03 Jul 20. Aero Services Global Group (AS.G), targets medical and defence sectors with latest acquisition. A £43m-turnover critical supplier to the aerospace sector has made its latest acquisition as it looks to target new opportunities in the defence and medical sectors.
Manchester-based Aero Services Global Group (AS.G), which manufactures and sub-assembles detail airframe structural equipment and aero engine components, has welcomed AMF Precision Engineering to its portfolio of companies, for an undisclosed sum.
The Wirral-based sub-contract technology specialist joins six other manufacturing businesses in the group, providing direct access to customers in medical, defence and a host of research centres across Europe.
It comes just a few weeks after AS.G secured a £31m funding package from Magnetar Capital and Close Brothers Invoice Finance to support ambitious three-year growth plans.
Simon Weston, who joined as AS.G Group managing director in 2017, said: “AMF Precision Engineering is a market-leader in its field and fits perfectly with our commitment to offer our global customers world class expertise, niche capabilities and outstanding customer service.
“Whilst COVID-19 has created a number of unexpected challenges, we are still confident that our agility and single source expertise in tooling and manufacturing of critical components can deliver an increase in sales.
“The management team has been working hard over the last three years to strategically enhance our customer base and identify companies that will give us access to the best talent and technologies.”
He added: “Recent investment by Magnetar Capital and Close Brothers Invoice Finance gives us the funding boost we need to realise these plans.”
AS.G was founded in 2015 with the aim of developing a highly-specialist group which could help a global customer base to consolidate their supply chains through innovation, efficiencies and value for money.
It started operations with the acquisition of Phoenix in December that year and now boasts seven subsidiary companies, including Queen’s Award-winning Arrowsmith Engineering, B&H Precision Tooling, Datum, Ludolph, TGM and AMF Precision Engineering.
The group, which employs nearly 380 people, is split into two core divisions focusing on aerospace and tooling, providing a wide range of products.
These parts are delivered all over the world to customers, including Aeronova, Airbus, GKN, ITP, Meggitt, Rolls-Royce and Spirit Aero Systems.
Simon Kirkman, managing director of AMF Precision Engineering, said: “This is a great move for our business and brings us into a family of like-minded companies, who thrive on pushing the boundaries of innovation and world-class manufacturing expertise.
“There are a lot of complementary expertise and we bring the additional benefits of new machining capability and a dedicated clean room, ideal for supplying medical clients, research centres and for supporting the aerospace sector.”
He added: “We’ve already identified and made initial moves towards securing new med-tech work for AS.G and our recent approval to AS9100 will allow us to pitch for aerospace contracts. It’s a real win-win.”
Aero Service Global Group intends to enhance its international footprint by adding to its existing operations in the EU and by formalising a joint venture agreement in India over the next six months. (Source: News Now/https://www.thebusinessdesk.com/)
02 Jul 20. QinetiQ’s defensive qualities. Defence contractor QinetiQ (QQ.) specialises in developing technology, and providing testing, evaluation and training services for militaries around the world. Tapping into an assurance market worth more than £8bn, demand is being driven by rising threat levels and rapid technological advances. Earnings are underpinned by long-term government contracts and its deepest relationship is with the UK Ministry of Defence (MoD) – QinetiQ was carved out of its ‘Defence Evaluation and Research Agency’ in 2001 before floating five years later.
Much of its MoD work is tied to a 25-year long-term partnership agreement (LTPA) that runs to 2028 and generates around £320m of annual revenue. Under the LTPA, QinetiQ manages 16 core UK military sites, testing and maintaining new equipment and demonstrating how to use it. It fronts the capital expenditure to develop these facilities and is reimbursed by the MoD over the contract’s lifespan, securing a return above its cost of capital. This investment attracts more work from the MoD, but also entices international customers – government and commercial – to use these facilities and hire QinetiQ to develop similar capabilities.
Diversifying beyond the UK, international markets account for 31 per cent of total revenue – up from 21 per cent in 2016 – and QinetiQ aims for this to reach 50 per cent. The US currently provides 12 per cent of overall sales, with last year’s $105m acquisition of Manufacturing Techniques Inc. (MTEQ) more than doubling the size of its operations in the world’s largest defence market.
The year to 31 March marked four consecutive years of organic revenue growth, with the 10 per cent increase beating consensus expectations (as compiled by FactSet) of 6.5 per cent. This was thanks to new work secured under the ‘engineering delivery partnership’ (EDP) with the MoD. But EDP work is lower margin, so while the underlying operating profit rose 7 per cent to £133m, the margin contracted by 1.3 percentage points to 12.4 per cent.
Amid stricter regulation of ‘single source’ MoD contracts, the margin has been trending downwards from the 14.9 per cent achieved in 2017. The baseline profit rate set by the MoD – which forms the basis of returns for defence contracts – dropped from a three-year rolling average of 10.6 per cent in 2016 to 7.63 per cent last year. However, it has improved to 8.22 per cent this year, which should help margin pressure abate. Management aims to sustain the underlying operating margin between 12 and 13 per cent. Analyst consensus predicts the margin will drop to 11.6 per cent this year before gradually recovering towards the lower end of the target range.
