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29 Jul 21. Leonardo confirms 2021 guidance after 37% rise in H1 core profit. Italian defence group Leonardo (LDOF.MI) stuck to its full-year guidance after its government and military business more than offset weakness in civil aviation to boost first-half earnings.

Between January and June, earnings before interest, tax and amortisation (EBITA) rose 37% over the prior year to 400m euros.

Revenues grew 7.9% thanks to solid demand for helicopters and defence electronics. Leonardo’s aerostructure business, which makes parts for Boeing (BA.N) and Airbus (AIR.PA), saw a 35.5% fall because of the protracted negative impact of the pandemic.

Leonardo expects full-year core earnings of between 1.075bn and 1.125bn euros and a fall in net debt to 3.2bn euros.

Leonardo CEO Alessandro Profumo said in a statement the group remained cautious on the timing of an eventual recovery in civil aviation despite some recent “positive signs.”

The Rome-based group also said it was sticking to a plan to list its U.S. unit DRS when market conditions allowed, after pulling the initial public offering in March due to expected cuts in U.S. defence spending.

Earlier on Thursday, Leonardo and other partners were awarded a 250m pound contract under Britain’s Tempest fighter jet project.

(Source: Reuters)

 

30 Jul 21. Babcock shares dive 12% on bigger losses, negative cash view.

Summary

• FY operating loss 1.64 bn stg vs year earlier 75.6 m
• Takes 2bn pounds writedown
• Shares dive 13%, biggest loser in FTSE 250

July 30 (Reuters) – British engineering firm Babcock (BAB.L) warned that free cash flow would be significantly negative this financial year as its annual loss soared on a 2bn pounds ($2.8bn) writedown, sending its shares down as much as 13%.

The company, whose biggest customer is Britain’s Ministry of Defence, said its operating loss widened to 1.64bn pounds in the year ended March 31 from 75.6m a year earlier, with impairments mainly due to reduced cash flow expectations from its land and aviation businesses.

Babcock said free cash flow – a sign of a company’s health and ability to pay down debt – would take a big hit from pension contributions, restructuring costs and a 20m pound provision for an Italian antitrust fine affecting its Mission Critical Services unit.

Chief Executive David Lockwood, however, reaffirmed that his plan to turn around the group did not involve an equity raise – a move that was welcomed by investors in April.

Instead, plans include disposals of at least 400m pounds and what it called a new operating model, involving a reduction in management layers that will results in about 1,000 layoffs.

Babcock plans to sell its oil and gas aviation business which transports workers to rigs and is reviewing parts of its aerial emergency business, which provides search and rescue, firefighting and medical services.

“Some particulars that relate to capital will take longer but we’ll get through the bulk of (the turnaround plan) in financial year 2022,” Lockwood told Reuters.

Babcock began a review of its balance sheet and contract profitability this year after it hired Lockwood and financial chief David Mellors from defence peer Cobham.

The company, which also manages naval bases and looks after submarines, said higher COVID-19 costs and uncertainty over new variants mean it did not expect easing restrictions to boost its profitability.

The pandemic has hurt its civil aviation business while social distancing rules have hit productivity and margins, as many of its jobs involve working in close proximity such as in ships and submarines.

Analysts at Jefferies estimate a free cash outflow of between 260m pounds and 280m pounds in 2022.

Babcock shares were down 11% by 0918 GMT, hitting their lowest since April when they had been boosted by relief that its recovery plan was not expected to include a cash call.  ($1 = 0.7173 pounds) (Source: News Now/Reuters)

 

30 Jul 21. Babcock’s struggles on the cashflow front. 

• Negative free cashflow in prospect
• Reducing net debt ratio a priority

Babcock (BAB) booked a £1.7bn net income loss for FY2021, driven by £1.3bn in impairments of goodwill and acquired intangibles, though it’s worth noting that gross profits have fallen to £26m from £487m in the prior year.

The market had been kept abreast of events, with April’s profit warning revealing the likely extent of the impairments linked to the contract profitability and balance sheet review. And though management makes the point that the impacts of the review are one-off and do not change future cash flows, the shares were still marked down heavily on results day.

The engineer, which is heavily involved in the development of Royal Navy warships (including the Type 31 Frigates), has already introduced remedial measures to bolster its balance sheet, but the trouble is that free cash flow (FCF) is expected to be in negative territory through to HY 2023, partly due to additional pension contributions and restructuring costs.

The group has been in discussions with its bankers, resulting in a new £300m revolving credit facility expiring May 2024. The debt covenant multiple has been increased to 4.5 times cash profits until March 2022, but the group is trying to reduce it to below  two times in reasonably short order – hardly a straightforward task given the prospective FCF shortfalls. So, Babcock will be looking to offload at least £400m in asset sales over the next year, while simplifying the management structure, in addition to the 1,000 job losses already announced.

Jefferies notes that consensus EPS estimates for 2022 could fall to the bottom of the range, and sentiment will remain negative until we witness a definitive turnaround. Sell.

Last IC view: Sell, 217p, 27 Jan 2021.

(Source: Investors Chronicle)

 

30 Jul 21. Babcock International Group PLC full year results for the year ended 31 March 2021. Detailed reviews completed and turnaround underway.

Strategy update

• Following extensive reviews, we now have a turnaround plan to restore Babcock to strength without the need for new equity
• Babcock will focus on being an international aerospace, defence and security company
• Five strategic actions:

o Aligning our portfolio, targeting at least £400m of disposal proceeds over the next twelve months

o Implementing our new operating model, delivering annualised savings of approx. £40m (c.£20m benefit in FY22)

o Rolling out a new people strategy focused on sharing capability, talent, innovation and best practice across the Group

o Developing a new ESG strategy, including a commitment to net zero for our estate, assets and operations by 2040

o Exploring growth opportunities, including opportunities in international markets and through our range of products

• Our strategy aims to significantly improve the Group’s profitability, and most importantly its cash generation, over the medium term

Presentational changes to our reporting for improved transparency

• Revenue and underlying operating profit no longer include a contribution from joint ventures (JVs) and associates
• A clearer definition of underlying operating profit and Specific Adjusting Items
• Free cash flow now includes cash flows related to exceptional items
• Free cash flow now includes the capital element of lease payment cash flows, rather than net new lease commitments

Contract profitability and balance sheet review (‘CPBS’) completed

• Total impairments and charges of £2bn, consisting of impairment of goodwill and acquired intangibles (£1,349m), other FY21 impacts, the vast majority of which are estimate changes (£464m), the cumulative correction of prior period errors (£171m) and a change in accounting policy (£60m)
• Vast majority of the impacts of the CPBS are one-off and do not change future cash flows
• Recurring CPBS adjustment to underlying operating profit of around £25m per annum

Financial results in line with early indications set out in our April 2021 business update

• Revenue down 3% excluding foreign exchange and disposals, with business growth offset by the impact of COVID-19 on trading and the de-recognition of pass-through revenue from the Phoenix contract in Land.
• Underlying operating profit excl. one-off CPBS adjustments was £222.4m. This differs from the unaudited figure we indicated in April of £307m for two reasons: our definition now excludes joint ventures and IFRIC 12 income (£62m) and has been reduced by the recurring impacts of the CPBS (£24.7m)
• On this basis, underlying operating profit (excluding FX and disposals) was down 40%, reflecting the impact of COVID-19 (£46m) and significant credits that benefited FY20 (£47m)
• Underlying free cash flow of £170m benefited from VAT timing benefit (£56m) and corporation tax repayments (£67m)
• Underlying basic EPS of (23.8)p. Excluding the one-off CPBS adjustments, underlying basic EPS was 28.9p
• Net debt at 31 March 2021 (excluding operating leases) of £772m, down from £1,055m last year (note both now include supply chain financing balances, £25m at March 2021 and £93m at March 2020). Average net debt during the year was around £1.3bn

Balance sheet

• New banking agreements in place to prudently protect against potential downside scenarios:

o New £300m revolving credit facility expiring May 2024, in addition to existing £775m facility

o Clarification on treatment of underlying results and exclusion of CPBS one-off adjustment from covenant ratios

o  Temporary amendment of net debt to EBITDA ratio covenant to 4.5x until 31 March 2022

• Portfolio alignment aims to generate at least £400m of proceeds in the next twelve months
• Net debt to EBITDA (covenant basis) 2.5 x at 31 March 2021, with liquidity headroom of £1.2bn
• The near term priority is to reduce net debt to EBITDA below 2x

Recent business development

• Contract backlog at 31 March 2021 was £8.7bn. This is a simpler measurement of our committed contract cover and no longer includes work as part of framework agreements, nor our share of the contract backlogs in JVs and associates (see note ii for details)
• Future Maritime Support Programme (FMSP) expected to be finalised this summer, interim agreement currently in place. Our contract backlog is expected to increase significantly once this contract is signed in the first quarter of FY22:

o Memorandum of Implementation with UK and Ukraine to be the prime contractor on programme of naval defence projects

o Awarded new c.€500m contract for defence aviation training activities in France

o Won c.£150m logistic support contract, part of the UK’s next generation tactical communications & information systems

• Working on various Type 31 export opportunities including Greece, Indonesia and Poland

Outlook

• While FY22 will benefit from operating model savings (c.£20m), it will be a year of transition and, as such, we remain cautious
• The impact of COVID-19 on performance in FY22 is uncertain. While activity levels have broadly recovered, the additional costs from operating in a COVID-secure way remain. These costs, combined with the uncertainty over business interruption from increased cases and potential new variants, mean that we do not currently expect a material boost in profitability from COVID-19 restrictions easing
• Free cash flow will be impacted by the material cash outflows previously communicated, particularly additional pension contributions (c.£130m in excess of the income statement) and exceptional cash costs (c.£50m restructuring and c.£20m Italy fine). In addition, we are still investing in facility and IT upgrades and we will be unwinding over time the historical management of working capital around period ends. As such, free cash flow (before disposal proceeds) in FY22 is expected to be significantly negative.
• We are confident about our prospects for the markets we serve. We believe that with our improved strategic focus and operational delivery, and with efficiencies generated by the new operating model, we can significantly improve the Group’s profitability, and most importantly its cash generation, over the medium term but this will take time to deliver

David Lockwood, Chief Executive Officer, said: “We have now completed the series of reviews announced in January. These have reinforced our confidence in the underlying strength of the Babcock business and at the same time helped identify the necessary strategic changes to improve our performance. We have a plan in place to strengthen the Group without the need for an equity issue. The full year 2021 performance reflects both the new financial baseline for the business and the impact of COVID-19 on our operations and markets. I’d like to thank all our people who have been working tirelessly throughout the pandemic to deliver the vital services on which our customers depend. Looking forward, Babcock will be a simplified and more focussed group with a renewed emphasis on the exceptional engineering skills of its people. We will be well placed to take advantage of the many opportunities we see in both UK and international markets, leading to improved cash generation and profitability in the medium term.”

Changes to the presentation of underlying results

We have made a series of changes to our underlying measures this year to improve transparency and provide a simpler set of accounts and financial commentary. These changes are:

• The results of joint ventures and associates are now included as one line in the income statement relating to Babcock’s share of joint ventures’ and associates’ profit after tax. The Group no longer includes a share of joint venture and associates revenue. This aligns revenue with the statutory IFRS measure. IFRIC 12 income has now been taken out of underlying operating profit and included as investment income
• A clearer definition of underlying operating profit and Specific Adjusting Items
• Updating our definition of free cash flow to include the capital element of lease payment cash flows (rather than net new lease commitments which are reflected as a debt movement) and to include cash flows related to exceptional items

Adjustments between statutory and underlying information

The Group uses various alternative performance measures, including underlying operating profit, to enable users to better understand the performance and earnings trends of the Group. The Directors believe the alternative performance measures provide a consistent measure of business performance year to year and they are used by management to measure operating performance and as a basis for forecasting and decision-making. The Group believes they are also used by investors in analysing business performance. These alternative performance measures are not defined by IFRS and therefore there is a level of judgement involved in identifying the adjustments required to calculate the underlying results. As the alternative performance measures used are not defined under IFRS, they may not be comparable to similar measures used by other companies. They are not intended to be a substitute for, or superior to, measures defined under IFRS. For the most useful comparison to last year, and as a better measure to compare to future periods, this Report focuses on underlying operating profit excluding the one-off CPBS adjustment as we believe this to be the most helpful measure.

Notes to statutory and underlying results

Note (i): Results for FY20 have been restated to correct for prior year errors and to reflect changes in accounting policies. See page 8 for details.

Note (ii): We now report a contract backlog, which represents amounts of future revenue under contract, rather than an order book reported previously. This new measure does not include £6.0bn of work expected to be done by Babcock as part of framework agreements (2020: £5.3bn) and, to align with the change in presentation of revenue (see above), does not include orders of £2.0bn within our joint ventures and associates (2020: £2.7bn).

Note (iii): Revenue is as defined under IFRS with no adjustments between statutory and underlying. Historically, the Group reported underlying revenue which included the Group’s share of joint ventures’ and associates’ revenue.

Note (iv): Underlying operating profit is defined as IFRS statutory operating profit adjusted for Specific Adjusting Items. See page 9 for a reconciliation. The Specific Adjusting Items are:

• Amortisation of acquired intangibles
• Business acquisition, merger and divestment related items (being acquisitions and gains or losses on disposal of assets or businesses)
• Gains, losses and costs directly arising from the Group’s withdrawal from a specific market or geography, including closure costs, severance costs, the sale of assets and termination of leases
• The costs of large restructuring programmes which significantly exceed the minor restructuring which occurs every year as part of the normal day to day business. Where restructuring costs are incurred as a result of the ongoing execution of day to day business, they are included in operating costs and are not excluded from underlying operating profit
• Profit or loss from amendment, curtailment, settlement or equalisation of Group pension schemes
• Exceptional items that are significant, non-recurring and outside of the normal operating practice. These items are described as exceptional in order to appropriately represent the Group’s underlying business performance

Note (v): The Group’s contract profitability and balance sheet review (‘CPBS’) has resulted in various adjustments, including in-year estimate changes, reversing prior year errors and a change in accounting policy. Reference is made throughout this document to the CPBS and its impact. Commentary in this document often discusses performance before the one-off CPBS adjustments to better reflect the year on year differences in performance across the Group.

Note (vi): Underlying basic earnings per share (‘EPS’) is based on the Group’s underlying operating profit (see note iv). It includes the Group’s post-tax share of results of joint ventures and associates. This measure now includes the amortisation of acquired intangibles within joint ventures.

Note (vii): Underlying free cash flow now includes cash flows from exceptional items and the capital element of lease payment cash flows (rather than net new lease commitments which are reflected as a debt movement).

Note (viii): This measure excludes operating leases as defined by IAS 17. This accounting standard has since been superseded by IFRS 16 but was the relevant standard at the inception of the banking facility. This net debt figure now also includes finance lease (as defined by IAS 17) receivables and payables and continues to include loans from the Group to joint ventures. Supply chain financing balances have been reclassified to debt in both periods (March 2021: £25m, March 2020: £93m).

Note (ix): Net debt / EBITDA as measured in our banking covenants, which make a series of adjustments to both Group net debt and Group EBITDA.

CEO STATEMENT

“Our new approach. We announced a series of reviews in January 2021 of our strategy, portfolio and operating model, alongside a deep dive into the profitability of our contracts and balance sheet position to establish a financial baseline. These reviews have now been concluded, and the results make a compelling argument for the significant change needed in order to unlock the Group’s potential. The reviews showed that Babcock was being run as a federation rather than a unified Group, an approach which may have served us in the past but does not meet the needs of today’s market. The last few years have seen a move to in-source civil nuclear work in the UK, increased customer demands on each new programme, the need for a more agile supply chain and the requirement for more innovative solutions to the evolving threats in international defence. We did not adapt to the changing world around us quickly enough. We also have to accept that the expectations we had for the Avincis acquisition in 2014 have not played out. Growth in the markets Avincis served has not been as expected, most notably in oil and gas, and the profitability of those businesses has been under pressure for some years. Many of these pressures are highlighted in our contract profitability and balance sheet review (‘CPBS’) with just over half of adjustments by value relating to businesses that came from this acquisition. Most importantly, we have already started to implement a plan to fix this: removing costs and taking a different approach to contract bids. We are disposing of our oil and gas business and are further reviewing the aerial emergency services businesses. As a Group, it seems that we sometimes have been optimistic in setting objectives. This led to a pattern of underperformance which we are determined to address. We are doing just that, and have instituted a number of changes to enable us to be fit to take advantage of the significant opportunities we can see ahead. We now have a more appropriate baseline for the financial performance of the Group. We have set a new strategy as outlined below, with a greater focus on maximising our fundamental strengths in the UK and internationally, both in our target countries and through exports like the new Type 31 frigate and High Frequency communications. I’m pleased to say that the international defence market is responding positively. And we are undergoing a wide-ranging refresh of our culture – not just in terms of the new ways of working captured in the changes to the operating model, but in the rolling-out of a new people strategy and a new emphasis on ESG throughout the Group.”

Strengths of the Group

Our business is based on some key fundamental strengths across the Group, including:

• Deep technical expertise and highly skilled people across critical and complex engineering
• Ownership of key sites and infrastructure including the Devonport and Rosyth dockyards
• Strong relationships with our customers, including a deep understanding of their challenges
• Strong niche positions in Canada, Australasia and South Africa, with a developing position in France
• A range of platforms, systems and products that are highly competitive in international markets

Our strategy

We are an international aerospace, defence and security company with a leading naval business, and we provide value-add services across the UK, France, Canada, Australasia and South Africa. We are focused on five strategic actions:

1. Aligning our portfolio

2.Implementing our new operating model

3.Rolling out our new people strategy

4.Developing our new ESG strategy

5.Exploring growth opportunities

Together this should lead to returns for our shareholders, improved delivery for customers and a better place to work for our employees.

1) Aligning our portfolio

Our strategy review defined the markets we wish to serve and therefore the best portfolio to hold. With this in mind, we considered which businesses we are the best owner of and on which we could earn a sufficient return on capital and this has led to us identifying businesses that may be divested. This portfolio alignment will reduce complexity, increase focus and increase the effective use of the Group’s capital by disposing of the businesses that are outside the perimeter of our strategy.

We are targeting proceeds of at least £400m over the next 12 months from these divestments. Some of these processes are underway and we will update the market when material progress is made.

As announced in March 2021, we have agreed the conditional sale of our oil and gas aviation business. This deal is expected to complete over the summer subject to the satisfaction of the relevant third-party conditions.

2) Implementing our new operating model

We are creating a business that is more efficient and effective. We are reducing layers of management within the business to form a flatter structure that will simplify how we operate, improve line of sight, shorten communication lines and therefore increase business flexibility and our responsiveness to market conditions. Sadly, these changes will result in approximately 1,000 employees leaving the Group over the 2022 financial year with an estimated restructuring cost of £40m. These changes will also reduce our operating cost base. Some of the savings will be recognised across long-term projects, for example where they form part of existing contract efficiency assumptions, and some savings will benefit our customers via the contract structure. As such, the expected realisable annualised savings are approximately £40m. The benefit in FY22 will be roughly half this due to timing.

These changes will also create a leaner organisation and should help our decision-making – giving more power to the teams closer to the customer. The changes also aim to improve our internal and financial controls.

3) Rolling out our new people strategy

We are developing an organisation that shares capability, talent, innovation and best practice across the Group and removes complexity. The new operating model is a key pillar of our new people strategy. On top of this, we will create an agile and inclusive workplace, improve our diversity, create a new approach to talent management and we will harmonise our people policies and processes. All of these will combine to make Babcock a better place to work for our employees.

