Sponsored by TCI International Inc.
12 Nov 20. Precision Optics Reports First Quarter Fiscal Year 2021 Financial Results. Precision Optics Corporation, Inc. (OTCQB: PEYE), a leading designer and manufacturer of advanced optical instruments for the medical and defense industries, announced operating results on an unaudited basis for its first quarter fiscal year ended September 30, 2020.
First quarter fiscal 2021 highlights:
- Revenue for the quarter ended September 30, 2020 was $2.76 m compared to $2.51m in the same quarter of the previous fiscal year, an increase of 10%; and up 23% sequentially compared to $2.24m in the fourth quarter of the previous fiscal year.
- Gross margins for the quarter ended September 30, 2020 of 35% compared to 39% in the same quarter of the prior year; and compared to 29% for the quarter ended June 30, 2020.
- Net income of $763 during the quarter included $71,146 of stock-based compensation. This compared to a loss of $86,110 in the same quarter a year ago and loss of $323,085 in the fourth quarter of fiscal 2020.
- The Company’s cash position remains strong with an ending balance for the first quarter of $900,510.
Precision Optics’ CEO, Joseph Forkey, commented, “I am pleased with the operating performance during the first quarter which included a return to revenue growth. Our revenues grew sequentially by 23%, and by 10% year over year, as we saw a recovery in shipments on orders that had been delayed due to issues surrounding COVID-19 over the past few quarters. This growth in revenue, coupled with sequential improvement in gross margins and continued efficient management of expenses, lead to slight net income profitability and positive adjusted EBITDA. Importantly, our balance sheet remained strong with more than $900,000 in cash.”
Dr. Forkey concluded, “Our team continues to maintain a safe overall workplace for our employees while meeting the expectations and demands of our customers. Production disruptions resulting from COVID-19 related precautions created a slightly elevated backlog going into the quarter, which we have largely now delivered. Importantly, COVID-19 did not materially alter end-market programs and we are seeing the progression of numerous pipeline projects that have the ability to be significant contributors to revenue over the next few quarters and years. We are still not out of the woods as it relates to the near term impacts from COVID-19 as customers work through excess inventory and evaluate the velocity of sell through of their end products in the market. However, the increase we have seen in pipeline projects as well as requests for quotation gives me optimism. We continue to have confidence that our existing production programs will ultimately return to pre-pandemic levels and combined with new programs that are building today, we expect to have a larger base of revenue. Our business today is inherently growing nicely.” (Source: PR Newswire)
12 Nov 20. TAT Technologies Reports Third Quarter 2020 Results. TAT Technologies Ltd. (NASDAQ: TATT) (“TAT” or the “Company”), a leading provider of products and services to the commercial and military aerospace and ground defense industries, reported today its unaudited results for the three month and nine month periods ended September 30, 2020.
Key Financial Highlights:
- Revenues for Q3 2020 were $16.8m compared with $24.8m in Q3 2019. Revenues for the nine-month period that ended on September 30, 2020 were $58.8m compared with $71.7m in the nine-month period that ended on September 30, 2019.
- Gross profit for Q3 2020 was $1.4m (8.3% as a percentage of revenues) compared with $4.1m (16.8% as a percentage of revenues) in Q3 2019. Gross profit for the nine-month period that ended on September 30, 2020 was $7.5m (12.7% as a percentage of revenues) compared with $11m (15.3% as a percentage of revenues) in the nine-month period that ended on September 30, 2019.
- Adjusted EBITDA for Q3 2020 was (0.3)m compared with $2.2m in Q3 2019. Adjusted EBITDA for the nine-month period that ended on September 30, 2020 was $2.2 m compared with $5.3m in the nine-month period that ended on September 30, 2019.
- Net loss was ($1.6)m, or loss of ($0.16) per diluted share in Q3 2020 compared with a net income of $0.15m, or $0.02 per diluted share in Q3 2019. Net loss was ($3.4)m, or loss of ($0.37) per diluted share in the nine-month period that ended on September 30, 2020 compared with a net income of $0.3m, or $0.04 per diluted share in the nine-month period that ended on September 30, 2019.
- During Q3 2020 and the nine-month period that ended on September 30, 2020 TAT reported losses from discontinued operation of the JT8D engine blades coating in the amount of $0.1m and $1.8m, respectively.
Mr. Igal Zamir, CEO and President of TAT Technologies stated, “TAT reacted fast and effectively to the COVID 19 impact on the aerospace industry. In Q2 and Q3 of 2020 we adjusted the company’s cost structure to the reduction in revenues during such period. We will continue to proactively monitor our cost structure and cash flow as the industry continues to manage the pandemic and its impact. Our strong balance sheet with net cash of over $19 m provides us the flexibility to serve our customers and in the same time maintain business development activities.
We are pleased that despite the pandemic, the company was able to continue its sales, marketing, and business development efforts with meaningful results. During the third quarter of 2020 we signed a 10- year contract with Honeywell for the repair of APU 331-2xx. This contract represents a substantial opportunity to increase our APU business. In order to support its execution, we will invest in machines and rotatable parts in the coming quarters to better support our clients.
In addition, we are proud that during the last six months we executed new, and renewed existing long-term agreements with MRO and OEM customers with potential aggregate revenues of $38m for the coming years.” (Source: PR Newswire)
12 Nov 20. McKean Defense Announces Signing of Definitive Agreement to Acquire Mikros Systems Corporation. McKean Defense Group, Inc. (“McKean”), a leading Employee-Owned Life Cycle Management, Engineering, Enterprise Transformation, and Program Management business headquartered in Philadelphia, PA, announced today that it has signed a definitive agreement to acquire Mikros Systems Corporation (OTCQB: MKRS) (“Mikros”), an advanced technology company specializing in electronic systems technology for advanced maintenance in military, industrial and commercial applications, for approximately $4.6m in cash.
Under the terms of the agreement, McKean will acquire all of the outstanding common stock of Mikros for cash payment of $0.13 per share via merger. The boards of directors of both McKean and Mikros have approved the transaction. The acquisition is expected to close in the first quarter of 2021, subject to customary closing conditions, including approval by Mikros’ stockholders.
Mikros brings cutting edge product and technology solutions that strongly compliment McKean’s U.S. Navy portfolio. “McKean’s maintenance engineers and modernization analysts have helped shape strategies for new ship programs and increasing the maintainability of the Surface Navy,” said Joseph Carlini, Chief Executive Officer of McKean. “With the added capabilities and skills from the Mikros acquisition, McKean will strengthen our support to the Littoral Combat Systems (LCS) platform and add significant combat systems monitoring and diagnostic analytics to our strategic offerings.”
Paul Casner, Chairman of the Board of Directors of Mikros, said “We ran a broad and comprehensive process, engaging with multiple potential buyers, and are pleased that the process culminated in a transaction that maximizes value for our stockholders. The combination of McKean and Mikros strengthens both companies and provides the Navy with world class engineering and support.” Tom Meaney, Chief Executive Officer of Mikros Systems, added “This transaction is a testament to our outstanding team of talented employees and the company they have built. We have grown Mikros from a small research organization into a prime Defense Contractor providing proprietary remote maintenance and monitoring solutions to the United States Navy. McKean gives Mikros a much larger platform to expand our combat systems maintenance product lines with the U.S. Navy, while increasing reliability and reducing sustainment costs.”
Stevens & Lee, P.C. served as McKean’s legal counsel. Mikros was advised in this transaction by Spouting Rock Capital Advisors, LLC, and received a fairness opinion from Guide Cap Partners, LLC. Fox Rothschild LLP served as Mikros’ legal counsel.
McKean Defense is an 100% Employee Owned company with cutting edge engineers, developers, technical staff, programmers, analysts, and program managers who identify and deploy new shipboard technologies, integrate information technology across shipboard platforms, and develop strategies to support the Warfighter. McKean Defense’s employees create strategic solutions to help customers reach new levels of mission support and transform their organizations. More information is available at www.mckean-defense.com.
Mikros Systems Corporation is an advanced technology company specializing in the development and production of electronic systems technology for advanced maintenance in military, industrial and commercial applications. Mikros’ capabilities include technology management, electronic systems engineering and integration, radar systems engineering, command, control, communications, computers and intelligence systems engineering, and communications engineering. For more information on Mikros, please visit www.mikrossystems.com. (Source: PR Newswire)
12 Nov 20. TransDigm Group Reports Fiscal 2020 Fourth Quarter Results. TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, today reported results for the fourth quarter ended September 30, 2020, which were significantly impacted by the COVID-19 pandemic.
Fourth quarter highlights include:
- Net sales of $1,173m, down 23.9% from $1,541m in the prior year’s quarter;
- Income from continuing operations of $101m;
- Earnings per share from continuing operations of $1.76;
- EBITDA As Defined margin of 42.4%;
- EBITDA As Defined of $498m is down 29.6% from $707 m in the prior year’s quarter;
- Adjusted earnings per share of $2.89, down 48.6% from $5.62; and
- Strong operating cash flow generation of $222 m.