QinetiQ has not been immune to Covid-19 disruption, postponing its final dividend. In the larger ‘Europe Middle East and Australasia’ services division, reduced flying hours in Germany triggered a £4.3m goodwill impairment. Over in the shorter-cycle global products segment, demand for target systems has slowed and weak oil and gas markets saw fibre optic monitoring business OptaSense swing to a net loss. Global defence spending could be squeezed post-pandemic, but QinetiQ believes budget constraints could shift defence procurement to the “mission-led” projects it specialises in. Enduring geopolitical threats and rising tensions between the US and China (and more recently Russia, too) support the long-term outlook.
QinetiQ has a track record of reporting net cash on its balance sheet, supported by negative working capital – it receives customer payments quicker than it pays suppliers. It was sitting on £85m of net cash at the end of March, although this had almost halved from a year earlier due to the MTEQ acquisition and £14m purchase of training and simulation provider Newman & Spur Consultancy. Capital expenditure increased by over a third during the year, to £108m, and with ongoing investment in the LTPA, annual capital expenditure is guided to be £70m to £100m between 2021 and 2023.
The balance sheet should be strengthened by the upcoming £30m sale of data classification and secure messaging business Boldon James. Broker Numis estimates this will help push net cash to £164m this year. Pre-disposal, QinetiQ had £360m of total liquidity, including an undrawn £275m revolving credit facility, and it believes it can weather the Covid-19 crisis without raising additional capital.
QinetiQ is adept at securing new work – excluding the LTPA, total orders jumped by a quarter last year, to £972m. This means it has visibility over £850m of revenue for 2021 and a stable £3.1bn order backlog. Meanwhile, it has sufficient firepower for M&A to further boost its international footprint. We’re not alone in thinking QinetiQ has potential – it appeared on last week’s UK equity fund ‘best ideas’ list on our Ideas Farm pages and is a top 10 holding of the Man GLG Income Fund (GB00B0117C28) and Man GLG Undervalued Assets Fund (GB00BFH3NC99). With margins now stabilising, a forward enterprise value-to-sales ratio of 1.4 times and mid-teens forecast price/earnings ratio doesn’t seem unreasonable. Buy.
Last IC View: Buy, 309p, 21 May 2020. (Source: Investors Chronicle)
02 Jul 20. Meggitt PLC – Update on trading Meggitt PLC (“Meggitt” or “the Group”), a leading international company specialising in high performance components and sub-systems for the aerospace, defence and energy markets, today issues a trading update for the second quarter, ahead of publication of first half results on 8 September 2020. All organic revenue growth numbers within this statement are estimates with confirmation of adjustments relating to foreign exchange and M&A to be finalised as part of the half year results process. Operational update Against a backdrop of the significant slowdown across the global civil aerospace sector as a result of COVID-19, we remained focused on three core priorities during the second quarter alongside the continued execution of our strategy. Our first priority has been to ensure the continued wellbeing of our employees, ensuring business continuity and safe operations across our global manufacturing sites. Second, we have continued to meet our commitments to customers as we adjust to changing market conditions and supported our suppliers to mitigate any disruption across the supply chain. Finally, we have made good progress executing our actions to reduce costs and cash expenditure to underpin our liquidity position and to resize the Group, as set out in our April statement. During the second quarter, the majority of our manufacturing facilities remained open with around two-thirds of our global employees working at our sites and the remainder either working from home or on furlough.
With lockdowns starting to ease across a number of the countries in which we operate, where possible, and in line with local government guidelines, we are putting plans in place for all employees including those that are office-based to progressively return safely to the workplace. Trading update for the second quarter Throughout the second quarter, widespread lockdowns had a material impact on civil aerospace, with up to 60% of the global fleet grounded and a substantial reduction in both passenger demand and air traffic. As a result, and in line with our internal scenario plan, we saw a significant decline in our civil aerospace activity in the second quarter.
Overall, we expect civil revenue in the period to be c.50% lower on an organic basis, with a similar reduction across both civil OE and AM. 2 Our Defence business, which represented 36% of Group revenue in 2019, continued to perform solidly during the second quarter after a very strong Q1 and against a tough comparative (Q2 2019 growth of 10%). Energy revenue is expected to be somewhat softer, with strength in LNG markets more than offset by declines in the power generation and oil sectors. Overall, we expect Group organic revenue to be c.30% lower in the second quarter. During the second quarter, and despite the marked slowdown in the external environment, we continued to execute our strategy including the consolidation of two sites (one US and one UK) into other sites as part of our ongoing footprint reduction initiative. In addition, within our Engine Composites business, we continued the transfer of products from Erlanger, US to our expanded facility in Mexico. And, at the end of the quarter and as announced on 1 July 2020, we completed the sale of Meggitt Training Systems for a cash consideration of $146m, continuing our strategy to focus our portfolio on businesses in growing markets where we have a leading market position. Actions to reduce cash expenditure and our cost base We have made good progress executing the actions announced in April to reduce our cost base, preserve cash, and resize the business to position us for H2 and 2021. The reduction in our global workforce is proceeding as planned and, as a result of the early actions taken in the first quarter, we anticipate being able to derive higher savings than originally planned from reducing our discretionary operating costs.