Delivering our new operating model and new people strategy requires us to embrace a new culture to unlock the potential that exists within the business – one which continues our tradition of focus on the customer, but which enables more innovation and collaboration. We have begun that process with the articulation of our new purpose: creating a safe and secure world, together. It’s a recognition of the positive role we can and should take in creating a safe and secure world, as a responsible member of society, and of the fact that almost everything we do is collaborative – whether it is working together across the different parts of the Group, working with our customers, or working with our partners and suppliers. We have started to transform our culture and that work will continue throughout the coming financial year.

4) Developing our new ESG strategy

We have continued to make great progress on developing our ESG strategy in a year of many challenges. We have a plan to reduce harmful emissions and integrate sustainability into programme design and have set a new target for the Group: to achieve net zero carbon emissions for our estate, assets and operations by 2040.

We want to make a positive difference to our communities, including providing high-quality jobs that support local economies, and we are focused on being a collaborative, trusted partner across the supply chain. We have reaffirmed our commitment to championing inclusion and diversity across the Group, including setting a new target to ensure that 30% of our senior leadership roles are filled by women by 2025. Additionally we are actively working on meeting the recommendations of the Parker Review as we support increasing the representation of ethnicity on UK boards.

5) Exploring growth opportunities

While our immediate focus has been on completing our reviews and getting a more appropriate baseline in place, we are also exploring the growth opportunities ahead of us. The markets we address offer favourable medium-term growth and we will focus on opportunities for defence and value-add services in the UK, France, Canada, Australasia and South Africa.

Work on key programmes critical to the national security of the UK is the core of what Babcock does. Given our strong market position today, growth in the UK will mainly be dependent on market growth. There are areas where we will also look to increase our share, for example secure defence communications. Growth in international markets can come from market growth and an increase in market share. We aim to develop our international presence in our target markets of France, Canada, Australasia and South Africa. We are bidding for contracts that, if won, would offer significant growth, for example pilot training in Canada. Our range of products have further opportunities for growth including in our equipment and systems exports and international demand for the Type 31 platform. We aim to export a lot more in the future from the UK, embracing the aims of the UK Government and its strategy.

Recent business development

The Group continued to win work across all markets and sectors in the year and, as of 31 March 2021, our contract backlog was £8.7bn. We now report a contract backlog rather than an order book as in previous years. Our new measure does not include around £6.0bn of work expected to be done by Babcock as part of framework agreements and, to align with the change in presentation of revenue, does not include a contribution of joint ventures and associates of around £2.0bn. In June 2021, we signed a tripartite Memorandum of Implementation with the UK’s MOD and Ukraine’s MOD to be the prime contractor on a major programme of naval defence projects. The programme includes the enhancement of capabilities on existing naval platforms, the delivery of new platforms, including fast attack missile craft, a modern frigate capability, shipborne armaments and the training of naval personnel. It also involves working together to regenerate Ukrainian shipyards by developing, implementing and completing a Shipyard Regeneration Plan. Also in June 2021, we were awarded a contract with the French MOD for an expansion of our existing defence aviation training activities. This 5-year contract is worth around €500m and started in June 2021. We also won a logistic support contract worth £150m as part of the UK MOD’s £3.2bn Battlefield and Tactical Communication Information Systems (BATCIS) programme of opportunities to deliver the next generation tactical communications and information systems.

We are currently in active discussions regarding Type 31 export opportunities with a number of countries, including Greece, Indonesia and Poland.

Summary of financial performance in FY21

Our financial performance in the year was in line with the early indications we gave in April 2021, though this now includes presentational changes as covered in the Financial review. Organic revenue decline was 3% with demand for most of our work holding up well despite the pressures of the COVID-19 pandemic.

We made a statutory operating loss of £1,643m in the year, mainly as a result of charges taken in our CPBS including the impairment of goodwill. On an underlying basis, our operating loss was £27.6m, again mainly due to CPBS charges. For the most useful comparison to last year, and as a better measure for future periods, we focus in this report on the Group’s underlying operating profit excluding the one-off CPBS adjustment. On this basis, we had an underlying operating profit of £222.4m in the year compared to £377.6m last year (restated), both of which now exclude our share results of joint ventures and associates. This decline in profit reflects disposals and lost business as well as a significant impact from COVID-19. The year-on-year decline is exacerbated by significant credits that benefited the results of the previous financial year. These are covered in more detail in our Financial review. The COVID-19 pandemic had a material impact in the year and continues to cause uncertainty across our markets. The impacts in the year were most severe for our non-defence businesses (e.g. civil aviation and civil training) where activity in some cases stopped. The defence businesses saw some interruption and increased costs initially. Subsequently, most defence programmes and sites were reopened, albeit with social distancing restrictions and higher levels of employees working from home. This led to less efficient delivery, hence profitability was affected proportionately more than revenue.

Trading in the first quarter for FY22

Trading in the quarter ended 30 June 2021 was in line with our expectations across all four sectors. Net debt (excluding operating leases) was £1,140m, higher than at 31 March 2021 but lower than the average net debt for FY21.

Outlook

We are confident that we have established a clear strategic path to return Babcock to strength, but the extent of the transformation we are undergoing means that FY22 will be a year of transition. The impact of COVID-19 on performance in FY22 is uncertain. While activity levels have broadly recovered, the additional costs from operating in a COVID-secure way remain. These costs, combined with the uncertainty over business interruption from increased cases and potential new variants, mean that we do not currently expect a material boost in profitability from COVID-19 restrictions easing. As such, we remain cautious about the progress we will be able to make on profitability. Free cash flow will be impacted by the material cash outflows previously communicated, particularly additional pension contributions and exceptional cash costs, both restructuring costs and the Italy fine. In addition, we are still investing in facilities and IT upgrades and we will be unwinding the historical management of working capital around period ends. As such, free cash flow (before disposal proceeds) in the 2022 financial year is expected to be significantly negative.

We are confident about our prospects for the markets we serve. We believe that with our improved strategic focus and operational delivery, and with efficiencies generated by the new operating model, we can significantly improve the Group’s profitability, and most importantly its cash generation, over the medium term but this will take time to deliver.

Board changes

During the year, we welcomed new members to our Board:

• Russ Houlden joined as Non-Executive Director in April 2020 and became the Chair of the Audit Committee in August 2020
• Carl-Peter Forster joined as Non-Executive Director in June 2020 and became the Senior Independent Director in August 2020
• David Lockwood joined as CEO in September 2020
• David Mellors joined as CFO in November 2020
• Lord Parker joined the Board as Non-Executive Director in November 2020

During the year, some members of the Board retired:

• Ian Duncan and Jeff Randall retired from the Board in August 2020
• Sir David Omand retired in March 2021
• Archie Bethel retired as CEO in September 2020
• Franco Martinelli retired as CFO in November 2020

Our 2021 AGM will see the retirement from the Board of Myles Lee and Victoire de Margerie as Non-Executive Directors after six years and five years of service respectively.

BATTLESPACE Comment: For some time we have been suggesting that Babcock would have to write off its investment in DSG. Buried in the accounts was £56.4m was impaired in relation to the DSG contract acquired intangible as its carrying value could no longer be justified following the reassessment of the contract profitability. A source told BATTLESPACE that having announced they would dispose of DSG, Babcock can’t find a buyer at any price. That comes as some surprise to the source as DSG still has some genuinely unique skills and assets which have been somewhat tarnished by Babcock. The loss of WCSP has obviously caused a huge reduction in future business together with the earlier loss of the Protected Mobility SSS to NP Aerospace. The Same source said that just after the acquisition of DSG, Babcock ‘Discovered’ 200 employees at Ashchurch that they hadn’t spotted were missing from MOD numbers during due-diligence. (Aschurch had been moved into DSG from DE&S just before the sale). That caused an immediate £15m p.a. hit to the cost base with no recourse to MoD.

30 Jul 21. British Drone Insurer Flock Raises $17m. British drone insurer Flock has raised $17m from investors in early-stage funding led by venture investor Chamath Palihapitiya’s Social Capital, Flock said on Thursday. Flock started out insuring commercial drones, and added car and van fleets last year. It provides so-called usage-based insurance, adjusting premiums according to real-time information such as weather conditions and distance travelled. Trends such as ride-sharing and same-day delivery require new types of insurance, CEO Ed Leon Klinger said, as the world also looks ahead to driverless cars.

“These customers are changing very, very quickly but the world of insurance hasn’t really adapted.”

Flock, which started in 2018, said its drone insurance book made up more than 35% of the UK commercial drone market, with clients including the BBC, Netflix and the National Health Service. Motor insurance clients include Jaguar Land Rover.

“Flock has the potential to help unlock and enable a truly autonomous world, and even save lives,” said Social Capital CEO Palihapitiya, who is also the chair of space tourism firm Virgin Galactic Holdings.

Klinger declined to give a valuation for Flock but said it was growing rapidly and may seek further funds from investors next year.

The COVID-19 pandemic had spurred demand for its product, as fleet managers were able to save on insurance costs when business lockdowns left cars unused, Klinger said.

Flock currently has around 20 staff but is hiring 60 more, and plans to expand its motor business into Europe, he added. Insurtech, a fast-growing segment of the financial technology, or fintech, industry, has benefited from investor interest in startups, with the traditional insurance industry considered slow to change and to adopt technology. Global insurtech funding exploded to $7.4bn in the first half, making 2021 a record funding year already, insurance broker Willis Towers Watson said on Thursday. Existing Flock investors Anthemis and Dig Ventures also participated in the series A funding round.  (Source: UAS VISION/Reuters)

 

29 Jul 21. Set fair for a profitable voyage. A global leader in marine domain awareness systems has no fewer than seven contracts worth £125m nearing contract closure and which should deliver hefty profits for shareholders in the coming years.

• Imminent signing of four major contracts worth £71m.
• Three other contracts worth £51m in near-term pipeline.
• Flagship £31m Philippines project to complete by end of 2021 and generate significant recurring revenue.

Aim-traded SRT Marine Systems (SRT:37p), a global leader in AIS, an advanced identification communications technology used to track and monitor maritime vessels, looks set fair to deliver a material return to profit in the current financial year.

As flagged up in April’s pre-close trading statement, Covid-19 related delays to the implementation of major systems contracts meant that the group’s transceiver business (revenue edged up slightly to £8.3m on a respectable gross margin of 38 per cent) was effectively the only source of income in the 12 months to 31 March 2021. The margin earned was not sufficient to cover annual overheads of £8m, mainly on SRT’s systems business, so pushing the group into a £5.9m pre-tax loss. The cash loss was £1.9m after adjusting for non-cash items, mainly depreciation and amortisation of capitalised research & development expenditure.

Of far more importance is guidance from chief executive Simon Tucker and chairman Kevin Finn that four of the seven systems projects in the £125m near-term validated sales pipeline (all in South East Asia and Middle East), which are worth £71m over a two-year delivery period and had been expected to commence in the 2020/21 financial year, should be under contract within the next few months and delivering meaningful revenues in the current financial year. The directors also flag up that the other three projects, worth £54m, should be contracted in the latter part of the 2021/22 financial year or early in 2022/23.

In addition, SRT’s £30m flagship Philippines project that was awarded in December 2018 and which involves the installation of monitoring systems, coast stations, vessel transceivers and satellite data feeds, is scheduled to be completed by the end of 2021, thus enabling the group to book its final billing milestone. Technology analyst Lorne Daniel at house broker finnCap points out that recurring revenue from completed marine domain awareness system projects could exceed £2m per annum or more over the next decade, creating another lucrative revenue stream. Daniel also notes that SRT “has been busy developing a new transceiver product, NEXUS, integrating AIS with other technologies to provide both voice and data connectivity between vessels”. It could make “a material revenue contribution in 2022/23”. Taking into account upfront payments on new contracts, the final milestone on the Philippines project, and SRT’s gross cash of £5.3m (excluding loans of £8.5m), the group is funded for the accelerated project roll-out. Although Daniel is holding off reinstating forecasts until the Asia [JN1]and Middle East contracts are signed, the clients are pushing for closure, I maintain the view that SRT could be making annualised revenue of £50m later this year. Based on a margin of 40 per cent, and factoring in annual fixed overheads of £7m, the income stream should deliver annual pre-tax profits north of £10m, a hefty sum for a £58m market capitalisation company.

Moreover, the global political landscape is becoming increasingly uncertain, while security threats are ever more diverse and frequent. This can only drive demand for SRT’s marine domain awareness technology which has applications in national security, border control and search and rescue, too. As the UK Border Force is all too aware, a country’s coastline is often its most vulnerable border, and needs close monitoring given escalating migrant and immigration concerns. Waterways are also a material source of economic activity. The geopolitical situation in the Middle East and Asia is volatile, too, another reason why SRT’s total validated sales pipeline is worth £550m.

After I initiated coverage at the current price (‘Set sail for a profitable voyage’, 16 August 2019), the share price hit my 55p target in January 2020. I subsequently advised buying the shares at 25.5p (‘Stockpicking for bear market gains’, 16 April 2020) and at 37p last autumn (‘Four tech companies with high growth potential’, 19 November 2020). The imminent signing of major contracts is a likely catalyst to drive a re-rating back to my 55p target, and perhaps beyond. Buy. (Source: Investors Chronicle)

 

29 Jul 21. Griffon Corporation Announces Third Quarter Results. Griffon Corporation (“Griffon” or the “Company”) (NYSE:GFF) today reported results for the third quarter of fiscal 2021 ended June 30, 2021. Consolidated revenue for the third quarter totaled $646.8m, a 2% increase compared to the prior year quarter revenue of $632.1m, or 4% excluding prior year revenue of $7.9m related to the SEG disposition.

Net income totaled $16.7m, or $0.31 per share, compared to $21.8m, or $0.50 per share, in the prior year quarter. Current year adjusted net income was $22.8m, or $0.43 per share, compared to $25.9m, or $0.59 per share, in the prior year quarter (see reconciliation of Net income to Adjusted net income for details). The current year quarter includes 8.7m shares of common stock issued in August 2020, which reduced adjusted EPS by approximately $0.08.

Adjusted EBITDA for the third quarter was $64.8m, decreasing 7% from the prior year quarter of $69.5m. Unallocated amounts excluding depreciation (primarily corporate overhead) in the third quarters of 2021 and 2020 was $10.9m and $11.1m, respectively. Adjusted EBITDA excluding unallocated amounts totaled $75.7m in the third quarter of 2021, decreasing 6% from the prior year of $80.5m. Adjusted EBITDA is defined as net income excluding interest income and expense, income taxes, depreciation and amortization, restructuring charges, loss from debt extinguishment and acquisition related expenses, as well as other items that may affect comparability, as applicable (see reconciliation of Adjusted EBITDA to Income before taxes).

Ronald J. Kramer, Chairman and Chief Executive Officer, commented, “We are pleased with our results this quarter as our businesses continue to see strong demand and backlog despite a business environment impacted by rapidly rising costs of raw materials, transportation and labor. The Ames Strategic Initiative, coupled with price increases and efficiency programs, remain on track to drive margin expansion and shareholder value.”

Segment Operating Results

Consumer and Professional Products (“CPP”)

CPP revenue in the current quarter totaling $324.8m decreased 1% compared to the prior year period due to reduced volume of 9%, primarily in the U.S., due to shipping delays related to availability of transportation, partially offset by favorable mix of 3% and a favorable foreign currency impact of 5%. CPP Adjusted EBITDA in the current quarter was $29.4m, decreasing 21% from the prior year quarter primarily from decreased revenue noted above, increased distribution and material costs coupled with the lag in realization of price increases, and COVID-19 related inefficiencies. The current quarter included a favorable foreign currency impact of 4%.

Strategic Initiative

In November 2019, Griffon announced the development of a next-generation business platform for CPP to enhance the growth, efficiency, and competitiveness of its U.S. operations, and on November 12, 2020, Griffon announced the broadening of this strategic initiative to include additional North American facilities, the AMES UK and Australia businesses, and a manufacturing facility in China.

The expanded focus of this initiative leverages the same three key development areas being executed within our U.S. operations. First, certain AMES global operations will be consolidated to optimize facilities footprint and talent. Second, strategic investments in automation and facilities expansion will be made to increase the efficiency of our manufacturing and fulfillment operations, and support e-commerce growth. Third, multiple independent information systems will be unified into a single data and analytics platform, which will serve the whole AMES global enterprise.

Expanding the roll-out of the new business platform from our AMES U.S. operations to include AMES’ global operations will extend the duration of the project by one year, with completion now expected by the end of calendar year 2023. When fully implemented, these actions will result in annual cash savings of $30 m to $35m and a reduction in inventory of $30m to $35m, both based on fiscal 2020 operating levels.

The cost to implement this new business platform, over the duration of the project, will include one-time charges of approximately $65m and capital investments of approximately $65m. The one-time charges are comprised of $46m of cash charges, which includes $26m of personnel-related costs such as training, severance, and duplicate personnel costs as well as $20m of facility and lease exit costs. The remaining $19m of charges are non-cash and are primarily related to asset write-downs.

During the nine months ended June 30, 2021, CPP incurred pre-tax restructuring and related exit costs approximating $14.7m. These charges were comprised of cash charges of $10.8m and non-cash, asset-related charges of $3.9m; the cash charges included $1.8m for one-time termination benefits and other personnel-related costs and $9.0m for facility exit costs. Since inception of this initiative in fiscal 2020, total cumulative charges totaled $28.3 m, comprised of cash charges of $19.8m and non-cash, asset-related charges of $8.6 m; the cash charges included $7.4m for one-time termination benefits and other personnel-related costs and $12.4m for facility exit costs. Furthermore, since inception of this initiative, total capital expenditures of $14.8m were driven by investment in CPP business intelligence systems and e-commerce facility.

Home and Building Products (“HBP”)

HBP revenue in the current quarter totaling $259.4m increased 18% from the prior year quarter, driven by increased volume of 5%, and favorable mix and pricing of 13%.

HBP Adjusted EBITDA in the current quarter was $42.2m, increasing 7% compared to the prior year quarter. EBITDA benefited from increased revenue noted above, partially offset by increased material costs, coupled with the lag in realization of price increases, and COVID-19 related inefficiencies.

Defense Electronics (“DE”)

DE revenue in the current quarter totaled $62.6m, decreasing 25% from the prior year quarter. The prior year results include revenue from the SEG business of $7.9m. Excluding the divestiture of SEG from prior year results, revenue decreased $13.5m, or 18%. The decrease was driven by reduced volume due to the timing of deliveries on Communications and Radar systems, partially offset by volume increases on Naval & Cyber Systems.

DE Adjusted EBITDA in the current quarter was $4.1m, remaining consistent with the prior year quarter. Excluding the divestiture of SEG from the prior year results, Adjusted EBITDA increased 9% primarily due to reduced operating expenses, including the benefit from first quarter cost reductions, and improved Naval & Cyber Systems program performance, partially offset by cost growth for Radar systems.

Contract backlog was $375.0m at June 30, 2021 compared to $341.0m at June 30, 2020 (excludes $9.4m of SEG related backlog) with 66% expected to be fulfilled in the next 12 months. Backlog was approximately $370.0m at September 30, 2020 (excludes approximately $10.0m of SEG related backlog). During the current quarter and year-to-date periods, DE was awarded several new contracts and received incremental funding on existing contracts approximating $84m and $189m (excludes $5.5m of SEG awards from the first quarter), respectively; the trailing twelve-month book-to-bill ratio was 1.1x.

Taxes

The Company reported pretax income for the quarters ended June 30, 2021 and 2020, respectively, and recognized tax provisions of 42.5% and 36.7%, respectively. Excluding all items that affect comparability, the effective tax rates for the quarters ended June 30, 2021 and 2020 were 31.2% and 30.8%, respectively. The current year-to-date effective tax rate was 34.1% and the rate excluding items that affect comparability was 31.1%.