Fiscal 2020 highlights include:
- Net sales of $5,103 m, down 2.3% from $5,223 m in the prior year;
- Income from continuing operations of $653 m;
- Earnings per share from continuing operations of $8.14;
- EBITDA As Defined margin of 44.6%;
- EBITDA As Defined of $2,278 m is down 5.8% from $2,419 m in the prior year; and
- Adjusted earnings per share of $14.47, down 20.8% from $18.27.
Fiscal 2021 financial guidance will not be issued at this time.
Net sales for the quarter declined 23.9%, or $368 m, to $1,173 m from $1,541 m in the comparable quarter a year ago. In the current quarter, all sales represent organic sales.
Income from continuing operations for the quarter was $101m, a decrease of 68.1% compared to $317m in the comparable quarter a year ago. The decrease in income from continuing operations primarily reflects the decline in net sales described above. This decline in income from continuing operations was partially offset by a lower effective tax rate.
Adjusted net income for the quarter decreased 47.5% to $166m, or $2.89 per share, from $316m, or $5.62 per share, in the comparable quarter a year ago.
EBITDA for the quarter decreased 40.9% to $414 m from $700 m for the comparable quarter a year ago. EBITDA As Defined for the period decreased 29.6% to $498 m compared with $707 m in the comparable quarter a year ago. EBITDA As Defined as a percentage of net sales for the quarter was 42.4%.
“Throughout our fourth fiscal quarter, both passenger demand and air traffic remained depressed due to the COVID-19 pandemic. The pandemic has resulted in governments around the world implementing measures to control the spread of the virus, including quarantines, travel restrictions and other measures. Certain markets have reopened, while others, particularly international markets, remained closed or are enforcing extended quarantines. Despite these headwinds, I am pleased that we were able to sequentially expand our EBITDA As Defined margin to about forty-two and a half percent as a result of careful management of our cost structure,” stated Kevin Stein, TransDigm Group’s President and Chief Executive Officer.
Fiscal 2020 net sales declined 2.3%, or $120 m, to $5,103m from $5,223 m in the comparable period last year. Organic sales declined 13.8%. Acquisition sales growth was $603 m, all of which are attributable to Esterline.
Fiscal 2020 income from continuing operations declined 22.4% to $65 m compared to $841m in the comparable period a year ago. This decrease in income from continuing operations primarily reflects the decline in net sales described above, along with higher interest expense, higher operating costs and amortization expense attributable to Esterline and COVID-19 restructuring costs. The decline in income from continuing operations was offset partially by lower acquisition related expenses and a lower effective tax rate. The effective tax rate for fiscal 2020 was positively impacted by a one-time provisional benefit from dividend and dividend equivalent payments made in the period, as well as the enactment of the CARES Act which included favorable modifications to the interest deduction limitation. The effective tax rate for full-year fiscal 2020 was 11.7% compared to 20.9% for fiscal 2019.
GAAP earnings per share were reduced in fiscal 2020 and 2019 by $3.22 per share and $1.97 per share, respectively, as a result of dividend and dividend equivalent payments made during each year.
Fiscal 2020 adjusted net income decreased 19.3% to $829 m, or $14.47 per share, from $1,028 m, or $18.27 per share, in the comparable period a year ago.
Fiscal 2020 EBITDA decreased 4.4% to $2,052 m from $2,148m for the comparable period a year ago. EBITDA As Defined for the period decreased 5.8% to $2,278m compared with $2,419 m in the comparable period a year ago. EBITDA As Defined as a percentage of net sales for the current period was 44.6%.
Mr. Stein continued, “Fiscal 2020 has been a challenging year given the unprecedented COVID-19 pandemic and ensuing disruption of the commercial aerospace industry. These circumstances required actions that were necessary, but difficult to implement. The purposeful management of our cost structure, along with tight management of our balance sheet, better positions us as a Company to emerge strongly from the ongoing weakness in our primary commercial end markets. With the recent uptick in global COVID-19 cases as well as renewed lockdowns in certain countries, much uncertainty remains about the duration of the pandemic and pace of recovery. We will continue to be focused in our management of the details and look forward to the opportunity to create value for our stakeholders in fiscal 2021.”
Please see the attached tables for a reconciliation of income from continuing operations to EBITDA, EBITDA As Defined, and adjusted net income; a reconciliation of net cash provided by operating activities to EBITDA and EBITDA As Defined, and a reconciliation of earnings per share to adjusted earnings per share for the periods discussed in this press release.
Fiscal 2021 Outlook
Given the considerable uncertainty around the extent and duration of business disruptions related to the COVID-19 pandemic, and how that will impact operations, the Company will not provide fiscal year 2021 guidance at this time. (Source: PR Newswire)
13 Nov 20. Quickstep to acquire Boeing Australia’s MRO capability. The carbon fibre composites manufacturer has agreed terms for the purchase of Boeing Defence Australia’s aerospace MRO capability.
Quickstep has announced plans to acquire Boeing Defence Australia’s maintenance, repair, and overhaul (MRO) capability, based in Tullamarine, Victoria.
Under the terms of the Asset Purchase Agreement, Quickstep will acquire operating assets plus inventories and certain customer contracts from Boeing Australia Component Repairs (BACR) through its wholly-owned subsidiary, Quickstep Aerospace Services.
Quickstep has also offered to onboard certain BACR employees and has agreed to assume employee liabilities for transferring employees and certain other business liabilities.
The transaction will be funded by a “top tier” Australian bank, as part of a refinancing package for Quickstep’s existing long-term loan, offering a reduced margin.
Quickstep expects to complete the acquisition by the end of 2020; however, the deal is subject to regulatory approvals related to the operation of the facility.
The firm added that it expects the acquisition to increase the ASX-listed company’s earnings per share (EPS) by year two.
Quickstep — which has recent experience working with Boeing, Airbus, Embraer and Bombardier aircraft, F/A-18A/B Classic Hornets, F/A-18F Super Hornets, C-130J Hercules and CH-47 Chinooks — said it intends to leverage its existing relationships and capabilities to broaden the scope of MRO work offered to include F-35 and other military and commercial work.
Key approvals include all major regulatory bodies — CASA, FAA, EASA and DASR — with Quickstep working towards obtaining certifications.
In addition to the Asset Purchase Agreement, Boeing Defence Australia and Quickstep have agreed to commence discussions on a long-term agreement that, if entered into, would develop a broader, ongoing collaboration in both the military and commercial aerospace segments, covering new production and sustainment of existing aircraft types.
Following the announcement, Mark Burgess, CEO of Quickstep said: “We are delighted to soon be welcoming highly capable aerospace employees from the BACR business to Quickstep. The acquisition of this important national capability aligns well to our business strategy, positions us to grow our defence sustainment business and opens up new opportunities in the high value commercial aftermarket as we move toward post pandemic recovery.”
Scott Carpendale, vice president and managing director of Boeing Defence Australia, added: “We’re pleased that this agreement will offer Quickstep – a well-established and highly capable Australian company – the ability to grow its unique sovereign capability to the benefit of regional commercial and defence customers.
“We look forward to continuing to work with Quickstep on new opportunities to increase their support of Boeing customers locally and globally.” (Source: Defence Connect)
12 Nov 20. Rolls-Royce raises 2bn pounds with rights issue. British engineering company Rolls-Royce raised 2bn pounds ($2.6bn) from a rights issue on Thursday to bolster its pandemic-hit finances, after shareholders signed up for 94% of the new shares and the rest were sold via a rump placing.
Airlines pay Rolls-Royce based on how many hours its engines fly, so the company’s finances have come under increasing pressure after COVID-19 stopped travel earlier this year.
The equity raise unlocks new debt options for the company including 2bn pounds from a bond issued in October and a bank loan worth 1bn pounds, as part of a total 5bn pound liquidity package.
The overwhelming majority of shareholders backed the equity raise, but the results showed there were some dissenters to the issue from what is one of Britain’s best known industrial names, with 6% of the new shares issued not initially taken up.
The company said in a statement that 10 underwriting banks including Citigroup, Goldman Sachs and Morgan Stanley had successfully procured subscribers for the rest of the shares.
Chief Executive Warren East Rolls-Royce can ride out COVID-19 with the new liquidity package and by cutting 1.3bn pounds in costs, axing 9,000 jobs and closing factories to adjust to lower demand from airline customers that fly with the firm’s engines on Boeing 787s and Airbus 350s. Shares in the company traded down 8% at 90 pence at 1240 GMT. In the rump placing, the new shares were sold at a price of 90 pence per share, the company said. The stock has had a rollercoaster week. Boosted by news of a vaccine, the shares rocketed by over 90% at one stage on Monday, but closed down 10% on Wednesday. They have lost 61% of their value in the year to date. (Source: Reuters)
12 Nov 20. Qinetiq Interim Financial Results. Emerging with strength and agility to accelerate our global growth.
Results for six months to 30 September 2020 (‘H1 2021’)
Strong recovery performance through COVID-19 crisis.