However, as we realign our global supply chain to reflect reduced customer demand alongside tightening supply parameters, it has taken slightly longer to gain momentum on reducing inventory levels. Inventory reduction remains a key objective for the Group and we continue to anticipate delivering good levels of cash saving from this initiative in the second half. Overall, we remain on track to reduce cash outflows by around £400m to £450m in 2020. Financial and liquidity position At 31 May 2020, we had £1,630m of committed facilities in place providing headroom of £662m. We also have access to additional liquidity as an eligible issuer under the Bank of England’s Covid Corporate Financing Facility. On 11 May, we secured a forward start on our revolving credit facility, with the signing of a new one year $575m multi-currency facility maturing in September 2022.
On 15 June 2020, we paid $125m on the maturity of a tranche of 2010 US Private Placement Notes, covered by bilateral loans put in place at the end of December 2019. H1 expectations and outlook Group revenue in the first half is expected to be c.15% lower than in H1 2019 on an organic basis, with growth in Defence more than offset by lower revenues in both civil aerospace and Energy. 3 Civil aerospace revenue is expected to be c.30% lower on an organic basis, with a similar performance across both civil OE and AM, with the extent of declines in business jets expected to be less than in large and regional jets. Against a tough comparative (13% organic growth in H1 2019), Defence is expected to deliver organic revenue growth of mid-single digits %, driven by good growth in OE. We continue to see good order flow and expect demand in this part of the business to remain robust throughout 2020. Energy revenue is expected to be c.10% lower than the comparative period reflecting weaker market conditions in oil and gas and power generation sectors. In light of the marked reduction in activity across the civil aerospace sector and the expected timing and duration of the recovery, we anticipate recognising a significant non-cash reduction in the carrying value of certain intangible assets under International Accounting Standard (IAS) 36 as part of our half year process. We anticipate a significant free cash outflow (after interest and tax) in the first half driven by: lower levels of profitability; cost reduction actions being second half-weighted; being at a peak in the investment cycle for capital expenditure; higher working capital requirements; and higher cash tax payments.
The first half outflow will be substantially offset by the disposal proceeds from the sale of Meggitt Training Systems announced on 1 July 2020. At the current time, and based on our modelling assumptions, we expect the first half free cash outflow to be reversed during the second half and to be free cash flow positive for the full year before disposal proceeds. In recent weeks, initial signs of a recovery in commercial aerospace have emerged, with commercial airlines bringing more of the fleet back into service and business jet activity increasing in the US. Notwithstanding these early positive signals, and as we look ahead to the performance of the sector and our civil aerospace business in the second half, uncertainty and risk remain about the duration of the pandemic and its impact on the pace and shape of any recovery, including the potential for a second wave. Against this market backdrop, in the second half we will continue to execute against our strategy and internal scenario plan and will provide further updates in our first half results on 8 September 2020.
01 Jul 20. HENSOLDT South Africa has signed an agreement to acquire the Air Traffic Management (ATM) and Defence & Security business units of Tellumat. The acquisition will see HENSOLDT further expand its portfolio as well as its presence in Africa.
The agreement was signed by Rynier van der Watt, Managing Director of HENSOLDT South Africa and Andrew Connold, CEO of Tellumat, during a virtual ceremony hosted by HENSOLDT at its offices in Pretoria on 26 June.
The transaction will be effective as soon as all regulatory approvals have been obtained. “With this transaction we are combining the activities of two leading defence electronicsproviders and strengthening our position as a leading defence, security and electronics brand in South Africa,” Van der Watt said. “The complementary product portfolios of HENSOLDT South Africa and Tellumat create a complete sensor solutions offering, that is in line with that of the HENSOLDT Group.” Van der Watt added that, “We will create new products and services that will build upon the significant expertise that is being acquired.”
HENSOLDT South Africa and Tellumat have business areas that complement each other, including sensors and communications, particularly for unmanned aerial vehicles and other airborne intelligence, surveillance and reconnaissance (ISR) applications.
The acquired activities represent a workforce of more than 100 people across offices in Cape Town and Pretoria, with demonstrated expertise in a range of capabilities complementing HENSOLDT South Africa’s offering. Tellumat’s defence and security portfolio covers identification friend or foe (IFF) systems, tactical communications (including radio and video links), and unmanned aerial vehicle (UAV) systems, including a full suite of data links and avionics. Its Air Traffic Management portfolio includes the supply, installation and maintenance of radar, navigational, voice communication and runway lighting systems for military and civilian airports.
Tellumat was established in 1963 as Plessey South Africa, and became Tellumat in 1998. Over the decades it has built up vast skills and experience that have created a rich history and heritage. “While this new relationship advances the legacy of Tellumat’s well-proven and innovative products, services and solutions, it also further expands the sales reach of the acquired business units through the global footprint of the HENSOLDT Group,” Connold said.