Balance Sheet and Capital Expenditures

At June 30, 2021, the Company had cash and equivalents of $220.7m and total debt outstanding of $1.06bn, resulting in net debt of $834.9m. Leverage, as calculated in accordance with our credit agreement, was 2.9 times EBITDA. Borrowing availability under the revolving credit facility was $362.2m subject to certain loan covenants. Capital expenditures were $9.9m for the quarter ended June 30, 2021.

Share Repurchases

As of June 30, 2021, Griffon had $58m remaining under its Board of Directors authorized repurchase program. There were no purchases under these authorizations during the quarter ended June 30, 2021. (Source: BUSINESS WIRE)

 

29 Jul 21. Oshkosh Corporation Reports Fiscal 2021 Third Quarter Results. Oshkosh Corporation (NYSE: OSK), a leading innovator of mission-critical vehicles and essential equipment, today reported fiscal 2021 third quarter net income of $213.9m, or $3.07 per diluted share, compared to $80.2m, or $1.17 per diluted share, in the third quarter of fiscal 2020. Results for the third quarter of fiscal 2021 included a $69.9m tax benefit associated with the carryback of a U.S. net operating loss to prior years with higher federal statutory rates and an after-tax charge of $1.4m associated with restructuring actions in the Access Equipment segment. Results for the third quarter of fiscal 2020 included after-tax charges of $8.4m associated with restructuring actions. Excluding these items, adjusted1 net income was $145.4 m, or $2.09 per diluted share, and $88.6m, or $1.29 per diluted share, for the third quarter of fiscal 2021 and 2020, respectively. Comparisons in this news release are to the corresponding period of the prior year, unless otherwise noted.

Consolidated net sales in the third quarter of fiscal 2021 increased 39.7 percent to $2.21bn as a result of higher sales in all segments. Sales in the Access Equipment and Commercial segments were impacted in the third quarter of fiscal 2020 due to low demand in the midst of the COVID-19 pandemic.

Consolidated operating income in the third quarter of fiscal 2021 increased 71.8 percent to $203.8m, or 9.2 percent of sales, compared to $118.6m, or 7.5 percent of sales, in the third quarter of fiscal 2020. The increase was primarily due to the impact of higher consolidated sales volume, favorable absorption as a result of higher production levels and lower restructuring-related costs, offset in part by higher incentive compensation costs, higher material costs and the return of spending related to temporary cost reductions in the prior year. Excluding $1.3m of pre-tax charges related to restructuring actions, adjusted1 operating income in the third quarter of fiscal 2021 was $205.1m, or 9.3 percent of sales. Excluding $10.2m of pre-tax restructuring charges, adjusted1 operating income in the third quarter of fiscal 2020 was $128.8m, or 8.1 percent of sales.

“I’m proud of the focus shown by Oshkosh team members who persevered through a challenging supply chain environment to deliver solid sales and adjusted earnings per share of $2.09 during the third fiscal quarter,” stated John C. Pfeifer, Oshkosh Corporation president and chief executive officer. “It’s no secret that global supply chain disruption and access to labor are presenting a challenge to industries around the globe, and our people have executed effectively to deliver strong results. We made several positive announcements during the quarter, including North America’s first electric fire truck, our Pierce Volterra pumper, which is currently supporting regular daily calls in Madison, Wisconsin. We were also selected as the winner of the U.S. Army’s competition for the Medium Caliber Weapons System for integration onto Stryker vehicles used by Army Brigade Combat Teams, which is an exciting business opportunity for our Defense segment as it expands into important adjacencies. Late in June, we announced Spartanburg, South Carolina as the site where we will build the revolutionary Next Generation Delivery Vehicle (NGDV), which will be used by the U. S. Postal Service. The NGDV is a 10-year, multi-bn-dollar contract that calls for quantities between 50,000 and 165,000 vehicles with the first production units planned in calendar 2023.

“We are increasing our fiscal 2021 GAAP earnings per share expectations to a range of $7.15 to $7.30 as a result of the tax benefit recognized in the third quarter offset in part by ongoing supply chain-related challenges. The ongoing supply chain-related challenges have also caused us to update our adjusted earnings per share expectations for fiscal 2021 to a range of $6.35 to $6.50 compared with the previous adjusted earnings per share range of $6.35 to $6.85. Demand is strong across the markets where we compete, and we remain confident in the outlook for these markets. In particular, we are pleased with growing demand for access equipment, which we believe will remain strong for the foreseeable future,” said Pfeifer.

Factors affecting third quarter results for the Company’s segments included:

Access Equipment – Access Equipment segment sales in the third quarter of fiscal 2021 increased 89.4 percent to $924.3 m due to improved market demand, led by North America. The third quarter of fiscal 2020 was impacted by low market demand, due in large part to the global economic downturn as a result of the COVID-19 pandemic. Access Equipment segment operating income in the third quarter of fiscal 2021 increased 237.3 percent to $113.0m, or 12.2 percent of sales, compared to $33.5m, or 6.9 percent of sales, in the third quarter of fiscal 2020. The increase in operating income was primarily due to the impact of higher sales volume and lower restructuring-related costs, offset in part by higher incentive compensation costs, higher material costs and adverse mix. Excluding $1.3m of pre-tax charges related to restructuring actions, adjusted1 operating income in the third quarter of fiscal 2021 was $114.3m, or 12.4 percent of sales. Excluding $7.6m of pre-tax restructuring charges, adjusted1 operating income in the third quarter of fiscal 2020 was $41.1m, or 8.4 percent of sales.

Defense – Defense segment sales for the third quarter of fiscal 2021 increased 26.6 percent to $710.4m due to higher Joint Light Tactical Vehicle program volume and sales related to the Pratt Miller acquisition. Defense segment operating income in the third quarter of fiscal 2021 increased 44.4 percent to $59.8m, or 8.4 percent of sales, compared to $41.4m, or 7.4 percent of sales, in the third quarter of fiscal 2020. The increase in operating income was due to the impact of higher sales volume and lower new product development spending, offset in part by higher warranty costs.

Fire & Emergency – Fire & Emergency segment sales for the third quarter of fiscal 2021 increased 1.0 percent to $302.5m as higher domestic fire truck deliveries were offset in part by lower international Aircraft Rescue and Firefighting vehicle volume. Fire truck deliveries in the third quarter of fiscal 2020 were negatively impacted by workforce availability constraints resulting from the COVID-19 pandemic. Fire & Emergency segment operating income in the third quarter of fiscal 2021 decreased 3.7 percent to $44.5m, or 14.7 percent of sales, compared to $46.2m, or 15.4 percent of sales, in the third quarter of fiscal 2020. The decrease in operating income was largely due to higher incentive compensation costs, offset in part by favorable product mix and the absence of restructuring charges. Excluding $1.1m of pre-tax restructuring charges, adjusted1 operating income in the third quarter of fiscal 2020 was $47.3m, or 15.8 percent of sales.

Commercial – Commercial segment sales for the third quarter of fiscal 2021 increased 12.3 percent to $278.1m due to higher refuse collection vehicle demand, offset in part by the impact of the sale of the concrete batch plant business in the fourth quarter of fiscal 2020. Concrete batch plant sales were $15.6m in the third quarter of fiscal 2020. The third quarter of fiscal 2020 was impacted by low market demand, due in large part to the global economic downturn as a result of the COVID-19 pandemic. Commercial segment operating income in the third quarter of fiscal 2021 increased 24.4 percent to $29.6m, or 10.6 percent of sales, compared to $23.8 m, or 9.6 percent of sales, in the third quarter of fiscal 2020. The increase in operating income was primarily due to the impact of higher sales volume, favorable product mix and the absence of restructuring charges, offset in part by unfavorable price/cost dynamics. Excluding $1.5m of pre-tax restructuring charges, adjusted1 operating income in the third quarter of fiscal 2020 was $25.3m, or 10.2 percent of sales.

Corporate – Corporate operating costs in the third quarter of fiscal 2021 increased $16.8m to $43.1m primarily due to higher incentive compensation costs and the return of spending related to temporary cost reductions in the prior year.

Interest Expense Net of Interest Income – Interest expense net of interest income was $11.7m in the third quarter of both fiscal 2021 and 2020.

Provision for Income Taxes – The Company recorded an income tax benefit of $21.9m in the third quarter of fiscal 2021, including the $69.9m tax benefit associated with the carryback of the U.S. net operating loss to previous tax years. Excluding the carryback benefit and the tax impact of restructuring costs of $0.1m, adjusted1 income tax expense in the third quarter of fiscal 2021 was $47.9m, or 24.7 percent of adjusted1 pre-tax income. The Company recorded income tax expense in the third quarter of fiscal 2020 of $28.0m, or 25.8 percent of pre-tax income. Excluding the tax impact of restructuring costs of $1.8m, adjusted1 income tax expense in the third quarter of fiscal 2020 was $29.8m, or 25.1 percent of adjusted1 pre-tax income.

Nine-month Results

The Company reported net sales for the first nine months of fiscal 2021 of $5.67bn and net income of $383.0m, or $5.53 per diluted share. This compares with net sales of $5.07bn and net income of $224.5m, or $3.26 per diluted share, in the first nine months of 2020. The improvement in net income for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was the result of the impact of higher sales volume and the carryback of the U.S. net operating loss to previous tax years, offset in part by higher incentive compensation costs.

Results for the first nine months of fiscal 2021 included the $69.9m tax benefit associated with the carryback of the U.S. net operating loss to prior years, offset in part by after-tax charges of $11.7m associated with restructuring actions in the Access Equipment segment and $0.8m associated with business acquisition costs in the Defense segment. Results for the first nine months of fiscal 2020 included after-tax charges of $8.4m associated with restructuring actions, an after-tax charge of $6.5m associated with debt extinguishment costs incurred in connection with the refinancing of the Company’s senior notes and a valuation allowance on deferred tax assets in Europe of $11.4m. Excluding these items, adjusted1 net income was $325.6m, or $4.70 per diluted share, and $250.8m, or $3.64 per diluted share for the first nine months of fiscal 2021 and 2020, respectively.

Fiscal 2021 Expectations

As a result of continued supply chain challenges partially offsetting the tax benefit associated with the carryback of the U.S. net operating loss to previous tax years, the Company now expects its fiscal 2021 diluted earnings per share to be in a range of $7.15 to $7.30 compared to its most recent diluted earnings per share estimated range of $6.10 to $6.60. Excluding the tax benefit associated with the carryback of the U.S. net operating loss to previous tax years, the Company updated its estimated fiscal 2021 adjusted earnings per share to a range of $6.35 to $6.50, which reflects a $0.35 reduction on the high end due to ongoing supply chain challenges.

These estimates reflect estimated operating income between $595m and $615m (adjusted operating income of between $610m and $630m). Management intends to provide additional guidance, including by segment, on the conference call later today.

Dividend Announcement

The Company’s Board of Directors today declared a quarterly cash dividend of $0.33 per share of Common Stock. The dividend will be payable on August 30, 2021, to shareholders of record as of August 16, 2021.

(Source: BUSINESS WIRE)

 

29 Jul 21. Northrop lifts outlook as countries ramp up space exploration. Defense contractor Northrop Grumman Corp (NOC.N) raised its full-year forecast on Thursday and beat quarterly estimates, propped up by high demand at its fast-growing space unit.

The company’s space systems unit reported a 34% jump in quarterly sales, as countries ramp up investment in space exploration and satellite based sensors. Earlier this month, Northrop won a contract worth $935m to develop living quarters for NASA’s planned outpost in the lunar orbit. r

Fresh support for the defense industry came last week when the Democrat-controlled U.S. Senate’s Armed Services Committee rolled out a draft of its 2022 defense budget which boosted spending by $25bn, potentially benefiting defense companies including Northrop, and signaling defense spending could rise under President Joe Biden.

The United States is modernizing its military in an effort to deter Russia and China, which is likely to boost the company’s balance sheet.

Analysts say Northrop’s B-21 bomber and GBSD intercontinental ballistic missiles are likely to be the backbone for the company’s growth over the next decade.

Northrop now expects full-year adjusted earnings per share between $24.40 and $24.80, up from its prior range of $24 and $24.50.

The Virginia-based company expects full-year sales to be between $35.8bn and $36.2bn, above its previous forecast of $35.3bn and $35.7bn.

Adjusted net earnings of $6.42 per share beat analysts’ estimate of $5.84 in the second quarter ended June 30. Total sales of $9.15bn also toppled estimates, according to IBES data from Refinitiv. (Source: Reuters)

 

29 Jul 21. Textron lifts 2021 profit forecast again on business jet strength. Textron Inc (TXT.N) on Thursday beat Wall Street estimates for quarterly profit and raised its full-year adjusted profit forecast for the second time this year, on higher demand for private aircraft. Business jet traffic has rebounded from COVID-19 pandemic lows more quickly than commercial flights in the United States, helped by wealthy leisure travelers and some would-be first time flyers avoiding airlines. Textron expects to get back to production levels similar to 2019 by 2022. General Dynamics Corp (GD.N) said on Wednesday it would make more of its Gulfstream jets.

While Textron Chief Executive Scott Donnelly told analysts the higher demand “seems to be quite sustainable”, the maker of Cessna business jets is facing labor and supply chain challenges as factories struggle to meet surging orders.

“While we’ve experienced continued strong retail demand for our products, we have been impacted by our supply chain’s ability to fully meet this demand, and we continue to work through these production challenges,” Donnelly said.

He said Textron is bringing workers back to support growing production but echoed critics in suggesting hiring was a challenge due to expanded U.S. unemployment benefits.

“I think hiring will get easier as the year goes on, we get off some of these unemployment programs that are frankly, creating huge disincentives for people not to work,” Donnelly said.

The company said it expects 2021 adjusted earnings of $3.00 to $3.20 per share, compared to its previous forecast of $2.80 to $3. Textron’s aviation unit delivered 44 jets, higher than the 23 a year earlier, and 33 commercial turboprops, up from 15 in 2020. Sales in its aviation unit rose 55.4% to $1.16bn in the second quarter. Excluding items, the company earned 81 cents per share, above analyst estimates of 65 cents, according to Refinitiv data. Revenue rose 29% to $3.19bn, above analysts’ average estimate of $2.97bn, according to Refinitv data. Textron shares were indicated 1.3% at $70 ahead of opening. (Source: Reuters)

 

28 Jul 21. France’s Safran sees start of recovery, maintains outlook. French aerospace supplier Safran (SAF.PA) said on Wednesday it had seen the start of a recovery in the second quarter following the coronavirus crisis, but kept its outlook unchanged amid uncertainty over air traffic in the second half of the year. Safran, which co-produces jet engines for the Boeing 737 MAX family and competes with Pratt & Whitney to power the Airbus A320neo, said first-half recurring operating income fell 30.4% to 659m euros on revenue down 21.6% to 6.876bn. Widely watched civil aftermarket revenue fell 25.5% in the first half in dollar terms, compared with the same period a year earlier. But in the second quarter, it rebounded by 15% compared with the previous three months.

“Safran’s results for the first half of 2021 remain affected by the effects of the crisis and an unfavourable basis of comparison in” the first quarter, Chief Executive Olivier Andries said. “They also show a start of the recovery in the second quarter.”

Engine makers, which make most of their money from repairs to older engines starting with the second major maintenance overhaul, have been hit by a series of worldwide travel restrictions that left older aircraft parked on the ground. Safran maintained forecasts for a 2-4% drop in underlying sales and a 100-basis-point increase in recurring operating margins, which means 300 basis points in the second half. But it said a delay in the pace of recovery in civil aftermarkets for repairs and services remained a risk. (Source: Reuters)

 

29 Jul 21. BAE Systems raises dividend, launches new buyback on strong outlook. British defence company BAE Systems (BAES.L) lifted annual guidance thanks to a good operational performance and said as a result it would raise the dividend by 5% and launch a 500m pound ($697m) share buyback programme. The plan from BAE, which builds combat ships, submarines and fighter jets, to increase returns for investors stands out at a time when many companies have suspended their dividends to conserve cash and ride out the impact of COVID-19.

Defence has been one of the few sectors largely unaffected by the coronavirus pandemic, with governments sticking to military and security commitments, and in some cases raising them. BAE’s main customers are the U.S., UK and Saudi Arabia.

For the full-year, BAE said it expected underlying earnings per share to grow by 3% to 5% over last year’s result, despite the strengthening of the pound against the dollar and even if the higher exchange rate continues, representing an improvement on previous forecasts.

BAE Systems said that it derived confidence from ongoing projects, as its facilities delivered over 900 electronic warfare systems to the F-35 fighter jet programme, and automation improvements helped it ramp up production of combat vehicles. For the half-year ended June 30, BAE said it would pay an interim dividend of 9.9 pence per share as well as commence a 12-month share buyback programme. Underlying earnings per share rose 25% to 21.9 pence in the period, it said. ($1 = 0.7177 pounds) (Source: Reuters)

 

29 Jul 21. BAE Systems Announces 2021 Half Year Results. Charles Woodburn, Chief Executive, said: “Thanks to the outstanding efforts of our employees across the Group, we have delivered a strong first half performance which underlines our confidence in the full year guidance for top line growth, margin expansion and three-year cash targets. We are well positioned for sustained growth in the coming years and are ramping up our investments in advanced technologies to deliver capabilities for our customers in the face of an evolving threat environment.

“Following the decisive action taken to accelerate our UK deficit pension payments in 2020, the committed investment in the business coupled with the good operational performance, we are driving enhanced cash generation. This enables us today to announce a 5% increase in the interim dividend as well as initiating a new share buyback programme of up to £500m.”

Whilst the Group is subject to geopolitical uncertainties and there remain uncertainties arising from the COVID-19 pandemic, progress continues in combatting the virus under the vaccination programme in our major markets and our good operational performance underlines our overall confidence in the full year guidance.

Our full year guidance, issued earlier this year, was provided on the basis of an exchange rate of $1.35:£1. Our results for the first half year have been reported at an average rate of $1.39:£1. While the pound has strengthened we still expect the Group’s sales to grow in the 3% to 5% range over 2020. If these higher currency rates persist in line with the first half average rates, we expect reported sales to be at the lower end of this guidance range.

Given the strong operational performance to date, we continue to expect reported underlying EBIT to increase in the range of 6% to 8% over 2020 and underlying EPS to increase in the range of 3% to 5% over 2020, even if the higher than guided $:£ exchange rate continues to year-end. This therefore represents an underlying improvement to the original guidance.

Notwithstanding the higher $:£ exchange rate, we continue to expect to deliver in excess of £1bn of free cash flow this year and this excludes the benefit of the sale of the Filton and Broughton sites referred to in this report. We also maintain our three-year cash flow target for 2021 to 2023 of in excess of £4bn.

The guidance is based on the measures used to monitor the underlying financial performance of the Group. Reconciliations from these measures to the financial performance measures derived from International Financial Reporting Standards for the six months ended 30 June 2021 are provided in the Group financial review on pages 11 to 17.

Financial highlights

Financial performance measures as defined by the Group1

• Sales increased by 6% on a constant currency basis5 to £10.0bn.
• Underlying EBIT of £1,028m increased by 27% on a constant currency basis5.
• Underlying earnings per share increased by 25% to 21.9p, excluding the impact of the one-off tax benefit. The Group’s underlying effective tax rate (excluding the one-off tax benefit) for the first half of the year was 18%.
• Free cash inflow of £461m (2020 outflow of £110m, excluding the £1bn pension contribution).
• Net debt (excluding lease liabilities) at £2,745m (£2,718m at 31 December 2020).
• Order backlog of £44.6bn (£45.2bn at 31 December 2020).

Financial performance measures derived from IFRS2

• Revenue increased by 2% to £9.3bn.
• Operating profit increased by 61% to £1,303m.
• Basic earnings per share increased to 31.3p (2020 16.7p).
• Net cash inflow from operating activities of £623m (2020 £727m outflow).
• Order book of £35.5bn (£36.3bn at 31 December 2020).

