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06 Aug 21. Caley Ocean Systems and IMES International become part of Pryme Group.
- Integrated service offering to support UK’s energy transition
- Merger increases regional footprint of group to service key energy hubs
- Growth expected as the combined business diversifies its service offering
Caley Ocean Systems and IMES International (previously part of Seanamic Group) have merged with Pryme Group today to create a business with broad capabilities supplying products, services and solutions to the energy, defence and other industrial markets. Caley Ocean Systems has 50 years’ experience of designing, manufacturing and testing offshore handling systems used in launch and recovery systems, pipe deployment, davits and deep-water lowering. Most recently, it has developed tooling and foundation gripper for the offshore wind sector. Caley provides full project management services and flexible on-site support for lifecycle maintenance and asset management, as well as equipment and personnel deployment.
IMES International delivers an independent inspection, monitoring and testing service for fixed and loose lifting equipment, and engineering design consultancy. The company’s innovative technology assists with integrity assurance, ultimately ensuring complete confidence with regulations and extending an asset’s lifetime.
The merger will expand the capabilities of the group across design, engineering, project management, assembly, testing and servicing, as well as proprietary high-pressure liquid and gas equipment and specialist lifting solutions. In addition to strengthening its offering to the sectors it already services including oil and gas, the merger will allow the group to extend its services in the renewables and nuclear markets.
Pryme Group, which is headquartered in Dundee, Scotland is now able to offer an on-the-ground presence and technical capabilities from key locations across the UK including Aberdeen, Dundee, Ellon, Glasgow, Morecambe, Newcastle, Plymouth, Portsmouth, Renfrew, Rosyth and Sheffield, through a team of 260 people.
This regional expansion made possible by the merger will see the group’s customers benefit from an increased service offering, rapid mobilisation of products and service delivery, and specialist in-person customer support across the UK.
Kerrie Murray, who has been CEO of Pryme Group since 2020, will lead the new integrated business following the merger commented: “The combined business will have a greater regional footprint with broader resources and capabilities, enabling Pryme Group to support larger and more complex projects than ever before. This will create a strong, resilient business, well positioned to support customers across a range of sectors from energy to defence to industrials. By bringing these successful businesses together, we have the opportunity to grow the group, invest in our people, strengthen the range of products, services and solutions for our customers, and extend our offering in new areas such as the energy transition. Renewable energy capacity in the UK is expected to more than double by 2030, and we have the capabilities and experience within the group to support this important move to clean energy sources.”
David Hutchinson, will take on the role of Director of Business Development of the newly combined business but will also retain his role as CEO of Seanamic Group and Flexlife. He said, “I am excited to take on the Director of Business Development role at Pryme Group, where I will assume responsibility for the group’s sales, marketing, and tendering activities. The combined capability of this new group is vast, and so my focus will be expanding the group’s presence into new and existing markets, as well as showcasing our combined product and service offering.”
Simmons Private Equity (“SPE”) is the majority shareholder for both Pryme Group and Seanamic Group. The firm will continue in that role post merger. Jason Smith, a director at SPE and member of the Pryme Group board, commented:
“At Simmons Private Equity, we are focused on driving the growth of our companies through diversification. Through this merger, we are creating a market-leading manufacturing and testing company with the critical mass to support multiple industrial sectors, which includes oil and gas, offshore wind, defence and nuclear, as well as the critical work needed to accelerate the energy transition. All three companies have already established strong footholds in these growing markets, and we will target further growth in these areas as an enlarged, and enhanced group. In particular, energy transition related markets represent a key growth opportunity for the group with over 30% of the current order book emanating from this market, which is forecast to grow in the coming years. We are confident that by uniting the companies together as one team, we will unlock further value, improving the customer experience, and allowing us to grow the business in terms of sales opportunities and the benefits that come with a service offering with such synergies.”
04 Aug 21. Moog & S3 AeroDefense Expand Global Relationship. Moog, a world leader in customized, high-performance control systems and products continues to enhance its strong six-year relationship with S3 AeroDefense. Recently, the two companies renewed their agreement to appoint S3 as distributor of Moog UH-60 components and systems in multiple countries. The scope of the relationship will increase over 300%, with the opportunity for future growth between the two companies.
“We are very proud and honored to have this growing relationship with Moog. The collective team has been a thrill to work with… all the creativity, collaboration, and focus on customer satisfaction has been truly wonderful,” said Paul McBride, Vice President of Global Business Development, S3 AeroDefense.
“Moog is proud of our global support of the UH-60 portfolio. S3 Aero Defense’s experience in the UH-60 community provides Moog Aircraft with a great opportunity to enhance our existing customer support,” said Paul Blunden, Director International Military Sustainment for Moog Aircraft Group.