The transaction is in line with HENSOLDT South Africa’s aims to see targeted growth and expansion as the company focusses on both the local and international markets. Since HENSOLDT South Africa was formed in September 2019 as the brand housing HENSOLDT Optronics and GEW, it remains deeply committed to investing in the growth of its footprint in South Africa and the acquisition of the Tellumat business units is an example of that commitment.
Celia Pelaz, HENSOLDT Group Executive responsible for South Africa said that, “This acquisition is a further step in the HENSOLDT Group’s commitment to continue to invest in South Africa and to grow HENSOLDT South Africa as one of its home countries”. Pelaz added that, “We are leveraging the power of the HENSOLDT brand to expand its global footprint and open new market opportunities for the South African business.”
The Tellumat transaction proves that HENSOLDT South Africa is well positioned to achieve its goal of becoming the leading sensor solution and defence electronics house in the region. HENSOLDT believes that international investment and cooperation utilising local infrastructure, skills and capacity is a proven recipe for local economic growth and business success.
02 Jul 20. Anduril secures $200m funding, value reaches $1.9bn. Anduril, a US venture capital-backed defence technology business, has secured $200m of Series C funding and doubled its valuation to $1.9bn.
The company is known for its Lattice Artificial Intelligence (AI) tool and work on Unmanned Aerial Vehicles (UAVs). Lattice is designed to link several systems processing information and speeding up decision making.
In an email, a representative for Anduril said the funding would accelerate developments in AI and allow the company to scale through hiring more staff. Anduril has contracts with the US Department of Defence (DOD), Department of Homeland Security (DHS) and the UK Ministry of Defence (MOD).
In a statement, Anduril Industries CEO Brian Schimpf said: “We founded Anduril because we believe there is value in Silicon Valley technology companies partnering with the Department of Defense.
“In just three years we have demonstrated there is a desire for real innovation in defence and hope our work serves as a model for continued collaboration.”
The company added that the additional investment would support its push to transform defence capabilities.
Schimpf said: “Our business continues to accelerate with a suite of software and hardware products and an expanding roster of customers.
“We did this by using our unique business approach to transform the way business is done with the government and by attracting the best and brightest talent, who are building the next generation of advanced technology capabilities critical to the future of national security.”
Anduril was founded by Palmer Luckey, formerly of Oculus Rift, and has been leading a shifting attitude towards venture capital-backed businesses contribution to the defence industry. While some prominent Silicon Valley companies have looked to loosen their ties with defence, Anduril has made the sector its primary customer.
Anduril’s four key product offerings are its AI platform, autonomous sentry towers, the Ghost small UAS(sUAS) and the Anvil sUAS that is built as an interceptor system that can ram adversarial drones out of the sky if they enter a restricted area. Anduril’s sentry towers are billed as being effective for both border surveillance and guarding fixed positions such as bases. The company’s Ghost sUAS has been used by the UK Royal Marines 40 Commando. (Source: army-technology.com)
01 Jul 20. UAS Drone Corp. Completes Acquisition of Duke Robotics Inc. UAS Drone Corp. (OTC: USDR) today announced the completion of its acquisition of Duke Robotics, Inc., the purveyor of an innovative military UAS drone with advanced stabilization technology, pursuant to which Duke Robotics became a wholly-owned subsidiary of UAS Drone Corp.
The combined company will focus on Duke Robotics’ business, expanding its presence in the military drone market with TIKAD – a UAS Octocopter Integrated with Six Degrees of Freedom (“6 DOF”) Robotic Gimbal system that enables remote, real-time firing of small arms and light weapons.
- Pursuant to the previously announced Share Exchange Agreement and the recently completed merger agreement, UAS Drone Corp. acquired a`ll of the outstanding capital stock of Duke Robotics in exchange for shares of UAS Drone Corp’s common stock issued to the shareholders of Duke Robotics, in an amount equal to 71% of the post-transaction capitalization of UAS Drone Corp.
- Following the completion of the acquisition, Duke Robotics designated the Board of Directors of the combined company and Duke Robotics’ senior management holds all key positions in the senior management of the combined company.
About Duke Robotics:
UAS Drone Corp. (OTC: USDR) recently acquired Duke Robotics.
Duke Robotics is a forward-thinking company focused on bringing necessary products and solutions to defense sector. Duke Robotics developed TIKAD, an advanced robotic system designed to serve the growing need for tech solutions in the combat field. Duke Robotics’ revolutionary stabilization technology enables remote, real-time and accurate firing of lightweight firearms and weaponry via an unmanned aerial platform (UAV). The proprietary and confidential complex kinematic algorithms address the crucial need of modern warfare to carry weapon on remote to bear on remote hostile targets without risk to the military personnel.