Dividend and share buyback

The directors have declared an interim dividend of 9.9p per share in respect of the half year ended 30 June 2021. This dividend will be payable on 30 November 2021. The directors have also approved a new share buyback programme of up to £500m over the next 12 months, which will commence immediately.

Post-employment benefits deficit

The Group’s share of the pre-tax accounting post-employment benefits deficit decreased to £2.4bn (31 December 2020 £4.5bn).

One-off tax benefit

A one-off tax benefit of £94m was recognised in the period, in respect of agreements reached regarding the exposure arising from the April 2019 European Commission decision regarding the UK’s Controlled Foreign Company regime.

1. We monitor the underlying financial performance of the Group using alternative performance measures. These measures are not defined in International Financial Reporting Standards (IFRS) and, therefore, are considered to be non-GAAP (Generally Accepted Accounting Principles) measures. Accordingly, the relevant IFRS measures are also presented where appropriate. For alternative performance measure definitions see glossary on page 9.
2. International Financial Reporting Standards.
3. With effect from 2021, the Group adopted the underlying EBIT profitability measure, to include charges relating to software and development intangible amortisation, in place of the previously reported underlying EBITA measure, as it reflects a better measure of underlying profitability, by including amortisation of software and development intangibles as these charges are viewed as a recurring operational cost for the business. Underlying earnings per share has also been recalculated to ensure consistency with the updated operational profitability measure. The underlying performance for 2020 of segments and the Group has been re-presented on this new basis. During 2020 the Group determined that Free cash flow was its key performance measure for utilisation of cash at a Group level. The Group continues to use Operating business cash flow as its key segment measure, to monitor operational cash generation.
4. Interim dividends declared (see note 7). Final 2020 dividend of 14.3p making a total of 23.7p per share in respect of the year ended 31 December 2020. In addition to the 23.7p per share in respect of the year ended 31 December 2020, an interim dividend of 13.8p per share was paid in respect of the year ended 31 December 2019, which was originally proposed as a 2019 final dividend but subsequently deferred in light of the COVID-19 pandemic.
5. Current period compared with prior period translated at current period exchange rates.

Operational and strategic key points

COVID-19

We have remained focused on employee safety, whilst adjusting to evolving positions in our key markets to deliver on customers’ critical programmes, and to progress the strategic priorities of the Group.

Electronic Systems

• Cumulatively, over 900 F-35 electronic warfare systems have been delivered on the F-35 programme as at the end of the first half.
• Terminal High Altitude Area Defense (THAAD) seeker production is at full rate levels.
• Contract valued at more than $325m (£235m) received to deliver Increment 1 M-Code devices.
• Demand in the Controls & Avionics Solutions and Power & Propulsion Solutions commercial markets has started to recover from COVID-19 impacts.

Platforms & Services (US)

• Process and automation improvements continue to support the ramp up of combat vehicle production.
• The M109A7 vehicle is consistently delivering at full rate production levels.
• Deliveries of all five variants of Armored Multi-Purpose Vehicles to the US Army continue, and a new contract worth up to $600m (£434m) for AMPV sustainment and technical support was received in early July.
• Amphibious Combat Vehicle deliveries to US Marine Corps continue, with design and development under way for new mission variants.
• Bradley vehicle upgrade work continues on contracts for 459 vehicles, and deliveries continued through the half year.
• BAE Systems Hägglunds is poised to grow having secured multiple contracts for CV90 and BvS10 work.
• The US Ship Repair business was significantly impacted by the COVID-19 pandemic, but has seen some recent signs of recovery. Orders totalling $478m (£346m) were received in the period.
• A $164m (£119m) competitive award was secured as design agent for the mechanical portion of the US Navy’s Vertical Launch System.

Air

• Production of F-35 rear fuselage assemblies is ramping up to full rate levels. 70 assemblies have been completed in the period.
• The Qatar Typhoon and Hawk programme continues to progress well, with agreement also reached to base Qatari Hawk aircraft at RAF Leeming.
• Work has commenced on the German Typhoon programme.
• The future electronically scanned European Common Radar Solution is progressing in line with the Typhoon ten-year plan.
• The sector continues to work closely with industry partners and the UK government to continue to fulfil contractual support arrangements in Saudi Arabia.
• The Tempest next-generation Future Combat Air System (FCAS) programme continues to progress well with the initial Concept & Assessment Phase contract secured.
• In Australia the Hunter Class Frigate programme continues through prototyping with continued engagement with the Commonwealth to determine the shipbuilding strategy and timing.
• Sale of Advanced Electronics Company to Saudi Arabia Military Industries completed in February.

Maritime

• Construction of the first three City Class Type 26 frigates for the Royal Navy is now under way.
• The fifth Astute Class submarine, HMS Anson, was launched in April.
• Construction of the first two Dreadnought Class submarines continues to advance.
• Contracts worth more than £1bn were received under the UK Ministry of Defence’s Future Maritime Support Programme.
• Maritime Services provided support and preparation capabilities to the UK’s Carrier Strike Group ahead of its first operational deployment.
• RBSL secured the Challenger 3 Main Battle Tank contract.

Cyber & Intelligence

• The US-based Intelligence & Security business continues to increase its bid pipeline, perform on existing contracts and win new orders.
• Applied Intelligence performed well, benefiting from high levels of customer demand and ongoing improvements in operational efficiency.

HQ

• Operating business cash flow benefited from the proceeds of the Filton and Broughton sites of £250m, as well as our ongoing focus on liquidity.
• Air Astana returned to profitability in the first half of the year.

BAE Systems employs nearly 13,000 people in our Air sector at sites across the UK including: Warton and Samlesbury in the North West of England; Brough, RAF Coningsby and RAF Marham in the East of England; and Christchurch, Frimley and Yeovil in the South of England.

Our people across our UK Air business are involved in developing future combat air and defence information systems and delivering support, maintenance and training to the Royal Air Force’s Typhoon, F-35 Lightning and Hawk fleets. From our sites in the North of England, we lead the production of Typhoon, F-35 and Hawk for our UK and international customers.

Charles Woodburn, Chief Executive, said: “Thanks to the outstanding efforts of our employees across the Group, we have delivered a strong first half performance which underlines our confidence in the full year guidance for top line growth, margin expansion and three-year cash targets.

“We are well positioned for sustained growth in the coming years and are ramping up our investments in advanced technologies to deliver capabilities for our customers in the face of an evolving threat environment.

“Following the decisive action taken to accelerate our UK deficit pension payments in 2020, the committed investment in the business coupled with the good operational performance, we are driving enhanced cash generation. This enables us today to announce a 5% increase in the interim dividend as well as initiating a new share buyback programme of up to £500m.”

Results in brief

Highlights from H1 2021:

• We have been awarded a c. £250m contract by the Ministry of Defence (MoD) to progress the design and development of Tempest, the UK’s future combat air system (FCAS). The contract marks the start of the concept and assessment phase of the programme and will see our business, alongside our partners in industry and government, develop and shape the final design and capability requirements of Tempest.
• We moved towards full rate production levels on F-35 rear fuselage assemblies, completing 70 so far this year.
• In preparation for the UK’s Carrier Strike Group deployment, our team at RAF Marham have delivered essential maintenance and upgrades to the F-35 fleet, training for pilots and maintainers, and essential logistics and IT support.
• Typhoon production revenues increased with work getting underway on the delivery of 38 aircraft for Germany, plus continued final assembly and production of Typhoon and Hawk aircraft for Qatar.
• We were awarded a six-year contract to deliver support and training to a new UK-Qatar Hawk squadron based at RAF Leeming, North Yorkshire.
• More than 270 apprentices and graduates have started new careers across our UK Air sites so far this year.
• We also welcomed seven talented young people onto placements in Samlesbury, Lancashire, as part of the government’s Kickstart scheme; providing a route into work for those at risk of long-term unemployment.
• We’re expanding our use of additive manufacturing technology to cut production time and reduce material and energy consumption; demonstrated earlier this year in the reduced production time of a Typhoon engine mount from 100 weeks to 60 days.
• The PHASA-35® solar-electric powered unmanned aircraft is preparing to complete its first stratospheric flight trials during the second half of the year.
• Our solar farm at Samlesbury is helping us power the manufacture of world-class aircraft. The size of eight football pitches, it prevented around 500 tonnes of carbon emissions last year, and more than 4,500 tonnes since its inception in 2015.

Comment: James Andrews, senior personal finance expert at money.co.uk, said:  “Since announcing a strong start to the year, seeing sales soar to nearly £21bn in 2020, BAE Systems are on track to continue on its upward trajectory, reporting sales of £10bn as it enters the second half of 2021.

“Despite navigating through the challenging backdrop of the global pandemic, BAE has managed to secure multiple global contracts, including a $117m deal with Lockheed Martin to produce next-generation missile seekers,  a strong sign of continued growth.

“BAE has also benefited from contracts and partnerships aimed at furthering technological advancements in warfare. Its recent deal with the US Army will help explore crew automation and other advancements in the near future. Being seen as at the forefront of new technological trends will help BAE compete for future contracts too.

“That all combines with a strong order book for major military equipment including new nuclear submarines, frigates, fighter jets and armoured personnel carriers for governments across the world.

“But it wasn’t quite all defence, with BAE’s commitment to furthering green and electric technology generally also paying off. Its recent contract win for the ‘HybriGen’ electric propulsion yacht demonstrates BAE’s strength across all sectors.”

 

28 Jul 21. BAE on the buyback trail. The defence contractor has boosted cash generation.

• Construction of the first three City Class Type 26 frigates now under way
• A new share buyback programme of up to £500m has been announced

Steady as she goes for BAE Systems (BA.), with underlying trading profit up by a fifth at the half-year mark and order intake 13 per cent to the good on HY2020. Shareholders in the global defence contractor also benefitted from a 5 per cent hike in the dividend rate and are being asked to participate in a new share buyback programme of up to £500m. The return to shareholders has been made possible by enhanced cash generation, aided by the £250m inflow on the sale of its Filton and Broughton sites. The group anticipates free cashflow exceeding £1bn this year and has maintained its three-year cash flow target for 2021-2023 of over £4bn. You wouldn’t necessarily argue that defence budgets are counter-cyclical, but they have certainly held up well through the pandemic. That is partly due to the long-lead times typical of defence contracts, but it also reflects worsening geo-political tensions across the globe from the Golan Heights to the South-China Sea.

Notwithstanding the general disruption to the economy, shareholders can be satisfied with the group’s operational performance. It has continued to actively resolve supply chain issues, while working diligently to manage liquidity risk in this area. Performance at the Electronic Systems segment was enhanced by recent acquisitions and the continued ramp-up in the F-35 and F-15 programmes.

Among a slew of operational highlights, production of rear fuselage assemblies for the F-35 Lightning II aircraft programme is moving towards targeted full rate production levels in 2021. But the group is making headway beyond the aviation sphere. Construction of the first three City Class Type 26 frigates for the Royal Navy is now under way, while a parallel development programme for the Royal Australian Navy is progressing well. Indeed, contracts worth more than £1bn were inked under the UK Ministry of Defence’s Future Maritime Support Programme.

It is perhaps ironic that sales for one of the world’s biggest defence contractors will increasingly benefit from the rise of asymmetric warfare, but given recent events stateside, it is unsurprising that the US-based Intelligence & Security business has continued to increase its bid pipeline.

The nature and breadth of the business invariably results in many execution risk factors, but BAE has managed to move through the pandemic relatively unscathed. Analysts are forecasting that sales will hit £21.4bn this year, before rising to £22.2bn in 2022. FactSet consensus forecasts also point to a forward rating of 12 times adjusted forecast earnings. Not expensive given the yield on offer. We move to buy. Last IC view: Hold, 503p, 17 Mar 2021 . (Source: Investors Chronicle)

 

28 Jul 21. Boeing turns first profit in almost 2 years, shares jump 5%. Boeing Co (BA.N) on Wednesday posted its first quarterly profit in almost two years as revived domestic travel fueled 737 MAX deliveries, and shares rose 5% despite festering U.S.-China relations and depressed long-haul travel.

The 737 MAX is integral to Boeing’s financial recovery. The U.S. planemaker is scrambling to recoup billions of dollars in lost sales from the pandemic andmove beyond the safety scandal caused by two fatal 737 MAX crashes. It also must deal with structural defects of its bigger, more profitable 787 planes.

Higher defense and services sales boosted results and Boeing still expects to turn cash flow positive in 2022. Shares were up roughly 5% at $234 in afternoon trading even as the Dow Jones Industrial Average (.DJI) dipped.

Chief Executive Officer David Calhoun told employees in a message that Boeing plans maintain stable staffing with a workforce of around 140,000. Previously the company had targeted a reduction to 130,000 by the end of 2021.

Calhoun told investors on a conference call, “The U.S. domestic market is showing remarkable recovery” but cautioned that international travel could take longer to pick up. He added that Boeing was worried about COVID-19 variants and a labor shortage in its sprawling supply chain.

“We anticipate a multi-year recovery,” Calhoun said.

Boeing’s 737 MAX remains grounded in China, where trade tensions between Washington and Beijing have stunted sales. Calhoun said he still expects the 737 MAX to win approval before year-end.

“Hopefully bigger trade issues don’t get in the way,” Calhoun added.

Before the 737 MAX was grounded in March 2019, Boeing sold a quarter of the planes it built annually to China buyers. For years, simmering geopolitical tensions between Washington and Beijing have caused uncertainty.

Boeing also faces tougher regulatory scrutiny and weak demand for its delayed 777X mini-jumbo, and months of costly repairs and forensic inspections to fix production-related defects on its 787 program.

Boeing reiterated plans to cut 787 production to an unspecified rate lower than five jets per month after finding a new problem, first reported by Reuters, and to deliver fewer than half of the lingering 100 or so 787 Dreamliners in its inventory this year – instead of the “vast majority” it had expected.

“Good news, the inspections are done, toe to tail,” Calhoun said. “The underlying causes are getting understood and resolved.”

Calhoun added that Boeing may need to rethink its plan for production rate increases if the 737 MAX is not approved in China by year-end.

Boeing said it has delivered more than 130 737 MAXs since a safety ban on that jet was lifted in November 2020, and that it was building 16 737 MAX jets per month at its Seattle-area factory. It aims to increase output to 31 per month by early 2022.

“Defense markets are strong and they’re successfully conserving cash,” said Teal Group analyst Richard Aboulafia. “Much depends on the angle of the commercial recovery.”

Looking to build momentum, Boeing is preparing to launch its delayed CST-100 Starliner astronaut capsule to the International Space Station on Friday in a crucial do-over test following a near “catastrophic failure” during its 2019 debut.

Calhoun said he is “optimistic, confident” about Friday’s launch after software flaws and NASA reviews sidelined its Starliner for 18 months, and about Boeing’s ability to compete against newer space players such as billionaire entrepreneur Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin.

Boeing’s core operating profit was $755m in the second quarter, compared with a loss of $3.32bn a year earlier. Revenue rose 44% to about $17 bn.

Analysts had on average expected Boeing to report a quarterly loss of $454.8m on revenue of $16.54bn, IBES data from Refinitiv showed.

Boeing’s commercial airplanes division, its traditional profit powerhouse, reported a quarterly loss of $472m, but its defense business earned $958m and its services division took in $531m. (Source: Reuters)

 

29 Jul 21. Airbus raises forecasts after strong first half. Europe’s Airbus (AIR.PA) sharply raised its forecasts for full-year deliveries and earnings after reporting better-than-expected half-year results on Thursday.

The world’s largest planemaker ahead of U.S. rival Boeing (BA.N) said it expected to deliver 600 aircraft in 2021, and doubled its forecast for operating income to 4bn euros ($4.7 bn) while predicting 2bn euros of free cash flow before mergers and acquisitions, and customer financing.

It had previously expected to match last year’s 566 jet deliveries while forecasting 2 bn euros of operating profit along with a breakeven in free cashflow.

Reuters reported on Wednesday that Airbus would beat its previous target and deliver more than 600 jets this year after negotiating compromise deals with airlines. read more

Led by commercial aerospace and helicopter divisions, Airbus swung to an operating profit of 2.009bn euros in the second quarter, compared with a loss of 1.23bn a year earlier, as revenues rose 70% to 14.177bn euros.

For the first half, Airbus posted operating earnings of 2.703bn euros, eclipsing its previous full-year goal.

Analysts were on average expecting 1.586bn euros of operating profit on revenues of 13.996bn euros in the second quarter, according to a company-compiled consensus.

“This enables us to raise our 2021 guidance although we continue to face an unpredictable environment,” Chief Executive Officer Guillaume Faury said of the mid-year results.

“We are now working to secure the A320-family ramp up while transforming the industrial set-up.”

Airbus also announced the launch of a new A350 freighter in a bid to break Boeing’s longstanding dominance of a lucrative but volatile part of the jet market, which has been benefiting from growth in e-commerce during the pandemic. read more ($1 = 0.8435 euros)(Source: Reuters)

 

29 Jul 21. Airbus SE reported consolidated financial results.

• 297 commercial aircraft delivered in H1 2021
• H1 financials reflect deliveries as well as continued efforts on cost containment and competitiveness
• Revenues €24.6bn; EBIT Adjusted €2.7bn
• EBIT (reported) €2.7bn; EPS (reported) 2.84
• Free cash flow before M&A and customer financing €2.1bn
• Focus on securing A320 Family ramp-up and transforming the industrial value chain
• Board of Directors approval for A350 freighter derivative 
• 2021 guidance updated

 

Amsterdam, Airbus SE (stock exchange symbol: AIR) reported consolidated financial results for the Half-Year (H1) ended 30 June 2021.

“These half-year results reflect the commercial aircraft deliveries, our focus on cost containment and competitiveness, and the good performance in Helicopters and Defence and Space. Although the COVID-19 pandemic continues, the numerous actions taken by the teams have delivered a strong H1 performance. This enables us to raise our 2021 guidance although we continue to face an unpredictable environment,” said Airbus Chief Executive Officer Guillaume Faury. “We are now working to secure the A320 Family ramp up while transforming the industrial set up. Furthermore and following Board approval, we are enhancing our product line with an A350 freighter derivative, responding to customer feedback for increased competition and efficiency in this market segment.”

Gross commercial aircraft orders totalled 165 (H1 2020: 365 aircraft) with net orders of 38 aircraft after cancellations (H1 2020: 298 aircraft). The order backlog was 6,925 commercial aircraft on 30 June 2021. Airbus Helicopters booked 123 net orders (H1 2020: 75 units), including 10 helicopters of the Super Puma Family. Airbus Defence and Space’s order intake by value was € 3.5 bn (H1 2020: € 5.6 bn).

Consolidated revenues increased 30 percent year-on-year to €24.6bn (H1 2020: €18.9bn), mainly reflecting the higher number of commercial aircraft deliveries compared to H1 2020. A total of 297 commercial aircraft were delivered (H1 2020: 196 aircraft), comprising 21 A220s, 237 A320 Family, 7 A330s, 30 A350s and 2 A380s. Revenues generated by Airbus’ commercial aircraft activities increased 42 percent, largely reflecting the increased deliveries. Airbus Helicopters delivered 115 units (H1 2020: 104 units) with revenues up 11 percent reflecting growth in services and higher volume in civil helicopters. Revenues at Airbus Defence and Space were broadly stable compared to a year earlier, with two A400M military airlifters delivered in H1 2021.

Consolidated EBIT Adjusted – an alternative performance measure and key indicator capturing the underlying business margin by excluding material charges or profits caused by movements in provisions related to programmes, restructuring or foreign exchange impacts as well as capital gains/losses from the disposal and acquisition of businesses – was €2,703m (H1 2020: €-945m).