Based on Moog’s legacy as an industry leader, the agreement with S3 supports S3’s position in the AeroDefense market as the go-to for services, spares, and solutions worldwide. In addition to the distribution agreement, S3 is a Moog Authorized Repair Center. Paired with S3’s dedication to exceptional customer support, this agreement will provide fleets worldwide with the trusted supplies necessary to complete every mission.
About S3 AeroDefense:
Headquartered in Milwaukee, Wisconsin, S3 AeroDefense is a recognized Worldwide leader in providing aircraft spares, component repair services and supply chain solutions to Military Aircraft Operators. Since its inception in 2005, S3 has been focused on quality, innovation and dedication to exceptional customer support. With a focus on OEM strategic distribution, S3 is the trusted solution provider to Customers and OEMs. (Source: PR Newswire)
04 Aug 21. Triumph Group Reports First Quarter Fiscal 2022 Results.
Reports Organic Growth of 11%; Provides Full Fiscal Year 2022 Guidance. Triumph Group, Inc. (NYSE: TGI) (“Triumph” or the “Company”) today reported financial results for its first quarter fiscal year 2022, which ended June 30, 2021.
First Quarter Fiscal 2022
- Net sales of $396.7m
- Operating income of $20.8m with operating margin of 5%; adjusted operating income of $31.3m with adjusted operating margin of 8%
- Net loss of $30.4m, or ($0.47) per share; adjusted net income of $5.9m, or $0.09 per diluted share
- Cash flow used in operations of $149.5m; free cash use of $151.6m
- Strengthened balance sheet through the retirement of $349.0m of debt
Full-Year Fiscal 2022 Guidance
- Net sales guidance of between $1.5bn – $1.6bn
- GAAP earnings per diluted share of between ($0.15) – $0.05
- Adjusted earnings per diluted share of between $0.41 – $0.61
- Cash flow used in operations of between $110.0m – $125.0m and free cash use of $135.0m – $150.0m
- Cash flow expected to be positive over the remainder of fiscal 2022
“Triumph delivered solid first quarter results with organic net sales up 11% compared to the prior year, driven largely by increased demand in commercial aviation, which translated into higher orders for maintenance, repair and overhaul work,” stated Daniel J. Crowley, Triumph’s chairman, president and chief executive officer. “Profitability on an adjusted basis improved year over year across both business units.”
Mr. Crowley continued, “During the quarter, we retired several non-recurring cash uses and are on track to complete the 747 production later this month. We strengthened our balance sheet in the quarter by reducing our debt and have no substantive repayments until 2024. With most of our transformation milestones behind us, Triumph today is a more predictably profitable company and we expect to be cash flow positive over the balance of the year. Improvements in the broader market coupled with the positive momentum we are seeing across Triumph has enabled us to initiate guidance for fiscal 2022. As we accelerate our organic growth, we remain committed to conserving cash and partnering with our customers to deliver value to all our stakeholders.”
First Quarter Fiscal Year 2022 Overview
After accounting for the impact of the divestitures and sunsetting programs, sales for the first quarter of fiscal year 2022 were up 11% organically from the comparable prior year period due to increased maintenance, repair and overhaul work. The consolidated decline was driven by planned reductions on sunsetting and divested programs.
First quarter operating income of $20.8m included $6.0m loss on sale of assets and businesses and $4.5m of restructuring costs associated with facility exits. Net loss for the first quarter of fiscal year 2022 was $30.4m, or ($0.47) per share. On an adjusted basis, net income was $5.9m, or $0.09 per share.
Triumph’s results included the following:
The number of shares used in computing diluted earnings per share for the first quarter of 2022 was 65.0m.
Backlog, which represents the next 24 months of actual purchase orders with firm delivery dates or contract requirements, was $1.9bn, down slightly as expected on a sequential basis due to sunsetting programs and recent production rate reductions, but partially offset by military program increases in Systems & Support.
For the first quarter of fiscal year 2022, cash flow used in operations was $149.5m, which included liquidation of approximately $42.0m in prior period advances.
Based on anticipated aircraft production rates, but excluding the impacts of any potential divestitures, the Company expects net sales for fiscal year 2022 will be approximately $1.5bn to $1.6bn. The Company expects GAAP fiscal year 2022 earnings per diluted share to be ($0.15) to $0.05 and adjusted earnings per diluted share to be $0.41 to $0.61. The Company expects fiscal year 2022 cash used in operations of $110.0m to $125.0m and free cash use to be $135.0m to $150.0m. The company expects to be cash flow positive over the balance of the fiscal year. The Company’s current outlook reflects adjustments detailed in the attached tables, but excludes the impacts of any potential future divestitures. (Source: PR Newswire)
05 Aug 21. Boeing, AeroEquity Industrial Partners Launch Platform to Shape the Future of Aerospace Venture Capital Investing. Boeing [NYSE: BA] and AeroEquity Industrial Partners (AEI) today announced a strategic partnership to expand Boeing’s venture capital investing in mobility, space and connectivity, industrial tech and enterprise digital solutions, with a broader emphasis on sustainability.