- 37% increase in orders, 17% on an organic basis, driven by EDP and MTEQ contribution
- 24% revenue growth, 8% on an organic basis, primarily driven by EMEA Services
- Underlying operating profit up 16%, flat on an organic basis, with a strong recovery in Q2
- Statutory operating profit down 10% due to a prior year £13m property disposal gain
- Strong cash performance with 134% underlying cash conversion pre-capex
- Underlying EPS up 10%; 2.2p interim dividend declared – one third of FY20 full year dividend
Strategic focus delivering solutions for our customers
- Strong growth from EDP, with £367m orders since inception at the half, £500m as at today
- 2 year LTPA transition programme ahead of schedule
- International revenue grown from £76m in FY17 H1 to £213m in FY21 H1, 35% of Group
- Portfolio optimisation with the acquisition of Naimuri and disposal of two non-core assets, Boldon James in the first half and Commerce Decisions after the end of the half
Renewed ambition and strategy to accelerate growth
- Increasing full year guidance for Group performance – expect to deliver low double-digit revenue growth (low to mid-single digit on organic basis) with FY margin consistent with the first half
- Drive sustainable growth, remaining vigilant about the potential risk of further impact from COVID-19: c.£575m revenue under contract for H2 versus c.£450m in prior year
- Embed and invest in the evolved strategy to meet needs of a new world
Steve Wadey, Group Chief Executive Officer said, “We have delivered an excellent first half performance despite a challenging environment. The resilience and determination of our people, who have continued to deliver for our customers in uncertain times has been outstanding and I would like to thank them for their contribution. We are entering the second half with confidence, with a significant order backlog, strong customer focus and an evolved strategy reflecting the increasing ambition of the Group and changing customer needs. We are increasing our full year guidance whilst proactively managing the potential risks from further COVID-19 disruption.”
12 Nov 20. QinetiQ upgrades guidance amid robust defence orders. The defence technology group saw its new order increase by over a third in the six months to 30 September
- The defence contractor now expects “low-double-digit” revenue growth this year, up from previous guidance of “high-single-digit” growth
- QinetiQ has been boosted by last year’s acquisition of advanced sensor maker Manufacturing Techniques and training simulation specialist Newman & Spurr Consultancy
Defence companies that are unencumbered by exposure to civil aerospace have proved relatively resilient to the Covid-19 crisis, benefiting from the stability of long-term government contracts and the critical nature of their work. Indeed, defence contractor QinetiQ (QQ.) saw its revenue for the six months to 30 September jump by almost a quarter year on year to £603m. This was partly down to organic growth, but also reflects the acquisitions of advanced sensor maker Manufacturing Techniques (MTEQ) and training simulation specialist Newman & Spurr Consultancy (NSC) last year.
That’s not to say the group was completely unscathed by the pandemic. Over in the smaller global products division, QinetiQ Target Systems was hit by cancelled product trials and deployments due to travel restrictions, while fibre-optic sensing business OptaSense was weighed down by a weaker oil and gas market. This squeezed the global products underlying operating profit margin by 5.3 percentage points to 6.2 per cent. Still, this was unable to offset momentum in the ‘Europe Middle East and Australasia’ (EMEA) services division and QinetiQ’s overall underlying operating profit climbed by 16 per cent to £69m.
The Ministry of Defence (MoD) is QinetiQ’s biggest customer and the group secured a further £129m-worth of orders under their ‘engineering delivery partnership’ (EDP). That contributed to £563m of new orders in total during the first half, an almost two-fifths increase versus a year earlier.
While it is currently more UK-focused, QinetiQ is continuing to expand internationally – it generated £213m of revenue from outside the UK in the first half, up from £76m four years ago. The group says it is on track to grow its international revenue from 35 per cent of the total now to more than 50 per cent over the next five years.
On the back of a strong first half, QinetiQ has increased its full-year guidance, now expecting “low-double-digit” revenue growth versus “high-single-digit” growth previously. House broker Numis is pencilling in £139m of underlying operating profit for the full year – up from £133m in 2020 – rising to £145m in 2022.
QinetiQ is not the only defence company that has upgraded its outlook. BAE Systems (BA.) now believes its underlying EPS for the year to 31 December will be slightly higher than previously guided. This is thanks to “a good operational performance” against its order backlog and a lower effective tax rate offsetting foreign-exchange headwinds. At the time of its half-year results in July, BAE was anticipating a “mid-single-digit percentage” decrease from the 45.8p it saw in 2019.
Threats on the horizon
Investor sentiment regarding defence stocks has been weighed down in recent months by concerns over future defence spending. There are fears that governments will row back on defence budgets amid spiralling national deficits and the need to prioritise other areas of the economy post-pandemic. But long-term geopolitical threats haven’t simply disappeared during this health crisis so there is reason to believe defence spending will remain robust. Indeed, German MPs recently approved a €5.4bn (£4.8bn) order for 38 new Eurofighter Typhoon fighter jets, which are made by a consortium of companies including BAE. Meanwhile, as it faces an increasingly emboldened China, Australia is ramping up its 10-year investment in new and upgraded defence capabilities from AUD$195bn (£108bn) to AUD$270bn. That bodes well for both BAE – which is Australia’s leading defence contractor – as well as QinetiQ’s push for international expansion.
Over in the world’s largest defence market, there are worries that Joe Biden’s presidential victory will result in lower US defence spending than we have seen during the Donald Trump era. There is some level of certainty ahead as the 2021 national defence budget of $740.5bn was already approved earlier this year. BAE relies on the US for more than two-fifths of its sales, but is confident about its outlook across the pond. The group says its portfolio is “well aligned” with US military priorities and growth areas and doesn’t expect this to change under a new administration. Its order backlog in the US has continued to grow, aided by its acquisitions of the Collins Aerospace Military GPS and Airborne Tactical Radios businesses from Raytheon (US:RTX) earlier this year.
Closer to home, there is the shadow of the UK’s integrated review of its security, defence, development and foreign policy. We are likely to see a shift away from investment in traditional fighting capabilities towards space and cyber. That would leave BAE exposed with its focus on expensive platforms such as combat vehicles, however it also has sizeable businesses relating to electronic and cyber warfare. Meanwhile, QinetiQ is already a key strategic partner to the MoD’s digital and information technology unit and its testing, training and evaluation services should remain important as the MoD adopts new technologies.
BAE says demand for its capabilities remains high and it is now expecting a higher level of new orders this year than its pre-pandemic forecasts. A dividend yield of 4.9 per cent is notable in this challenging income landscape, and even in the face of more modest defence budgets, analysts at JPMorgan believe that the dividend is secure. That makes the shares worth holding onto.
QinetiQ, meanwhile, is sitting on £113m of net cash – which is a third higher than its March year-end position – and it has kept the half-year dividend steady after reinstating the final dividend back in September. It therefore has balance sheet power for further M&A to assist its international growth story. The group also has visibility over 93 per cent of its revenue for the rest of the year and has a healthy £3.1bn order backlog. Buy.
Last IC View: Buy, 278p, 20 Sep 2020. (Source: Investors Chronicle)
11 Nov 20. BAE Systems (BA/ LN)3Q20 Update and Some Prep. BUY, 463.60p PT: 600.00p. FY20 Guidance is essentially unchanged, although underlying EPS will be a little higher than previously guided A COVID vaccine is potentially positive for BAE: limits the economic damage, and the chance of future cuts in defence spending running as deep or for as long reduce, even though we still see cuts as inevitable. The stage is now set for tomorrow’s presentation on Key Programmes. Let us try to tee that up a bit.
3Q Trading Update. Guidance for sales and cash flow is unchanged, hence sales to rise by a low-single-digit percentage and FCF of approximately £800m. Guidance for FY20 underlying EPS was for a mid-single-digit decline, but EPS are now guided slightly higher due to a good operational performance. A lower tax rate offsets negative FX. At the 1H20 stage, EPS guidance assumed US$1.25/£. The July-Oct average is US$1.29/£ and the current spot rate US$1.32/£. The 2H20 average rate could be around US$1.30/£ compared with US$1.26/£ in 1H20 and US$1.277/£ in FY19. A US$ 10 cents change impacts Group revenue by around £700m.
FY19 sales by activity. Slide 21 in the 1H20 results presentation summarised BAE’s major programmes, such as F-35, Typhoon production and support, Dreadnought, and Astute/future submarine. It is, however, possible to dig deeper into the composition of revenue, in our view. The context is the following analysis of FY19 sales by activity: Platforms 34%, Military and Technical Services and Support 39%, Electronic Systems 22% (which pre-dates the acquisition of Collins GPS), and Cyber 5%. When we refer below to total Typhoon revenue, it will include both Platform and Services and Support revenue.
