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05 Mar 21. HENSOLDT strengthens avionics business. Former EuroAvionics addresses market under unified brand name HENSOLDT Avionics and new Management team. Sensor Solution specialist HENSOLDT is strengthening its avionics business by re-naming its subsidiary EUROAVIONICS GmbH, Pforzheim, and addressing the avionics market under the unified brand name HENSOLDT Avionics. The strategic move is driven by a new management team led by the Managing Directors, André Hinueber and Dieter Buchdrucker. EUROAVIONICS has been part of HENSOLDT Group since 2017.
“HENSOLDT Avionics is highly successful in the civil avionics market while HENSOLDT has a strong position in the military avionics domain”, said Celia Pelaz, Head of Spectrum Dominance/Airborne Solutions at HENSOLDT. “Our complementary portfolio and market access open up mutual growth opportunities which are now also reflected by the name change.”
HENSOLDT Avionics Group, with approximately 100 employees, designs, produces and markets civil certified avionic equipment that provides interfaces to a wide range of third-party avionics and sensors. Among their products are situational awareness mission management systems as well as enhanced reality computers and autopilots, particularly for Unmanned Aerial Vehicles. The company generates revenues of more than € 20m. Their products are installed in almost every type of civil rotary wing aircraft by various OEMs.
Mother company HENSOLDT is a leading provider of military avionics systems such as situational awareness systems, military mission computers and flight data recorders for helicopters and fighter aircraft.
By March 1st, 2021 a new management team at the HENSOLDT Avionics GmbH has been established. André Hinueber served at Hensoldt Sensors GmbH for several years and will be Managing Director and responsible for the Business Development & Manufacturing. Dieter Buchdrucker is Co-Managing Director and responsible for HR and Finance. Michael Gröninger as Authorised Officer will be responsible for the product business as a long-time and experienced manager of HENSOLDT Avionics GmbH.
04 Mar 21. Civil aerospace woes push engineering groups into the red. Amid the slump in global air traffic, both Meggitt and Melrose swung to statutory losses in 2020.
*Meggitt expects some recovery in civil aerospace in second half of this year
*Melrose reinstates dividend at 0.75p per share
The collapse in international travel due to Covid-19 has hit not just the airlines, but reverberated down the entire civil aerospace supply chain. Amid lower demand for components for new planes and aftermarket services, engineering group Meggitt (MGGT) saw revenue from its civil aerospace activities plummet by more than two-fifths in 2020, to £726m.
Lower sales volumes, particularly for higher margin aftermarket services, translated to the group’s underlying operating profit dropping by 53 per cent to £191m. On a statutory basis, Meggitt swung to a £297m operating loss, versus a £325m profit a year earlier, weighed down by over £400m of exceptional charges. These relate to asset impairments and writedowns in response to the civil aerospace downturn.
Despite the tough conditions, the group did remain free cash flow positive and has reduced its net debt by 15 per cent to £773m, aided by the sale of the Training Systems business. Still, having not paid an interim dividend in 2020, there is no final payout either.
Looking ahead, the rollout of Covid-19 vaccines should enable international travel restrictions to be lifted, although Meggitt expects that the recovery will be weighted towards the second half of this year. Assuming no further disruptions from the pandemic, the group believes that its 2021 revenue will be broadly in line with 2020, while underlying operating profit should increase.
Melrose also flies into the red
Engineering conglomerate Melrose (MRO) is a little more downbeat on the prospects of the civil aerospace market – it does not anticipate a meaningful recovery this year. Despite higher defence sales, aerospace revenue declined by 27 per cent in 2020, and it is restructuring the business to match current levels of demand.
Melrose Industries PLC
Reflecting the civil aerospace downturn, the buyout and turnaround specialist saw its adjusted operating profit plunge by almost 70 per cent to £340m. Much like Meggitt, hefty exceptional charges pushed it to a statutory operating loss of £338m, down from a £318m profit in 2019.
In response to the Covid crisis, Melrose increased its focus on cash generation. As a result, adjusted free cash flow – which excludes restructuring costs – rose by 6 per cent to £628m, while net debt (excluding lease liabilities) has come down by more than a tenth to £2.9bn. This has allowed the group to reintroduce what vice chairman David Roper calls “a gesture of a dividend” at 0.75p per share. The balance sheet should be further aided by the disposal of air conditioning business Nortek Air Management, which has now been put up for sale. Investec estimates it is worth around £2.5bn.
Automotive recovery picks up speed
Despite the pressures in civil aerospace, Melrose’s trading in the second half of the year was at top end of the management’s expectations thanks to a recovery in its automotive and powder metallurgy divisions. Excluding aerospace, revenue grew by 2 per cent in the second half, with 9 per cent growth in the fourth quarter.
The GKN automotive and powder metallurgy businesses were facing a slowdown in the car industry heading into 2020, which was exacerbated by the pandemic. The slump in vehicle production also hit the likes of Vesuvius (VSVS) which sells castings that are used by foundries to make high-volume automotive components. The group’s foundry revenue fell by a fifth in 2020, to £413m, and when combined with the decline in global steel production, Vesuvius’ adjusted operating profit contracted by over two-fifths to £101m.
The car industry’s woes have also weighed on Morgan Advanced Materials (MGAM), which booked a £36m impairment on its thermal ceramics business in 2020, as well as registering £29m of impairment losses in its technical ceramics division in response to the aerospace downturn. But, following a recovery in orders between November and January, the group is pointing to “modest” organic revenue growth in 2021. Meanwhile, Vesuvius is guiding to a “meaningful improvement” in financial performance this year.
A long haul back
While there is the longer-term structural shift to electric vehicles, in the short-term, the automotive industry is being held back by the global shortage of semiconductors. Meanwhile, the civil aerospace sector is facing the prospect of a multi-year downturn. The International Air Transport Association (IATA) does not expect global air traffic to rebound to pre-pandemic levels until 2024, and there will be a further lag in the recovery of new aircraft production.
Still, Meggitt will benefit from the resilience of its defence business, as well as the fact that more than 70 per cent of revenue is derived from sole-source contracts. Melrose’s strong cash generation should help it endure the tough times – and potentially enable further acquisitions – and its restructuring efforts should translate to improved margins. Hold on both counts.
Last IC Views: Meggitt: Hold, 282p, 08 Sep 2020; Melrose: Hold, 99p, 22 Jul 2020. (Source: Investors Chronicle)
04 Mar 21. Meggitt Plc – 2020 Full Year results. Strong execution on strategy with the Group well placed for the recovery. Meggitt PLC (“Meggitt” or “the Group”), a leading international engineering company specialising in high performance components and sub-systems for the aerospace, defence and selected energy markets, today announces audited results for the twelve months ended 31 December 2020.
Tony Wood, Chief Executive, commented, “Our focus throughout 2020 and as we move into 2021, continues to be ensuring the safety and well-being of our people, protecting our sites, serving our customers and communities and executing our strategy. I want to thank all of my colleagues for their hard work and dedication in helping us navigate our way through the year.
Faced with a reduction in activity and demand in one of our core markets, we acted fast, executed well operationally and took decisive action while positioning the Group for the recovery in civil aerospace. While our full year performance has clearly been impacted by the ongoing effects of COVID-19, it also reflects the resilience and diverse nature of the Group, including the mitigating impact of our defence and energy businesses.
The roll-out of vaccines, coupled with significant pent-up demand to travel, provides a supportive backdrop for the recovery in civil aerospace in 2021, although this positive development is likely to take time to feed through into growth in global flight activity and the aftermarket. Based on the significant progress we’ve made over the last four years to transform the Group, the effective actions we’ve taken in 2020, diverse end market exposure and leading market positions, we are well placed to benefit from the recovery and to continue to deliver long-term profitable growth.”
Operational and strategic highlights
- Introduced measures to ensure the well-being of our people and safe operations at all our global sites
- Rapid and decisive action taken to reduce cost, protect cash and resize the Group
- Continued progress on key strategic initiatives:
o Completed the streamlining of our portfolio with the sale of our Training Systems business o Addition of 14 SMARTSupport® contracts, securing further market share in the aftermarket o Further reduction in global footprint, now 34% below 2016 levels o Investment in operational capability with the opening and fit out of our new campus in Ansty Park, UK o Accelerated our existing sustainability strategy under our People, Planet and Technology framework
- Performance of the Group reflects the impact of COVID-19 on the civil aerospace sector
- Group revenue of £1,684m down 22% on an organic basis, with a robust performance in defence, where organic revenue grew 4%
- Underlying operating profit 53% lower at £191m (FY 2019: £403m)
- Statutory operating loss of £297m (FY 2019: profit of £325m) as a result of the non-cash impairment of intangible assets and other asset write downs
- Successful delivery of in-year cash savings of £450m
- Positive free cash flow of £32m (FY 2019: £268m) and reduction of £138m in net debt to £773m (FY 2019: £911m)
- Ratios of net debt:EBITDA of 2.2x and interest cover of 9.8x at 31 December, well within covenant limits
- Robust liquidity position with headroom of £908m on committed facilities of £1,537m at 31 December
- Extended maturity of our debt with a forward start on our RCF to September 2022; and raised $300m in USPP market in November 2020
- In light of ongoing challenging and uncertain market conditions, the Board has recommended not to pay a final dividend for 2020
Outlook for 2021
- While the rollout of vaccines is expected to ease lockdowns and drive a gradual increase in air traffic activity, we anticipate the trends seen in civil aerospace during the second half of 2020 are likely to continue in the first half of 2021, with recovery weighted more towards the second half of the year. Conditions in our defence and energy end markets are expected to remain robust in 2021. Assuming no further disruption to normal operations during the year as a result of additional lockdowns, in 2021 we expect the Group to generate:
o Revenue broadly in line with 2020;
o An increase in underlying operating profit versus 2020; and o Positive free cash flow.
Group full year performance
MARKET CONTEXT AND CONDITIONS
The outbreak of COVID-19 and subsequent lockdowns across the world caused a significant and unprecedented reduction in commercial air traffic in 2020, with global air traffic, as measured by RPKs and ASKs down 65.9% and 56.5% respectively for the full year 2020, compared with 2019 levels.
While positive signs started to emerge at the end of the second quarter with airlines gradually increasing capacity and future flight schedules, particularly in domestic markets, the level of air traffic and customer demand remained highly sensitive to subsequent spikes in COVID-19 infection rates, the imposition of new lockdowns and other measures such as post-flight quarantining. Accordingly, the recovery in global passenger numbers plateaued in the fourth quarter with global RPKs and ASKs ending the year for the month of December down 69.7% and 56.7% respectively, showing only a slight improvement from September’s figures down 72.0% and 60.8%.
While all regions have been adversely affected, there have been variations in the extent of traffic reductions as follows: Asia Pacific down 62%; Europe down 70%; and North America down 65%. There has also been a difference between domestic and international air travel, reflecting the closure of international borders at certain times during the year, with domestic traffic down 49% in 2020 compared with international traffic down 76%. In some domestic markets, notably China and Russia, traffic levels recovered in 2020 to be in line with or slightly above 2019 levels.
Within civil aerospace, the extent to which different platform categories have been affected has also varied, with global business jet utilisation down 21% in the year compared with down 48% for the wider global commercial fleet (which comprises large and regional jets). In the month of December 2020, business jet utilisation had recovered to 95% of the levels seen in December 2019 reflecting its attraction to air travellers as an alternative to commercial flights.
As a result of the severe slowdown across civil aerospace, demand from airlines and operators for new build aircraft significantly reduced in FY 2020, with Airbus and Boeing deliveries down 34% and 59% respectively. Deliveries of regional and business jets in the year were down 46% and 21% respectively. In response to the lower demand for aircraft, airframe and engine OEMs significantly reduced their production rates during the year, a key driver of the Group’s OE revenue.
In the first two months of 2021, high infection rates across many countries, border closures and lockdowns have held back the recovery and resulted in the continuation of low overall levels of air traffic activity and passenger numbers. However, against this backdrop, the development and rollout of vaccines globally over the last few months has been encouraging and underpins a positive outlook for the continued recovery in civil aerospace, with the expectation that lockdown restrictions will be eased and passenger confidence returns particularly in the second half of 2021. With overall business jet activity having recovered strongly, ending 2020 close to prior year levels, we expect regional jets and narrow bodies to recover next as short haul and domestic routes are restored, with wide body levels coming back last reflecting a change in consumer attitudes towards long haul, including business travel.