We believe that troops can use TIKAD to handle potentially dangerous situations quickly and efficiently from the air. This technology also allows troops to potentially disarm a situation remotely, without ever deploying a ground presence. (Source: PR Newswire)
01 Jul 20. Meggitt hit by aviation slump in first half. Engineering group Meggitt (MGGT) expects civil aerospace organic revenue will be down 30 per cent in the six months ended in June, leading to a 15 per cent decline for the group as a whole. The company has been grappling with widespread lockdowns, with almost two thirds of the global fleet grounded and a drop in passenger demand and air traffic.
Management said that it expects significant free cash outflow, after interest and tax, in the first six months, driven in part by low levels of profitability and cost reduction measures being weighted towards the second half. But this will be offset by the sale of Meggitt Training Systems for a cash consideration of $146m, which was announced on 1 July.
Based on the group’s modelling assumptions, Meggitt expects free cash outflow in the first half to be reversed during the second, and to be free cash flow positive for the full year before the disposal proceeds.
The group is working to reduce its cost base and is on track to reduce cash outflows by around £400m to £450m in 2020. But Meggitt noted that while there are early signs of recovery in commercial airlines, there is still significant uncertainty ahead about the duration of the pandemic and the potential for a second wave. At 329p, we stick to hold.
Last IC View: Hold, 599p, 25 Feb 2020. (Source: Investors Chronicle)
01 Jul 20. Embraer announces investment in Tempest, a company specializing in cybersecurity. Embraer announces the signing of a contract for a capital investment in Tempest Security Intelligence, resulting in a majority interest in the company. The largest cybersecurity company in Brazil, Tempest, positions itself as a provider of complete solutions for business protection in the digital world. With offices in Recife, São Paulo, and London, it serves more than 300 clients in Brazil, Latin America, and Europe.
Founded in Recife in 2000, Tempest is one of the companies to receive an investment from the Aerospace Investment Fund (Fundo de Investimento em Participações Aeroespacial – FIP) created by BNDES, FINEP, São Paulo Development Agency (DESENVOLVE SP) and Embraer, the goal of which is to strengthen the aerospace, aeronautical, defense, and security production chain. Through the Aerospace Fund, Embraer has enjoyed indirect participation in Tempest since 2016.
“We are proud to announce this investment in Tempest, a company with great technical expertise and international market presence,” said Jackson Schneider, President and CEO of Embraer Defense & Security. “Embraer has always encouraged the development of a national chain for the aeronautical and defense industry in Brazil, and one of our priorities is to focus on the cybersecurity segment.”
For Tempest, in addition to demonstrating the importance of cybersecurity for high-tech industry and the defense sector, Embraer’s investment means enhancing the company’s perspectives for growth and expansion, in Brazil and abroad. Brazil has the second-highest rate of cybercrime in the world, second only to Russia. As a consequence, Brazilian companies lose up to US$ 10bn a year to cybercrime, which includes financial theft, as well as that of intellectual property and confidential information.
“This partnership is a milestone for Tempest, and we are very excited about the next steps. The cybersecurity market is booming around the globe, and we will continue to invest in the evolution of the portfolio, aiming to always stay ahead of the growing digital threats that impact our customers, by being a reference in Brazil and operating internationally,” says Cristiano Lincoln Mattos, CEO and founding partner of Tempest. “Embraer’s investment will help us expand our mission to new markets.”
Enhanced by Embraer’s investment, Tempest will continue as an autonomous company, maintaining its brand, its team of partners and leaders, headed by Lincoln Mattos, its more than 300 employees, and its operational agility.
The conclusion of the deal depends on the fulfillment of certain standard conditions and necessary approvals for this type of transaction.
01 Jul 20. Babcock signals drive for change with chief executive appointment David Lockwood prepares to refocus business when he takes job in September. Babcock International on Wednesday signalled a fresh start under chairwoman Ruth Cairnie with the appointment of former Cobham head David Lockwood as chief executive to drive change at the UK defence contractor. Mr Lockwood, who ran Cobham for three years before it was acquired by private equity group Advent in January, will replace Archie Bethel, a 16-year Babcock veteran, in September. “He brings wide-ranging knowledge of the defence and aviation markets, as well as a wealth of experience in both technology and innovation,” said Ms Cairnie. “His skills and industry expertise will help ensure the delivery of our operational performance and strategic objectives.” Babcock is one of the UK’s biggest defence contractors, providing maintenance and support for the UK’s nuclear submarines at Faslane, and was a member of the consortium that built new aircraft carriers.
It owns Rosyth dockyard, one of the UK’s biggest naval yards. However, the company has had a turbulent few years, with its shares plunging from more than £10 at the time of Mr Bethel’s arrival to 320p on Wednesday. In addition, its relationship with its main customer the Ministry of Defence has at times been difficult. Mr Lockwood’s task would be to address these issues, said people close to the company. The new Babcock chief is expected to launch a “fundamental strategic review” of the group’s businesses and performance. Appointed to Cobham in 2017 after a string of profit warnings, Mr Lockwood began refocusing the business, which eventually found a firmer financial footing and resolved a long-running dispute with Boeing, one of its main customers. Mr Lockwood, who left Cobham after the Advent takeover, said he looked forward to “position Babcock for further success and future growth, and to make full use of technology and innovation to support customers in the UK and internationally”.