JEFe FY19 programme revenue. The largest revenue streams are Typhoon and Defence Avionics, each at around £2.2bn, followed by Weapon Systems/Other £1.6bn (Land Domain), Submarines £1.5bn, Weapons £1.5bn (Air Domain), Combat Vehicles £1.4bn, F-35 Lightning II £1.25bn, Tornado £1.25bn, and Other £1.1bn (Naval Domain). Total Cyber Domain revenue is around £1bn. We believe Weapons (Air Domain) is largely BAE’s 37.5% share in MBDA (around £1.2bn at 37.5%). The Other £1.1bn within the Naval Domain is probably naval guns, weapons canisters, torpedoes, radars, combat systems, and more, which we struggle to identify. The toughest nut of all to crack is the Weapons Systems/Other within the Land Domain. We believe it includes artillery like the M777 howitzer, the Advanced Precision Kill Weapon System (APKWS), missile launchers, and precision-guided munitions.
Homework. We feel the market tends to paint BAE with a broad brush when it comes to the prospect of cuts in defence expenditure. We suspect the elephant in tomorrow’s virtual room will be continued suspicion Combat Vehicles will again be the fall guy. What we have already done is to remove future growth in Combat Vehicles, so we too are wary. It is, however, the significant revenue streams that we have least insight into that we are most wary of; we probably won’t see cuts coming. However, there is also upside should programmes like Australia’s Hunter Class Frigates proceed. There could be cut and thrust in the next few years, the result being a satisfactory overall outcome, in our view. (Source: Jefferies)
10 Nov 20. CAE reports second quarter fiscal 2021 results.
- Revenue of $704.7m up 28% vs. first quarter and down 21% vs. second quarter last year
- EPS of negative $0.02 ($0.13 before specific items) vs. negative $0.42 (negative $0.11 before specific items) in the first quarter and $0.28 ($0.28 before specific items) in the second quarter last year
- Operating profit of $28.2m vs. operating loss of $110.3m in the first quarter and operating profit of $124.8 m in the second quarter last year
- Segment operating income before specific items of $79.3m vs. segment operating loss before specific items of $2.1m in the first quarter and segment operating income before specific items of $126.0m in the second quarter last year
- Double-digit Civil segment operating income margin of 14.2% (operating profit margin of 4.3%) on 49% training network utilization
- Net cash provided by operating activities of $45.6m vs. net cash used in operating activities of $88.4m in the first quarter and net cash provided by operating activities of $36.7m in the second quarter last year
- Positive free cash flow of $44.9m vs. negative $92.7m in the first quarter and negative $7.1m in the second quarter last year
- Order intake of $667.8m for 0.95x book-to-sales and $8.3bn backlog
(NYSE: CAE) (TSX: CAE) – CAE today reported revenue of $704.7m for the second quarter of fiscal 2021, compared with $896.8m in the second quarter last year. Second quarter net loss attributable to equity holders was $5.2 m (negative $0.02 per share) compared to a net income of $73.8m ($0.28 per share) last year. Net income before specific items in the second quarter of fiscal 2021 was $34.2m ($0.13 per share) compared to $74.7 m ($0.28 per share) last year.
Operating profit this quarter was $28.2m (4.0% of revenue), compared to $124.8 m (13.9% of revenue) in the second quarter of fiscal 2020. Restructuring costs of $51.1m were recorded this quarter whereas there were no restructuring costs in the second quarter of fiscal 2020. Second quarter segment operating income was $79.3m (11.3% of revenue) compared with $126.0m (14.0% of revenue) before specific items last year. Backlog remains solid at $8.3bn. All financial information is in Canadian dollars unless otherwise indicated.
“CAE’s stronger performance in the second quarter, compared with the first, underscores the resiliency of our business, which is largely recurring and driven by regulations. We are managing well through a very challenging period, while maintaining focus on strengthening the Company in our core markets,” said Marc Parent, CAE’s President and Chief Executive Officer. “For the quarter, we delivered $0.13 of earnings per share, generated positive free cash flow of $44.9m, and booked $668m in new orders for a 0.95 times book-to-sales ratio. We experienced sequential improvements in each of our three business segments. In Civil, revenue increased 47% over the first quarter, driven by 49% average training centre utilization and 10 full-flight simulator deliveries, and Civil’s segment operating margin returned to double digits at 14.2%. In Defence, we also began to see a more positive inflection, with operational improvements on programs and at training sites impacted by COVID-related restrictions. Defence revenue increased 8% over the last quarter and its segment operating margin was 8.0%. And in Healthcare, revenue grew by 66% compared to last quarter and by 22% compared to last year. With the benefit of additional volume and the commencement of CAE Air1 ventilator deliveries, Healthcare’s segment operating margin reached 8.6%.”
On CAE’s outlook, Marc Parent added, “COVID-19 remains a global reality and the pace of CAE’s recovery from this point forward will be highly correlated to the rate at which travel restrictions and quarantines can be safely lifted and activities resume in our end markets. We continue to expect a stronger second half of the fiscal year, compared with the first, and to generate positive free cash flow for the year. Notwithstanding still challenging conditions, we remain confident in CAE’s long-term prospects to emerge from this period in a position of strength.”
Civil Aviation Training Solutions (Civil)
Civil training centre utilization remains well below pre-pandemic levels but has much improved since the outset of the pandemic. Training centre utilization more than doubled since the low point of the first quarter, which reflects the regulated nature of aviation training and the relatively higher activity levels in both commercial and business aviation markets. In the months since the onset of the pandemic, business aviation has been experiencing a more rapid recovery than commercial. COVID-19 continued to negatively affect Civil training revenues during the quarter with a significant decrease in training services demand as a result of the reduction in airlines’ global operations, disruption to the global air transportation environment and diminished air passenger travel. While some locations remained operating at reduced capacities, all previously closed training locations had re-opened and training centre utilization increased to an average of 49 percent for the quarter. Since the beginning of October, Civil training centre utilization has continued to average at approximately this level.
Second quarter Civil revenue was $364.5m, up 47% compared to the preceding first quarter, and down 31% compared to the second quarter last year. Operating profit was $15.5m compared to an operating loss of $97.9m in the first quarter and an operating profit of $100.2m last year. Segment operating income before specific items was $51.9m (14.2% of revenue) compared to a segment operating loss before specific items of $16.2m in the first quarter and a segment operating income before specific items of $101.4m (19.1% of revenue) in the second quarter last year. During the quarter, Civil delivered 10 full-flight simulators (FFSs) to customers.
During the quarter, Civil signed training solutions contracts valued at $353.3m, including contracts for three FFSs sales. Notable training contracts for the quarter include a five-year business aviation training agreement with a private business jet charter company in the U.S., a five-year exclusive training extension with Virgin Atlantic, a two-year business aviation training agreement with XOJET Aviation, and a two-year business aviation training extension with VistaJet.
The Civil book-to-sales ratio was 0.97x for the quarter and 0.97x for the last 12 months. The Civil backlog at the end of the quarter was $4.4bn.
Defence and Security (Defence)
While Defence experienced some positive movement during the quarter, the COVID-19 pandemic continued to contribute to delays in the execution of programs from backlog and impacted a range of global defence programs involving government and OEM customers due to travel bans, border restrictions, client access restrictions and supply chain disruptions. Such delays continued to impact the attainment of key program milestones; nevertheless, Defence did see some positive momentum on key Training Systems Integration programs. In addition, some of the required progress and acceptance testing was able to continue with virtual meetings and remote work procedures. There have been delays in the award of new contracts, as government acquisition authorities had to follow directives in their respective countries to shelter-in-place and eliminate travel. However, order intake was stronger in the last month of the quarter as acquisition agencies work through their large decision backlogs.
Second quarter Defence revenue was $303.2m, up 8% compared to the preceding first quarter, and down 10% compared to the second quarter last year. Defence operating profit was $11.4m compared to an operating loss of $9.2m in the first quarter and an operating profit of $26.0m last year. Defence segment operating income before specific items was $24.2m (8.0% of revenue) compared to $17.3m (6.2% of revenue) in the first quarter and $26.0m (7.7% of revenue) in the second quarter last year.
During the quarter, Defence booked orders for $277.5m, including contracts to continue providing fixed-wing flight training and support services to the U.S. Army at the CAE Dothan Training Centre and to support Leonardo with the design and manufacturing of one AW139 FFS and one AW169 FFS to undisclosed customers. Other notable contracts include providing the U.S. Air Force with upgrades and enhancements to both the KC-135 and C-130H aircrew training system programs. Defence also received orders to continue providing maintenance and logistics support services for the German Air Force’s Eurofighter training devices and to support the development of a Single Synthetic Environment for the United Kingdom’s Strategic Command.