Looking further ahead, most industry commentators now expect air traffic to return to 2019 levels by around 2023/2024 (IATA forecasting 2024) and new aircraft production rates to recover to pre-COVID-19 levels in 2024 /2025. Beyond the recovery period, we firmly believe that the drivers supporting air traffic growth over the long term remain in place with IATA forecasting a growth rate in global passenger journeys of 3.7% per annum over the next 20 years.
While the defence sector has not been immune from the effects of COVID-19, spending in the US (which represents over 70% of our annual defence revenue) and overall defence activity levels remained robust in 2020, a trend reflected in our own defence business. For fiscal year 2020, defence spending in the US was up 6%, with spending in RDT&E and procurement both up 12%, with good outlays for major fixed wing and rotary platforms including F-35, KC-46A, F-15EX and AH-64. In January 2021, the US DoD budget of $696bn for fiscal year 2021 was approved, broadly in line with the level of outlays in 2020, providing a supportive backdrop over the short to medium-term.
In energy, both supply and demand side factors led to volatility in the oil price moving from $57 per barrel in January to below $20 per barrel in April. While the oil price subsequently increased off its lows, trading in a range of $37-$49 per barrel in the second half, this dampened overall capital expenditure levels and delayed certain projects across the oil sector during the year, while LNG and renewables project capex remained robust.
FAST AND EFFECTIVE ACTION IN RESPONSE TO THE CRISIS
Leveraging our experience of navigating previous downturns in civil aerospace and through close communication with our customers and supply chain, the Group moved quickly to implement a revised demand scenario for planning purposes and adjusted production levels early in the second quarter. During 2020, we took a series of decisive actions in areas within our control in response to the crisis, focused on reducing costs, preserving cash and resizing the business:
- Safeguarding our people – our number one priority and the focus of our COVID-19 Crisis Management Team has been, and continues to be, to ensure the safety of our employees, where we have followed local government and health authority guidelines as they relate to safe working practices at our sites. These measures have included the introduction of social distancing, provision of personal protective equipment, variations in working patterns including split shifts, enhanced cleaning regimes and providing the necessary tools and support for those employees able to work from home.
- Supporting the community – in response to COVID-19, our employees and sites have supported their local communities in the regions where we operate around the world. In the UK, we were part of the Ventilator UK Challenge with responsibility for programme management of the consortium’s production of an additional 13,000 ventilators to help patients hospitalised with COVID-19 fight the disease. We have also had numerous examples of employees at our sites leveraging their capabilities to produce a wide range of personal protective equipment for key workers and employees.
- Business continuity – the majority of our manufacturing facilities remained open during the year to support our customers in the critical markets that we serve in defence, energy and in aerospace for repatriation of citizens and transport of food, freight and medical supplies. As part of the US national response to COVID-19, we were granted $15m in funding under the CARES Act from the US Department of Defense to sustain critical industrial base capability for military grade fuel bladders at our Rockmart, US facility.
Throughout the year, the majority of our employees continued to work at our sites while adhering to enhanced procedures relating to personal protection and cleaning, with the remainder either working from home or on furlough. We have remained agile and reacted to changes in lockdown restrictions on a regional basis allowing more office-based employees to return to work safely where possible. We have also supported our suppliers through supplier financing programmes and increased their awareness of local government support schemes during the year.
- Reducing costs, protecting cash and resizing the Group – in April we announced a series of actions to help the Group navigate the crisis and enable us to deliver substantial cash savings in the year. These actions were based on our scenario planning exercises incorporating the most likely impact on the Group’s revenue and cash flow in 2020 and expectations on the timing of the recovery:
- Reducing costs – cancellation of all pay rises, pay reductions for the Board of Directors and Executive Committee and material cuts in discretionary spend including travel;
- Protecting cash – in addition to the cost measures, we have also preserved cash through targeted reductions and deferral of certain cash expenditure including: capital expenditure; absolute reduction in inventory levels; and the cancellation of the final dividend for 2019 and interim dividend for 2020; and
- Resizing the Group – having taken action to reduce variable costs, including accessing furlough schemes and reducing temporary labour, we took the difficult decision to reduce the size of our global workforce to ensure that our internal capacity across our civil aerospace business reflects the reduction in demand. As at the end of December 2020, our total global headcount was 26% lower (including the sale of our Training Systems business) than the end of 2019.
As a result of the hard work and focus of our global teams to deliver our in-year cash savings, the Group generated £31.9m of free cash flow which was slightly better than our expectations at the time of our half year results. The free cash inflow, combined with proceeds from the sale of Training Systems, meant the Group ended the year with net debt of £773.0m, £138.2m lower than 2019, testament to the Group’s focus on tight management of the balance sheet during the most challenging of times.
FULL YEAR RESULTS FOR 2020
Group Orders and Revenue
Our full year results reflect the effects of COVID-19 and the unprecedented reduction in civil aerospace activity with key financial metrics, both on a statutory and underlying basis, declining in the period.
In our half year results, we reported that Group revenue for the six months ended 30 June 2020 was 14% lower than the comparative period. This reflected the marked deterioration in trading in our civil aerospace business in the second quarter as a result of the significant reduction in commercial air traffic and grounding of a large proportion of the global fleet, which more than offset a strong performance from our defence business.
While the level of global civil aerospace flight activity recovered in the second half, market conditions remained challenging with the recovery impacted by second waves of COVID-19 and further lockdowns in the fourth quarter. In the second half, Group civil aerospace organic revenue was 53% lower than the comparative period, with OE down 51% (large jets -55%, regional -59% and business jets -37%) and aftermarket down 54% (large jets -52%, regional -63% and business jets -49%). After a strong first half with organic growth of 8% (excluding Training Systems), defence revenue was flat in the second half on an organic basis. Energy revenue was down 11% organically in the second half, partly reflecting the timing of projects and phasing of revenue.
For the full year, Group orders were 38% lower on an organic basis with book to bill of 0.88x. Our order book in defence remains robust with an organic book to bill of 1.05x. Group organic revenue was down 22% with lower revenue in civil aerospace and energy more than offsetting a good performance in defence where revenue grew 4%. In civil aerospace, revenue was 41% lower, with sales from civil OE and civil AM down 40% and 41% respectively. Energy revenue was 8% lower on an organic basis. Reported Group revenue of £1,684m (FY 2019: £2,276m) decreased by 26% as analysed in the table below:
The adjustments for business disposals include the sale of: Angouleme (completed in March 2019); Orange County product lines (completed in June to December 2019); Training Systems (completed in June 2020); and our Dunstable business and associated product lines (completed in January 2021).
Currency movements in the year reflect the slight strengthening of pound sterling against our trading currencies, principally the US dollar. The organic revenue decline reflects the impact of COVID-19 on civil aerospace partially offset by defence.
Profit and earnings per share
In common with previous years, underlying profit is used by the Board to measure the underlying trading performance of the Group and excludes certain items including: amounts arising on the acquisition, disposal and closure of businesses; amortisation of intangible assets acquired in business combinations; movements in financial instruments; and exceptional operating items.
As a result of the reduction in Group revenue, and notwithstanding the significant action taken to reduce costs to mitigate the impact of lower volumes and under absorption of fixed costs, the Group’s underlying operating margins decreased by 640 basis points, to 11.3% (FY 2019: 17.7%), with underlying operating profit 53% lower in the year at £190.5m (FY 2019: £402.8m).
Underlying profit before tax decreased by 57% to £159.5m (FY 2019: £370.3m) with underlying earnings per share down 56% at 16.5 pence (FY 2019: 37.3 pence).
The level of exceptional costs at £428.7m is significantly higher than forecast at the start of the year, including impairment of goodwill and asset write-downs arising from the unprecedented downturn in civil aerospace during the year, resulting in Group underlying operating profit becoming an operating loss of £297.3m at the statutory level. Within exceptional costs, £374.2m relates to impairment losses and other asset write downs comprising: goodwill (£335.7m); development costs (£24.5m); inventory (£8.6m); and trade receivables (£5.4m).
As a result of the impairment losses and other asset write downs, Group loss before tax was £334.0m (FY 2019: £286.7m profit) and basic loss per share was 40.4 pence (FY 2019: earnings per share of 28.8 pence).
The Board concluded that it was prudent not to pay a final dividend for 2019, and in light of ongoing challenging market conditions, the Board did not recommend the payment of an interim or final dividend for 2020. This has helped retain cash within the Group, ensured the continued management of net debt levels and preserved financial flexibility. The Board is very aware of the importance of dividends to our shareholders and looks forward to restoring dividend payments when the recovery in civil aerospace is more established.
04 Mar 21. Lift-off. Touchdown confirmed: at precisely 20:55 GMT on 18 February, Dr Swati Mohan, the project lead on Nasa’s latest Mars mission, duly announced the successful landing of the Perseverance rover to a cheering room of engineers at the administration’s Jet Propulsion Laboratory mission control in California.
The landing marked Nasa’s most ambitious and technologically advanced mission to the red planet ever. Perseverance has already sent some spectacular images of Mars back to Earth; it could yet find signs of extra-terrestrial life. These are heady days for Nasa that recall the glory years of space exploration in the 1960s and 1970s.
For investors looking for their next opportunity, it also signalled renewed excitement about the prospects of investing in an ever-expanding universe of stocks that have exposure to space travel. For starters, Nasa didn’t do this alone: a huge number of companies contributed to the project. Lockheed Martin (US:LMT) built the heat shield, Aerojet Rocketdyne (US:AJRD) built the rocket thrusters and Maxar Technologies (US:MAXR) delivered the robotic arm. And there are even greater opportunities beyond Nasa missions as the privately owned SpaceX and recently-listed Virgin Galactic (US:SPCE) take up the mantle.
Falling costs, technological advances and increasing interest from governments and the public alike are already conspiring to make space exploration the next multi-trillion-dollar opportunity for investors. On the one hand, you have Nasa, working closely with aerospace giants and embodying the old order of competing nations in the international space race. On the other, you have your eccentric billionaires in jumpsuits launching world-first space tourist vessels and trying to colonise Mars. Together, it’s an exciting space to be in.
First disclaimer: the use of the word ‘next’ in the prior paragraph is not entirely fitting. Space investing is nothing new. Articles about space being the ‘final frontier’ for investors have been doing the rounds for many years (writers and editors hate to let an obvious pun pass them by).
Many readers will be familiar with the asteroid mining craze from a few years ago. The likes of Deep Space Industries and Planetary Resources promised much but fizzled: sending diggers into space to mine large chunks of ice and rock hurtling through space at thousands of miles per hour remains some way away. Their wings may have been clipped, but the latest crop of companies look to be more sustainable.
Space exploration has been on some investors’ radars for years, but in the past year we have seen the most exciting progress yet – this is a sector only just beginning to take off.
In January, Cathie Wood’s ARK Investment Management announced plans to launch a space exploration exchange traded fund (ETF). The ETF, which will be called ARKX, will invest at least 80 per cent in US and foreign stocks engaged in space exploration and innovation. It follows the launch of the Procure Space ETF (UFO) in 2019, which invests in a broad range of companies associated with space exploration.
Richard Branson’s Virgin Galactic programme has garnered much attention and investor enthusiasm, not least among Reddit traders. But nothing – and no one person – has quite captured our collective intergalactic imagination as much as SpaceX and its founder, Elon Musk.
Last year was a big one for the company. Not only did it launch 26 missions in 2020, chiefly as part of the Starlink satellite-internet project, but two of SpaceX’s launches took astronauts to the International Space Station. These were the first crewed missions to take off from the US since Nasa grounded its shuttle fleet in 2011. In short, it was kind of a big deal because these are still very early days in the story of crewed space travel. It was also something of a watershed moment in terms of the private sector’s role with the US government in space travel.
And let’s not forget Donald Trump’s US Space Force, which has spawned a Netflix series and much mockery (not least for its logo bearing a striking resemblance to that of Starfleet in Star Trek). Nonetheless, it highlights how governments are increasingly worried about who controls space – and therefore are taking a greater interest than at any time since the peak of the Cold War in the 1960s. It has a $15bn budget this year and is already reported to be working with SpaceX and Blue Origin, the space company founded by Amazon boss Jeff Bezos back in 2000.