The EBIT Adjusted related to Airbus’ commercial aircraft activities totalled €2,291m (H1 2020:  -1,307m), mainly driven by the delivery performance and the Company’s focus on cost containment and competitiveness.

Airbus Helicopters’ EBIT Adjusted increased to € 183 m (H1 2020: €152m), driven by services, programme execution and lower Research & Development (R&D) spending.

EBIT Adjusted at Airbus Defence and Space increased to €229m (H1 2020: €186m), mainly reflecting the Division’s ongoing cost containment and competitiveness efforts as well as increased volume in Space Systems.

Consolidated self-financed R&D expenses totalled €1,262m (H1 2020: €1,396m).

Consolidated EBIT (reported) amounted to €2,727m (H1 2020: €-1,559m), including net Adjustments of € +24m.

These Adjustments comprised:

• €+145m related to the A380 programme, of which €+174m were booked in Q2;
• €-170m related to the dollar pre-delivery payment mismatch and balance sheet revaluation, of which €+7m were in Q2;
• €+49m of other Adjustments, including compliance costs, of which €+75m were in Q2.

The financial result was €-30m (H1 2020: €-429m). It mainly reflects the net interest result of €-172m partly offset by the evolution of the US dollar as well as €+79m related to the revaluation of the Dassault Aviation equity stake. Consolidated net income(1) was €2,231m (H1 2020 net loss: €-1,919m) with consolidated reported earnings per share of €2.84 (H1 2020 loss per share: €-2.45).

Consolidated free cash flow before M&A and customer financing improved to € 2,051 m (H1 2020: €-12,440m), in line with the earnings performance. It also included a positive phasing impact from the timing of receipts and payments. Consolidated free cash flow was €2,012m (H1 2020: € -12,876m).

The gross cash position stood at €21.4bn on 30 June 2021 (year-end 2020: €21.4bn) after the redemption of a €1.1bn exchangeable bond and prepayment of a $1bn US bond, further improving leverage ratios in support of the Company’s robust credit ratings. The consolidated net cash position was € 6.5bn on 30 June 2021 (year-end 2020: €4.3 bn). The Company’s liquidity position remains strong, standing at €33.7bn at the end of June 2021.

Outlook
As the basis for its 2021 guidance, the Company assumes no further disruptions to the world economy, air traffic, the Company’s internal operations, and its ability to deliver products and services.

The Company’s 2021 guidance is before M&A.

On that basis, the Company has updated its 2021 guidance and now targets to achieve in 2021 around:

• 600 commercial aircraft deliveries;
• EBIT Adjusted of € 4 bn;
• Free Cash Flow before M&A and Customer Financing of €2bn.

 

28 Jul 21. General Dynamics profit beats on higher sales, raises guidance. General Dynamics Corp (GD.N) beat Wall Street estimates for quarterly profit on Wednesday as the defense contractor benefited from higher sales in its combat systems and technologies divisions.

Its shares rose 2.9% in early trading before settling back down.

The second-quarter earnings report comes a year after the global pandemic first hit the aerospace and defense industry supply chain, causing shutdowns, shortages and months of delays that continue to affect the unit that makes Gulfstream business jets.

Gulfstream delivered 21 jets versus 32 a year ago, but the company said it saw “very strong” customer demand as the pandemic continues and plans to deliver 71 more jets by year end. Company revenue fell marginally to $9.22 bn, below analyst estimates of $9.30 bn as revenue in the aerospace unit was down 17.8% from the same period a year ago.

The company raised its full-year earnings per share guidance by $0.45 to $0.50 cents to about $11.50.

Fresh support for the defense side of the business came last week when the U.S. Senate’s Armed Services Committee rolled out a draft of its 2022 defense budget that boosted spending by $25 bn, potentially benefiting defense companies including General Dynamics, and signaling defense spending could rise under President Joe Biden.

The panel wanted more spending on ships that could add to General Dynamics’ backlog – which at the end of the second quarter stood at $89.2 bn, the company said.

Sales in the company’s combat systems unit, which makes battle tanks, rose 8.3% to $1.90bn, while the technologies unit, which provides IT and mission-support services, saw an increase of 3.2% in sales to $3.16bn.

Net earnings rose to $737m, or $2.61 per share, in the quarter ended July 4, from $625m, or $2.18 per share, a year earlier.

Analysts on average expected the company to earn $2.55 per share, according to Refinitiv data. (Source: Reuters)

 

28 Jul 21. UK Government to acquire Sheffield Forgemasters International Limited. The Ministry of Defence (MOD) has today launched an offer to acquire Sheffield Forgemasters International Limited (SFIL).

The Ministry of Defence (MOD) has today launched an offer to acquire Sheffield Forgemasters International Limited (SFIL), allowing HM Government to refinance the company and secure the supply of components for the MOD’s critical existing and future UK defence programmes.

The MOD also intends to invest up to £400m for defence critical plant, equipment and infrastructure into SFIL over the next 10 years to support defence outputs. The acquisition has been assessed as the best value for money for the tax payer due to the unique capabilities and circumstances. The immediate cost of the acquisition is £2.56m for the entire share capital of the Company plus debt assumed.

SFIL is the only available manufacturer with the skills and capability to produce large scale high-integrity castings and forgings from specialist steels in an integrated facility to the highest standards required for these programmes. Furthermore, SFIL’s ownership will not prevent other UK based manufacturers bidding for MOD contracts, which will continue to be run in an open and fair competition.

The MOD has already started working closely with the company to implement best practice governance that will ensure appropriate financial oversight to secure the company’s future success, with the aim eventually to return the business to the private sector. (Source: https://www.gov.uk/)

 

27 Jul 21. Raytheon raises 2021 profit forecast on commercial aerospace strength. U.S. aerospace manufacturer Raytheon Technologies Corp (RTX.N) on Tuesday raised its full-year profit forecast and beat quarterly expectations on the back of higher demand for its commercial engines, spare parts and aftermarket services.

Shares of the company, which posted a rise in revenue in all four of its units, were up more than 3.5% in early trading.

As demand for travel returned quicker than expected, airlines have rushed to return planes to skies and recall crews, boosting revenue at its Collins Aerospace and Pratt & Whitney units by 6% and 19%, respectively, on an adjusted basis.

“What really happened in the second quarter is airlines aggressively got back into the business of making sure their fleets were ready for this summer travel season,” Neil Mitchill, Raytheon’s chief financial officer, told Reuters.

However, the recovery could be thwarted by the highly transmissible COVID-19 Delta variant that has led to a rise in cases in several countries, with the United States planning to keep existing travel restrictions despite months of lobbying by airlines. read more

“The better than expected result at Collins bodes well at this early stage of the aviation recovery,” Vertical Research Partners analyst Robert Stallard said in a note.

Raytheon now expects full-year earnings of $3.85 and $4.00 per share, above its previous forecast of $3.50 and $3.70.

The Waltham, Massachusetts-based company also raised the lower end of its fiscal year revenue forecast to $64.4bn from $63.9bn. The upper end of the outlook remains at $65.4bn.

On an adjusted basis, it earned $1.03 per share in the second quarter ended June 30, beating analysts’ estimate for a profit of 93 cents per share. Net sales rose 13% to $15.88bn and also topped estimates.

(Source: Reuters)

 

28 Jul 21. Shield AI Signs Definitive Agreement to Acquire Martin UAV. Shield AI’s Hivemind® will enable GPS and communications denied operation and swarming onboard Martin UAV’s V-BAT. Shield AI, a fast-growing technology company that develops artificial intelligence and self-driving car technologies for the defense industry, today announced that it has signed a definitive agreement to acquire Martin UAV, an aerospace company best known for its industry-leading vertical takeoff and landing (VTOL) unmanned aircraft, V-BAT. Shield AI will integrate its combat proven autonomy software, Hivemind®, into the V-BAT, reinforcing Shield AI’s leadership position in defense-focused edge autonomy.

Shield AI’s Hivemind® is the leading artificial intelligence and autonomy stack for a variety of applications across the defense landscape. It uses state-of-the-art path-planning, mapping, state-estimation, and computer vision algorithms, combined with reinforcement learning and simulations, to train unmanned systems to execute a variety of missions – from infantry clearance operations to breaching integrated air defense systems with unmanned aircraft.

The V-BAT, with its innovative, near-zero footprint VTOL and long-endurance capabilities, is unlike any UAS on the market. Propelled by a single, ducted, thrust-vectored fan, it takes off and lands in the style of a SpaceX rocket. It offers 11 hours of flight time, carries 25 lbs. of payload, and can hover and stare 10 times longer than any of its competitors. Its logistics footprint fits into the bed of a pickup truck or inside a Blackhawk helicopter, significantly reducing the total cost of capability. US and international customers view the V-BAT as a flexible platform capable of performing Group 1 UAS to Group 4 UAS missions and beyond.

“Expeditionary. Intelligent. Collaborative. Expeditionary means capability on the edge, within control of the units who need it most. V-BAT is expeditionary today. Intelligent means aircraft that make their own decisions to execute commander’s intent to accomplish missions with or without reach-back. Collaborative means numerous V-BATs working together to provide access and area coverage with resilience in high threat environments. The combination of Shield AI and Martin UAV and the integration of Hivemind® into the V-BAT represents the future of unmanned aircraft.,” said Brandon Tseng, Shield AI cofounder and former Navy SEAL.

“GPS and communications on the battlefield are no longer assured. A great aircraft without an AI to make intelligent decisions will be sidelined against China, Russia, and an increasing number of adversaries who are fielding electronic warfare and anti-air systems. Shield AI is one of the only companies that has operationalized advanced aircraft autonomy on the battlefield. Hivemind will make V-BAT the first and only Group 3 UAS built for sustained operations in denied environments,” according to Ruben Martin, CEO Martin UAV.

“Our team extensively examined the VTOL aircraft market. The architecture of the V-BAT is special. It looks different because it is different – no product or technical architecture is better positioned to meet current and future Department of Defense needs. The engineers behind V-BAT solved extremely complex problems with innovative and first-principles approaches. By addressing these problems, they unlocked critical advantages over other VTOL aircraft,” said Ryan Tseng, Shield AI CEO and cofounder.

Martin UAV’s V-BAT has over two years of persistent operational experience at sea in support of SOUTHCOM, the US Marine Corps, and multiple international customers. In April of 2021, the US Navy selected the V-BAT over 13 prime OEM competitors in a highly competitive selection process, naming Martin UAV the sole winner of the Mi2 competition.

Last week Shield AI announced its acquisition of Heron Systems, the winners of the DARPA AlphaDogfight Trials bolstering applications of Hivemind® for Group 5 and next generation fighter aircraft. The acquisition of Martin UAV complements a deliberate strategy to integrate Hivemind® onto unmanned systems for defense and commercial applications. Shield AI is building a portfolio of systems via vertical integration and strategic partnerships centered around its Hivemind® AI and autonomy stack.

Advisors

Shield AI retained JPMorgan Chase & Co. as exclusive financial advisor and Reed Smith LLP as legal advisor in connection with the transaction. Martin UAV retained Houlihan Lokey as exclusive financial advisor and Clark Hill PLC as legal advisor in connection with the transaction.

About Shield AI

Shield AI is a venture-backed company built around a team of proven executives, warfighters with relevant national security experience, and world-class AI engineers. The company is headquartered in San Diego, CA with satellite offices across the United States. Shield AI’s products and people are currently in the field actively supporting operations with the US Department of Defense and allies. For more information, visit www.shield.ai. (Source: PR Newswire)

 

29 Jul 21. Quickstep expands into UAS market. The ASX-listed aerospace company has announced plans to invest in UAS capability via a partnership with a local firm.

Quickstep Holdings Limited (QHL) has unveiled plans to expand its global military and commercial offering by investing $1m for a minority stake in Sydney-based unmanned aerial systems (UAS) company Carbonicboats — currently trading as Carbonix.

As part of the agreement, a Quickstep representative will be appointed to the Carbonix board, with the companies also in the process of negotiating a manufacturing agreement.

“This is a great opportunity to combine the skills of two leading Australian aerospace companies, offering structural access to the dynamic and rapidly growing Unmanned Aerial Systems market,” Quickstep CEO Mark Burgess said.

QHL’s recently established Quickstep Advanced Air Mobility (QAAM) division is expected to oversee the expansion over the next 12-18 months.

“Establishing a dedicated vertical ensures we are laser focused on taking advantage of the environment this creates,” Burgess added.

“Quickstep’s global reputation as an aerospace manufacturer and the creation of our Aerospace Services business provides us the foundation to build, operate and maintain drone systems.”

In drive this expansion, Quickstep has appointed Steve Osborne to the role of business leader, QAAM, in addition to his existing role as general manager, group business development.

Osborne’s tasks are expected to include overseeing the planned establishment of an unmanned systems manufacturing centre of excellence at Quickstep’s Waurn Ponds facility in Victoria, supported by investment in engineering and marketing resources.

“Our Waurn Ponds site will be home to QAAM and become our drone manufacturing Centre of Excellence, leveraging our R&D capabilities and university relationships to provide drone companies with manufacturing solutions to aerospace quality at automotive pricing,” Osborne said.

The $1 million investment in Carbonix, arranged through a subsidiary, is expected to be paid in two equal tranches over the first half of the 2022 financial year (FY22), funded by Quickstep’s operating cash flow.

The payments are contingent upon the achievement of two commercial milestones, the first of which has been met.

Quickstep plans to make further announcements about these initiatives in due course. (Source: Defence Connect)

 

28 Jul 21. VSE Corporation Announces Second Quarter 2021 Results. VSE Corporation (NASDAQ: VSEC, “VSE”, or the “Company”), a leading provider of aftermarket distribution and maintenance, repair and overhaul (MRO) services for land, sea and air transportation assets for government and commercial markets, today announced results for the second quarter 2021.

SECOND QUARTER 2021 RESULTS

(As compared to the Second Quarter 2020)

• Total Revenues of $175.1m increased 3.8%
• GAAP Net Loss of $(12.4)m vs. $(22.6)m
• Adjusted Net Income of $7.7m increased 16.0%
• Adjusted EBITDA of $18.9m increased 9.5%

For the three months ended June 30, 2021, the Company reported total revenue of $175.1m, versus $168.7m for the same period ended 2020. Excluding the divestiture of CT Aerospace and a non-recurring order for pandemic-related personal protective equipment (PPE) in the second quarter 2020, total revenue increased 18.1% on a year-over-year basis in the second quarter 2021. The Company reported adjusted net income of $7.7m or $0.60 per adjusted diluted share, compared to $6.6m or $0.60 per adjusted diluted share in the prior-year period. Adjusted EBITDA increased to $18.9m in the second quarter 2021, versus $17.2m for the same period in 2020.

Aviation segment revenue increased 52.3% on a year-over-year basis, excluding the divestiture of CT Aerospace. Aviation segment growth was driven by improved demand within distribution and repair markets, share gains within the business and general aviation (B&GA) market, and initial contributions from recently announced contract wins. Aviation distribution and repair revenue increased 85% and 13%, respectively, in the second quarter 2021 versus the prior-year period, with distribution currently operating above pre-pandemic levels. Fleet segment revenue increased 12.2% on a year-over-year basis, excluding a non-recurring order for pandemic-related PPE sold in the prior-year period. Fleet segment growth was driven by higher commercial fleet and e-commerce fulfillment sales, offsetting a modest decline in U.S. Postal Service-related revenue. Federal & Defense segment revenue increased 6.5% on a year-over-year basis, as contributions from the acquisition of HAECO Special Services during the quarter more than offset the completion of a DoD program.

In the second quarter, VSE recognized an increase to its inventory valuation reserve, resulting in a non-cash $24.4m pre-tax loss primarily associated with Aviation segment inventory purchased before 2019. The reserve is primarily driven by the significant decline in global air travel related to the COVID-19 pandemic that resulted in lower demand for certain aviation products in international regions. VSE does not anticipate lower international demand to materially impact the recovery of the Aviation segment. At this time, the Company does not anticipate any further material inventory reserve adjustments.

STRATEGY UPDATE

VSE continued to successfully execute on a multi-year business transformation and growth plan during the second quarter. The management team remains focused on accelerating the business transformation through new business wins, product and service line expansions, and accretive, bolt-on acquisitions.

• Executed on revenue diversification strategy within higher-margin, under-served markets. During the past two years, the company has narrowed its strategic focus to higher-margin, value-added market opportunities that leverage its unique value proposition. Within the Aviation segment, this focus led to the creation of a comprehensive B&GA product and service offering. Within the Fleet segment, an increased focus on aftermarket parts distribution within commercial and e-commerce channels has served to diversify its revenue mix beyond the legacy U.S. Postal Service relationship. In the Federal & Defense segment, increased focus has been placed on developing a more sophisticated on- and off-base service offering capable of providing both on-demand and scheduled maintenance to support the U.S. government and allied foreign militaries.
• Aviation segment commenced deliveries on $1bn engine accessories distribution agreement. During the second quarter, VSE commenced deliveries on a previously announced, 15-year distribution agreement valued at approximately $1.0bn with Pratt & Whitney Canada. Under the terms of the agreement, VSE will be the distributor for more than 6,000 flight-critical components across more than 100 B&GA and regional jet engine platforms.
• Aviation segment acquired leading B&GA airframe distribution and MRO company. On July 26, 2021, VSE announced the acquisition of Global Parts Group, Inc. (Global Parts), a leading provider of B&GA distribution and MRO services, for $38 m. Strategically, the acquisition expands VSE’s existing B&GA focus to include the entire airframe, including accessories, landing gear, rotables, power supplies, wheels, brakes and windows. This acquisition further diversifies VSE’s existing product and platform offerings, while expanding its customer base of regional and global B&GA customers. Global Parts generated approximately $65m in total revenue in the full-year 2020.
• Fleet segment expanded commercial distribution capabilities. Total commercial revenue, which excludes U.S. Postal Service and Government-related revenue, increased 107% in the second quarter 2021 as compared to the same period in 2020, driven by increased sales in e-commerce fulfillment and commercial fleet channels. Commercial revenue represented 30% of total Fleet revenue in the second quarter 2021, versus 16% in the prior-year period when excluding the non-recurring PPE order.
• Federal & Defense segment launched Aircraft Maintenance & Modernization division. Leveraging expertise acquired through the HAECO Special Services acquisition, VSE launched a division dedicated to providing on and off-base maintenance and modification services to government customers that include scheduled and unscheduled maintenance checks, contract field team technical services, avionic and structural modifications, and upgrades and conversions for government and military aircraft.

MANAGEMENT COMMENTARY

“We continued to advance our business transformation and revenue diversification strategy during the second quarter. VSE continued to gain market share in niche, higher-margin verticals, while capitalizing on gaps within under-served, fragmented markets where our technical expertise and integrated suite of solutions remain key competitive advantages,” stated John Cuomo, President and CEO of VSE Corporation. “We anticipate a continued recovery in Aviation segment performance in the coming year, supported by recent contract wins, product and service line expansions, inorganic growth and improved operating efficiencies. Aviation distribution revenue exceeded pre-pandemic levels during the second quarter, while repair activity continues to improve.”

“The acquisition of Global Parts further solidifies our position as a leading distribution and MRO services provider within the business jet market,” continued Cuomo. “This transaction expands VSE Aviation’s B&GA support capabilities beyond existing engine, avionics and satellite communications to include the airframe, resulting in the creation of a more comprehensive parts distribution and MRO solutions provider for our global base of business jet customers. The acquisition of Global Parts is immediately accretive to our Aviation segment.”