The Defence book-to-sales ratio was 0.92x for the quarter and 0.89x for the last 12 months (excluding contract options). The Defence backlog, including options and CAE’s interest in joint ventures, at the end of the quarter was $3.9bn. (Source: PR Newswire)
10 Nov 20. Perspecta announces financial results for second quarter of fiscal year 2021.
– Revenue of $1.14bn
– Diluted earnings per share of $0.10; adjusted diluted earnings per share of $0.53
– Operating cash flow of $164m
– Bookings of $1.8bn (Q2 book-to-bill ratio of 1.6x; trailing-twelve-month book-to-bill ratio excluding NGEN SMIT impact of 1.6x)
– Raising fiscal year 2021 guidance
-Perspecta Inc. (NYSE:PRSP), a leading U.S. government services provider, today announced financial results for the second quarter of fiscal year 2021, which ended October 2, 2020.
“Since our inception, we have consistently achieved solid execution across the enterprise, and this quarter is no exception. Once again, we delivered on our revenue, adjusted diluted earnings per share and free cash flow conversion expectations,” said Mac Curtis, chairman and chief executive officer of Perspecta. “We continue to accomplish these strong results, quarter after quarter, because of our dedication and commitment to mission execution and operational excellence. With strategic awards and significant milestones in the areas of cyber, 5G and cloud migration, we remain steadfast in supporting our customers during this unprecedented time.”
Summary operating results (unaudited)
Revenue for the quarter was $1.14bn, down 3% compared to the second quarter of fiscal year 2020, and up 3% compared to the first quarter of fiscal year 2021. The year-over-year decline in revenue was due to the one-time $60m asset sale related to the NASA Agency Consolidated End-User Services (NASA ACES) program closeout that we recognized in the second quarter of fiscal year 2020 and the COVID-19 impact of approximately $18m in the second quarter of fiscal year 2021. Excluding the impacts of the asset sale and the COVID-19 pandemic, revenue for the quarter grew 4% year-over-year.
Income before taxes for the second quarter of fiscal year 2021 was $19m, which was down 49% compared to the second quarter of fiscal year 2020. Operating margin decreased from 3.2% to 1.7% year-over-year. Net income was $16m, or $0.10 per diluted share.
Adjusted net income was $86m for the second quarter of fiscal year 2021, down 2% year-over-year. Adjusted EBITDA was $179m for the second quarter of fiscal year 2021, down 9% compared to adjusted EBITDA for the second quarter of fiscal year 2020. The as-expected year-over-year decrease in profitability was primarily due to lower asset intensity, an increased mix of cost-reimbursable programs and a $5m COVID-19 impact. Adjusted diluted EPS for the second quarter of fiscal year 2021 was $0.53, down 2% compared to adjusted diluted EPS for the second quarter of fiscal year 2020.
Segment operating results (unaudited)
For the fiscal quarter ended October 2, 2020, Defense and Intelligence segment revenue of $796m increased by 2% compared to the second quarter of fiscal year 2020, primarily due to new business wins and growth on existing programs. Civilian and Health Care segment revenue of $346m decreased by 12% compared to the segment’s revenue from the comparable period of the prior year due to the one-time $60m asset sale related to the NASA ACES program closeout that we recognized in the second quarter of fiscal year 2020.
Defense and Intelligence adjusted segment profit margin for the second quarter of fiscal year 2021 decreased to 13.1% from 14.9% in the second quarter of fiscal year 2020. Civilian and Health Care adjusted segment profit margin for the second quarter of fiscal year 2021 improved to 11.3% from 10.4% in the second quarter of fiscal year 2020.
Cash management and capital deployment
Perspecta generated $164m of net cash provided by operating activities in the second quarter of fiscal year 2021. Quarterly adjusted free cash flow was $134m, or 156% of adjusted net income. During the second quarter of fiscal year 2021, Perspecta used $26 m to make debt repayments and returned $11m to shareholders in the form of its regular quarterly cash dividend program.
At quarter end, Perspecta had $216m in cash and cash equivalents, $750m of undrawn capacity in its revolving credit facility, and $2.5bn in total debt, including $202m in finance lease obligations. On November 9, 2020, the Perspecta Board of Directors declared that Perspecta will pay a cash dividend of $0.07 per share on January 15, 2020 to Perspecta shareholders of record at the close of business on November 24, 2020.
Contract awards (bookings) totaled $1.8bn in the second quarter of fiscal year 2021, representing a book-to-bill ratio of 1.6x. Included in the quarterly bookings were several particularly important single-award prime contracts:
- Received multiple awards on classified systems engineering and integration programs in our Defense and Intelligence segment: Perspecta will provide support to U.S. government customers’ missions through the delivery of high-end systems engineering and integration, data analytics, cybersecurity, cloud/IT services and software development. The total contract value of these awards is $519m.
- Defense Advanced Research Projects Agency (DARPA) Open, Programmable, Secure 5G (OPS-5G) program: Perspecta Labs received two awards on DARPA’s OPS-5G program for work to improve security of 5G networks. Perspecta Labs’ solution implements a zero-trust, distributed security architecture that operates across the entire scale of Internet of Things and network devices, with emphasis on reducing the burden of remote attestation and cryptographic computation on resource-constrained endpoints. Perspecta Labs’ solution will also leverage in-line programmable network elements and virtualized network functions to enable real-time, distributed defense against cyberattacks through the programmable mitigation of distributed denial of service attacks, real-time response and restoration and proactive deception-based defenses. The awards, which represent new work for the company, have a combined total ceiling value of $25m if all options are exercised.
- California State Teachers Retirement System Data Center hosting and migration services contract: Perspecta will use agile teams to migrate critical financial and benefits applications to a cloud-based solution. Perspecta will maintain the hosted solution delivering cloud operations, security, disaster recovery, information technology service management and program management services. The award, which represents new work for the company, has a total contract value of $43m if all options are exercised.
Perspecta’s backlog of signed business orders at the end of the second quarter of fiscal year 2021 was $13.9 bn; funded backlog at the end of the second quarter was $1.8bn. (Source: PR Newswire)
10 Nov 20. Vectrus Announces Third Quarter 2020 Results.
– Q3 revenue of $352.4m, +4.9% sequentially; COVID-19 adversely impacted revenue by $12.9m or 3.7% year-on-year
– Q3 diluted EPS of $0.88; Adjusted diluted EPS of $0.89, COVID-19 adversely impacted EPS by $0.14
– Adjusted EBITDA margin of 4.8%, driven by ongoing performance initiatives
– Robust backlog of $3.7bn; 1.5x TTM book-to-bill
– Reiterating 2020 guidance
Vectrus, Inc. (NYSE:VEC) announced third quarter 2020 financial results for the quarter ended October 2, 2020.
“Third quarter results were solid, reflecting improved volumes and margin levels,” said Chuck Prow, president and chief executive officer. “In addition, we continued to execute well on our growth strategy on all fronts, particularly with respect to diversifying our revenue streams and advancing our leadership position in the converged infrastructure market. For example, we were recently awarded a contract to support Navy Smart Warehouse Prototype 5G Applications. While modest in size, this prime contract is the result of our deliberate, strategic and transformational investment in expanding our capabilities at the intersection of traditional infrastructure and integrated digital services. We were also recently awarded a position on a “Best in Class” General Services Administration multi-year, multiple award, IDIQ contract vehicle, allowing access to a funding stream that is new to us and affords additional avenues of organic growth.
“For the remainder of the year, we are focused on delivering on all of our programs while keeping our teams and our clients safe; growing our pipeline of opportunities in the converged infrastructure market; and pursuing strategic M&A,” said Prow. “I want to thank our entire work force for their continued dedication, fortitude, and resourcefulness every day as we face the ongoing global pandemic.”
Third Quarter 2020 Results
Third quarter 2020 revenue of $352.4m was down slightly year on year by 2.1% mainly due to COVID-19 pandemic related deferrals of $12.9m or 3.7% due to base access restrictions. Revenue was up $16.4m sequentially or 4.9%.
For the third quarter 2020, operating income was $14.8m or 4.2% margin. Adjusted operating income1 was $15.0m or 4.3% margin. Adjusted operating income1 was adversely impacted by the COVID-19 deferral of high-margin revenue due to base access restrictions into future periods of $2.1m which had a 40-basis point impact to adjusted operating margin1.
EBITDA1 was $16.9m or 4.8% margin for the third quarter 2020, compared to $14.1m or 3.9% margin in the third quarter 2019. Adjusted EBITDA1 was $17.0m or 4.8% margin for the third quarter 2020, compared to $14.7m or 4.1% margin in the third quarter 2019. Adjusted EBITDA1 was adversely impacted by COVID-19 of $2.1m, which had a 40-basis point impact to adjusted EBITDA margin1.
