risk management strategies and stronger anti-corruption measures.
Roman Bondar, Deputy General Manager for the Head of Transformation Office at Ukroboronprom, said: ‘The group has already begun the process of creating politically independent sectoral holdings based on leading Ukroboronprom companies with a transparent and efficient management system.’
He added that the involvement of EY would ‘dramatically shorten the timing of the reform and will allow the introduction of best practices that have long existed at competing Ukoboronprom companies’.
Expert advisors from France, the UK and the US are also contributing to defence sector reform in the Ukraine. (Source: Shephard)