Ready for launch
One thing is certain: the size of the global space exploration market will rise considerably in the coming years. Morgan Stanley estimates revenues in the space industry will top $1trn (£700bn) by 2040.
While the focus lately has been on the success of the likes of SpaceX, among others, and the space exploration lead has been taken up by the private sector, there is growing public sector interest from Russia, China and the US in particular, with the establishment of the sixth branch of the US military in 2019 – the aforementioned Space Force.
Technology is facilitating leaps forward. For example, reusable rockets are seen as a major turning point for the sector. “We think of reusable rockets as an elevator to low Earth orbit,” says Morgan Stanley equity analyst Adam Jonas. “Just as further innovation in elevator construction was required before today’s skyscrapers could dot the skyline, so too will opportunities in space mature because of access and falling launch costs.”
Put simply, advancing technology and lower rocket and satellite costs have completely upended what was once a monopoly only affordable to governments.
Wood provided more context in a recent interview with CNBC. “The costs associated with launching, with rockets themselves, with antenna – they’re all coming down dramatically, thanks to both the private and the public sector,” she said. “On the technology side we see SpaceX and Blue Origin pushing the envelope, so costs are coming down and the technology is finally ready.”
With the opportunity afforded by new technology, space investing is growing. The $2.9bn invested in the fourth quarter of 2020 took the total inflows for the year to a record $8.9bn, according to research from venture capital (VC) firm Space Capital. In its latest quarterly report, it notes that there has now been some $178bn of equity investment into 1,343 companies in the space economy over the past 10 years.
“Despite wide expectations of [an] investor pullback in H1, VCs invested another $15.7bn into 252 space companies in 2020, of which $9.4bn went to US companies, representing 6 per cent of the $156bn in total venture dollars invested during the year,” the report notes, citing data from private equity data provider Pitchbook and the National Venture Capital Association.
Space Capital also notes the overlooked ambitions of Microsoft (US:MSFT) and Amazon (US:AMZN) in this arena. For example, last year Microsoft announced that its Azure cloud network will connect to SpaceX’s Starlink network. As Space Capital rather grandly puts it (though no doubt talking up its own book): “In the same way that every company today is a technology company, the companies of tomorrow will all be space companies.” Perhaps a leap too far, but clearly there is huge overlap between tech investing and space.
New frontiers, new countries
Space exploration is attracting huge private sector interest, but it’s also drawing governmental investment from a wider array of countries than we have seen in the past. Mars is proving the most intensely explored region of space and offers one of the greatest opportunities from an investment point of view.
On 18 February, after a journey of almost seven months, the Perseverance rover landed on Mars. It’s Nasa’s most ambitious effort on Mars since the Viking missions of the 1970s. China and the United Arab Emirates have also launched Mars missions. Musk, meanwhile, plans to colonise the planet.
At the same time, our moon still excites and exploration is again taking place. With the Artemis programme, Nasa plans to send people back to the planetary satellite by 2024. This will help it gain knowledge for pursuing the ultimate goal of crewed missions to Mars.
Then we have the age-old question about mining on the Moon, which unlike target asteroids has some degree of feasibility based on the technology currently being used. For starters, we know where the moon is going to be at any given point and it’s really rather close, in astronomical terms. In theory, there are hundreds of billions – if not trillions – of dollars of untapped resources on our satellite. Treaties prevent any nations from making sovereign claims to the Moon. But Nasa is keen to explore deeper and last May unveiled a legal framework – the Artemis Accords – to govern countries in space and on the moon.
Nasa Administrator Jim Bridenstine tweeted last September that the administration “is buying lunar soil from a commercial provider! It’s time to establish the regulatory certainty to extract and trade space resources”. In a later speech to the Secure World Foundation forum, he explained: “We do believe we can extract and utilise the resources of the moon, just as we can extract and utilise tuna from the ocean.”
The importance of this announcement, according to Casey Dreier, senior space policy adviser at The Planetary Society, is “not so much the financial incentive (which is tiny) but in establishing the legal precedent that private companies can collect and sell celestial materials (with the explicit blessing of NASA/U.S. gov)”.
Nasa’s view seems to be that there is nothing stopping miners claiming property rights and using the moon as a commercial venture. Just so long as it’s directing those precious metals and tax dollars to Uncle Sam, not Beijing or Moscow. It is using the Artemis Accords (to which the UK is a signatory) to frame this debate and derive economic advantage via private enterprise.
Importantly, China and Russia are not signatories. A space mining war is brewing. And where there’s competition, there are companies driving innovation.
How do I invest in space travel?
There are few pure-play space companies in which to invest, although there are plenty in orbit. SpaceX is one, but it remains private for now. It could be worth around $74bn after its next capital injection, according to some estimates, having been valued at $46bn in a fundraising round last year. However, Starlink – the company’s project to create a global broadband network using thousands of satellites – is expected to be spun off as a public entity in the not-too-distant future. “SpaceX needs to pass through a deep chasm of negative cash flow over the next year or so to make Starlink financially viable,” Musk tweeted earlier this month. “Every new satellite constellation in history has gone bankrupt. We hope to be the first that does not.”
Musk says the company will IPO “once we can predict cash flow reasonably well”, which augurs well for a potential listing later this year or perhaps in 2022, although the timescale remains as elastic as space-time itself. SpaceX bosses reckon Starlink will cost around $10bn to build but could bring in as much as $30bn in revenues annually. Musk’s hopes that it doubles broadband speeds for users this year, with total global coverage by next year, should help.
Virgin Galactic is an obvious target and the leading stock in space tourism. Its shares have soared lately, partly due to optimism about its prospects and partly because it became the focus of the Reddit crowd. However, its shares came under pressure through February after the company delayed a space flight test and said it needs more time to carry out checks.
Last week the rescheduled test – already a rehash of an aborted attempt in December – was again delayed until May, sending the shares back to earth. The delays show that Virgin Galactic may be a little further away from commercial flights than some of the recent excitement in the stock would suggest. UBS said in a recent note to clients that “we’re mindful of valuation that appears full” despite upcoming test flights creating an appealing “catalyst chain”, and lowered its rating on Virgin Galactic from ‘buy’ to ‘neutral’ after the stock doubled this year.
Beyond this there are not many of what we might call pure-play space companies. The most salient include Aerojet Rocketdyne, which is still the US’s leading maker of rocket engines, and satellite communications company Iridium (US:IRDM), which has about 66 operational satellites. Houston-based Axiom Space is becoming one of the fastest growing companies in the sector. It recently raised another $130m in funding, which president and chief executive Michael Suffredini said takes its valuation to ‘unicorn’ level, meaning it’s worth over $1bn.
From SPACs to ETFs and beyond…
A new pure-play space company is set to IPO in the second quarter of this year via a special purpose acquisition company (SPAC). Astra, a start-up rocket launcher company supported by Marc Benioff of Salesforce and ex-Google boss Eric Schmidt, will go public via the Holicity SPAC (US:HOL). It will be the first pure-play space company on Nasdaq – ticker ASTR – and aims to deliver incredibly low-cost rocket launches. Among its contracts is one with the US Space Force to launch a drone into space that can land anywhere on the planet within 45 minutes.
And more are on the way. Satellite imagery specialist BlackSky is going public via the Osprey Technology SPAC (US:SFTW). BlackSky, which will list on the New York Stock Exchange under the ticker BKSY, plans to raise about $450m through the deal.
Elsewhere, we can look to the Procure UFO ETF holdings for some ideas. In addition to Virgin Galactic, top stakes include high-speed satellite broadband provider Viasat (US:VSAT) and Maxar Technologies, a dedicated space tech company based in Colorado.
Of course, it’s more than just pure-play space companies that are attracting interest from space cowboys. Companies with exposure to space flight, such as Lockheed Martin and Boeing (US:BA), which has the lucrative Nasa Starliner contract. (Source: Investors Chronicle)
04 Mar 21. Ricardo’s environmental foresight pays off. The engineering consultancy is seeing the benefits of early investments in the environmental sector. Some economists take the view that corporate UK has been held back because of a tendency towards short-termism. To support this view, they might point to the relatively high rates of distributions as a proportion of net earnings, to say nothing of the record share buybacks of recent years.
And the UK is certainly a laggard in terms of R&D spending as a proportion of gross domestic product. Figures from UNESCO suggest that we are a third-rank nation on that basis, predictably behind the likes of South Korea and Japan, but also trailing the smaller economies of such countries as Slovenia, Denmark and Finland.
In absolute terms, things aren’t quite so dire, as the UK is eighth in the global pecking order. But you are left wondering why we haven’t witnessed a surge in R&D budgets when you factor in ultra-low borrowing costs and the fact that the UK has the lowest corporate tax rate of any of the G7 economies. And it is not as though we haven’t got access to intellectual capital. The UK boasts four of the leading 10 universities in the world based on
Perhaps the relative size of the service sector in the UK helps to explain why we’re lagging the field on a pro rata basis. But there are certainly UK companies that have lengthier horizons where investment is concerned. Ricardo (RCDO) provides a case in point. The Sussex-based engineering and environmental consultancy has been trading for over a century. So you can safely assume that its business has been evolving in the face of change for decades. But it is one thing to change in reaction to market trends; quite another to change in anticipation of them.
But that’s exactly what Ricardo managed to do in 2012, when it bought AEA Europe out of administration for a modest £18m. AEA Europe had a track record of advising governments in the development of environmental legislation, but management at Ricardo envisaged that this area of public policy was set to gain prominence in the private sector, thereby providing significant new consulting opportunities.
The value of the business unit, now trading as Ricardo Energy & Environment, has become more apparent as commercial disruption has dragged on other parts of the business. It was the only segment of the group that managed to increase revenue in the last six months of 2020. In addition, underlying operating profits increased by 27 per cent despite a significant increase in headcount. And the order book was also heading in the right direction, finishing at £41.5m, a 17 per cent increase on the comparable half-year.
It should also be remembered that all this was achieved despite ongoing uncertainties in relation to the UK/EU trade deal. With a Europe-based subsidiary in operation, Ricardo does not expect any impact from the finalised agreement. Indeed, the group is benefiting from a significant increase in workload from the European Commission.
The existing public/private revenue split is roughly 60/40, but we are likely to witness a rebound in activity for the latter sector (particularly automotive) as we move through FY2021. The probable strength of any prospective recovery is difficult to estimate, but it is nailed on that the group will continue to profit from the various governmental and corporate pledges on the environment.
For now, the capital that Ricardo has allocated to Energy & Environment has made it the fastest-growing segment within the group. And with R&D projects in the works, including a hydrogen power collaboration with AFC Energy (AFC), management’s prescience on the environmental front is paying off for shareholders. (Source: Investors Chronicle)
04 Mar 21. Pulse Power and Measurement Limited (PPM) and BAE Systems have today announced that BAE Systems has acquired PPM, an independent developer and manufacturer of high-end electronics. PPM’s technology has the potential to increase the speed and ease of sharing large volumes of data over a network, giving users greater ability to exploit that data. As volumes of data grow, this ability is crucial to give military and security customers an information advantage.
Based in Shrivenham with approximately 60 employees, PPM specialises in the design and manufacture of a wide range of radio frequency (RF) over fibre systems, which allow radio frequency signals to be transmitted over fibre optic cables. The company also provides bespoke systems for the renewable power industry and electrification of automotive and aerospace vehicles.
PPM has a strong track record of working within the defence and communications sector, cyber security and commercial test and research markets in both the UK and USA and it strongly complements BAE Systems’ digital and data capabilities. Together the companies have a shared goal to expand the use of RF systems and power electronics technologies across a range of applications for military and commercial customers.
Ian Muldowney, Chief Operating Officer and Engineering Director, for BAE Systems’ Air Sector, said “Pulse Power and Measurement Limited and BAE Systems are an excellent fit; both companies have superb technology credentials, thrive on innovation and work closely with military and government customers to deliver pioneering technology-based solutions. The acquisition further advances our strategic objective to develop and grow our capabilities in secure systems and information exploitation.”
Martin Ryan, Managing Director, Pulse Power & Measurement Ltd, said: “We are excited about joining BAE Systems and bringing together our complementary capabilities which will give our innovative team of specialists and engineers access to world-class expertise and ensure our successful business continues to grow.”