Third quarter 2020 diluted EPS was $0.88 compared to $0.67 in the third quarter 2019. Adjusted diluted EPS1 for the third quarter 2020 was $0.89 compared to $0.71 in the third quarter 2019. Adjusted diluted EPS1 was adversely impacted due to COVID-19 by $0.14.
“Third quarter adjusted EBITDA1 margin of 4.8%, representing the second highest margin rate in the past ten quarters, an impressive accomplishment as EBITDA margin includes an estimated 40-basis points of COVID-19 impact,” said Susan Lynch, senior vice president and chief financial officer. “Our margin reflects the strength of our underlying business and continued execution on our enterprise wide performance improvement initiatives. The rollout of our enterprise systems is progressing well, and we continue to invest in our team to support our growth. With less than one-times leverage and a strong liquidity position as well as a solid backlog, we are poised to weather the pandemic while continuing to support our long-term growth.”
Cash provided by operating activities through October 2, 2020 was $37.7m, compared to net cash provided by operating activities of $28.4m year-to-date 2019. The increase year-to-date over prior year is mainly driven by the CARES Act employee payroll tax deferrals of approximately $9.9m.
Net debt at October 2, 2020 was $2.3m, down from $35.2m at December 31, 2019. Total debt at October 2, 2020 was $66.0m, down $4.5 m from $70.5m at December 31, 2019. Cash at quarter-end was $63.7m, up $28.4 m from $35.3m at December 31, 2019. As of October 2, 2020, the revolver, was undrawn and combined with cash, results in total liquidity of more than $180m. Total consolidated indebtedness to consolidated EBITDA1 (total leverage ratio) was 0.99x.
Total backlog as of October 2, 2020 was $3.7bn and funded backlog was $1.0bn. The trailing twelve-month book-to-bill was 1.5x as of October 2, 2020.
Reiterate 2020 Guidance
Lynch continued, “We expect the momentum experienced in the third quarter to continue for the remainder of the year and are reiterating our 2020 guidance.” (Source: PR Newswire)
10 Nov 20. Raytheon Intelligence & Space to acquire Blue Canyon Technologies. Raytheon Technologies (NYSE: RTX) has signed a definitive agreement to acquire privately held Blue Canyon Technologies, a leading provider of small satellites and spacecraft systems components. Closure of the acquisition, expected by early 2021, is subject to the completion of customary conditions and regulatory approvals. Blue Canyon Technologies will report into Raytheon Intelligence & Space upon closing.
“The space market is rapidly expanding and our customers need comprehensive solutions faster than ever before,” said Roy Azevedo, president of Raytheon Intelligence & Space. “What makes Blue Canyon Technologies the right fit for our business is its agile, innovative culture and expertise in small satellite systems and technologies. This acquisition enables us to deliver a broader range of solutions to support our customers’ space missions – from sensing subsystems to mission systems integration and from launch and range support to on-orbit operations.”
Based in Boulder, Colorado with more than 200 employees, Blue Canyon Technologies was founded in 2008. The company currently has more than 90 satellites in production, and has supported missions for the U.S. Air Force, NASA and the Defense Advanced Research Projects Agency.
10 Nov 20. No 10 toughens takeover laws to lock out ‘back door’ security risks. Move covers prospective foreign buyers of companies in 17 sensitive UK industries. Boris Johnson in July reversed plans to allow Chinese telecoms equipment maker Huawei to supply kit for Britain’s 5G mobile phone networks.
Boris Johnson will on Wednesday announce the biggest overhaul of British takeover law for two decades to prevent overseas companies buying up sensitive UK assets, as concern grows inside Downing Street about China’s influence. The tough measures will require prospective foreign buyers of UK companies, shareholdings or intellectual property in 17 sensitive industries to alert a new government unit about proposed transactions. Directors of overseas companies that fail to do so could face personal fines of up to £10m, or their businesses could pay penalties worth up to 5 per cent of annual turnover. British officials expect about 1,000 transactions to be notified under the new takeover regime, although only a small percentage are likely to be blocked by the government or face “remedies”.
That would be a sharp increase in scrutiny of transactions given that there have been only 12 public interest interventions by the government on national security grounds since 2002. “Hostile actors should be in no doubt there is no back door into the UK,” said Alok Sharma, business secretary. “We will continue to welcome job-creating investment . . . while shutting out those who could threaten the safety of the British people.” Publication of the government’s National Security and Investment Bill on Wednesday follows growing concerns within the UK security agencies about how to protect critical infrastructure from potentially risky Chinese investments. The prime minister in July reversed previous plans to allow Chinese telecoms equipment maker Huawei to supply kit for Britain’s 5G mobile phone networks following lobbying by the Trump administration in the US.
The UK government in April intervened to block an investor which was linked to the Chinese state from taking control of the board of British chip designer Imagination Technologies. At present, under the 2002 Enterprise Act, UK authorities can intervene in deals on competition grounds or if a transaction has implications for national security, media plurality or financial stability. But this usually only applies if the target asset has an annual turnover of more than £70m or where the merged business would have a market share of more than 25 per cent. Now the rules will be rewritten so any transaction in 17 industries will have to be automatically declared to a new investment security unit inside the business department. That will apply not only to company takeovers but also to purchases of large shareholdings and intellectual property in the sectors — including defence, transport, energy, artificial intelligence, computing hardware, communications, civil nuclear and space technologies. The proposals were first drawn up three years ago under former prime minister Theresa May but have been repeatedly delayed.
The UK’s decision to tighten the rules is in line with actions by other western Five Eyes partner nations including the US and Australia. The powers will be active from when the bill is introduced on Wednesday — rather than when the law is passed by parliament — to prevent a rush of takeovers. The government, admitting that its existing powers “do not reflect the threats we face today”, said the new approach was “proportionate”. The new government screening process of overseas takeovers of UK assets should be carried out within 30 working days, allowing most deals to be cleared swiftly. One City of London executive said he was reassured that the focus was on national security rather than an intrusive 1970s-style catch-all regime. Recommended Philip Stephens Huawei and the hard facts facing global Britain But Veronica Roberts, a partner at law firm Herbert Smith Freehills, said the new regime could be “unsettling” for foreign investors because the mandatory filings “could be enough to disadvantage some bidders in fast-paced auction processes”. Ministers on Friday quietly published new guidance aimed at British technology companies working with China. The advice warned that the government has “serious concerns” about the Chinese state’s use of technologies which might violate human rights, and urged companies to be aware of the ethical repercussions of any new partnerships they enter into. The guidance highlighted China’s use of facial recognition and predictive algorithms as being particularly problematic, pointing out that these could be used for “mass surveillance, profiling and repression of ethnic minorities in Xinjiang and elsewhere”. It also pointed out potential “reputational consequences” for UK digital companies involved in technology which may be diverted towards the Chinese military under Beijing’s programme of civil military fusion. The Chinese embassy in London did not immediately respond to a request for comment. (Source: FT.com)
11 Nov 20. BAE Systems plc – market update. Charles Woodburn, BAE Systems Chief Executive, said: “We have continued to deliver a resilient performance in line with our expectations for a strong second half, thanks to the outstanding efforts of our employees in these challenging times. From a position of strength, the actions we took in quarter two to enhance our resilience are working well as reflected in our guidance, ensuring we continue to deliver on our customer priorities, whilst keeping our employees safe. Demand for our capabilities remains high and we recognise our role not only in supporting national security, but also in contributing to the economies of the countries in which we operate.”
The Group’s full year guidance for 2020 sales and cashflow remains unchanged from the 2020 interim results. Underlying earnings per share are now expected to be slightly higher than previously guided with good operational performance and an expected lower tax rate offsetting the negative foreign exchange impact.
Demand for our capabilities remains high with order intake expectations for the Group ahead of our original pre COVID planning for the year.
The recent German Parliament announcement confirming the approval of the purchase of an additional 38 Typhoon aircraft is significant for the consortium, and we are working with Eurofighter GmbH and our industrial partners to conclude the relevant contracts in the near future.
Our large order backlog and incumbent programme positions are expected to lead to strong and profitable top line growth with increasing cash conversion in the coming years.
Key market update
In the US, the Group’s US-based portfolio remains well aligned to customer priorities and growth areas, which we expect to continue under the next administration. The backlog for the US based business has continued to grow organically and through the two acquisitions made earlier this year. This backlog provides good visibility of growth in the US business. The two-year budget deal enacted in 2019 established a defense spending level of c.$740bn for fiscal year 2021. As lawmakers continue to work on authorization and appropriations bills, Congress passed a Continuing Resolution to provide funding through 11 December, with the CARES Act also extended through the same period.