The partnership brings together Boeing’s aerospace and technology innovation and its HorizonX Ventures platform with AEI’s operational and private equity investing experience to establish an independent and expanded venture capital group, AEI HorizonX.
“We’re excited to launch this transformative and first-of-its-kind business innovation with AEI that will expand the horizon for HorizonX and double down on our commitment to early stage technology innovation,” said Marc Allen, chief strategy officer and senior vice president of Strategy and Corporate Development at Boeing. “The partnership with AEI and future partners broadens our investor base, enables HorizonX to invest at a rapid pace and gives Boeing access to more outside innovation than ever through this investment collaboration.”
Boeing launched HorizonX in 2017 to invest in and connect with early stage companies specializing in transformative aerospace technologies. The team has developed a portfolio of 40 start-ups from around the world through minority investments and matching the companies with Boeing’s engineering resources.
AEI is a leading capital provider to the aerospace industry with more than $3.5bn in assets under management, a strong track record of financial performance and the ability to raise funds and expand its mission of supporting world-class entrepreneurs, inventors and disruptors.
“As a specialist investment firm with a focus on aerospace and industrial markets, AEI is constantly monitoring technology innovations that will drive transformational change and reimagine the future of our industry,” said David Rowe, managing partner at AEI. “The AEI HorizonX platform will provide us with a foundation to build out a new investing pillar focused on transformative businesses and technologies critical to the evolution of our target markets and their impact on the environment. We are excited to partner with Boeing to invest in a more sustainable future.”
The current HorizonX Ventures team, led by Brian Schettler, and its current portfolio will move to AEI HorizonX to build this next-generation ventures platform. Schettler will lead the new platform and become a partner at AEI. Boeing will continue to be a long-term strategic investor in AEI HorizonX and remain the anchor investor for the current fund and AEI HorizonX’s first standalone fund planned for 2022. The current fund will continue to provide follow-on capital to its existing portfolio, as well as making select new investments as the fund continues to mature.
Boeing will partner with AEI HorizonX through its Enterprise Technology Office and Applied Innovation team. The two will maintain a technology pipeline with portfolio companies and continue working with the startups regularly to connect portfolio companies with Boeing’s technical capabilities and help bridge the new innovations into the company. Boeing’s global accelerator programs will remain within Boeing, and the company will continue to partner with the aerospace industry and government stakeholders to identify and support the most promising early stage companies. These engagements will include the participation of AEI HorizonX.
05 Aug 21. Lockheed reduces pension woes by nearly $5bn, forecasts hit to profit on actuarial changes Lockheed Martin Corp (LMT.N) said on Tuesday it would cut its pension liabilities by about $4.9bn and revised down its forecast for the full-year due to actuarial losses it expects to incur.
The U.S. weapons maker has purchased group annuity contracts from Athene Holding Ltd (ATH.N) and will transfer pension obligations and related plan assets for about 18,000 U.S. retirees and beneficiaries to the retirement services provider.
Lockheed will take a non-cash charge related to actuarial losses of about $1.7bn in the third quarter.
The company now expects full-year earnings of $21.95 to $22.25 per share, down from its prior forecast of $26.70 to $27.00.
The contracts were purchased using assets from Lockheed’s master retirement trust and no additional funding was used, said the company.
There will be no changes to the benefits received by retirees and beneficiaries, Lockheed said. (Source: Reuters)
05 Aug 21. TT Electronics Interim Results for the half-year ended 30 June 2021. Strong momentum, good margin progression and further increase in full year profit expectations.