PPM will become a wholly-owned subsidiary of BAE Systems, retaining the name of Pulse Power & Measurement Limited.
This acquisition is part of BAE Systems’ strategy to develop breakthrough technologies, with continued investment in research and development, working with our customers, industry partners, SMEs and academia, and pursuing bolt-on acquisitions where they complement existing capabilities and provide an opportunity to accelerate our position in key areas. The latest move builds on recent acquisitions such as Prismatic, Techmodal and two high end technology acquisitions in the US, as we continue to strengthen and evolve our portfolio towards customer priorities and future growth areas.
PPM’s technical excellence, developed over 25 years, has earned it a reputation for quality and reliability in the Satellite and Broadcast markets by providing innovative RF and fibre optic products used in the ground based communications segment. Amongst its wide range of capabilities PPM provides pit lane and car telemetry in Formula 1, specialist measurement equipment for aircraft clearance, and high performance electronic sub-systems for power trains on electric vehicle and aerospace platforms.
03 Mar 21. Alderman & Company® Announces Another M&A Transaction. Alderman & Company®, a specialized provider of investment banking services to the middle market of the global aerospace and defense industry, today announced that it has facilitated the sale of its client, DynamicSignals, LLC, to Vitrek, LLC. Terms of the sale have not been made public.
DynamicSignals LLC is a customer oriented industry leader in high-performance, accurate, and reliable data acquisition solutions. The company designs and manufacturers state of the art products ranging from high-speed standards-based electronic instruments to ultimate performance integrated systems via its primary product brands of GaGe, Signatec and KineticSystems. Major applications served are Manufacturing Test, Advanced Research in Ultrasonics, Lasers and Embedded Digital Processing to name a few. Customers include an impressive list of DoD entities (Navy, Airforce and Army) and large DoD prime contractors (Northrop, Raytheon, Honeywell, General Electric, etc.). DynamicSignals is based in Lockport, Illinois. Its website is: www.dynamicsignals.com. (Source: PR Newswire)
03 Mar 21. Decisive Point Announces Investment in Asylon to Accelerate Autonomous Systems for Security and Defense.
Decisive Point is pleased to announce its investment in Asylon, Inc., a manufacturer of infrastructure and software for the deployment and operation of autonomous systems. Asylon designs and manufactures the DroneCore System, an open architecture platform that manages unmanned ground and aerial robotics to autonomously execute pre-programmed patrol missions and provide superior security data intelligence.
Asylon’s rapid growth has been fueled by adoption in both the commercial and federal market. The company’s DroneCore product is technically mature, with sales to a number of Fortune 100 customers. Asylon is currently working with the Air Force on the modernization of base security systems and remote surveillance.
Decisive Point Partner, Thomas Hendrix, commented, “Asylon has created an innovative solution, allowing unmanned systems to operate with true autonomy and minimal human intervention for weeks or months at a time. We see great potential in their solution and talented team, both in commercial markets and in providing essential security solutions for the DoD.”
Damon Hamon, CEO and Co-Founder of ASYLON, said, “Decisive Point has been a key partner of ours for developing and landing our early government contracts. They’ve been instrumental in our contracting process and helped enable sustainable long-term growth. Becoming one of the first investments in their new fund is an honor and helps us continue to forge a common mission of integrating dual-use technology like security, robotics, and automation.”
About Decisive Point
Decisive Point is a venture capital firm focused on technology for government, public safety, and defense. Our mission is to support founders with the guts to try; the ones who look at challenges facing the country and our communities and see problems worth solving. We support our clients as they navigate the federal market and invest in those that deliver solutions to both commercial customers and the nation.
For more information, visit www.decisivepoint.com.
Asylon manufactures & deploys the DroneCore System as an end-to-end white glove service for advanced perimeter security. DroneCore is a combination of hardware and software designed to streamline security efficiency, conduct automated operations, and gather vital real-time intelligence. The system is an American Made, fully automated drone platform operating as a robotic, aerial and ground guard to serve as a primary perimeter security deterrent and first responder. (Source: PR Newswire)
04 Mar 21. Thales predicts some 2021 recovery after 33% core profit fall. French defence and aerospace group Thales predicted a progressive recovery in most businesses this year after seeing 2020 sales and profits dragged lower by the COVID-19 crisis.
The maker of high-tech kit, from anti-jamming devices for fighters to navigation beacons for passenger jets, also restored its dividend after posting what its chief executive called “totally decent” margins in a year lost to the pandemic.
Thales, partially owned by the French state, said operating profit fell 33% to 1.352bn euros ($1.63bn) as revenue fell 7.7% to 16.989bn. New orders slipped 3% to 18.476 bn euros.
The main figures matched average analyst forecasts of a 1.34bn euro operating profit and revenues of 16.976 bn, according to Refinitiv data.
For the current year, Thales predicted revenues of 17.1-17.9bn euros, once again outpaced by new orders. It also forecast an operating margin of 9.5-10%, up from 8%.
“We are not being over-cautious,” Chief Executive Patrice Caine told reporters, asked about a 2021 revenue goal seen on the low side of analyst forecasts averaging around 17.9 bn.
“I think it demonstrates that there is still a lot of uncertainty in aerospace…but it’s nonetheless still above last year’s 17bn,” he added.
The 2021 revenue target implies like-for-like annual growth of 2-6%, Chief Financial Officer Pascal Bouchiat said.
Most activities will see “significant growth” in 2021 but civil aerospace will see another decline in revenues of “several percent” after plunging in 2020, he added.
Thales said it would pursue restructuring moves and seek extra savings from its 2019 purchase of digital security firm Gemalto.
Caine said Thales was monitoring a global semiconductor chip shortage, but added that “as of now it is not material for Thales”.
Sales in the company’s ‘Defence & Security’ arm, which is its largest division, slipped 2.2% last year, while new orders remained stable.
Amid growing security threats, defence spending is rising as civil aerospace hits the buffers, reversing a trend seen a few years ago when passenger jet demand occupied the spotlight. ($1 = 0.8295 euros) (Source: Reuters)
04 Mar 21. Thales reports its 2020 full-year results.
- Order intake: €18.5bn, down 3% (-6% on an organic basis)
- Sales: €17.0bn, down 7.7% (-10.4% on an organic basis)
- EBIT:2 €1,352m, down 33% (-34% on an organic basis)
- Adjusted net income, Group share:2 €937m, down 33%
- Consolidated net income, Group share: €483m, down 57%
- Free operating cash flow:2 €1,057m, 113% of adjusted net income, Group share
- Dividend3 of €1.76, payout ratio of 40% confirmed
- 2021 objectives:
o Book-to-bill4 above 1, supporting sales growth acceleration from 2022
o Sales between €17.1bn to €17.9bn
o EBIT margin between 9.5% to 10%
Thales’s Board of Directors (Euronext Paris: HO) met on 3 March 2021 to review the 2020 financial statements.
“Logically, full-year 2020 results were heavily impacted by the Covid-19 crisis. The efforts of our teams all over the world have demonstrated the Group’s human and economic resilience as well as its agility. We are therefore far exceeding the objectives of our global adaptation plan.
In this unprecedented context of global pandemic, I would like to reiterate my gratitude to all Thales teams for their exemplary commitment and to our customers and partners for their trust.
The second half of 2020 showed a strong recovery in terms of both order intake and profitability. The EBIT margin before restructuring costs returned to the H2 2019 level.
Furthermore, 2020 cash generation was once again very strong. It illustrates both the robustness of our civil-defense business model and our teams’ focus on operational performance.
Our digital strategy, bolstered by our position as a leader in cybersecurity, is bearing fruit across all of the Group’s businesses, with great commercial successes in space, defense, rail signalling and data protection.
In a still uncertain economic and health environment, our unique position combining a world-class technological portfolio and comprehensive expertise in our 5 major markets will enable us to swiftly regain our profitable growth momentum.” Patrice Caine, Chairman and Chief Executive Officer.
Order intake in 2020 totaled €18,476m, down just 3% from 2019 (-6% on an organic basis, i.e., at constant scope and exchange rates). As expected, after the delays in finalizing contracts in the second and third quarters of 2020 due to the public health crisis, the Group benefited from a particularly strong momentum in the fourth quarter in the Defense & Security segment. At 31 December 2020, the consolidated order book stood at €34.4bn, an all-time record.
Sales came in at €16,989m, down 7.7% from 2019, and down 10.4% at constant scope and exchange rates. The decline in sales was primarily due to the collapse in civil aeronautics demand (by approximately -50%) and disruptions affecting operations across all Group businesses.
In 2020, consolidated EBIT was €1,352m (8.0% of sales), compared with €2,008m (10.9% of sales) in 2019, a drop of 32.7% (-34.5% on an organic basis).
From early April 2020, Thales implemented a global adaptation plan to the crisis in order to maintain its production capacity at the service of its customers, limit the industrial and financial impact of this crisis and strengthen its funding capacity in the event that the crisis persisted or worsened. The plan generated estimated P&L savings of around €850m for the year and reduced operating investments by 25% at constant scope.
At €937m, adjusted net income, Group share was down 33%, in line with the decrease in EBIT.
Consolidated net income, Group share stood at €483m, down 57% from 2019.In addition to the decrease in adjusted net income, this change was caused by a reduction in income from disposals and the recognition of an impairment loss on goodwill and intangible assets in the civil aeronautics business (In-Flight Entertainment).
Free operating cash flowamounted to €1,057m versus €1,372m in 2019. As a result, the cash conversion ratio of adjusted net income, Group share, to free operating cash flow was 113% (98% in 2019). This solid performance was mainly due to the measures taken since 2019 under the “Cash” initiative and the cash effects of the global adaptation plan to the crisis.
In this context, the Board of Directors decided to propose the payment of a dividend of €1.76 per share, corresponding to a payout ratio of 40% of adjusted net income, Group share.
Order intake in 2020 amounted to €18,476m, down 3% from 2019 (-6% at constant scope and exchange rates). The book-to-bill ratio was 1.09 versus 1.04 in 2019, and even 1.10 when excluding the Digital Identity & Security segment, whose order intake is structurally very close to sales.
Thales received 19 large orders with a unit value of over €100m, representing a total of €5,052m:
- 1 large order booked in Q1 2020 for an air surveillance system for a Middle Eastern country
- 3 large orders booked in Q2 2020:
o the supply of anti-submarine sonars to the US Navy (Defense & Security segment)
o a 10-year contract guaranteeing the supply of munitions to the Australian army (Defense & Security segment)
o the construction of 2 telecommunications satellites for SES (Aerospace segment)
- 2 large orders received in Q3 2020, both in the Defense & Security segment:
o a new tranche of the Scorpion program pertaining to the delivery of armored vehicles to the French Army
o a support and services contract of the ATL 2 for the French Army in a partnership with Dassault Aviation
- 13 large orders booked in Q4 2020:
o the development contract for Space Rider, Europe’s future unmanned, autonomous and reusable space transportation system (Aerospace segment)
o additional work on the Exomars 2020 mission and the ground segment and security center for the Galileo constellation (Aerospace segment)
o the development of Europe’s first digital railway signalling “node” on behalf of the Deutsche Bahn (Transport segment)
o the construction of the ground segment for Syracuse IV, the French Armed Forces’ next-generation satellite communications system (Defense & Security segment)
o 2 projects on the French Army’s encrypted networks (Defense & Security segment)
o the production of 8 unmanned mine countermeasure systems under the joint Franco-British MMCM program (Defense & Security segment)
o the supply and integration of the mission and combat system, a multifunction radar and the AWWS system on the German Navy’s four new F126 multi-mission frigates (project formerly known as MKS 180, Defense & Security segment)
o the acquisition of an air surveillance system by a Middle Eastern country
o an in-service support contract for the TALIOS and DAMOCLES pods for the French Army (Defense & Security segment)
o a support contract for the British Army’s short-range air defense systems (Future ADAPT, Defense & Security segment)
o a contract for the assembly and integration of remote weapon stations and shot detection systems on the British Army’s Boxer vehicles (MIV project, Defense & Security segment).