“Our Fleet segment continued to experience strong growth within commercial distribution and e-commerce fulfillment during the second quarter, resulting in an increasingly diverse revenue mix that extends beyond our legacy USPS business,” continued Cuomo. “Our Federal & Defense business performed on-plan, with both bookings and backlog increasing on a year-over-year basis during the second quarter. The recent launch of our Aircraft Maintenance and Modernization division represents an exciting opportunity to leverage the technical expertise acquired through the HAECO Special Services transaction, one that has the potential to support a higher-margin book of business within our Federal & Defense segment.”

“Disciplined balance sheet management remains a key area of focus for our team,” stated Stephen Griffin, CFO of VSE Corporation. “Over the near to medium term, we expect working capital investments in new program inventory to drive incremental revenue and EBITDA, resulting in a decline in net leverage at or below historical levels by year-end 2022.”

“The update to our inventory valuation reserves in the second quarter takes into consideration important regional pandemic-related market dynamics, primarily related to Aviation inventory for distribution agreements entered into before 2019. This reserve change incorporates lower expected demand for certain inventory supporting international customers impacted by the COVID-19 pandemic. Importantly, it does not materially alter our outlook for the Aviation segment where our distribution business revenue exceeded pre-pandemic levels during the second quarter, and it does not affect any of our recent investments in new, high-performing customer programs.”

“In July, we amended and extended our existing loan agreement with our commercial banking syndicate,” continued Griffin. “This amendment extends the maturity of our existing arrangement to 2024, while providing the flexibility to further our business transformation and pursue immediately accretive strategic acquisitions.”

SEGMENT RESULTS

AVIATION

Distribution & MRO Services

VSE’s Aviation segment provides aftermarket MRO and distribution services to commercial, cargo, business and general aviation, military/defense and rotorcraft customers globally. Core services include parts distribution, component and engine accessory MRO services, rotable exchange and supply chain services.

VSE Aviation segment revenue increased 52.3% year-over-year to $47.5m in the second quarter 2021, less contributions from the divested CT Aerospace assets in the second quarter 2021. The year-over-year revenue improvement was attributable to a domestic recovery in post-pandemic air travel, and contributions from recently announced contract wins and market share gains, particularly within the B&GA market. The Aviation segment recorded an operating loss of $(22.3)m in the second quarter, versus an operating loss of $(34.4)m in the prior-year period. Segment Adjusted EBITDA increased to $4.0m in the second quarter 2021, versus $1.2m in the prior-year period.

FLEET

Distribution & Fleet Services

VSE’s Fleet segment provides parts, inventory management, e-commerce fulfillment, logistics, supply chain support and other services to support the commercial aftermarket medium- and heavy-duty truck market, the United States Postal Service (USPS), and the United States Department of Defense. Core services include parts distribution, sourcing, proprietary IT solutions, customized fleet logistics, warehousing, kitting, just-in-time supply chain management, alternative product sourcing, engineering and technical support.

VSE Fleet segment revenue increased 12.2% year-over-year to $58.1m in the second quarter 2021, excluding a non-recurring order for pandemic-related protective equipment fulfilled in the prior-year period. Revenues from commercial customers increased approximately $9.1m or 107%, driven by growth in commercial fleet demand and the e-commerce fulfillment business. The operating income decline of (43.0)% year-over-year to $4.0 m in the second quarter 2021 is due to sales mix-related factors, resulting in a segment Adjusted EBITDA decline of (26.5)% year-over-year to $7.0m.

FEDERAL & DEFENSE

Logistics & Sustainment Services

VSE’s Federal & Defense segment provides aftermarket MRO and logistics services to improve operational readiness and extend the life cycle of military vehicles, ships and aircraft for the U.S. Armed Forces, federal agencies and international defense customers. Core services include base operations support, procurement, supply chain management, vehicle, maritime and aircraft sustainment services, IT services and energy consulting.

VSE Federal & Defense segment revenue increased 6.5% year-over-year to $69.5m in the second quarter 2021, driven by growth in maritime services and the contributions from the HAECO Special Services business. Operating income grew 3.4% year-over-year to $7.0 m in the second quarter, while Adjusted EBITDA grew 7.8% year-over-year to $8.1m in the period. VSE Federal & Defense second quarter bookings increased 138% year-over-year to $107 m. Funded backlog increased 31% year-over-year to $224m.

FINANCIAL RESOURCES AND LIQUIDITY

As of June 30, 2021, the Company had $140m in cash and unused commitment availability under its $350m revolving credit facility maturing in 2024. The Company’s existing credit facility includes a $100m accordion provision, subject to customary lender commitment approvals. As of June 30, 2021, VSE had total net debt outstanding of $275m, and $69.7m of trailing-twelve months Adjusted EBITDA. (Source: BUSINESS WIRE)

 

28 Jul 21. Teledyne Technologies Reports Second Quarter Results.

• Record sales of $1,121.0m, an increase of 50.8% compared with last year
• Second quarter GAAP diluted earnings per share of $1.48
• Second quarter non-GAAP diluted earnings per share of $4.61, excluding pretax acquisition-related transaction and purchase accounting expenses of $150.7 m ($3.13 per share)
• Second quarter GAAP operating margin of 9.3% and non-GAAP operating margin of 22.8%
• Record second quarter cash flow from operations
• Issuing full year 2021 GAAP earnings outlook of $8.05 to $8.45 per share and full year 2021 non-GAAP earnings outlook of $15.25 to $15.50 per share, which excludes acquisition-related transaction and purchase accounting expenses
• Completed the acquisition of FLIR on May 14, 2021, for aggregate consideration of approximately $8.1bn

Teledyne today reported second quarter 2021 net sales of $1,121.0m, compared with net sales of $743.3m for the second quarter of 2020, an increase of 50.8%. Net income was $64.7m ($1.48 diluted earnings per share) for the second quarter of 2021, compared with $93.7m ($2.48 diluted earnings per share) for the second quarter of 2020, a decrease of 30.9%. The second quarter of 2021 net sales included $301.4m in incremental net sales from the acquisition of FLIR Systems, Inc.​ (“FLIR”). In connection with the FLIR acquisition, Teledyne incurred pretax expenses of $140.7m, which included $42.3m of transaction and integration-related costs, $52.2m for the settlement of FLIR employee and director stock awards, $22.8m in acquired intangible asset amortization expense and $23.4m in acquired inventory step-up expense. The second quarter of 2021 also included $10.0m of acquired intangible asset amortization expense for transactions completed in prior periods. Excluding these charges, non-GAAP net income for the second quarter of 2021 would have been $201.0m ($4.61 per share). The second quarter of 2020 included pretax charges of $18.3m which included $9.7 m in acquired intangible asset amortization expense and $8.6m in severance, facility consolidation and acquisition costs. Excluding acquired intangible asset amortization expense, non-GAAP net income for the second quarter of 2020 would have been $101.1m ($2.68 per share). Operating margin was 9.3% for the second quarter of 2021, compared with 14.8% for the second quarter of 2020. Excluding acquisition-related transaction and purchase accounting expenses, non-GAAP operating margin for the second quarter of 2021 was 22.8%, compared with 16.1% for the second quarter of 2020. The second quarter of 2021 reflected net discrete income tax expense of $4.1m compared with net discrete income tax benefits of $10.4m for the second quarter of 2020.

“The second quarter was truly a record for Teledyne with sales, operating margin and earnings, excluding acquisition-related costs, significantly greater than any prior period,” said Robert Mehrabian, Executive Chairman. “We achieved double-digit organic growth with such sales from digital imaging, environmental and electronic test and measurement instrumentation increasing from 17% to nearly 25% year-over-year. Furthermore, Teledyne FLIR performed very well in its first few weeks under Teledyne ownership. We have already made rapid progress integrating FLIR, increasing visibility and accelerating the financial reporting cadence, while continuing to enhance FLIR’s compliance standards. At the same time, we have eliminated significant corporate overhead, consultants and other third-party service providers. As a result, we now expect to achieve our annualized cost savings target of $80.0m before the end of 2022, as opposed to 2024 as described in our final merger proxy. I should note that the very strong non-GAAP margin and earnings performance in the second quarter resulted, in part, from a disproportionate amount of sales from FLIR relative to costs in its first six weeks of consolidation. In addition, the average share count in the second quarter only partially reflected the stock issued in connection with the transaction. Both items are normalized and reflected in our outlook for 2021.”

Review of Operations

Comparisons are with the second quarter of 2020, unless noted otherwise. The Company now discloses acquired intangible asset amortization on a separate income statement line. Acquired intangible asset amortization was previously included in selling, general and administrative expenses. Prior period amounts have been reclassified to conform to the current presentation.

Digital Imaging

The Digital Imaging segment’s second quarter 2021 net sales were $579.5m, compared with $237.6m, an increase of 143.9%. Operating income was $84.6m for the second quarter of 2021, compared with $46.8m, an increase of 80.8%.

The second quarter 2021 net sales increase included $301.4m of incremental net sales from the FLIR acquisition as well as organic sales growth from industrial and scientific sensors and cameras, micro-electro-mechanical systems (“MEMS”) and geospatial imaging software. The second quarter of 2021 net sales reflected the historical concentration of FLIR net sales in the second half of the quarter. The increase in operating income in the second quarter of 2021 reflected the historical concentration of FLIR net sales which were disproportionately higher than the operating expenses, partially offset by $70.2m of FLIR acquisition-related transaction and purchase accounting expenses, which included $24.0m of integration-related costs, $22.8m in acquired intangible asset amortization expense and $23.4m in inventory step-up expense. The increase in operating income also reflected the impact of organic sales growth.

Instrumentation

The Instrumentation segment’s second quarter 2021 net sales were $291.1m, compared with $263.1m, an increase of 10.6%. Operating income was $64.6m for the second quarter of 2021, compared with $48.5m, an increase of 33.2%.

The second quarter 2021 net sales increase resulted from higher sales of environmental instrumentation and test and measurement instrumentation, partially offset by lower sales of marine instrumentation. Sales of environmental instrumentation and test and measurement instrumentation increased $18.5m and $14.5m, respectively. Sales of marine instrumentation decreased $5.0m. The increase in operating income reflected the impact of higher sales and improved margins across most product categories resulting from ongoing margin improvement initiatives.

Aerospace and Defense Electronics

The Aerospace and Defense Electronics segment’s second quarter 2021 net sales were $152.4m, compared with $143.1m, an increase of 6.5%. Operating income was $28.4m for the second quarter of 2021, compared with $17.5m, an increase of 62.3%.

The second quarter 2021 net sales reflected $9.4m of higher sales for defense and space electronics, partially offset by slightly lower sales of aerospace electronics of $0.1 m. Operating income in the second quarter of 2021 reflected the impact of higher sales and a lower cost structure due to actions taken in 2020, lower severance, facility consolidation expenses and lower research and development costs. Operating income in the second quarter of 2021 included $0.1m in severance and facility consolidation costs, compared with $5.2m. Research and development expense was lower by $3.1m in the second quarter of 2021, and primarily reflected lower spending for aerospace electronics.

Engineered Systems

The Engineered Systems segment’s second quarter 2021 net sales were $98.0m compared with $99.5m, a decrease of 1.5%. Operating income was $11.0m for the second quarter of 2021, compared with $10.8m, an increase of 1.9%.

The second quarter 2021 net sales reflected higher sales of $3.0 m of engineered products and $0.7m for energy systems, more than offset by lower sales of $5.2m of turbine engines. The higher sales for engineered products primarily reflected increased sales from missile defense and marine manufacturing programs. Teledyne exited the turbine engine business in the first quarter of 2021.

Additional Financial Information

FLIR acquisition

On May 14, 2021, Teledyne completed the acquisition of FLIR in a cash and stock transaction valued at $8.1bn. In connection with the acquisition of FLIR stock, Teledyne issued 9.5m shares of its common stock and paid $3.7bn in cash. FLIR manufactures thermal and visible-spectrum imaging cameras, cores and components, marine electronics, and sensors, surveillance systems and unmanned platforms for industrial and government customers worldwide, and is part of the Digital Imaging segment.

Cash Flow

Cash provided by operating activities was $211.3m for the second quarter of 2021, compared with $155.8m. The higher cash flow from operating activities for the second quarter of 2021 reflected improved working capital management, which included a focus on inventory reduction initiatives and the cash flow contribution from FLIR, partially offset by higher income tax payments and after tax payments of $66.7m for expenses related to the FLIR acquisition. At July 4, 2021, net debt was $4,046.9m and comprised of cash and cash equivalents of $695.1m and total debt of $4,742.0m. At January 3, 2021, net debt was $105.4m and comprised of cash and cash equivalents of $673.1m and total debt of $778.5m. The higher debt balance at July 4, 2021, included the debt incurred to fund the cash portion of the FLIR acquisition. At July 4, 2021, approximately $743.5m was available under the $1,150m credit facility, after reductions of $125.0m in borrowings and $281.5m in outstanding letters of credit. The outstanding letters of credit include a $260.0m letter of credit to the Swedish Tax Authority, related to a disputed 2018 tax reassessment issued to a FLIR subsidiary in Sweden. The Company received $5.1m from the exercise of stock options in the second quarter of 2021 compared with $18.0m. Capital expenditures for the second quarter of 2021 were $20.8m compared with $16.6m. Depreciation and amortization expense for the second quarter of 2021 was $59.7m, which includes acquired intangible asset amortization expense of $22.8m related to FLIR, compared with $29.0m. Non-cash inventory step-up expense related to FLIR was $23.4m for the second quarter of 2021.

Income Taxes

The effective tax rate for the second quarter of 2021 was 29.8%, compared with 13.2%. The second quarter of 2021 reflected net discrete income tax expense of $4.1m, which included $11.5m expense related to foreign tax rate changes, partially offset by a $5.3m income tax benefit related to the release of a valuation allowance and a $2.1m income tax benefit related to share-based accounting. The second quarter of 2020 reflected net discrete income tax benefits of $10.4m which included $9.8 m in income tax benefit related to share-based accounting. Excluding the net discrete income tax items in both periods, the effective tax rates would have been 25.3% for the second quarter of 2021, compared with 22.8%. The higher tax rate in the second quarter of 2021, reflects the impact of certain non-deductible transaction and integration costs as well as the impact of a change in the expected total year tax rate.

Other

Stock option expense was $3.6 m for the second quarter of 2021 compared with $5.7m. Stock option expense for fiscal year 2021 is currently expected to be $20.8m based on current options outstanding and stock options expected to be granted in the third quarter of 2021, compared with $24.7m for fiscal year 2020. The decrease in stock option expense in the second quarter of 2021, reflects the absence of stock option grants in the first six months of 2021. Restricted stock unit expense for FLIR employees was $4.4m in the second quarter of 2021 and is expected to be $8.2m for fiscal year 2021 and is included in the Digital Imaging segment results. Non-service retirement benefit income was $2.8m for the second quarter of 2021, compared with $3.2m. Interest expense, net of interest income, increased to $21.2m for the second quarter of 2021 compared with $3.7m. The higher 2021 amount included interest and debt expense on the debt incurred to fund the FLIR acquisition. Corporate expense increased to $84.2m for the second quarter of 2021, compared with $13.8m. The higher 2021 amount included $70.5m of transaction costs related to the FLIR acquisition, including $52.2m for the settlement of FLIR employee and director stock awards. Other income and expense, was income of $6.1m for the second quarter of 2021, compared with expense of $1.4m. The second quarter 2021 amount included $4.0 m in foreign currency income, compared with $2.5m in foreign currency expense in the second quarter of 2020.

Outlook

Based on its current outlook, the company’s management believes that third quarter 2021 GAAP diluted earnings per common share will be in the range of $2.00 to $2.15 and full year 2021 GAAP diluted earnings per common share will be in the range of $8.05 to $8.45 and third quarter 2021 non-GAAP diluted earnings per common share will be in the range of $3.55 to $3.65 and full year 2021 non-GAAP diluted earnings per common share will be in the range of $15.25 to $15.50. The non-GAAP outlook excludes certain costs related to the FLIR acquisition, such as acquired intangible asset amortization, inventory step-up expense, bridge loan and debt extinguishment fees, and transaction costs and reflects the issuance of Teledyne common stock on May 14, 2021 in connection with the FLIR transaction. This outlook also excludes acquired intangible asset amortization from prior acquisitions and the remeasurement of deferred taxes related to acquired intangible assets due to changes in tax laws. The company’s annual expected tax rate for 2021 is 23.9%, before discrete tax items. In addition, we currently expect less discrete tax items in 2021 compared with 2020. (Source: BUSINESS WIRE)

 

29 Jul 21. KBR Announces Second Quarter 2021 Financial Results; Updates FY 2021 Guidance.

– Delivered robust revenue growth of 11% and adjusted EBITDA growth of 47%

– Generated strong free cash flow; free cash conversion of ~120% for the quarter and ~100% YTD

– Raising FY 2021 adjusted operating cash flow guidance to $300 m-$340m

– Healthy bookings momentum, achieving book-to-bill ratio of 1.1x

KBR, Inc. (NYSE: KBR) today announced its second quarter 2021 financial results and updated FY 2021 financial guidance.

“KBR delivered an outstanding quarter with excellent results across all core metrics of growth, profitability, bookings and cash conversion,” said Stuart Bradie, KBR President and CEO. “The impressive double-digit top-line growth, terrific organic growth in Government Solutions, strong adjusted EBITDA margins delivering adjusted EBITDA growth of almost 50%, superb free cash conversion, and healthy book-to-bill of 1.1x all demonstrate the unwavering focus and superb execution of our team. Importantly, we also continued to deliver outstanding safety and operational performance, and we continued to reduce uncertainty by making meaningful progress in resolving legacy matters.”

Bradie added, “Today, KBR is well-positioned in growing end markets – advancing national security priorities, defense modernization, energy transition and sustainability.  Given our strong operating performance, growing backlog, and continued confidence in our cash-generative business model, we are increasing our full-year 2021 cash guidance. With a foundation of enduring long-term contracts and strong macro-tailwinds that align with our expertise, we are confident that the company is well positioned for sustainable growth and value creation as we progress toward our 2025 goals and beyond.”

Financial Highlights for the Quarter Ended June 30, 3021

• Revenue of $1.5bn, an 11% increase in the quarter, is aligned with management’s consolidated revenue guidance for the year of circa $6bn.
• Government Solutions posted $1.2bn of revenue in the second quarter, a 29% increase over 2020. This increase reflects 13% organic growth with each government business unit delivering organic growth from new program wins and on-contract expansion driven by strong execution. Additionally, Centauri, acquired in October 2020, recorded over $180m of revenue in the quarter, delivering healthy organic growth of 30% on top of acquisitive growth.
• Sustainable Technology Solutions posted $0.3bn of revenue in the second quarter, which is in line with our guided annual FY 2021 revenue expectations for this business following the company’s 2020 exit from commoditized services.
• Gross profit, operating income (loss) and adjusted EBITDA were impacted by the following:
• Gross profit and adjusted EBITDA each increased almost 50% period over period due to excellent Government Solutions organic growth, strong execution across the business and the acquisition of Centauri. Additionally, the company benefited from the net favorable resolution of and provisioning for legacy matters in Sustainable Technology Solutions that resulted in a net benefit of $16m with attendant favorable operating cash flow.
• Operating income (loss) was impacted by a non-cash charge to equity in earnings of unconsolidated affiliates in the amount of $193m recorded based on the progress of settlement discussions during the quarter with the Ichthys LNG client. This charge reflects KBR’s proportionate share of unfunded client change orders and claims. Consistent with the company’s practice to present adjusted earnings net of Ichthys commercial recovery and settlement costs, this non-cash charge is excluded from adjusted EBITDA and adjusted EPS. Furthermore, this non-cash charge does not impact pursuit of, or positions related to, subcontractor claims associated with the combined cycle power plant for which the company continues to expect a favorable cash award or settlement upon resolution.
• Selling, general and administrative expenses of $103m increased $30m compared to 2020, principally due to the acquisition of Centauri and an increase in corporate expenses associated with return to the office, increased travel and other initiatives, all in line with expectations.
• In 2020, operating income (loss) was impacted by non-cash restructuring and impairment charges of $96m that did not recur in 2021 in connection with the transformation of its operating model to narrow its strategic focus and reduce risk.