- Record order book and continued strong order intake with good visibility building for 2022
- H1 book to bill of 134%
- Significant new customer wins, reflecting focus on structural growth markets underpinned by megatrends and ESG drivers
- Revenue up 16% for the period on a constant currency basis, 12% on an organic basis
- Successful self-help programme remains on track to deliver expected savings at reduced cost
- Adjusted operating profit up 27% benefiting from growth, self-help programme and M&A
- Adjusted operating margin improved to 6.7% and run rate margin higher at 8.0% excluding Virolens start-up costs
- Statutory operating profit increased to £9.3m, statutory basic EPS of 3.3p
- Interim dividend of 1.8p per share reflecting confidence in outlook
- Order and sales momentum continue; 2021 expected revenues already fully covered
- Confident in medium term outlook and further modest increase in full year profit expectation
- Anticipate strong improvement in adjusted operating margin and cash conversion in H2
- Increased visibility in our path to deliver double digit Group operating margins
05 Aug 21. Hensoldt revenue records 10% jump in first half of 2021. The Hensoldt first-half revenue increased to €486m from €440m last year, driving on strong order intake. Hensoldt reported an order intake of €2.1bn in first half of 2021. In picture, a hexacopter on display at Hensoldt Group, Paris Air Show 2019. Credit: Matti Blume / Wikimedia.
German defence technology company Hensoldt has reported a 10% revenue increase in the first half of 2021 on a year-on-year (YOY) basis.
In the first six months of the year, the company’s revenue totalled €486m. The figure was €440m in the same period a year ago.
The increase was attributed to strong order intake in H1 2021, which includes a landmark contract from Germany for the supply of airborne electronic signals intelligence system Pegasus.
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Order intake in the first half of this year totalled €2.1bn, up 19% from €1.77bn recorded in the same period last year.
Adjusted EBITDA was €44m, beating the company’s own expectations.
Concurrently, Hensoldt confirmed its guidance for the year 2021. The company expects currency- and portfolio-adjusted revenues of between €1.4bn and €1.6bn and an adjusted EBITDA margin of around 18% for the full year.
Hensoldt chief financial officer Axel Salzmann said: “We are very proud that we were able to exceed our own high expectations. We see that the advised project pipeline is reflected in our order books.
“In addition, we are consistently converting our order backlog into revenue without losing sight of our costs. Therefore, we can confirm the guidance for all KPIs for the full year 2021.”
Hensoldt CEO Thomas Müller said: “We are very pleased that we have been able to accelerate our growth momentum once again. The first half of 2021 proves that as a high-tech provider of electronic and optronic sensor solutions, we are an integral part of many procurement programmes.”
Recently, Hensoldt secured a contract to deliver new radars to the German Armed Forces. (Source: army-technology.com)
05 Aug 21. Rheinmetall: Record result in the first half of the year – consolidated sales grow by around 9%.
– Consolidated sales grow by around 9%
– Consolidated sales grow by around 9% to €2,582m
– Consolidated operating result nearly doubles, setting new record high for the first half of a year at €191m
– Order intake in military vehicles reaches nearly €2bn
– Sales with civilian products grow by more than 30%
– Booked business in civilian business of €1,278m
– Operating free cash flow improves by €342m
– Earnings per share from continuing operations increase from €0.32 to €2.50
– Group forecast for 2021: sales growth 7% to 9%, operating margin 9% to 10%
The Düsseldorf-based Rheinmetall Group underpins its strategic repositioning with considerable growth in sales in the first half of 2021 and a new record for the operating result in the first half of a year. Thanks in particular to a significant recovery in the business with civilian products, the technology group succeeds in nearly doubling its operating result year on year.
At the same time, Rheinmetall achieves important successes in the business with military customers in Germany as well as abroad. Major orders for military vehicles worth nearly €2bn were acquired in the first half of the year.
Rheinmetall is now presenting half-year figures for the first time since its strategic reorientation at the beginning of the year, which reflect the new five-division structure following the scrapping of the former segmentation. With this new positioning, Rheinmetall is focusing more on forward-looking technologies and business areas with high potential for a sustained increase in value. The previous small- and large-bore pistons business will not be continued and is being sold.
Armin Papperger, Chief Executive Officer of Rheinmetall AG: “Our very good operating result shows that we are on the right track with our repositioning as an integrated technology group. We are successful in the markets and have our costs well in check. We have set a new record high for the operating result in the first half of a year. This makes us very confident about the coming months and fiscal 2021 as a whole.”
Rheinmetall increased its consolidated sales by €210m or 8.9% year-on-year to €2,582m in the first half of 2021 (previous year: €2,372m). Adjusted for currency effects, sales growth was 9.3%. The sales increase in the Group is due mainly to the considerable recovery of the global markets.
The Rheinmetall Group posted a significant improvement in the operating result in the first half of 2021. Compared with the previous year’s figure of €96m, the result nearly doubled to €191m. In addition to the positive sales performance, this improvement was particularly due to cost reduction measures that the management initiated back in 2020 to counter the negative effects of the coronavirus pandemic. The operating margin likewise considerably improved from 4.1% in the previous year to 7.4%.
Accordingly, earnings per share for continuing operations also developed positively, rising from €0.32 in the same period of the previous year to €2.50.