Recommended Helen Warrell Defence industry in retreat as coronavirus attacks Under Mr Bethel, Babcock sold businesses to focus on its core markets of defence, aerial emergency services and civil nuclear. Although last year the company suffered a sharp fall in profits as a slowdown in government spending weighed on its business, Babcock achieved its long-held ambition to break BAE Systems’ monopoly on UK naval shipbuilding when its consortium won the £1.25bn contract to build the Type 31 frigate. At an investor summit last summer, Mr Bethel set new targets for medium-term growth and set out a strategy for accelerating international growth. He won praise for holding his previous guidance on growth. The group moved out of the support services index and into the aerospace and defence category, helping to boost its shares although they remain substantially below the peaks of 2016. “It has been an honour and a privilege to serve at Babcock, which makes a unique contribution to national security and to saving lives,” Mr Bethel said. (Source: Google/FT.com)
BATTLESPACE Comment: The appointment of David Lockwood a seasoned turnaround specialist with previous appointments at GEC, Laird and Cobham demonstrating his adroitness in turning a sick company around. He has a number of challenges at Babcock not least in the nuclear submarine area where the Astute drydock’s costs are still under discussion. One area he is likely to focus on will be a write-down on the disastrous and overpriced DSG acquisition. Babcock overpaid for DSG by a factor of two at a time when Chairman Mike Turner was focusing Babcock and GKN on land systems development at a time when the sector was in decline following the end of the Afghan war. Babcock has yet to commence discussions with the MoD on an extension to the 5 year DSG contract and it may be, without the much-promised Protected Mobility SSS which went to NP Aerospace, that iy may retreat from DSG at the end of the term. This would lead to other interested parties such as Marshalls, RBSL, TVS and BAE Systems looking at taking over the contract at a much-reduced price. Babcock has suffered from Land Rover MoD spares quality resulting in the fleet being taken off the road last year. This contract could be let to one of the above interested parties on a separate basis albeit without any liability for spurious unapproved parts causing further breakdowns and crashes.
01 Jul 20. Meggitt offloads US training subsidiary in £118m deal. Meggitt, the Ansty company specialising in high performance components and sub-systems for the aerospace, defence and energy markets, has sold its US subsidiary, Meggitt Training Systems to Pine Island Capital Partners, a US private investment firm, in a £118m deal. The firm says the deal is “consistent with [its] strategy to focus on businesses of scale in markets where its leading positions offer greater potential for growth and operational efficiencies”. (Source: Google/https://www.thebusinessdesk.com/)
26 Jun 20. Gun Maker Remington Preps for Bankruptcy, Seeks Sale to Navajo Nation. Firearms manufacturer Remington Arms Co. is preparing to file for chapter 11 protection for the second time since 2018 and is in advanced talks for a potential bankruptcy sale to the Navajo Nation, people familiar with the matter said. The bankruptcy filing could come within days as the gun maker makes preparations for the Navajo Nation to serve as the lead bidder to purchase Remington’s assets out of chapter 11, these people said. Founded in 1816, Remington’s namesake weapons are mainstays in hunting, shooting sports, law enforcement and the military. The Navajo Nation—a territory with roughly 175,000 people across parts of Utah, Arizona, New Mexico—could finalize a bid for Remington as soon as Friday, one of the people said. Any bid for the company would be subject to competing offers and require bankruptcy-court approval. The timetable could be pushed back, and an offer from the Navajo Nation isn’t guaranteed to materialize, people familiar with the matter said. The Navajo Nation, which explored buying Remington as far back as 2018, owns a set of business enterprises in industries including energy, transportation, and utilities. (Source: glstrade.com/WSJ)
30 Jun 20. Smiths Detection enters into agreement to acquire PathSensors to expand its biological-detection capability. Smiths Detection, a global leader in detection and screening technologies, today announces that it has entered into an agreement to acquire PathSensors, a leading bio-technology solutions and environmental-testing company based in Baltimore, MD. The acquisition expands Smiths Detection’s sensing capabilities across the CBRNE (chemical, biological, radiological, nuclear and explosive) spectrum to respond quickly to emerging threats.
PathSensors provides high-speed, highly sensitive pathogen-detection and biothreat solutions and has developed a robust fieldable method of identifying biological threats in minutes. The company shares a similar customer base to that which Smiths Detection serves for chemical-threat detection, while also offering an expanded end-use market into adjacent security markets such as food and agricultural safety.
PathSensors offers multiple assays that are already available, at an independently verified speed and sensitivity data, which offer an opportunity to develop their future potential. The transaction will enable Smiths Detection to accelerate its position in biological-detection capabilities which are important both within our current markets and beyond.
“The acquisition of PathSensors will allow us to broaden our detection capabilities within the biological spectrum, which is becoming more relevant in the current environment,” said Roland Carter, President of Smiths Detection. “This is consistent with our approach to increase our focus on investing selectively in technology and innovation for the purpose of getting closer to our customers and expanding into new markets.”