In the UK, the government has recently re-stated its commitment to meeting the NATO target of spending of at least 2.0% of Gross Domestic Product on defence. The Government’s Integrated Foreign Policy, Defence and Security Review is ongoing and the Ministry of Defence has stated it is progressing its contribution to this Review by planning how best to meet tomorrow’s threats. We see a stable outlook for our UK operations, with defence revenues centred around long-term, contracted and critical defence programmes in the Air and Maritime domains. The Group has limited UK-EU trading and the majority of the UK workforce are UK nationals. Accordingly, any resulting near-term Brexit impacts across the business are likely to be limited.
Our business in Australia, where we are the leading defence contractor, is set to grow significantly in the coming years as the Hunter Class Frigate programme matures. The government announcement in July to increase their 10-year investment in new and upgraded defence capabilities from $195bn AUD to $270bn AUD should provide further opportunities to enhance and extend our growth profile.
In Europe, a number of nations are increasing their defence budgets to address the threat environment and move towards their 2% of GDP NATO commitments. We remain well placed through our positions on the Eurofighter Typhoon, our shareholding in MBDA and our BAE Systems Hägglunds Swedish based land vehicles business.
In Saudi Arabia, we are working closely with industry partners and the UK Government to continue to fulfil the contractual support arrangements in the Kingdom on the key European collaboration programmes.
We are being agile as we address the challenges arising from the global pandemic with employee safety and wellbeing at the forefront. Collaboration and communication across our many stakeholders, particularly in our supply chain and with our Trade Unions, gives us high confidence in our ability to deliver across our defence programmes. As outlined in July, in our defence businesses most operations are operating with well over 90% of employees working. This includes a high proportion still working from home and critical on-site workers operating under the adjusted protective safety measures. We continue to monitor local operational situations with particular focus on our supply chains as we manage fragility in certain areas.
We have seen some pleasing progress since the half year as we continue to deliver improved operational performance against our strong order backlog. Our focus on F-35 ramp up in both the Air and Electronic Systems divisions has continued in the second half.
The integration of the former Airborne Tactical Radios and Military Global Positioning System businesses into the Electronic Systems sector is progressing well, benefitting from positive levels of engagement by the teams. The businesses are performing as expected and well positioned for growth.
The first of the Low Rate Initial Production (LRIP) Armoured Multi Purpose Vehicles have been delivered to the US Army customer and dozens of hulls are in progress on the production line as the programme continues to build momentum. The Amphibious Combat Vehicle programme successfully completed Initial Operational Test and Evaluation in September, a key milestone in moving from LRIP levels to the full rate production levels.
The Qatar Typhoon and Hawk build programmes are progressing well and our relationships are strengthening as we implement our support and training commitments with the Qatari Armed Forces.
On the Tempest programme, positive progress continues with the inputs to the outline business case submitted on time and good progress has been made towards a trilateral Memorandum of Understanding with our Italian and Swedish international partners.
In Maritime, the fifth and final OPV, HMS Spey, was accepted by the Ministry of Defence in October, and the acquisition of Techmodal is an exciting step for the sector as we look to support the Royal Navy’s ambition to be a ‘digital navy’ by 2025.
At the start of November we completed the disposal of the ex-Silversky business. This has no material impact on the guidance.
On 1 November Nick Anderson joined the Board as a non-executive director. Paula Rosput Reynolds and Nick Rose, non-executive directors of the Company, will retire from the Board with effect from 31 December 2020.
The Interim dividend of 9.4 pence per share will be paid on 30 November 2020.
10 Nov 20. Meggitt PLC – Third quarter trading statement and guidance for full year 2020. 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 third quarter ended 30 September 2020 and guidance for the year to 31 December 2020.
CEO, Tony Wood commented: “Our number one priority remains ensuring the safety of our employees and continuity of our operations in what continues to be a challenging and unprecedented external environment. I, along with the Board, would like to thank our teams for their continuing hard work and dedication, which have been outstanding.” “While conditions in the global civil aerospace sector remained weak during the third quarter, our top line performance slightly improved, with revenue down 25% in the period, compared with down 30% in the second quarter, reflecting the breadth of our end markets and the continued strong performance of our defence business and growth in energy. Although expectations of the extent of the recovery in civil aerospace in the important final quarter have softened in recent weeks, our global teams continue to focus on actions within our control, including our cost and cash actions where we have made strong progress.” “For the full year, we expect to deliver underlying operating profit between £180m and £200m, to be free cash flow positive in the second half, and cash flow neutral for the full year at the top end of the operating profit guidance range. “While we remain alive to the challenges which COVID-19 continues to pose, we are encouraged by recent news on vaccine development and the positive implications for air travel. With diverse end market exposure, strong market positions, and having taken a range of decisive actions, we remain well placed for the recovery.”
- Group revenue in the third quarter of £384m, down 25% on an organic basis
- Group revenue for the first nine months of £1,301m, down 18% organically
- Continued strong performance from defence, with organic growth of 9% in the third quarter and 8% organic growth in the first nine months of 2020
- Strong execution on cash actions; on track to deliver £400m to £450m for full year
- Headroom on committed facilities of £814m at 30 September
- Guidance reinstated for the full year, with positive free cash flow in the second half 2 Market update Defence In defence, conditions in our core US market remained positive, with 4% growth in overall US DoD outlays during the quarter ended 30 September.
Improving fleet readiness and modernisation remain core priorities within the US defence budget for 2021, and consequently, the external environment is expected to remain supportive in the near-term. Civil Aerospace In civil aerospace, activity levels improved during the period, with global ASKs and RPKs recovering from -80% and -86% in June, to -63% and -73% respectively in September compared with 2019 levels. With international flight activity remaining at very low levels, and a large proportion of regional jet flights in the US serving the major international hubs, regional jet activity levels remained subdued during the period at -55% versus 2019 levels at the end of September.
In business jets, activity levels have continued to recover with global flight activity increasing from -26% in June to -17% at the end of the third quarter, compared with 2019 levels. In terms of fleet dynamics, deliveries of new commercial aircraft (a driver of our civil OE revenue) were 36% lower in the third quarter compared with 2019 levels and 51% down for the nine months to the end of September. Energy and other In Energy and other markets, conditions in our main end markets remained stable throughout the third quarter, underpinning our order book.
Third quarter Group trading performance
The performance of the Group in the third quarter broadly reflected the trends seen across our end markets, with a robust performance from our defence and energy businesses more than offset by soft market conditions in civil aerospace: • Group revenue down 25% on an organic basis
- Defence revenue grew 9% organically, driven by another strong performance in OE which was up 18%. We continue to see good order flow and expect demand in this part of the business to perform well throughout the remainder of 2020
- Civil aerospace revenue was 49% lower than the comparative period on an organic basis, within which OE and aftermarket revenue decreased by 48% (Q2: -53%) and 50% (Q2: -47%) respectively
- Energy revenue grew by 4% organically driven by a number of orders in our Heatric business and our order book is encouraging 3 While our top line performance was broadly in line with our expectations in the third quarter, margins were lower, particularly at the end of the period. This was driven by adverse mix within civil aftermarket, as airlines deferred spares purchases through pro-active management of their fleets (‘green time’) to preserve cash, and the consequent lower volumes across our manufacturing sites. The trends across our end markets have continued in October, with Group performance slightly lower than our base case, which assumed a progressive improvement in the fourth quarter. During the period, we secured a number of contract awards comprising: several orders across our defence business, including the supply of innovative nose radome technology, defence composites and follow on orders for fuel bladders across multiple platforms; in Energy, we secured two contracts for the supply of Printed Circuit Heat Exchangers in Heatric; and in the aftermarket, new long-term contracts with two airlines in Asia.
Actions to reduce cash expenditure and our cost base
As reported in our half year results on 8 September, we have completed the majority of our actions to reduce cash expenditure and resize the business and we remain on track to deliver our target of £400m to £450m of cash savings for the full year. Financial and liquidity position At the end of September, we had £1,660m of committed facilities in place providing headroom of £814m. We also have additional liquidity available under the CCFF.
On 5 October, we repaid $150m on the maturity of a tranche of US PP notes. On 29 October we priced a new private placement of debt and agreed, subject to standard closing conditions, to issue $300m in aggregate of three and five year senior notes to international investors. The issuance of the notes, which was significantly oversubscribed, is expected to take place on 19 November and will provide us with additional liquidity and financial flexibility as we look ahead to 2021 and beyond. Outlook for the full year 2020 As set out in September, we have been managing the Group to a plan that: (1) assumed delivery of our cash savings target for the full year; and (2) that our trading performance in the second half would reflect a progressive recovery in air traffic in the latter part of the year. As reported above, we have delivered the first of these objectives and continue to execute actions within our control. Notwithstanding this, in recent weeks, as a result of the onset of a second wave of COVID-19 across many countries, the environment in civil aerospace has softened, with airlines reducing short-term planned capacity, moderating our expectations of the extent of a progressive recovery in activity levels in the final quarter. 4 Consistent with a broad trend across the civil aerospace industry, the fourth quarter has historically represented our most important trading period.