Orders with a unit value of less than €100m were down 8% from 2019 to €13,424m (-13% at constant scope). Avionics orders with a unit value of less than €10m recorded a sharp decline (-42% at constant scope), as well as in passport production (Digital Identity & Security segment), a direct consequence of the public health crisis.
Geographically, order intake in emerging markets amounted to €3,567m, down 32% at constant scope and exchange rates. At €14,910m, order intake in mature markets remained high (+3% at constant scope and exchange rates), driven primarily by the booking of 12 large defense contracts in 5 countries.
Order intake in the Aerospace segment totaled €3,822m versus €4,829m in 2019 (-20% at constant scope and exchange rates). This decline was driven by the collapse of civil aeronautics orders (Avionics and In-Flight Entertainment) since the beginning of the public health crisis. Thales Alenia Space recorded strong orders in Earth observation and space exploration. In accordance with space agency contracting practices, initial orders for such projects generally cover early project phases (so-called “advanced definition”) and involve limited amounts. Consequently, order intake for the space business was down for the year (-5% at constant scope and exchange rates). At 31 December 2020, the segment’s order book stood at €6.6bn, down 10%.
At €1,652m, order intake in the Transport segment was down 4% from 2019 at constant scope and exchange rates. This change reflects solid momentum in mainline rail, most notably with the booking of a large order from the Deutsche Bahn, offset by order delays in the urban rail business. At 31 December 2020, the segment’s consolidated order book was down 4% to €3.9bn.
At €9,922m (compared with €9,907m in 2019), order intake in the Defense & Security segment set a new record (+1% at constant scope and exchange rates). The book-to-bill ratio was 1.23 versus 1.20 in 2019 and 1.09 in 2018. The reason for this high level was the booking of 14 contracts with amounts greater than €100m, including a major contract in Germany worth more than €1.5bn: the MKS 180 project. This contract, one of the largest ever signed by Thales, represents a key step in the development of the European defense industry and further underpins Thales’s leading international position in naval system integration. The segment’s order book totaled €23.2bn, or 2.9 years’ worth of sales, strengthening visibility for the years ahead.
At €3,023m, order intake in the Digital Identity & Security segment was very close to sales, as most business lines in this segment have short sales cycles. The segment therefore does not have a meaningful backlog.
2020 sales stood at €16,912m, compared with €18,322m in 2019, down 7.7% after the integration of Gemalto. The organic change (at constant scope and exchange rates) was -10.4%, with more than 70% of the H2 decrease (on an organic basis) caused by the collapse in demand in the civil aeronautics segment.
Geographically, the decline in sales was more marked in emerging markets (-20.3% on an organic basis), reflecting anticipated phasing effects on a few large contracts, especially in transport, after several years of strong growth. The decline was more moderate in mature markets (-6.2% on an organic basis), despite the major drop in civil aeronautics business in France.
Sales in the Aerospace segment amounted to €4,217m, down 24.6% from 2019 (-24.1% at constant scope and exchange rates). This drop reflects the collapse in civil aeronautics demand (by around 50% since Q2 2020) and the deferral of tenders in the space business due to the Covid-19 crisis.
In the Transport segment, sales totaled €1,618m, down 15.3% compared to 2019 (-13.9% at constant scope and exchange rates). The decline was due to disruptions caused by the public health crisis, especially delays in signing contracts that would have generated sales in the second half of 2020, in addition to the phasing down effects on major urban rail signalling contracts (particularly in Doha and London), which have been weighting on the segment’s growth since the end of 2018.
Sales in the Defense & Security segment totaled €8,085m, down 2.2% compared to 2019 (-1.8% at constant scope and exchange rates). The segment benefited from a significant catch-up effect in the second half of the year, with sales up 3.2% on an organic basis. This return to growth attests to the solid momentum of the Group’s solutions: at end December 2020, this segment had a record backlog of more than €23 bn.
In the Digital Identity & Security segment, sales were down 5.9% to €2,992m at constant scope and exchange rates.This decline was due to the adverse impact of the public health crisis on passport demand starting in the second quarter and on IoT connectivity modules in the second quarter. Sales of EMV payment cards and SIM cards, which were better than expected in the first half of the year, were unsurprisingly down in the second half, impacted by an unfavorable basis of comparison.
In 2020, consolidated EBIT was €1,352m, or 8.0% of sales, versus €2,008m (10.9% of sales) in 2019.
The global adaptation plan to the crisis generated estimated savings of approximately €850m for the year, €100 m above target.
The Aerospace segment posted negative EBIT of €76m (-1.8% of sales), versus a positive EBIT of €521m (9.3% of sales) in 2019. The deterioration in this sector’s margin was due to the impact on gross margin of the collapse in civil aeronautics sales and the increase in restructuring costs, which was partially offset by the savings from the global adaptation plan. After a first half that was severely impacted by the health crisis, the space business posted an EBIT margin during the second half of the year that was higher than its H2 2019 EBIT margin.
EBIT for the Transport segment was up sharply to €86m (5.3% of sales), compared to €56m (2.9% of sales) in 2019. Despite the Covid-19 crisis, the actions implemented as part of the segment’s transformation plan resulted in an EBIT margin increase in line with medium-term objectives (an EBIT margin of 8% to 8.5%).
In the Defense & Security segment, EBIT stood at €1,039m, versus €1,153m in 2019 (-9.5% at constant scope and exchange rates). Segment margin was 12.9% versus 14.0% in 2019 (which included approximately €40m in positive one-off items). This solid EBIT margin, which was at the top of the target medium-term range (12% to 13%) despite the negative impact of Covid-19 crisis-related operational disruptions, demonstrates the segment’s resilience. This solid performance was achieved thanks to continued sales momentum, the positive impact of competitiveness initiatives and high-quality project execution.
At €324m (10.8% of sales), EBIT in the Digital Identity & Security segment increased in line with the business plan. The segment enjoyed higher-than-expected cost synergies and benefited from good indirect cost management under the Group’s global adaptation plan and the leverage effect on EMV and SIM card sales in the first half.
At €22m in 2020 versus €65 m in 2019, Naval Group’s contribution to EBIT was down, as a direct consequence of the impact of the public health crisis on its business.
The increase in net financial interest (-€60m versus -€43m in 2019) was mainly due to the increase in average net debt. Other adjusted financial income16 (-€34m in 2020 versus -€12m in 2019) was primarily impacted by higher foreign exchange losses. The change in adjusted financial expense on pensions and other long-term employee benefits16 (‑€41m compared with ‑€56m in 2019) was due to the sharp decline in discount rates in 2019.
As a result, adjusted net income, Group share was €937m versus €1,405m in 2019, after an adjusted income tax charge of ‑€264m, compared with ‑€454m in 2019. The decrease in the tax rate in France reduced the effective income tax rate to 23.1% in 2020 from 26.3% in 2019.
Adjusted net income, Group share, per share16 came out at €4.40, down 33% from 2019 (€6.61).
Consolidated net income, Group share stood at €483m, down 57% from 2019.In addition to the decline in adjusted net income, this decrease was due to the reduction in income from disposals and the recognition of an impairment loss on goodwill and intangible assets in the civil aeronautics business (in-flight entertainment).
Financial position at 31 December 2020
Free operating cash flow amounted to €1,057m versus €1,372m in 2019. As a result, the cash conversion ratio of adjusted net income, Group share, to free operating cash flow was 113% (98% in 2019). This solid performance was mainly due to the measures taken since 2019 under the “Cash” initiative and the cash effects of the global adaptation plan to the crisis, which included a 25% reduction in net operating investments at constant scope. The Group also benefited from initiatives taken by certain institutional and government customers to shorten their payment terms and from a phasing effect on prepayment for large contracts that was not as negative as expected.
At 31 December 2020, net debt amounted to -€2,549m, versus -€3,311m at 31 December 2019, after taking into account new lease liabilities totaling €166m (€299m in 2019) and after the payment of €85m in dividends (€463 m in 2019).
Shareholders’ equity, Group share totaled €5,115m, versus €5,449m at 31 December 2019, with consolidated net income, Group share (€483m) failing to offset the increase in net pension obligations (€641m).
At the Annual General Meeting on 6th May 2021, the Board of Directors will propose the distribution of a dividend of €1.76 per share. This level corresponds to a payout ratio of 40% of adjusted net income, Group share.
If approved, the ex-dividend date will be 18th May 2021 and the payment date will be 20th May 2021. The dividend will be paid fully in cash and will amount to €1.36 per share, after deducting the interim dividend of €0.40 per share paid in December 2020.
The Covid-19 health crisis continues to affect the global environment. While it is expected to improve during the year, the public health and macro-economic context remains highly uncertain in the short term and could affect the pace of air traffic recovery and corporate investment plans.
04 Mar 21. Melrose Industries PLC today announced its audited results for the year ended 31 December 2020.
- Trading was at the top end of management expectations throughout the second half of 2020. Excluding Aerospace, the other divisions on average achieved increased second half revenue over 2019 of 2%2 and 9%2 in the final quarter
- Adjusted1 free cash generation was £628m, 6% higher than 2019, prior to £172m of restructuring costs. In achieving this cashflow investment levels in R&D and new products have been protected and working capital levels significantly improved, with more to come
- The strong cash generation resulted in Group net debt1 reducing by over £400m (13% of net debt) to £2.85bn at the end of 2020 (31 December 2019: £3.3bn). Year end leverage1 was 4.1x EBITDA, but annualising the second half performance the proforma leverage1 was approximately 3.2x EBITDA
- The Group made an adjusted1 operating profit of £340m in 2020. The statutory operating loss was £338m; of the £678m adjusting items, only £178m were cash items, almost all related to restructuring
- Savings from restructuring projects underway in GKN are expected to improve the 2021 trading performance by approximately £125m, with more to come
- The accounting deficit on the GKN UK defined benefit pension schemes has been cut by over 80% from £0.7bn just before acquisition to £0.1bn
- A sale process for Nortek Air Management has commenced; the business is trading very strongly, but there can be no certainty a disposal will be completed
- An Investor Day for GKN Automotive and Powder Metallurgy will be held on 20 May which will focus on the significant improvements made to the businesses, and their sustainable growth prospects from exciting new technologies
- A final dividend is proposed of 0.75 pence per share for 2020 given the excellent cash generation achieved in the year. The Board recognises the importance of dividends to shareholders and is pleased Melrose has returned to paying a dividend. A progressive dividend policy is intended to be reintroduced for future periods
- No recovery has been seen in the civil aerospace market and this is not expected to change in 2021. Sales for the division were down 27%2 in 2020 compared to last year, which was within the expected range. Good progress is being made in adapting this business to the current demand levels, improving working capital and continuing to develop new technologies by investing heavily in R&D
- Sales and margins recovered sharply in the second half of 2020 in Automotive and Powder Metallurgy. The second half adjusted1 operating margins of Automotive recovered to 6.5% and Powder Metallurgy recovered to 8.3%. The final quarter of 2020 saw sales ahead of Q4 2019 although overall sales for the year were down
- Nortek Air Management is trading very strongly with sales for 2020 up 5%2 year on year. Margins are also growing and reached 17.3% in the second half of the year, doubling since acquisition
Justin Dowley, Chairman of Melrose Industries PLC, said, “Whilst the COVID-19 crisis has had a major detrimental effect this year, Melrose has generated record cash flows and continued to invest to improve our businesses. All of this positions the Group well for a good recovery and strong performance in the future. Amidst these difficult conditions, Melrose has also managed to significantly reduce the £1bn GKN UK pension scheme funding deficit that we inherited at the time of acquisition.”
- Described in the glossary to the Preliminary Announcement and are considered by the Board to be a key measure of performance
- Growth is calculated at constant currency against 2019 results
04 Mar 21. Meggitt Plc (MGGT LN) – BUY, 431.00p PT: 500.00p. We regard the FY20 results as broadly in line with expectations, other than end FY20 net debt of £773m (Cons £847m; JEFe £865m). One could quibble about the lack of recovery in the Civil AM in 4Q20 and the absence of a dividend (JEFe zero), but we believe that as FY20 progressed, by far the most important objective for all companies was to protect the balance sheet. Meggitt has done that admirably, in our view.