The contract is subject to customary closing conditions and is expected to conclude within the next four weeks. (Source: BUSINESS WIRE)
29 Jun 20. Airbus close to slashing jobs as CEO confirms 40% output drop. Airbus (AIR.PA) was finalising an imminent restructuring plan involving thousands of job cuts on Monday as its chief executive confirmed plans to hold output down by 40% for two years. Europe’s largest planemaker is likely to set out its largest ever reorganisation by Wednesday, union sources said at the start of several days of talks as the company deals with the impact of the coronavirus crisis.
Airbus, whose shares rose 2.4%, declined to comment.
The company is expected to move swiftly to counter damage caused by a 40% drop in its 55bn euro ($61.8bn) jet business following the pandemic, balancing the belt-tightening against aid being offered by European governments and future priorities.
It has said it will announce plans by end-July, but needs to begin a delicate process of briefing unions and governments on any job cuts before a two-week “quiet period” ahead of its July 30 results. In 2008, lay-offs sparked strikes and protests.
Political sources said Airbus seemed to have postponed the shake-up to avoid undermining the announcement in June of a French aerospace support package. But it wasted no time in preparing opinion after French municipal elections on Sunday.
“It’s a brutal fact, but we must do it. It is about the necessary adjustment to the massive drop in production. It’s about securing our future,” Faury told Die Welt, without commenting on details of any cuts.
Completing a grim backdrop, Faury confirmed that Airbus was planning for a two-year drop of 40% in jet output.
“For the next two years – 2020/21 – we assume that production and deliveries will be 40% lower than originally planned,” Faury told the German newspaper.
Output will return to normal by 2025, while depressed deliveries will catch up with production by end-2021, he said.
Reuters reported on June 3 that Airbus was looking to hold underlying jet output at 40% below pre-pandemic plans for two years as the basis for any restructuring.
It has until now said it was cutting by a third on average.
The latest figures do not imply any immediate new production cut after Airbus reduced output in April pending further review.
But industry sources say the 40% cut in underlying output, based on a weighted internal scale called “single-aisle equivalent” production, is driving the expected restructuring.
Sources have predicted phased cuts of some 14,000 jobs based solely on the 40% output index, which takes account of labour needed for different models, or 15,000-20,000 on a broader view.
Based on past exercises, such a scheme could cost somewhere between 0.8bn and 1.2bn euros, they estimated.
One person familiar with Airbus said cuts of anything below 25,000 could be seen as conservative in the light of output plans. Unions have promised to oppose any “overreaction”, however.
The Helicopter and Defence divisions, which manufacture some parts on behalf of the jetliner parent, will be affected.
Airbus is expected to rely partly on early retirements, with 37% of its 135,000-strong workforce due to retire this decade.
Its main plants are in France, Germany, Spain and Britain. Laws in some of those countries require voluntary schemes to be exhausted before forced redundancies. Faury told staff in April all available measures would be studied. (Source: Reuters)
26 Jun 20. Sparton Corporation Announces Sale of Its Manufacturing & Design Services Business to One Equity Partners. Company to Focus Exclusively on its Industry-Leading Engineered Defense Products Business.
Sparton Corporation (“Sparton”), a leading provider of engineered products for the defense industry, today announced that it has entered into a definitive agreement to sell its contract manufacturing unit, Manufacturing & Design Services (“MDS”), to One Equity Partners (“OEP”), a middle market private equity firm.
Following the divesture of the MDS segment, which provides complex electromechanical solutions for a range of industries, Sparton will focus exclusively on its industry-leading engineered defense products business, Engineered Components & Products (“ECP”). Sparton will become a pure-play defense supplier and will continue to design, develop, and produce proprietary engineered products for domestic and foreign defense as well as commercial needs. With decades of experience in developing engineered products, Sparton has become the partner of choice to the U.S. Navy, allied governments, and leading defense contractors. Sparton will remain a partner in its ERAPSCO joint venture and Bill Toti, currently President & Chief Executive Officer of Sparton ECP, will continue to lead the business under the Sparton brand as Chief Executive Officer of Sparton upon closing.
“This is an important milestone for both our defense products and contract manufacturing businesses, which have operated in separate industries with distinct long-term strategies,” commented Mr. Toti. “Now, these leading platforms will be able to focus on their respective core strengths and capitalize on opportunities specific to each business. We wish our MDS colleagues all the best and look forward to watching their continued success in their next chapter.”
MDS is well-recognized for its historically advanced engineering, design, and manufacture of highly complex electronic and electromechanical devices, including sophisticated printed circuit card assemblies, sub-assemblies, full product assemblies, and cable/wire harnesses. MDS, which nearly doubled its offshore manufacturing capabilities in Vietnam recently and operates nine plants in the United States, has strong multi-year customer relationships with many of the world’s blue-chip OEMs across the aerospace, medical, and industrial markets.