This year, with customer behaviour and our win and ship volumes in the final two months of the year being harder to predict, our guidance ranges for the Group for 2020 are as follows:
- Group underlying operating profit to be between £180m and £200m
- We continue to expect to deliver positive free cash in the second half and to be free cash flow neutral for the full year at the top end of our underlying operating profit guidance range A further update on our performance for the year ending 31 December 2020 will be provided in January 2021. While we remain alive to the challenges which COVID-19 continues to pose, we are encouraged by recent news on vaccine development and the positive implications for air travel. With diverse end market exposure, strong market positions and having taken a range of decisive actions, we remain well placed for the recovery.
09 Nov 20. Textron Inc. (NYSE:TXT) today responded to a purported tender offer by Xcalibur Aerospace Ltd. to acquire Textron’s common stock. Textron believes that the purported tender offer is fictitious and is being made in violation of U.S. securities laws, including relevant filing and disclosure requirements. Textron further notes that in the past two years Textron has received other purported indications of interest from Xcalibur, and each time Xcalibur has been unable to provide details of its financial wherewithal. As it has done previously, Textron has informed relevant authorities of this most recent fictitious offer.
We urge investors to carefully scrutinize any communications from the purported offeror and to rely only on tender offer materials, if any, that are properly filed with the U.S. Securities and Exchange Commission. Unless and until a valid tender offer is made, Textron does not expect to comment further regarding the actions of the purported offeror.
10 Nov 20. Radar Tech Firm Cambridge Pixel Switches to Employee Ownership to Secure Long-term Future.
Cambridge Pixel has set up an Employee Ownership Trust (EOT) to put the award-winning radar technology firm into the hands of the team of people who work for it, and making them the direct beneficiaries of the company’s future success.
Dr David Johnson, co-founder and CEO of Cambridge Pixel, who set up the company in 2007, wanted to secure the long-term future of the firm and he was keen to avoid a messy trade sale or a botched merger. He saw many advantages to the switch to employee ownership and believes that it will benefit the founders, the employees, and the company’s customers.
“The establishment of employee ownership through the EOT at Cambridge Pixel will provide continued job security for all staff,” said David Johnson. “It will also enable the employees to have collective control of their future and to continue to deliver world-leading radar technology to companies developing mission critical products in naval, air traffic control, vessel traffic, commercial shipping, security, surveillance and airborne radar applications.”
Employee ownership has rocketed in popularity in the last decade pioneered by the John Lewis Partnership and more recently by companies such as Richer Sounds and Aardman Animation. Studies have shown that employee owned firms are also more resilient and are proven to weather economic cycles better than most. This may prove to be important as firms the world-over deal with the impact of the coronavirus pandemic.
Andrew Haylett, chief engineer at Cambridge Pixel and one of the new trustees responsible for overseeing the running of the company, said: “This is great news for all the staff at Cambridge Pixel who now have a stake in the business and will share in the profits.”
Dr Johnson believes that employee ownership also bodes well for customers and will help to secure the long-term future of the company. “Employee ownership makes us less vulnerable to acquisition and therefore any interruption to the supply of our customers’ products,” said David Johnson. “It also gives the owners, planning for retirement or an eventual exit from the business, a way to withdraw slowly as they mentor a successor team. It’s a win-win all round.”
Cambridge Pixel provides software licences for radar display and tracking to major commercial and defence companies the world-over. Its radar technology has been implemented in mission-critical applications with companies such as BAE Systems, Frontier Electronic Systems, Blighter Surveillance Systems, Exelis, Hanwha Systems, Kelvin Hughes, Lockheed Martin, Navtech Radar, Raytheon, Saab Sensis, Royal Thai Air Force, Sofresud and Tellumat.
Cambridge Pixel is headquartered at New Cambridge House in Litlington, near Cambridge in the UK, and operates worldwide through a network of agents and distributors.
10 Nov 20. Embraer reports Results. Embraer delivered 7 commercial jets and 21 executive jets (19 light / 2 large) in 3Q20, and the Company’s firm order backlog at the end of the quarter was US$ 15.1bn;
- Excluding special items, adjusted EBIT and EBITDA were US$ (45.3)m and US$ (0.6)m, respectively, negatively impacted by weak Commercial Aviation results, yielding adjusted EBIT margin of -6.0% and adjusted EBITDA margin of -0.1%;
- The 3Q20 results include total net positive special items of US$ 7.6 m: 1) restructuring expenses of US$ 54.0m related to the voluntary and non-voluntary dismissal programs announced in September, 2) negative provisions for expected credit losses during the Covid-19 pandemic of US$ 13.0m, 3) reversal of previous impairment in the Executive Jets business which positively impacted results by US$ 15.9m, and 4) reversal of previous impairment in the Commercial Aviation business which positively impacted results by US$ 58.7m;
- Adjusted net loss (excluding special items and deferred income tax and social contribution) in 3Q20 was US$(148.3)m, with Adjusted loss per ADS of US$ (0.81);
- Embraer reported Free cash flow of US$(566.5)m in 3Q20, still affected by working capital increases (particularly higher inventories) largely in Commercial Aviation;
- Embraer’s liquidity remains solid as the Company finished the quarter with total cash of US$ 2.2bn, higher than the US$ 2.0bn in cash at the end of 2Q20 despite the negative free cash flow in 3Q20. The Company successfully issued US$ 750m in bonds with maturity in 2028, using US$ 250m of the proceeds to prepay portions of its 2022 and 2023 bonds, while adding US$ 500m in liquidity. Embraer’s liability management during 3Q20 resulted in the average debt maturity increasing from 3.8 to 4.5 years;
- Due to continued uncertainty related to the COVID-19 pandemic, financial and deliveries guidance for the Company’s 2020 results remains suspended at this point.
09 Nov 20. Russia confirms USC’s move to acquire Indian shipbuilder. The Russian embassy in India has confirmed that the Russian state-owned group, United Shipbuilding Corporation (USC), is bidding to acquire troubled Indian shipyard Reliance Naval and Engineering Ltd (RNEL).
In a recent statement, the embassy said USC is currently auditing Mumbai-based RNEL and assessing potential investment opportunities. “UCS [has] passed the accreditation procedure, which provided access to electronic accounts with financial and economic documents related to the Indian company,” said the embassy.
It added, “[USC] is currently conducting due diligence of RNEL’s condition and assessing parameters of possible investments”.
The embassy went on to say that due to the Covid-19 pandemic USC has faced “some difficulties” in carrying out a “comprehensive analysis” of RNEL, particularly in terms of direct talks between the two sides.
However, it said, USC is anticipated to finalise its decision soon on whether to table a formal bid for the Indian naval shipbuilder.
“USC is expected to finalise its stance on further participation in the bidding procedure after completing the remote study of the documents provided by the debtor’s trustee and the field review of the RNEL’s assets by USC’s specialists,” it said.
RNEL has been facing severe economic pressures for several years, with its sale intended to pay off its heavy debts, which are linked to its previous shipyard expansion and downturns in commercial shipbuilding and energy sectors.
The company was previously owned by the Reliance Infrastructure group but has been under the control of a court-appointed insolvency firm since earlier this year. (Source: Jane’s)
09 Nov 20. Ultra Electronics Holdings plc. (“Ultra” or “the Group”) Q3 2020 Update. Ultra Electronics Holdings plc today updates the market on its performance over the nine months to 30 September 2020. Despite the ongoing Covid pandemic, trading continues as expected. Across the Group our employees continue to show exceptional commitment and resilience. All facilities remain open and productive, with no significant disruption to demand or operational performance. Order intake remains strong with good revenue growth, as anticipated. Operating margins are slightly better than expected due to lower indirect costs related to the pandemic. These costs are expected to normalise in 2021, alongside further investment in the business, as previously communicated. Cash conversion has benefited from strong advance payments, and reduced capex due to Covid related deferral of site investments, expensing design elements of our transformation and revising our ERP strategy. The Focus; Fix; Grow programme is progressing well and, pleasingly, we see opportunities to accelerate the pace of our transformation investment in 2021. We continue to closely monitor the Covid situation. Whilst we expect the challenging conditions in commercial aerospace to continue into 2021, our core defence markets are robust, and we remain confident in Ultra’s ability to deliver exceptional value for all our stakeholders.
TCI International, Inc., is a wholly-owned subsidiary of SPX Corporation. TCI provides turn-key solutions for spectrum management and monitoring, direction finding, geolocation and communications intelligence to civilian, government, military and intelligence agencies as well as antennas for communications and high-power radio broadcasting. TCI is headquartered in Fremont, California, USA. For more information, visit www.tcibr.com.