Recent Developments and New Business

In the quarter ended June 30, 2021, the company delivered 1.1x book-to-bill and was awarded approximately $1.9bn in backlog and options, as follows:

• Expanded footprint through new project/program wins, including a $51m contract from the National Oceanic and Atmospheric Administration to develop, deploy and operate the agency’s Space Weather Follow-On Antenna Network to support forecasts of space weather and protection of lives and livelihood around the planet; and a $531m contract awarded to a KBR joint venture to provide engineering services for spaceflight and ground systems, including the development and validation of new technologies for future space and science missions.
• Continued track record of innovation, bringing new technologies and solutions to market, including the award of a contract to provide industry-leading, disruptive Hydro-PRT℠ plastics recycling technology to Mitsubishi Chemical Corporation; the award of a contract to provide industry-leading fluid catalytic cracking licensed technology and engineering design support; and an award to provide our AI- and data-enabled INSITE® solution, part of KBR’s digital sustainability suite, which leverages data, machine learning and our deep domain expertise to enable clients to proactively monitor and optimize plant operations.

Capital Deployment

KBR continues to employ a balanced approach to capital allocation, which includes organic and external investments that facilitate sustainable, long-term growth and the prudent return of capital to shareholders. Looking ahead, KBR will continue to leverage its talent, expertise and financial strength to capitalize on industry tailwinds, long-term market dynamics and accretive growth opportunities.

During the quarter, KBR repurchased $28m of common shares and issued a quarterly dividend of $0.11 per share, an increase of 10% from 2020.

Updating FY 2021 Guidance

KBR updated its FY 2021 financial guidance, as follows:

• Consolidated revenue: $5.8 bn to $6.2 bn (no change)
• Adjusted EBITDA margin: ~9% (no change)
• Effective tax rate: 25% to 26% (no change)
• GAAP earnings (loss) per share (EPS): $(0.10) to $0.10; adjusted EPS: $2.00 to $2.20 (updated)
• Updated GAAP EPS to reflect a $1.42 non-cash charge for Ichthys commercial dispute costs to reflect the progress of settlement discussions with the client during the quarter. Consistent with our practice to present our adjusted earnings net of Ichthys commercial recovery and settlement costs, we have excluded this non-cash charge from our adjusted EPS. This non-cash charge does not impact JKC’s position or pursuit of subcontractor claims, including those for the combined cycle power plant.
• Updated GAAP EPS to reflect a $0.05 non-cash expense for the estimated impact of the enactment of a change to the UK statutory rate to 25% effective in 2023 on our net UK deferred tax liabilities. This item has been added back to Adjusted EPS.
• GAAP operating cash flow (OCF): $255m to $295m; adjusted OCF: $300m to $340m (raised)

 

28 Jul 21. Amphenol Reports Second Quarter 2021 Record Results.

Second Quarter 2021 Highlights1:

• Record sales of $2.654bn, up 34% in U.S. dollars and 22% organically2 compared to the second quarter 2020
• GAAP diluted EPS of $0.59, up 40% compared to the prior year period
• Record Adjusted Diluted EPS2 of $0.61, up 53% compared to the prior year period
• GAAP and Adjusted Operating Margin2 of 17.9% and 20.0%, respectively
• Operating and Free Cash Flow2 of $411m and $307m, respectively
• Announces acquisition of Unlimited Services

Amphenol Corporation (NYSE: APH) today reported second quarter 2021 results.

“We are pleased to have closed the second quarter with sales and Adjusted Diluted EPS exceeding the high end of our guidance,” said Amphenol President and Chief Executive Officer, R. Adam Norwitt. “Sales increased by a strong 34% in the quarter, with growth driven in particular by the automotive, industrial, military and broadband markets as well as contributions from the Company’s acquisition program.”

“During the second quarter, Amphenol continued to deploy its financial strength in a variety of ways to increase shareholder value. To that end, the Company purchased 2.5 m shares of its common stock for $167m. The Company also paid dividends of $87m, resulting in total capital returned to shareholders during the second quarter of $254m.”

“We remain focused on expanding our growth opportunities through a deep commitment to developing enabling technologies for customers across our served markets, an ongoing strategy of market and geographic diversification and an active and successful acquisition program. To that end, we are excited to have closed on the acquisition of Unlimited Services of Wisconsin, Inc. at the end of April. Based in Oconto, Wisconsin and with annual sales of approximately $50 m, Unlimited Services is a manufacturer of cable assemblies for industrial applications with a particular focus on heavy vehicles. The acquisition further strengthens our capabilities and enhances our product offerings in the industrial market, while adding a talented management team to the Amphenol family.”

Third Quarter 2021 Outlook

Given the current dynamic market environment and assuming no new material disruptions from the COVID-19 pandemic as well as constant exchange rates, for the third quarter 2021, Amphenol expects sales from continuing operations to be in the range of $2.640bn to $2.700bn, representing 14% to 16% growth over the third quarter of 2020, and Adjusted Diluted EPS2 from continuing operations in the range of $0.60 to $0.62, representing 9% to 13% growth over the third quarter of 2020.

“Despite the ongoing challenges and uncertainties that continue to arise from the COVID-19 pandemic, we are encouraged by the platform of strength that has been created by the Company’s performance,” Mr. Norwitt continued. “The revolution in electronics is accelerating, thereby creating exciting and dynamic long-term growth opportunities for Amphenol across each of our diversified end markets. We believe these opportunities will enable a further, long-term increase in the demand for our ever expanding range of high-technology interconnect, sensor and antenna products. Our ongoing drive to leverage our competitive advantages and create sustained financial strength, as well as our initiatives to expand our product offerings, both organically and through our acquisition program, have created an excellent base for the Company’s future performance. I am confident in the ability of our outstanding entrepreneurial management team to dynamically adjust to changing market conditions, to capitalize on the wide array of growth opportunities that arise in all market cycles and to continue to generate sustainable long-term value for our shareholders and other stakeholders. Most importantly, I remain truly grateful to our team for their extraordinary efforts to protect the safety and health of our employees around the world throughout the ongoing pandemic, all while continuing to strongly support our customers and drive outstanding operating performance.”

About Amphenol

Amphenol Corporation is one of the world’s largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems, antennas, sensors and sensor-based products and coaxial and high-speed specialty cable. Amphenol designs, manufactures and assembles its products at facilities in the Americas, Europe, Asia, Australia and Africa and sells its products through its own global sales force, independent representatives and a global network of electronics distributors. Amphenol has a diversified presence as a leader in high-growth areas of the interconnect market including: Automotive, Broadband Communications, Commercial Aerospace, Industrial, Information Technology and Data Communications, Military, Mobile Devices and Mobile Networks. (Source: BUSINESS WIRE)

 

28 Jul 21. Noblis Launches Noblis MSD Subsidiary Following Acquisition of McKean Defense. Noblis MSD will deliver integrated mission solutions for the unique needs of the U.S. Navy and other Defense clients. Noblis, a leading provider of science, technology and strategy services to the federal government, today announced that it has rebranded McKean Defense Group, including Cabrillo Technologies, as Noblis MSD—which stands for mission solutions for defense. Noblis initially announced its acquisition of McKean Defense Group and its affiliates in May of this year. As a Noblis subsidiary, Noblis MSD brings the complementary capabilities of both organizations together to deliver solutions that drive new levels of scale, agility, efficiency and innovation for the U.S. Navy and other Defense clients.

“Noblis MSD combines decades of specialized defense mission domain knowledge with the latest technological innovation, and the resulting synergies will directly benefit both our clients and our employees,” said Amr ElSawy, Noblis’ president and chief executive officer. “We are strongly positioned to deliver more comprehensive, agile solutions at scale, to help drive our clients’ readiness and transformation initiatives—while empowering our employees with exciting opportunities for growth.”

Noblis MSD will focus on supporting the unique needs of the U.S. Navy and other Defense clients by combining decades of domain expertise with emerging capabilities in artificial intelligence, machine learning, cyber, robotic process automation, autonomy and model-based systems engineering. Noblis MSD will bring new levels of service delivery to its existing and new clients while retaining the ethical values and standards shared by both companies.

“Noblis MSD brings together like-minded mission experts across culture, service and technology  and we’re now positioned to pass new levels of innovation to the clients we serve,” said Glenn Hickok, vice president of Noblis’ Defense Mission Area and president of Noblis MSD. “We couldn’t be more excited for what the future holds as we evolve to meet the emerging needs of   the U.S. Navy and broader Department of Defense in protecting our nation and allies.”

To retain alignment with current client and contractual initiatives, Mikros Systems, an affiliate of Noblis MSD, will remain a Noblis subsidiary and keep its current name, Mikros Systems.

ABOUT NOBLIS MSD

Noblis MSD, a Noblis subsidiary, is a recognized market leader in U.S. Navy network design, operational readiness, system modernization, lifecycle sustainment and system integration. As a system developer through life-cycle maintenance, Noblis MSD provides engineering, enterprise transformation and program management support, to help clients design solutions for operations and maintenance. We identify and deploy new shipboard technologies, integrate information technology across shipboard platforms, implement cyber and advanced information technology systems and develop strategies to support the Warfighter. Noblis MSD leverages the depth and breadth of the entire Noblis family of companies to deliver advanced capabilities to our clients.

ABOUT NOBLIS

Noblis is a dynamic science, technology and strategy organization dedicated to creating forward-thinking technical and advisory solutions in the public interest. We bring the best of scientific thought, management and engineering expertise together in an environment of independence and objectivity to deliver enduring impact on federal missions. Noblis works with a wide range of government clients in the defense, homeland security, intelligence, law enforcement and federal civil sectors. Together with our subsidiaries, we tackle the nation’s toughest problems and apply advanced solutions to our clients’ most critical missions. (Source: PR Newswire)

 

27 Jul 21. Legal lifeline for Denel as employees go without pay. A legal lifeline has been cast to beleaguered Denel by the Labour Court with a postponement to allow the State-owned defence and technology conglomerate to “fully comply” with a court order in respect of meeting employee salary and benefits payments.

The United Association of SA (UASA), one of at least two trade unions acting on behalf of members employed at Denel, expressed its disappointment at Acting Labour Court judge Moses Baloyi’s Friday 23 July decision to postpone the UASA/Denel proceedings to 2 December.

This, UASA’s Abigail Moyo said, is “disappointing” adding in previous court appearances Denel “never clearly specified how it plans to meet contractual obligations to employees and how it will compensate them for work done”.

Denel employees at divisions and some associated companies have been short-paid and in some instances not paid for over a year with the same applying to employee benefits including medical aid and pension fund contributions.

The Florida, West Rand headquartered trade union initiated legal action last year after Denel failed to comply with a court order regarding outstanding employee contractual matters for May, June and July. These were in respect of PAYE (Pay as You Earn) income tax, UIF (unemployment insurance) and pension/provident fund payments.

On 4 August last year, the Labour Court ruled in favour of UASA and Solidarity, ordering Denel to pay union members outstanding cash portions of salaries and third-party payments. Denel was ordered to make payments within seven days. Denel failed to honour the Labour Court order and unions launched an application for Denel and its directors to be held in contempt of court. The Labour Court gave Denel a return date of 3 December 2020 to show cause why it and its board of directors should not be held in contempt for failure to comply with the August court order.

Denel was subsequently given further extensions, including to 23 July, to come up with a practical programme to comply with the August court order. The Court also ordered Denel to present it with an affidavit, reportin progress in complying, at least ten days before Court reconvened.

According to Moyo, Judge Baloyi last week ruled non-compliance by Denel needed “further judicial supervision” to ensure implementation of the court order.

“UASA is concerned about continuous postponements. UASA’s legal representative argued in court judicial supervision should remain in place as Denel had not complied with the court order for over a year. Baloyi ordered Denel to file an affidavit setting out steps to comply with the court order 10 days before the 2 December court date.

“Many employees at the SOE have not been paid in full or at all since May 2020 and while the company expects workers to report for duty, it shows little progress toward finding a solution to the crisis,” Moyo said.

In a previous statement condemning non- and short salary payments UASA said: “The state of affairs at Denel is long past its sell-by date and is an embarrassment to the state as well as South Africa”. Public Enterprises Minister Pravin Gordhan who is responsible for SOE’s is on record as saying Denel’ salary situation is unfortunate and regrettable.

There was, at the time of publishing, no reaction from Solidarity, the Centurion-headquartered trade union which has a court order in its favour to attach over R10m worth of Denel assets. Funds realised from the asset sales will go to employees in, at least, partial settlement of the amounts owed to them. (Source: DefenceWeb)

 

27 Jul 21. Cohort climbs after record results despite pandemic. Cohort PLC has climbed higher after reporting record results despite the impact of the pandemic. The defence specialist said full year revenues had climbed by 9% while operating profits rose 2% to £18.6m. Its order book jumped by 32% to £242.4m. Sales to non-Ministry of Defence customers dominated for the first time, helped by increased exports and a higher than expected contribution from ELAC, the solar systems company bought in December.

Chairman Nick Prest said: “The 30 April 2021 order book of £242.4m underpins nearly £100m of in-year revenue, representing 64% of the consensus forecast. Following further contract awards of over £50m since the start of the financial year, that cover now stands at 70%.

“Looking forward we expect that strong performance across most of the group in 2021/22 will be partly offset by a weaker year at [Lisbon-based communications business] EID. Overall, we expect to achieve continued growth in 2021/22, albeit at a modest level, and to have zero net debt at the year end.

“Prospects for 2022/23 depend on order progress in the current year. We are optimistic that the group will return to a higher rate of growth in 2023/24, based on current orders for long term delivery and our strong pipeline of opportunities.”

Cohort shares have added 3.81% or 18.8p to 512.8p. (Source: proactiveinvestors.co.uk)

 

27 Jul 21. Cohort boosts revenue visibility. The defence contractor has grown its order book in the face of the pandemic.

• Another year-on-year increase in the dividend rate
• A weaker year at EID is forecast

Cohort’s (CHRT) half-year figures were in line with the May trading update with strengthening revenues and greater top-line visibility due to a 45 per cent increase in order intake. As at 30 April, the order book stood at 64 per cent of the consensus forecast. Operating profits of £7.8m were broadly in line with the prior year once the increase in amortisation charges, one-off items and R&D costs are factored into the equation.

Shareholders will benefit from a 0.7p increase in the final dividend to 7.6p, part of a successive increase in the annual dividend since the defence contractor was admitted to trading in 2006. Thanks to improved operating cash flow, the group remains in a net cash position (ex-lease liabilities), despite forking out around £25m in distributions through the year.

Naturally, the pandemic presented certain logistical challenges to operations, but management undertook measures to mitigate the impact of Covid-19, such as changing shift patterns to reduce worker interaction during production. Overall, there was limited disruption to the group’s supply chains, though there were delays on some projects which require access to customer sites. The group estimates that the disruptions through FY 2021 hit revenues to the tune of £6m, while half of the group’s operating businesses recorded reduced adjusted operating profits.

Looking ahead, the group expects that profits will be constrained by a weaker year at EID, a Lisbon-based producer of communications systems, but management is optimistic that the pipeline of potential orders will translate into a higher rate of growth in 2023/24. The outlook is favourable over the medium-term, yet the shares have lost a quarter of their value since mid-May, leaving them trading at an inviting 15 times consensus earnings. Buy. Last IC View: Buy, 571p, 23 Jul 2020. (Source: Investors Chronicle)

 

27 Jul 21. Cohort plc today announces its audited results for the year ended 30 April 2021. 

Highlights include:

2021

• Results in line with 26 May 2021 trading statement
• Record revenue and adjusted operating profit despite COVID impact estimated as £6m on Group revenue and £0.2m on adjusted operating profit
• Better than expected cash performance
• Lower adjusted EPS due to an expected higher tax charge
• Order intake increased to £180.3m (2020: £124.2m) with an additional £50m of orders won since the year end
• Dividend increased by 10%
• Divisional overview:

o MASS was main profit contributor, although slightly down from record high last year

o Strong performance improvement at EID

o MCL returned to growth

o Initial five-month contribution from ELAC ahead of expectations

o Weaker results at Chess and SEA.

• Defence revenue from non-UK MOD exceeded UK MOD for the first time, reflecting both the higher sales at EID and Chess, where a much greater proportion of sales are to export markets, and the initial contribution of ELAC.
• Acquisition of ELAC completed in December 2020. Adds a profitable and growing sixth stand-alone business to the Cohort Group.

1 Excludes exceptional items, amortisation of other intangible assets, research and development expenditure credits and non-trading exchange differences, including marking forward exchange contracts to market.

2 Excludes acquired order book of £23.2m (2020: nil).

Looking forward:

• Strong order book and pipeline of prospects for the coming year
• £242.4m year end order book underpins nearly £100m of current year revenue, representing 64% (2020: 62%) of current consensus forecast for the year
• Coverage has risen to 70% in mid-July 2021 following recently announced contract wins
• Performance for 2021/22 expected to show good revenue growth but a lower rate of profit growth, with weaker trading at EID offset by stronger results elsewhere
• Expect zero net debt on 30 April 2022

Commenting on the results, Nick Prest CBE, Chairman of Cohort plc said: “Cohort continued to make progress in 2021, achieving a record adjusted operating profit and revenue. MCL and EID both posted an increase in profit and we benefited from an initial five-month contribution from ELAC. These positive movements were partly offset by weaker performances at SEA, Chess and, to a small extent, MASS.  As always, my thanks go to all employees within the Cohort businesses. Our employees have shown remarkable agility and resilience and have remained focused on the needs of our customers as well as the welfare of all our colleagues.”

The Group has entered the new financial year with a substantial long-term order book. The 30 April 2021 order book of £242.4m underpins nearly £100m of in-year revenue, representing 64% of the consensus forecast. Following further contract awards of over £50m since the start of the financial year, that cover now stands at 70%.

Looking forward we expect that strong performance across most of the Group in 2021/22 will be partly offset by a weaker year at EID. Overall, we expect to achieve continued growth in 2021/22, albeit at a modest level, and to have zero net debt at the year end.

Prospects for 2022/23 depend on order progress in the current year. We are optimistic that the Group will return to a higher rate of growth in 2023/24, based on current orders for long term delivery and our strong pipeline of opportunities.

BATTLESPACE Comment: An excellent set of results considering the pandemic. However, Cohort’s acquisition of Chess Dynamics was well timed as it came just as C-UAS systems were being deployed across the world with Chess being one of the first companies to develop and sell systems through the AUDS consortium with ECS and Blighter. Cohort had a huge opportunity to become the UK leader during the Gatwick Airport UAV fiasco, but it remained mute and left the field to competitors. The AUDS consortium is no more and Cohort doesn’t even mention C-UAS systems in this release with Chess showing weak results. Despite Nick Prest once being a media proprietor through his ill-judged purchase of Shephard Media, the group remains PR-shy. The Prest-Thomis-Carter management team is ageing with no succession seen to be in place. There is also no sign of Cohort embracing new AI and 5G technology. Cohort’s conglomerate structures seems to insulate it from a takeover, but with Ultra and Cobham now history, could Cohort come on the Private Equity radar with a break-up being one way to profit from any acquisition?

 

26 Jul 21. Lockheed second quarter profit misses even as space business boosts sales. U.S. weapons maker Lockheed Martin Corp (LMT.N) said on Monday its space business boosted revenues in the latest quarter, but a classified aeronautics development program caused the company to miss analysts’ profit estimate, sending shares down 3.2% in early trading.