FY20 results in brief. The 15 Jan 2021 Trading Update left little room for a surprise. Group revenue fell from £2,276.2m to £1,684.1m (Co-sourced consensus £1,744m; JEFe £1,737.8m). Group underlying EBIT fell from £402.8m to £190.5m (Cons £193m; JEFe £182.5m). FCF fell from £267.8m to £31.9m (Cons -£2m; JEFe £22.3m) meaning the 2H20 inflow was £153.4m. Net debt fell from £911.2m to £773m (Cons £847m; JEFe £864.9m). FX movements increased 1H20 net debt by £65.2m, but the FY20 impact was an increase of just £7.6m, which helped matters. There is no final dividend (JEFe zero). Order intake fell from £2,468.4m to £1,547.1m, implying 2H20 order intake of £665.1m versus 1H20 at £882m.
FY21 guidance. Revenue is guided broadly in line with FY20, underlying EBIT to increase, and FCF to be positive. The FY20 average US$/£ was US$1.29/£. A US$ 10 cent change is guided to reduce revenue by £85m and underlying PBT by £5m. FY21 JEFe assumes an average US$1.37/£ and a headwind to revenue of around £90m, which may largely explain why JEFe FY21 Group revenue of £1,694m is below Consensus at £1,838m, and why JEFe FY21 EBIT of £240.5m is below Consensus at £255m. We believe it would be churlish for partly FX-related downgrades to detract from Meggitt’s performance as the weaker US$ cannot have gone unremarked.
End markets and divisional results. The FY20 organic change in Civil OE revenue was -40%. The trend was 1H20 -29%, with 2Q20 -53% and 3Q20 -48%. FY20 Civil AM revenue was -41%. The trend was 1H20 -25%, with 2Q20 -47% and 3Q20 -48%. FY20 Defence revenue was +4%. The trend was 1H20 +7%, with 2Q20 -3% and 3Q20 +9%. FY20 Energy revenue was -8%, and the trend was 1H20 -6%, with 2Q20 -8% and 3Q20 +4%. The absence of any clear improvement in Civil OE reflects what we saw reported by peers like Honeywell, Collins Aerospace and Transdigm. The Civil AM appears to have remained weak through 2H20, much as we saw at peers, albeit Honeywell had a notably better 4Q20. The Civil AM in 4Q20 is perhaps a little disappointing. Across the divisions, Services & Support did better than we expected (EBIT £40.8m vs JEFe £2.2m), but this was largely offset by shortfalls in Airframe Systems and Engine Systems.
Comfortable. The 15 Jan Trading Update stated there was no progressive recovery in Civil Aerospace during 4Q20. We were forewarned. Nonetheless, Meggitt achieved the FY20 EBIT and FCF guidance set out in the 10 Nov 2020 Trading Statement. We see the balance sheet as key to the equity story. It does not need to be rebuilt, rather it is already there to support some combination of dividends, bolt-on acquisitions, R&D, and new business wins. Meggitt has flexibility. It may be FY23 before all the pieces of the jigsaw slot into place, but Meggitt is sitting pretty, in our view. (Source: Jefferies)
04 Mar 21. Chemring Group Plc (“Chemring”, the “Group” or the “Company”) – AGM Update Announcement. Chemring issues the following update announcement, to coincide with the Company’s Annual General Meeting taking place later today.
Current trading and outlook
Trading since the start of the current financial year has been as expected for both sectors. With the exception of the potential impact of foreign currency translation, discussed below, the Board’s expectations for the current year remain unchanged.
Despite the ongoing restrictions of Covid-19, all our sites remain open and our people continue to show great professionalism and resilience. We continue to monitor our businesses and their supply chains closely.
With a robust strategy, market-leading positions across different geographies and sectors, and products and services that are critical to our government and commercial customers, Chemring’s long-term prospects remain strong.
Foreign exchange rates continued to be volatile in the period and the average US$ rate of $1.37 compares to $1.28 in the first half of 2020, giving a 7% headwind. With approximately half of Group revenues US$ denominated, the US$ rate for the rest of 2021 may positively, or negatively, impact the translation of revenue, profit and cash flows. 2020 sensitivity analysis showed a 10c weakening of the US$ would negatively impact annual revenue by £13m and underlying operating profit by £2m.
Net debt at 28 February 2021 was £51.0m (29 February 2020: £85.9m) as strong operating cash conversion continues to fund investment in capital expenditure. We continue to expect to make further progress on net debt in the full year.
Order intake in the period to 28 February 2021 was £128m (2020: £132m), with a book to bill ratio of 127% (2020: 125%). Having started the financial year with order cover of 78% our expected FY21 revenue is now 89% (2020: 88%) covered by revenue in the period and the order book, split 94% (2020: 92%) in Countermeasures & Energetics and 79% (2020: 80%) in Sensors & Information. The order book, which has been impacted by the weakening US dollar, stood at £481m at 28 February 2021 (2020: £478m).
In the Sensors & Information sector, our US sensors business received a further delivery order of $53m under the previously announced Husky Mounted Detection System $200m Indefinite Delivery / Indefinite Quantity (“IDIQ”) contract. This provides excellent visibility on this Program of Record well into FY22.
In the Countermeasures & Energetics sector Chemring Countermeasures USA (“CCM USA”) was awarded a 5-year IDIQ contract from the US Army for the manufacture of M206 and MJU-7A/B infrared decoy flares for the US Army and Air Force. We have received the first delivery order under this contract which is valued at $29m. Deliveries are expected to be made in FY21 and FY22 with all work being performed at CCM USA’s facility in Toone, Tennessee.
Our niche energetics devices and propellant business in Scotland has signed a new long-term partnering agreement with Martin Baker Aircraft Company Ltd, the world leader in the design and manufacture of ejection and crashworthy seats. This 15 year agreement will see Chemring supply propellant material and pyro-mechanical devices for use in a wide range of Martin-Baker’s ejection seats including those on the F-35 Joint Strike Fighter, and is valued at up to £160m.
Update on Tennessee expansion project
Investment in the expansion and automation of our Tennessee facility to meet the expected demand for F-35 countermeasures continues. Construction work of buildings has completed and the supply of complex manufacturing equipment to site continues, although some has been delayed due to suppliers being impacted by Covid-19. We still expect to generate incremental revenue from the new facility during the second half of our 2022 financial year.
Interim results date
The Group will report its interim results for the six months ended 30 April 2021 on 3 June 2021.
02 Mar 21. HENSOLDT acquires MAHYTEC to further strengthen its hydrogen solutions business. HENSOLDT has entered into an agreement to purchase MAHYTEC, a leading manufacturer of hydrogen storage tanks and renewable energy storage systems. Once the transaction will be completed, after all the necessary approvals have been obtained, HENSOLDT will add highly innovative technologies for compressed hydrogen storage in composite tanks as well as solid storage with metal hydrides, further complementing its portfolio of solutions to produce, store, and transport hydrogen-based regenerative energy.
Thomas Müller, CEO of HENSOLDT: “Our mobile, hydrogen-based solutions secure our clients’ energy supply even in difficult to access areas or in crisis situations. With the acquisition of MAHYTEC we add state-of-the-art hydrogen storage technologies, which gives us an edge to address key energy challenges of the future for our customers both in defence and non-defence markets.”
Jérôme Giraud, CEO of HENSOLDT NEXEYA France: “We are very happy to welcome the employees of MAHYTEC at HENSOLDT, which we already know very well from existing partnerships. MAHYTEC features a highly innovative technology portfolio in composite tanks and solid storage, which will help us to drive sustainability in highly demanding areas such as heavy mobility and aeronautical applications.”
Dominique Perreux, CEO of MAHYTEC: “We are very much looking forward to joining HENSOLDT’s successful journey. MAHYTEC’s leading hydrogen storage solutions and our proven experience perfectly complement HENSOLDT’s product offering in that area. Together with my team we are very pleased to become members of the HENSOLDT family which we already know for a long time.”
Global leading expert for hydrogen storage solutions
Founded in Dole, France, in 2007, MAHYTEC offers specialised hydrogen storage solutions for mobile, nomadic and stationary applications. The company is one of the only providers that is able to offer compressed storage in composite tanks and solid storage with metal hydrides. Moreover, MAHYTEC provides solutions that integrate the entire hydrogen value chain – from production over storage to electrical conversion. MAHYTEC is therefore positioned as the only company able to provide its clients with a complete low-pressure storage solution. HENSOLDT and MAHYTEC have partnered in the field of intelligent hydrogen to energy solutions since 2015.
Hydrogen as part of HENSOLDT’s sustainability strategy
HENSOLDT also uses its capabilities to store and provide hydrogen-based green energy to reduce its own carbon footprint. Already today, one of its sites in France is running entirely on hydrogen-based energy. The completion of the transaction is expected before summer 2021, depending on the necessary approvals by the relevant authorities.
HENSOLDT is a German champion in the defence industry with a leading market position in Europe and global reach. The company, headquartered in Taufkirchen near Munich, develops sensor solutions for defence and security applications. As a technology leader, HENSOLDT is also continuously expanding its portfolio in cyber and developing new products to combat a wide range of threats based on innovative approaches to data management, robotics and cybersecurity. With more than 5,600 employees, HENSOLDT generated revenues of EUR 1.2 billion in 2020. HENSOLDT is listed on SDAX index of the Frankfurt Stock Exchange.
MAHYTEC, is a manufacturer of hydrogen storage tanks and renewable energy storage systems, based in Dole in Jura region. Initiated by four co-founders specialized in material sciences, MAHYTEC relies on solid experience and proven know-how to offer a personalized approach to the most complex problems in the fields of energy storage and the mechanical behavior of materials. MAHYTEC helps its customers to meet their specifications and to optimize their mechanical and energy performance.
03 Mar 21. Skydio Joins the Unicorn Club. US drone manufacturer Skydio announced that it has raised $170m in Series D funding led by Andreessen Horowitz’s Growth Fund. This brings total funding raised to over $340m with a current valuation of over $1bn. Andreessen Horowitz, which also led the Series A, is joined in this round by existing investors Linse Capital, Next47, and IVP, along with new investor UP.Partners. With the additional capital raised, Skydio will further accelerate product development and global sales expansion to support the rapidly growing demand for its autonomous drone solutions.
“The initial wave of hype around enterprise drones passed many years ago, but we’re now seeing these markets really mature. Autonomy is the key for drones to reach scale, and Skydio has established themselves as the defining company in this category. We’re excited to continue to invest in this magical combination of breakthrough technology, rapid growth, and an incredible team in a market that’s going through an inflection point,” said David Ulevitch, General Partner at Andreessen Horowitz. “From the moment we met the Skydio team and saw the S2 in action, we knew this was going to be a world-changing company. Think of all the dangerous jobs requiring ladders, harnesses, or helicopters to do work that can now, with Skydio, be done much more safely and efficiently. Autonomous drones will enable our aging infrastructure to be monitored much more effectively and our first responders will have greater situational awareness than ever before,” said Bastiaan Janmaat, Partner at Linse Capital.
Over the last year Skydio has made significant progress in every market category. From the continued adoption of Skydio 2 by consumers, to the largest ever enterprise drone deal with EagleView for residential roof inspection, to the down-selection for final integration as part of the Army Short Range Reconnaissance Program, Skydio has been chosen in a myriad of deployments across construction companies, departments of transportation, energy utilities, and police departments.
Leading enterprises and public sector organizations, including Jacobs Engineering, Sundt Construction, the US Civil Air Patrol, Ohio Department of Transportation, North Carolina Department of Transportation, Boston PD, and Sacramento Metro Fire Department, rely on Skydio autonomous drones for infrastructure inspection, search and rescue, situational awareness, emergency response and many more use cases.
“This is an important milestone for us as a company, but also for the U.S. drone industry. Together with our customers, we’re proving that a U.S. company can lead the way in this industry through AI and autonomy. Things are already pretty exciting, but we are just scratching the surface of what autonomous drones can do,”
said Adam Bry, CEO and Co-founder of Skydio.