Paul Fraipont, President & Chief Executive Officer of Sparton MDS, added, “We are extremely proud of the robust manufacturing platform we have built over the decades and are excited about our opportunities ahead. MDS has become a trusted partner to many leading businesses around the world, with a strong reputation for delivering high-quality, complex manufacturing solutions. Today’s announcement underscores the strength of our MDS business and our unwavering commitment to providing best-in-class services. We look forward to our partnership with OEP and leveraging their industry expertise as we reach new heights.”
“We look forward to supporting the very talented team at MDS as they continue to meet the strong global demand for advanced manufacturing solutions, while helping them to identify new organic and strategic acquisition opportunities that will drive growth in North America and worldwide,” said Chip Schorr, Senior Managing Director at OEP. “MDS is a fantastic platform, and this transaction is well aligned with OEP’s historic experience in acquiring non-core but high growth potential businesses through corporate carve-outs that position them for their next chapter of growth as an independent company.”
Effective upon closing, the standalone MDS business will rebrand as “Spartronics” and Mr. Fraipont will transition his same role and responsibilities to the new Spartronics business.
Mr. Toti concluded, “Operating our engineered defense products business as Sparton, a standalone entity, we will be able to focus exclusively on providing innovative products and executing on opportunities that drive our platform’s growth. We are excited to build upon our strong foundation and accelerate our ability to meet the critical needs of our customers in the United States and globally.”
The transaction is expected to close during the third quarter of 2020, subject to the satisfaction of regulatory and customary closing conditions. Lincoln International LLC is serving as financial advisor to Sparton and Kirkland & Ellis LLP is serving as Sparton’s legal counsel. (Source: BUSINESS WIRE)
23 Jun 20. SES’ 400m Euros Bond + An Optimistic Eutelsat to Order a C-Band Satellite. SES has successfully issued a €400m bond, The satellite operator says the issue was oversubscribed 2.5 times. The bond takes advantage of current low interest rates and will strengthen liquidity for SES which is about to spend around $1.6bn on new satellites and infrastructure for its C-band transition over the US.
SES is due to repay €650m of existing debt by March next year and will use the new financing plus €250m “cash in hand” to clear the debt. SES then has no senior debt to pay until 2023.
BNP Paribas, Deutsche Bank, ING, J.P. Morgan, SMBC Nikko and Société Générale acted as Joint Bookrunners. The settlement is scheduled for July 2nd and application has been made for the notes to be listed on the Luxembourg Stock Exchange. The securities were placed with a broad range of institutional investors across Europe.
In an additional posting, Chris has reported that Eutelsat has told the Federal Communications Commission (FCC) that it will clear its required C-band spectrum over the US and will order a new C-band satellite to provide replacement capacity for existing services.
Eutelsat is required to clear its spectrum and have a satellite in orbit by 2023 in order to qualify for the FCC’s “accelerated” process and thus earn the FCC’s incentive payment.
Eutelsat has told the FCC it expects to have to pay around $171m to clear its spectrum and to build and launch its new satellite. As part of this $171m, some $21m will need to be invested in changing filters and other ground-based equipment and facilities.
The Paris-based operator currently has 4 satellites serving its clients in the US. The company will retire its Eutelsat-113 West A by the Spring of 2023, and the new satellite will accommodate clients from this craft as well as certain other clients.
Advanced Television is also reporting that Eutelsat’s CEO Rodolphe Belmer, speaking at the Exane/BNPP-organized CEO Conference in Paris, painted a cautiously optimistic view for the medium-term outlook for the satellite operator.
Belmer said he continues to expect its Video Broadcast division (62 percent of group FY20e revenues) revenues to be broadly stable and to benefit from lower replacement capex. Once the HotBird replacement is completed in 2021, Eutelsat then has limited maintenance capex for Video Broadcast until FY 28. He added that the resilience of Video Broadcast’s Free Cashflow generation should help the group protect its dividend in the medium to long term.
The Covid-19 pandemic is likely to have a negative impact on Aviation revenues in FY21 but its impact on Maritime is likely to be short term as satellite capacity demand is recovering rapidly in Eutelsat’s key maritime markets (shipping, ferries, fishing). Covid-19 is having no visible impact on the US Department of Defense tender activity but it is slowing down new business activity across the group.
According to Exane/BNPP Eutelsat’s New Business accounts for c5 per cent of annual group revenues.
“Eutelsat management continues to argue that horizontal industrial consolidation would drive value creation and bring much needed scale to compete with new entrants. The public-private partnership between Space X and the US administration could facilitate the European Union’s and local government’s acceptance of the creation of a European champion in satellite communications,” Belmer said.
“On C-band, Eutelsat is very confident that its migration risks are extremely limited and the probability of earning USD510m of C-band payment is very high. Payments beyond the FCC’s Order could happen if the FCC were to authorize satcos to make a profit margin on migration costs or if Verizon and other telcos agreed to pay additional fees for a faster clearing process (unlikely before December 8th),” said the bank’s summary of the event. (Source: Satnews)