Lockheed’s second-quarter earnings report comes a year after the global pandemic first hit the defense industry and its supply chain, causing shutdowns, shortages and months of delays.

Fresh support for the industry came last week when the Democrat-controlled U.S. Senate’s Armed Services Committee rolled out a draft of its 2022 defense budget which boosted spending by $25bn, potentially benefiting defense companies including Lockheed Martin, and signaling defense spending could rise under President Joe Biden.

Lockheed increased its guidance for full-year earnings per share.

Quarterly sales at Lockheed’s largest unit, aeronautics – which makes the F-35 fighter jet, rose 2.5% to $6.6bn.

But “performance issues” at aeronautics in the quarter led to a loss of $225m on “a highly classified program that Lockheed Martin has been working on for a couple of years,” Ken Possenriede, Lockheed’s chief financial officer, said in a telephone interview.

Lockheed posted $6.52 in earnings per diluted share for the quarter. Without the $225m loss, earning per share would have been $0.61 cents higher, according to the results.

Analysts on average expected the company to report quarterly earnings of $6.53 per share, according to Refinitiv data.

In its sales outlook for the year, Lockheed trimmed the aeronautics segment by $175m, but increased its outlook for sales by the same figure across the Rotary and Mission Systems unit and Space unit. The space unit saw its profits in the quarter increase to $335m, a jump of 33%, due to progress on space based sensor platforms and its United Launch Alliance investment. Lockheed’s second-quarter revenue was $17bn. Analysts had estimated a revenue of $16.9bn, according to Refinitiv data. (Source: Reuters)

 

27 Jul 21. Kape’s buying opportunity ahead of results.

• Trading in line with guidance that indicates doubling of full-year operating and pre-tax profit to US$70.8m and US$64.3m, respectively.
• Integration of Webselenese ‘progressing well’ and average customer acquisition costs reduced.
• Core privacy division recorded 17 per cent revenue growth in first half.

Cyber security software provider Kape Technologies (KAPE: 303p) continues to increase its customer base, cross-sell products, integrate acquisitions and enter into new lucrative revenue generating agreements. Buoyed by the earnings accretive acquisition of Webselenese, an independent digital platform that provides 8.5m users with unbiased insight driven content focused on cyber security and privacy trends, Kape expects to report 60 per cent higher revenue of US$95m and 79 per cent higher cash profit of US$28.7m in the first half. On a proforma basis, revenue and cash profit are up 27 and 20 per cent, respectively.

Chief executive Ido Erlichman reports positive momentum in the group’s core privacy division (17 per cent revenue growth) and digital security segment (9 per cent growth), supported by a “growing number of customers choosing to take more than one of Kape’s products.” Three-quarters of Kape’s revenue is derived from North America and Europe, affluent regions that are key targets of online fraudsters, so it’s hardly surprising that adoption of Kape’s cyber security software (which protects data security and privacy against piracy and phishing attacks), and virtual private network (VPN) solutions (which encrypt and secure internet connections) has been rising strongly, too. It’s a global trend and one that Kape is tapping into. For instance, the group’s subsidiary, Colorado-based Private Internet Access (PIA), has entered a content provision agreement with cellular operator 3 Hong Kong to offer its award-winning VPN product to the group’s customers. This is the first co-operation between PIA and a telecom operator. It’s worth pointing out that there is mergers and acquisition interest in the sector. Avast (AVST) is in advanced discussions regarding a possible merger with NortonLifeLock Inc. Kape could be of interest to predators, too. That’s because analysts at Progressive Equity Research expect net debt of US$77m at the end of 2021 to be completely paid off from free cash flow of US$80m (35¢ a share) next year, so effectively Kape is being valued on 10.5 times 2022 operating profit estimates to enterprise valuation, or almost half the forward rating of Avast. Kape also offers an attractive 9 per cent free cash flow yield for 2022. Kape’s shares have produced a 538 per cent total return since I included the shares, at 47.9p, in my 2017 Bargain Shares portfolio. Offering a further 25 per cent upside to my 375p target price, I remain a buyer ahead of September’s interim results. Buy. (Source: Investors Chronicle)

 

26 Jul 21. UK signals it may intervene in Cobham pursuit of Ultra. Government taking ‘active interest’ in proposed merger on national security concerns An F35 Lightning II aircraft, which contains Ultra technology.  The UK government has signalled it may intervene in the proposed takeover of defence specialist Ultra Electronics by a private-equity backed rival amid rising national security concerns.  Britain’s business secretary Kwasi Kwarteng is said to be taking an “active interest” in the proposed takeover by Cobham after receiving an update from officials over the weekend, according to Whitehall sources. “Given the sensitivities of this proposed deal, the business secretary is definitely taking an active interest. While no decisions have been taken, we will continue to monitor the transaction closely,” said a source close to Kwarteng.  Ultra last week signalled it was “minded to recommend” a £2.6bn bid from Cobham, which is backed by US private equity group Advent International.  The proposed deal, however, has sparked concerns given the sensitive nature of some of Ultra’s activities. The FTSE 250 company provides critical technology to the UK government, including the provision of submarine-hunting sonobuoys and sonar equipment for the Royal Navy, as well as reactor control systems for the country’s deterrent.  Kevan Jones, Labour MP for North Durham and a member of the House of Commons defence select committee, called on the government to intervene.  “Ultra leads the world in deployable water sensors, torpedo defence systems and electronic warfare technology, all of which are deeply tied to our defence against underwater threats. The government cannot stand by once more whilst defence technology is offshored,” he told the Financial Times.  “The government must urgently consider acquiring a golden share in Ultra,” he added.  Cobham’s approach comes amid growing unease over the power of private equity groups, many of which have emerged from the coronavirus pandemic flush with cash. Advent’s acquisition last year of Cobham sparked a political outcry. The government eventually waved through the deal with official promises of tight scrutiny. Within 18 months of taking control, Advent had sold more than half of the assets it bought by value. Ultra said last week that it would accept Cobham’s bid only if certain conditions were met, including the “establishment of safeguards for the interests of Ultra’s stakeholder groups”. Cobham has said it would consider offering the UK government undertakings on national security concerns. The company has until August 20 to formalise the bid and the government is unlikely to intervene before then. Under the Enterprise Act 2002, the business secretary has quasi-judicial powers to intervene in mergers and acquisitions on national security grounds. The new National Security and Investment Act, which comes into effect next January, will also allow the government to investigate retrospectively any deal that raises national security concerns.  Whitehall sources stressed that no intervention decisions had been taken, and that any formal national security review into the deal could take some months.  A government spokesperson said the proposed transaction was a “commercial matter for the companies involved” but added that it was “closely monitoring the transaction”. (Source: FT.com)

 

23 Jul 21. Department Statement on DJI Systems. The Department of Defense (DOD) position is that systems produced by Da Jiang Innovations (DJI) pose potential threats to national security.  Existing DOD policy and practices associated with the use of these systems by U.S. government entities and forces working with U.S. military services remain unchanged contrary to any written reports not approved for release by the DOD.   A recent report indicated that certain models of DJI systems had been found to be approved for procurement and operations for US government departments and agencies.  This report was inaccurate and uncoordinated, and its unauthorized release is currently under review by the department. In 2018, DOD issued a ban on the purchase and use of all commercial off-the-shelf drones, regardless of manufacturer, due to cybersecurity concerns. The following year, Congress passed legislation specifically banning the purchase and use of drones and components manufactured in China. DOD complies with Section 848 of the FY20 National Defense Authorization Act (NDAA) and additional guidance provided by Executive Order 13981. As outlined in the FY20 NDAA, when DOD has a valid and authorized requirement for the use of Chinese-made small Unmanned Aircraft Systems (UAS) in conducting certain types of analysis or operations, “the Secretary of Defense is exempt from the restriction [of using covered systems] if the operation or procurement is for the purposes of— (1) Counter-UAS surrogate testing and training; or (2) Intelligence, electronic warfare, and information warfare operations, testing, analysis, and training.”  DOD unit requests to purchase or use commercial off-the-shelf drones are reviewed on a case-by-case basis, and if found exempt from the law, are subject to several measures to ensure sensitive data is not released.  U.S. Special Operations Command (USSOCOM) has purchased commercial off-the-shelf drone technology in recent years as consistent with Section 848 of the FY20 NDAA and Executive Order 13981. Accordingly, USSOCOM has accounted for cybersecurity concerns in all purchased systems through a rigorous review process, strict adherence to the usage guidelines, and other applicable risk mitigation measures. DOD refers any additional questions on this matter to USSOCOM. Mitigating the threats posed by small UAS, including DJI systems, remains a priority across the Department, and DOD continues to ensure existing policy remains current and appropriately implemented. (Source: US DoD)

 

23 Jul 21. Rocket Startup Could Get Huge Boost from Lockheed Martin Buying Aerojet Rocketdyne. Ursa Major is developing a family of rocket engines for commercial and defense customers. Lockheed Martin might not be the only benefactor if the Federal Trade Commission allows the company to buy rocket maker Aerojet Rocketdyne. The acquisition will leave the U.S. without an independent rocket supplier at a time when Congress is pushing to eliminate Russian-made engines for U.S. rockets. Enter Ursa Major Technologies, a Colorado-based rocket startup that says it can 3D print and assemble small rockets in a matter of days, and is now working to scale its technology to build even larger ones.

“At the core, what we see is that there is a gap in the U.S. supply chain when it comes to propulsion technology for space launch and for hypersonics because we’ve acquired away all of the pure play propulsion providers,” said Blaine Pellicore, who oversees the company’s defense business.

Northrop Grumman’s 2018 acquisition of Orbital and Lockheed’s proposed $4.4bn acquisition of Aerojet Rocketdyne would leave the United States without an independent rocket supplier. As this happens, Ursa Major has been proving its technology and assembling customers, including a large defense prime contractor.

“We’re really the only game in town,” Pellicore said. “There’s a reason we’re signed with a very serious prime customer, and there’s no reason why we should be signed with them except that this is the dynamic that’s happening right now.”

Pellicore declined to name the company, but said consolidation within the rocket motor sector has opened doors at the Pentagon, on Capitol Hill, and with investors (Ursa Major has raised more than $56m).

“People in the Pentagon are very concerned about the continuing consolidation across the defense industrial base,” he said. “This particular area is concerning because it’s never been this bad before—it’s never been this consolidated in a technology area that, I would argue, [is] even more important than it was during the Cold War.”

The company has fashioned itself as a “a pure play, vehicle agnostic, cutting edge technology company that is just focused on building the best possible engines across as many verticals as we can,” Pellicore said.

Through additive manufacturing, it can 3D print about 80 percent of the engine. All in all, it takes about two days to assemble the engine if all of the materials and parts are on hand. The entire process from getting an order, acquiring parts, building the engine, testing it, and boxing it up for shipment typically takes about six months.

“If everything’s in our hands, if the supply chain has come through for us, and we have it inside Ursa Major facilities, you’re talking about a two-week process of getting the engine out the door,” Pellicore said.

The company has assembled a who’s who on its board of advisors, including former NASA administrator Charles Bolden, former Northrop CEO Ronald Sugar, former Air Force acquisition chief Will Roper, and former Pentagon policy chief Michèle Flournoy. Ursa Major sees its technology being valuable in both the commercial and defense sectors.

“Our vision is to be able to invest all of our effort into developing what will constantly be the best version of propulsion for a space launch in hypersonics,” Pellicore said. “We think it’s a really important area for us as a country to keep competitive advantage when it comes to two very critical defense technology spaces.”

In addition to the 5,000 pounds of thrust engine it’s building today, called Hadley, it’s also developing a 35,000 pounds of thrust engine, called Ripley. Then there’s Samus, a 50,000 pounds of thrust engine that Pellicore said could be a “rapidly deployable replacement” for the Aerojet Rocketdyne RL10, an engine used on the upper stages of the United Launch Alliance Atlas V and Delta IV. The RL10 is also slated to be used on future rockets, including the Space Launch System being designed for human, deep space missions.

Ursa Major has sold dozens of the Hadley engines to launch companies including StratoLaunch, Generation Orbit and Phantom Space.

“It’s important to have a common vehicle-agnostic engine, that an industrial base can put tanks on top of and be able to get you the type of responsive launch that you’re looking for,” Pellicore said.

In addition to supplying launch companies, Ursa Major sees hypersonic weapons as an area where it can play an important role for the Pentagon.

“There’s nobody that’s just focusing all of their time, effort, energy, and talent on developing cutting edge next-generation propulsion systems,” Pellicore said. “When it comes to orbital space launch, and hypersonics, 70% of the effort and the magic that goes into those vehicles is in the propulsion system”

Meanwhile, the FTC is giving extra scrutiny to Lockheed Martin’s planned acquisition of Aerojet Rocketdyne.

Boeing has said Northrop Grumman’s 2018 acquisition of Orbital ATK prevented it from placing a bid to build new Intercontinental Ballistic Missiles. Northrop entered the only bid and won the $85bn deal.

This week, Sen. Elizabeth Warren, D-Mass., called on the FTC to release the results of an investigation into whether Northrop complied with a condition of the Orbital acquisition that requires Northrop to sell rocket motors to its competitors. The result of that investigation, Warren said, should factor into the FTC’s decision about whether to approve Lockheed’s acquisition of Orbital.

“If the investigation is ongoing, then I urge the FTC and the DOD to complete that investigation and consider its findings when deciding whether to approve any similar vertical transactions, including Lockheed Martin’s proposed acquisition of Aerojet Rocketdyne,” Warren wrote in a July 16 letter to FTC Chair Lina Khan.

Raytheon Technologies, which openly opposes Lockheed’s acquisition of Aerojet, is based in Warren’s home state of Massachusetts. (Source: Defense One)

 

22 Jul 21. Dassault reports stronger earnings on military deliveries. Dassault Aviation (AVMD.PA) reported higher sales and profits in the first half of the year as stronger military activities offset a drop in business jet deliveries.

The maker of Rafale warplanes and Falcon business jets saw operating income more than treble to 175m euros ($206m) from 55m in the first half as net sales rose to 3.1bn euros from 2.64bn.

The business aviation market shows “encouraging signs of improvement,” particularly in the United States, Dassault said in a statement.

“Nevertheless, we note that price pressures remain,” it said, although it described the market for second-hand jets as buoyant.

Dassault delivered six Falcon business jets in the first half of the year, down from 16 in the same period of 2020, and took orders for 25 jets, up from 5 a year earlier. It delivered 13 Rafale jets for export to India and Qatar. The company continues to target 25 new Rafale and an equal number of new Falcon deliveries in 2021, as well as higher net sales. Dassault said on Wednesday it had delivered the first of six brand-new and 12 second-hand ex-French military Rafale combat jets sold to Greece earlier this year. ($1 = 0.8498 euros) (Source: Reuters)

 

23 Jul 21. MAKS 2021: Kazakh firm takes stake in Russian aircraft manufacturer. Kazakhstan Aerospace Industries (KAI) has taken a 20% stake in Russian aircraft manufacturer Baikal-Engineering, the Kazakh government’s Ministry of Industry and Infrastructure Development (MIID) announced on 22 July, with an agreement signed at the MAKS 2021 airshow in Zhukovsky near Moscow.

Baikal-Engineering is a subsidiary business of Ural Civil Aviation Works and was established to develop the replacement for the venerable Antonov An-2 ‘Colt’, which is widely used in regional aviation. First produced in 1947, Janes data shows that an estimated 67 are still in military service with countries including Mongolia, Guinea, and Ukraine. A further 260 aircraft built under licence in China are in service with China and North Korea. The new replacement aircraft, designated the LMS-901, is to be an aluminium-based aircraft with the same short take-off and landing (STOL) capabilities of the An-2. According to the specifications laid out by the Russian government at the time of the development contract award in 2019, the aircraft will have a cruising speed of at least 300km/h, a maximum take-off weight of 4,800kg, and be able to carry nine passengers. The target cost per aircraft was not to exceed RUB120m in 2020 values (then-USD1.6m), with an operating cost of RUB30,000 per flight hour. Testing is scheduled for 2021, with certification to be achieved in 2022 ahead of serial production in 2023. An unmanned version of the aircraft is planned for 2024. (Source: Jane’s)

 

23 Jul 21. Armscor Quo Vadis? Armscor, according to its chief executive, is “fully aware the days of transfer payments are diminishing” with ways and means to generate own revenue the watchword at the State-owned company. Writing in the latest edition of “In and Out”, the official Armscor newsletter, Solomzi Mbada has it the Erasmusrand, Pretoria headquartered organisation had to “quickly adapt to a changing environment fuelled by declining budget cuts as a result of an over-stretched national fiscus. We are expected to do more with less in order to deliver on our mandate as defined in the Armscor Act”.

This, according to him, sees the Armscor board “hard at work to find viable ways to take advantage of market opportunities”.

Armscor’s annual performance plan for the current financial year, published in March, has it the State-owned entity, which resorts in Defence and Military Veterans Minister Nosiviwe Mapisa-Nqakula’s sphere of responsibility, will issue 71 tenders for the wider South African government defence and security sectors before 31 March next year.

Among items listed in the annual performance plan (APP) are any number with basic day-to-day applications for businesses in the wider economy. These include digitisation of records, replacing computer equipment, a unified computing system (UCS) replacement, multi-functional printers and external legal advisors.

When it comes to the nuts and bolts of defence equipment and materiel, the APP list is thin with the Simon’s Town dockyard set to receive new equipment ranging from specialist services for submarine refits and “survey of submarine” to replacement brakes for the synchrolift, capstan repair and servicing, a forklift and “procurement of docking wood”.

The SA Army will be able to better keep its fleet of Olifant tanks clean if a suitable supplier is found for an item termed simply “tank cleaning equipment”.

The Armscor tender portal currently lists just one – a request for offer for the sale of general ship equipment – while there are 13 tenders running with closing dates mostly in August.

Cancelled tenders – also 13 – make for interesting reading. Among them are what is only listed as “onboard installation on three Valour Class frigates” (classified as restricted), supply of Armscor branded souvenirs, a 24 hour security service at Protechnik in Centurion’s Highveld Park, a professional business intelligence service provider, a “co-source partner” for Armscor’s internal audit operation as well as for a new seven-seater vehicle and “procurement of six PC work stations”, also a restricted tender.

Armscor has, according to its tender portal, withdrawn 23 tenders. These include ammunition recovery and disposal at Alkantpan; procurement of weapons systems, withdrawn and no information on what was asked for; a video conferencing system; as well as cleaning, security and gardening services and a feasibility study for a ballistic research test range (presumably planned for the Gerotek facility west of Pretoria as a compulsory pre-tender meeting was scheduled for there). This tender was issued in November 2018, withdrawn a month later and does not appear in the latest tender list.

While not saying it in as many words, African Defence Review (ADR) director Darren Olivier maintains time is ripe for an overhaul at Armscor as well as other components of South Africa’s defence and security manufacturing and supply chains.

Explaining his thinking,he told defenceWeb: “The ongoing budget crisis, caused by a severe mismatch between size, force design, mandate and assigned missions of the SA National Defence Force (SANDF) and the budget it is actually given, can only be resolved by a top-to-bottom rethink of what defence means to South Africa and how it fits into foreign policy, industrial and other strategies.

“This should start with a White Paper and lead into a full new Defence Review with decisions binding on all relevant departments including National Treasury.

“As part of that the role and structure of Armscor needs to be reviewed as well to determine how much of it remains fit for purpose in a downscaled state of defence ambition, what savings can be accrued and whether some of its research and development functions should be combined with the CSIR into a unified Defence Evaluation Research Institute (DERI).”

Olivier is adamant “attempting reform by tasking each organisation and institute with determining and executing own strategies is insufficient for the magnitude of the problem”.

“Bolder action is needed if we’re to save certain defence capabilities from total loss.” (Source: DefenceWeb)

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