Skydio is founded on the premise that autonomy is the key ingredient to unlock the full potential of drones. By transforming drones into intelligent devices that can dynamically understand and adjust to the environment in which they are operated, Skydio enables radically simpler flights and makes missions once considered impossible possible. The introduction of the Skydio 2 in 2019 marked the beginning of an ambitious innovation agenda to take drones into the age of software and AI-based autonomy that will further accelerate in 2021 with the upcoming release of the new Skydio X2, recipient of CES’s 2021 Best of Innovation Award, and Skydio 3D Scan, the first-of-its-kind adaptive scanning software. (Source: UAS VISION)
01 Mar 21. TransDigm Plans to Divest ScioTeq and TREALITY Businesses to OpenGate Capital. TransDigm Group Incorporated (NYSE: TDG), a leading global designer, producer and supplier of highly engineered aircraft components, announced today it has entered into a definitive agreement to sell its ScioTeq and TREALITY Simulation Visual Systems businesses (collectively, “the businesses”) to OpenGate Capital in a transaction valued at approximately $200m.
ScioTeq and TREALITY were acquired by TransDigm in March 2019 as part of the Esterline Technologies acquisition. The businesses develop and manufacture advanced visualization solutions primarily for the global defense, air traffic control, and security end markets. ScioTeq and TREALITY have approximately 450 employees and operate primarily from Belgium, with secondary locations in the United States. The businesses generated revenues of approximately $135m for the fiscal year ended September 30, 2020.
- Nicholas Howley, Executive Chairmen commented, “As previously communicated, we have been considering potentially divesting a few primarily defense, former Esterline businesses that do not align well with TransDigm’s strategy. As such, we are pleased to have an agreement for the divestiture of the ScioTeq and TREALITY businesses. These are well established businesses in the defense industry, and we are confident that their customers will continue to be well-served as we work toward a successful completion of the transaction.”
The divestiture, which is subject to regulatory approvals and customary closing conditions, is expected to be completed during the third quarter of our fiscal 2021.
About TransDigm Group
TransDigm Group, through its wholly-owned subsidiaries, is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today. Major product offerings, substantially all of which are ultimately provided to end-users in the aerospace industry, include mechanical/electro-mechanical actuators and controls, ignition systems and engine technology, specialized pumps and valves, power conditioning devices, specialized AC/DC electric motors and generators, batteries and chargers, engineered latching and locking devices, engineered rods, engineered connectors and elastomer sealing solutions, databus and power controls, cockpit security components and systems, specialized and advanced cockpit displays, aircraft audio systems, specialized lavatory components, seat belts and safety restraints, engineered and customized interior surfaces and related components, advanced sensor products, switches and relay panels, thermal protection and insulation, lighting and control technology, parachutes, high performance hoists, winches and lifting devices, and cargo loading, handling and delivery systems. (Source: PR Newswire)
02 Mar 21. Composites One Acquires Process Materials Business from Solvay. Composites One, the leading North American supplier of composites materials and value added services, has completed its purchase of the Process Materials business from the Solvay Composites Materials Global Business. The acquisition is a unique opportunity for the company to add international manufacturing and sales capabilities in specialized materials used in a variety of vacuum-assisted composite manufacturing processes.
Working with Composites One on the successful acquisition was Emko Capital, which specializes in investing in and managing privately held industrial and manufacturing businesses.
The acquired business has been rebranded as Aerovac and is a major manufacturer, developer and supplier of process materials, tooling and services used in prepreg processing, vacuum infusion, glass lamination, and other industrial applications.
The Aerovac brand was first established in the 1970s in Europe and has always represented innovation in process materials. It changed in 2000 to Richmond/Aerovac, a name referenced in current Aerospace specifications. “The name Aerovac pays homage to the brand’s heritage and customer focus which is now combined with the market presence of Composites One,” said Robert Murdock, Vice President & General Manager of Aerovac.
The Aerovac line is comprised of an extensive array of vacuum bagging materials, from bagging films, breather fabrics, release films and fabrics, to peel plies, sealant tapes, valves and hoses. Also available are tailored process materials kits and hard and soft tooling.
These products are the same quality process materials that Composites One has been providing to customers the past two years while serving as Solvay’s North American distributor. “Aerovac is a natural, strategic extension of Composites One’s business.” said Steve Dehmlow, CEO of Composites One. “It positions us for future growth, and further establishes Composites One as a major supplier to the Aerospace, Wind Energy and Marine markets.”
“We believe that the Process Materials business will greatly benefit from being part of Composites One,” said Carmelo Lo Faro, President of Solvay Composite Materials Global Business Unit. “Their intent is to grow and invest in the business, fostering innovation, reliability and customer service and build on the excellent work that our Team has done.”
With the acquisition, Composites One gains multiple manufacturing, kit design/fabrication and materials distribution locations including Santa Fe Springs, California; Sumner, Washington; Keighley UK; Mondovi, Italy and Toulouse, France. An additional site in Toulouse focuses on the design and manufacture of hard and soft tooling. Another attractive inclusion is a UK-based distribution business, Med-Lab, which trades in aircraft engine overhaul consumables and fuel testing instruments. (Source: PR Newswire)
01 Mar 21. Red 6 Raises $7m in Safe Round Led by Red Cell, Snowpoint, and Octave. The Round Follows Two Years of Rapid Growth for the Startup, Driven by a Recognized Pain Point in Air Combat Training and a Looming National Security Crisis Red 6, a revolutionary technology firm at the forefront of synthetic air combat training, is proud to announce it has raised $7m in the form of a SAFE (Simple Agreement for Future Equity). The round was led by Red Cell, Snowpoint Ventures, and Octave. There was additional participation from existing and new investors, including long term investor Moonshots Capital, Irongate, TR Aeroventures, and Marlinspike. The investment will allow Red 6 to mature the development of both Airborne Tactical Augmented Reality System (ATARS) and Combined Augmented Reality Battlespace Operational Network (CARBON). “We are thrilled to have such experienced investors that see the potential in Red 6’s ultimate mission of assuring the security of the United States and its allies,” said Daniel Robinson Founder and CEO of Red 6.
In recent years, the Department of Defense has begun to pivot its training readiness focus from supporting two decades of ground-based operations in Iraq and Afghanistan, to building the capabilities required to defeat a near-peer threat. Robinson, a former Royal Air Force pilot, and first non-American to fly the F-22 Raptor, co-founded Red 6 on the belief that we are facing a national security crisis. “Control of the skies is not the pre-ordained right of the United States or its allies. With the rise of China, we are now faced with a competitor that has aligned a long-term geo-political strategy with the systematic mobilization of its military-industrial complex. Our adversaries are innovating more quickly than we are, and we are not adequately prepared. We should be very concerned,” said Robinson.
Red Cell Partners, uniquely positioned at the creative intersection of investing and national security, led the funding round, and will be appointing a firm partner to the Red 6 Board of Directors. The team includes leading technology entrepreneurs, former members of the Defense and Intelligence leadership, a deep technical team, and experienced investors. “We understand the problem Red 6 is working to solve, and believe in their solution to modernize the way combat pilots train today. We are thrilled to be deepening our pre-exsiting relationship with Red 6, and are here to support in anyway we can,” said Josh Lobel, Founding Partner of Red Cell.
“Through this capital raise, we have expanded our investor base to include organizations that are uniquely positioned in the national security community to support the development of Red 6. Together, we will leverage our core technology to not only solve a national security pain point, but to also apply it across multiple domains in military and commercial applications alike,” said Maissan Almaskati, Red 6 Chief Financial Officer.
Described as a video game in the sky by Red 6’s technology team, ATARS is a modular system featuring a stereo Augmented Reality headset integrated into the visor of a pilot’s helmet. This software/hardware suite enables multiple air-combat pilot training scenarios from simple formation flying and air-to-air refuelling, up to and including Air Combat Maneuvering (dogfighting) against a reactive Artificial Intelligence enemy.
“The technical capability, targeted market, and demonstrated effectiveness of the Red 6 product sit at the core of the Snowpoint ethos, and we are thrilled to enter into this long-term partnership with Dan and his team. The game changing technology that Red 6 has developed will not only alter air combat training as we know it today, but other industries as well,” said a spokesperson from Snowpoint Ventures.
Moonshots Capital has been an investor of Red 6’s from day one. “We are proud to support the Red 6 team as ATARS is integrated into military platforms across our nation and those of our allies,” said Kelly Perdew, Co-founder and General Partner at Moonshots Capital. Other partners and supporters of Red 6 include Lockheed Martin Ventures, Epic Games, Ret. Four Star General Mike Holmes, and Vietnam Prisioner of War Charlie Plum. “I am proud to have such a strong team that understands our value and supports the Red 6 vision,” said Robinson. (Source: PR Newswire)
01 Mar 21. Satellite data company Spire to go public in latest SPAC space deal. Satellite data company Spire Global Inc said on Monday it has agreed to go public through a merger with blank-check acquisition firm NavSight Holdings Inc at a $1.6bn valuation.
It is the latest example of a special purpose acquisition company (SPAC) merging with a company in the space industry, following deals for the likes of space tourism company Virgin Galactic and rocket startup Astra.
Spire said it expects the deal will provide it with up to $475m in proceeds. NavSight is providing $230m of this, with the rest coming from a private investment in public equity (PIPE) transaction.
Investors in the PIPE include Tiger Global Management, BlackRock Inc and the family office of billionaire Barry Sternlicht.
Spire, which was founded nearly a decade ago, helps customers address challenges including climate change. It uses a collection of nanosatellites to garner data and then sells it on to the customers.
The data collected has applications in areas such as weather forecasting, orbital services, and aircraft and ship monitoring. Its customers include NASA, the U.S. air force and Chevron Corp.
“This transaction funds these growth plans and allows us to pursue, on a more aggressive timetable, this massive and growing long-term opportunity ahead of us,” Peter Platzer, Spire’s founder and chief executive, said in a statement.
San Francisco-based Spire expects to generate $70m in revenue this year, and forecasts that will rise to almost $1.2bn by 2025.
“Spire is leading the way with its modern SaaS-based (software as a service) approach to meet the significant, growing demand for space-based data,” said NavSight Chairman and CEO Bob Coleman.
NavSight raised $230m in an initial public offering in New York in September. (Source: Reuters)
02 Mar 21. MTAR Technologies IPO date: MTAR Technologies, the maker of nuclear, defence and aerospace equipment, fabrication facilities and fuel cells is planning to raise up to Rs 5950m through an IPO, which opens on 3rd Mar and closes on 5th Mar 2021. The price band is Rs. 574 – 575 per share. On 16th Feb. 2021, MTAR has undertaken a pre-IPO placement of 1.85m equity shares at Rs 540 each, aggregating to Rs 1000m. The issue is a combination of fresh and OFS issues.
MTAR Technologies IPO date: MTAR Technologies, the maker of nuclear, defence and aerospace equipment, fabrication facilities and fuel cells is planning to raise up to Rs 5950m through an IPO, which opens on 3rd Mar and closes on 5th Mar 2021. The price band is Rs. 574 – 575 per share. On 16th Feb. 2021, MTAR has undertaken a pre-IPO placement of 1.85m equity shares at Rs 540 each, aggregating to Rs 1000m. The issue is a combination of fresh and OFS issues.
MTAR Technologies will not receive any fund from the OFS portion. Of the net proceeds from the fresh issue and from the pre-IPO placement, Rs 630m will be utilized for repayment/prepayment of the borrowings availed by it. Additionally, Rs 950m will be used to fund the working capital requirement of the company. Residual amount will be used for general corporate purposes.
MTAR Technologies Key competitive strengths:
Precision engineering expertise with complex product manufacturing capability
Wide product portfolio leading to long-standing relationships with the customers
Modern technology at the state-of-the-art manufacturing facilities
Strong and diversified supplier base for sourcing of raw materials
Track record of growth in financial performance
Experienced and qualified management team
MTAR Technologies Risk and concerns:
Subdued macroeconomic environment
Revenue concentration risk
Unfavourable raw material prices
Working capital intensive business
Unfavourable forex movements
Peer comparison and valuation:
There are no listed peers, having similar operating models. At a higher price band of Rs. 575, MTAR is demanding a TTM P/E multiple of 56.5x (to its restated TTM EPS of Rs. 10.2)
Below are few key observations of the MTAR Technologies issue:
The domestic precision engineering industry’s turnover is estimated at Rs 4098bn in FY20, clocking a 7.1% CAGR between FY16-20. On the back of supportive government policies for manufacturing & engineering sectors, growth in the industrials and rise in penetration of high technology machinery for manufacturing, precision engineering is expected to log a growth of 6-7% CAGR over FY20-25 to reach a turnover of Rs 5550 – 6550bn by FY25. The engineering manufacturing industry is very fragmented, but established players with developed technological expertise create entry barriers for new players, especially in precision engineering sectors such as defence, aerospace, nuclear, space and aviation.
MTAR Technologies, which supplies to companies such as Bharat Heavy Electricals Ltd., Hindustan Aeronautics Ltd., Advance System Laboratory (DRDO), Godrej and Boyce, ISRO and Nuclear Power Corporation of India (NPCIL); is engaged in the manufacturing and assembly of critical precision components with close tolerances of 5-10 microns through their competencies in precision machining, assembly, testing, quality control, and specialized fabrication.
At a higher price band of Rs. 575, MTAR is demanding a TTM P/E multiple of 56.5x (to its restated TTM EPS of Rs. 10.2). Considering the presence in the growth sectors like clean energy and space & defence sector and improving return ratios, we feel the demand valuation to be attractive. Thus Choice Broking assigned a “SUBSCRIBE” rating for the issue. (Source: Google/https://www.zeebiz.com/market-news/)
01 Mar 21. FREQUENTIS acquires parts of the ATM product segment from L3Harris Technologies.
- The acquisition underpins Frequentis’ strong capabilities in voice communication solutions for civil and military Air Traffic Management (“ATM”)
- The transaction is expected to be completed in the second half of the year 2021 and is subject to competition clearance and regulatory approvals
- The transaction will complement Frequentis’ ATM product portfolio and is expected to contribute revenues of some EUR 30m p.a. to Frequentis in the first full FY after closing
- Customers will benefit from an even broader ATM solution portfolio delivering greater capabilities and digitalisation
Frequentis AG, a leading international supplier of communication and information solutions for safety-critical applications, has announced today that it had signed an agreement to acquire the ATM voice communications and arrival management product business from the US company L3Harris Technologies for a purchase price of USD 20.1m (about EUR 16,58m) subject to customary net debt and working capital based purchase price adjustments at Closing.
The transaction comprises the acquisition of
- the ATM voice communication systems product line of L3Harris, USA;
- the Harris ATC Solutions business unit of Harris Canada Systems Inc., Gatineau, Canada;
- 100% of the shares in Harris C4i Pty. Ltd., Melbourne, Australia; and
- 100% of the shares in Harris Orthogon GmbH, Bremen, Germany.
In addition to such acquisitions, L3Harris and Frequentis have entered into cooperation agreements under which Frequentis as an L3Harris’ technology partner will provide voice communication products for use in L3Harris’ large-scale solutions and services business.
This transaction marks a significant step in Frequentis’ growth strategy and will complement Frequentis’ portfolio for the civil and defence ATM sector. Moreover, Frequentis adds the leading arrival and departure management solutions from L3Harris Orthogon to its offering. This is a next stage in Frequentis’ strategy for ATM, in line with the previous acquisitions of Comsoft and ATRiCS.
Strong Strategic Rationale
“Even in the currently challenging times we are committed to advance and to continuously innovate. We want to serve our customers with the best solutions and accompany them in their digitalisation journey. The acquisition enables us to grow our global customer base. Traffic optimisation is crucial, even and above all, in times of low traffic. It is our commitment to an efficient and environmentally sustainable air traffic management environment, driven by digitalisation and automation“, says Norbert Haslacher, CEO of Frequentis. “This acquisition, as well as the strong cooperation agreed with L3Harris is perfectly in line with our corporate strategy and achieves a key step in the evolution of Frequentis as a global supplier of mission critical solutions.”
Benefits of the deal
Frequentis expects to benefit from significant enhancements in its ATM portfolio and market access:
- Australian-based C4i will be complementing the Frequentis ATM defence portfolio by its high secure interoperable communications solutions for mission-critical environments.
- Frequentis will continue to market Germany-based Orthogon’s leading products for traffic synchronisation for ATC en-route, approach and airport ATC centres, including them in their offering for digital towers and centres.
- By acquiring the Harris ATC Solutions business unit of Harris Canada Systems, Frequentis will expand its technical solutions and add an even wider range of solutions to its already extensive portfolio. This will further strengthen Frequentis’ capabilities as a global supplier of ATM communications solutions, particularly in the stream of large-scale IT based systems.
“This acquisition and the cooperation with L3Harris make us competitively stronger, with a greater scale. We are expanding in a market where we have a track record of success and a dedicated workforce serving customers around the world, in providing solutions that have to be outstanding in terms of reliability, security and efficiency.” Haslacher says.
The transaction is expected be completed in the second half of the year 2021 and is subject to competition clearance and regulatory approvals. The transaction consideration will be financed from Frequentis’ cash resources and existing credit lines. Following completion of the acquisition, Frequentis AG will retain a strong balance sheet and liquidity position.
26 Feb 21. Byrna Technologies Inc. Reports Record Fourth Quarter And Full Fiscal 2020 Results. Fiscal 2021 Outlook Calls for Strong Revenue Growth Driven by Robust Demand, New Product Innovations, Greater Production Capacity and Dynamic Marketing Campaigns
Byrna Technologies Inc. (OTCQB: BYRN) (CSE: BYRN) (“Byrna” or “the Company”) today announced results for its fiscal fourth quarter ended November 30, 2020.
Fourth Quarter 2020 Compared to Fourth Quarter 2019:
- Revenues were $11,029,164 compared to $500,442.
- Gross margin was 44.4% compared to 10.7%.
- Non-GAAP adjusted gross margin1 was 48.7% in the fourth quarter of 2020.
- GAAP Net loss was $1,641,195 compared to $1,720,439.
- Non-GAAP adjusted net income1 was $220,790 in the fourth quarter of 2020.
Fiscal Year 2020 Compared to Fiscal Year 2019:
- Revenues were $16,566,295 compared to $924,419.
- Gross margin was 45.3% compared to 16.1%.
- Non-GAAP Adjusted gross margin1 was 48.2% for the full fiscal year 2020.
- GAAP Net loss was $12,553,325 compared to $4,409,785.
- Non-GAAP adjusted net loss1 was $2,018,795 in the full fiscal year 2020.
“Our fourth quarter concluded a transformative year for Byrna Technologies,” stated Bryan Ganz, CEO of Byrna. “We delivered our strongest revenue quarter by far and, adjusted for certain non-recurring and non-cash charges, generated the first quarter of positive adjusted net income in the Company’s history. At the same time, we made important enhancements to our corporate platform, both in terms of manufacturing assets and human capital, including the recent addition of a highly experienced Chief Marketing Officer, Luan Pham. Now that our production capacity has caught up with demand, the Company expects to work through our current order backlog for launcher kits in the next two weeks and return to same-day shipping by the end of March.”
Due to the civil unrest that has taken place over the past year, both consumers and law enforcement professionals in the U.S. and globally are increasingly seeking effective less-lethal self-defense solutions and Byrna is emerging as a leader in this category given the product’s unique features and growing brand awareness. With the availability of increased production capacity, Byrna will be commencing a series of dynamic marketing campaigns spearheaded by Mr. Pham which are designed to allow the Company to capitalize on this growing demand for less-lethal personal security options, such as the Byrna®HD less-lethal personal security device.
The Company is also developing a number of exciting new products including the Byrna XL, the Byrna LE and the Byrna CP. The Byrna XL will be able to use the more readily available 12-gram CO2 canisters and will have greater muzzle velocity. The Byrna LE is being designed for the Law Enforcement market, as well as for firearm enthusiasts. This launcher, scheduled for release in Q3 of 2021, will have even greater muzzle velocity, an improved sighting system, a seven-round magazine and extreme cold weather capabilities. Early in 2022 Byrna intends to introduce the Byrna CP, a compact launcher designed for better conceal carry capabilities and for users with smaller hands.
Mr. Ganz continued, “With respect to our production capabilities, we could not be more pleased with the ramp of the Fort Wayne, Indiana facility that we opened in September of 2020. The team there has performed admirably as they, along with our employees in South Africa, demonstrated extraordinary commitment, going above and beyond the call of duty to get product out to our customers and work through our backlog of orders. Once we have fulfilled our current backlog, we will be putting increased focus on expanding our dealer network and pursuing relationships with sporting goods stores, gun stores and outdoor stores. We believe that these outlets represent a significant growth opportunity for Byrna.”
Fourth Quarter 2020 Business Overview
Revenues were $11,029,154 in the fourth quarter of 2020. This significant increase was driven by strong growth in orders for the Company’s Byrna HD, resulting from enhanced market awareness of the product.
Gross profit was $4,896,610, representing a gross margin of 44.4%, compared to $53,542, or a 10.7% gross margin in the prior year period. On an adjusted basis, gross margin in Q4 was 48.7%. The increase in gross profit margins was driven primarily by the result of substantially higher production volumes, as the Company was able to spread its fixed production overhead across a larger production base.
Operating expenses were $6,172,482 in the fourth quarter of 2020, up from $824,770 in the prior year period. The increase reflects greater investment in corporate infrastructure necessary to support the Company’s growth in sales and production. This investment includes increases in employee-related expenses, marketing costs, auditing costs and bank fees.
Financial Position as of November 30, 2020:
- Cash of $9,563,635, including $6,388,561 of restricted cash (which is released as backorders are fulfilled).
- Total assets of $21,216,120.
- Total debt of $190,300.
The Company’s cash position as of November 30, 2020 was an increase of $8,481,735 from November 30, 2019, primarily due to positive free cash flow (defined as cash flow from operations less purchases of property and equipment) and early warrant exercises during the twelve-month period. Cash flow from operations for fiscal 2020 was $2,537,755 and free cash flow was $1,111,321.
Technical Service Update
On February 12, 2020, the Company identified a limited number of Byrna HD launchers in which the safety wire was not within specification. While no injuries were reported as a result of this technical issue, Byrna alerted its customers through multiple channels including a direct email campaign to Byrna HD owners and a notification posted on the Company’s website, offering customers the opportunity to return their launchers for a technical service update to correct the issue, free of charge. In the ten days since alerting its customers of this issue, Byrna has reached more than 31,000 customers (over 80% of customers) and has received less than 350 submissions for the technical service update. In the event that we ultimately receive a higher number of customer update requests, the Company has accrued $195,000 on its balance sheet to cover the potential costs of the technical service update (labor, materials and roundtrip freight) for the period ended November 30, 2020.
Mr. Ganz concluded, “Looking out to the balance of 2021, we expect revenues for our fiscal first quarter ending February 28th to be approximately $9.2m. This is slightly below our expectations at the beginning of the quarter, as Byrna suspended essentially all shipments of launchers during the last two weeks of the quarter in order to inspect, test and update more than 8,000 launchers that were in the production pipeline and more than 25,000 safety wires held in inventory. We can confidently state that since Byrna learned of the technical issue on February 12th, every launcher leaving the factory has been reinspected, updated where necessary and retested, and procedures and protocols have been established to prevent a recurrence of this issue. While the end of quarter reduction in shipments will negatively impact Q1 sales, the Company is going into Q2 with an order backlog of approximately $3.0m.”
“With respect to our fiscal second quarter ending May 31st, we expect a slight decline in revenues from our seasonally strong first quarter, which includes the holiday shopping period. Regarding the outlook for full fiscal year 2021 ending November 30th, based on year-to-date sales, our existing backlog, current order rates, our plans to launch multiple new promotional campaigns, our new product launch schedule and the production capacity we have in place, we expect revenues for the full year 2021 to come in between $33m and $38m.”
“Fiscal 2020 was a year of significant achievement for Byrna, and we expect to build upon this momentum as we progress through 2021 and strive to deliver continued growth, profitability, cash flow and value for our shareholders.”
Recent Securities Issuances
On February 24th, the Board approved the issuance, effective April 18, 2021, of 1.5 million restricted stock units (RSU’s) to the Chief Marketing Officer. These RSU’s will vest on April 18, 2023, subject to certain stock performance measures. Additionally, the Board approved the grant to two employees, effective March 2nd (the “Effective Date”), of a total of 240,000 options with a five-year term. The options will vest over a three-year period and have an exercise price equal to the highest of (i) $1.49, the closing price on the date of the Board award, (ii) the closing price on March 1st, or (iii) the closing price on the Effective Date, as required by applicable law and exchange rules. (Source: PR Newswire)
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.