Operating free cash flow improved by €342m to €-46m in the first half of 2021. This positive development mainly resulted from the earnings increase and a comparatively low increase in working capital.
At €870m, sales in the Vehicle Systems division, which operates in the sector of military wheeled and tracked vehicles, were down around 4% in the first half of 2021 compared to the same period of the previous year. This was particularly due to the expiration of a tactical vehicle project. Thanks to three new major orders, the order intake in the division rose sharply by €1,425m year-on-year to €1,973m. Particularly notable here is an order from the UK for the modernization of the army’s fleet of battle tanks with a volume of approximately €770m, which was booked in the second quarter. There were also major orders from the German armed forces for new armoured engineer vehicles and the modernization of Puma infantry fighting vehicles with a total volume of around €800m.
The division’s order backlog thus reached a record €10.5bn as at June 30, 2021.
Due to the sales decline and the product mix in the first half of 2021, the operating result decreased by €19m from €84m in the previous year to €65m. The operating margin amounted to 7.5% after 9.3% in the same period of the previous year.
Weapon and Ammunition
The Weapon and Ammunition division generated sales of €471m with its weapon system and ammunition activities in the first half of 2021, up 6% on the figure for the previous year. This growth is primarily the result of greater ammunition deliveries to an international customer. At €429m, the order intake fell short of the high figure for the first half of 2020 (€624m), which was positively influenced by a large single order for the delivery of artillery propellants. As at the end of the first half of the year on June 30, 2021, the order backlog amounted to €2.7bn (June 30, 2020: €2.4bn).
The division’s operating result improved by €32m from €15m in the previous year to €47m in the first half of 2021. This increase was influenced mainly by the sales growth and a positive product mix effect. The operating margin was 10.0% (previous year: 3.4%).
With sales of €362 m, the Electronic Solutions division, which develops and produces solutions in the field of defence electronics, was down 9% compared to the first half of 2020. This is primarily attributable to the expiration of a soldier systems project for the German armed forces. There was an upward trend in order intake, which rose by €18m from €426 m to €444m. This equates to an increase of 4% compared with the previous year’s figure. As at June 30, 2021, the division’s order backlog amounted to €2.4bn (June 30, 2020: €2.2bn).
Despite the decline in sales, the division’s operating result was level with the previous year at €29 m thanks to a better product mix. The operating margin improved slightly from 7.3% in the previous year to 8.0% in the first half of 2021.
Sensors and Actuators
Sales in the Sensors and Actuators division, which does business with its components and control systems for reducing emissions and for thermal management, rose by around one-third and amounted to €697m in the first half of 2021. After €521m in the same period of the previous year, this is growth of 34%. The growth mainly resulted from a considerable increase in customer call-offs as compared to the same period of the previous year, which was impacted by the pandemic. However, contrary effects arose in the second quarter of 2021 due to the global shortage of electronic components, which led important customers to limit their production.
Booked business for the first half of 2021 – in other words the future sales potential from customer projects based on written agreements and framework contracts – amounted to €951m, a slight decline on the previous year’s figure of €982m. Around half of the bookings were attributable to new projects and around half to extensions or increases in the volume of ongoing projects.
The operating result in the division improved considerably from €-16m in the previous year to €51m in the first half of 2021. This equates to growth of €67m. This increase is attributable firstly to the growth in sales and secondly to the measures introduced to reduce costs in the wake of the coronavirus pandemic. Accordingly, the operating margin increased to 7.3% after -3% in the same period of the previous year.
Materials and Trade
The Materials and Trade division, which supplies plain bearings and structural components and conducts global aftermarket business, also increased its sales by around one-third in the first half of 2021. The division’s business volume increased to €320m after €243m in the first half of 2020. The year-on-year growth thus amounts to 32%.
In the first half of 2021, booked business grew to €327m, representing an increase of 18% on the previous year. The share of booked business attributable to new customer projects came to over 90%.
The division’s operating result of €27m in the first half of 2021 increased significantly compared with the same period of the previous year, which was impacted by the COVID-19 crisis. In the first half of 2020, it amounted to €3m. The operating margin rose to 8.5% (previous year: 1.2%).
Forecast for 2021 confirmed
In view of the continuing uncertainty in the macroeconomic environment and given the situation on the procurement markets, Rheinmetall confirms the forecast for fiscal 2021 adjusted to the new reporting structure in the quarterly report for the first quarter of 2021.
For 2021 as a whole, Rheinmetall therefore expects operating sales growth for continuing operations of between 7% and 9% (pro forma sales in 2020: €5,406m). Rheinmetall continues to forecast an operating margin for continuing operations of between 9% and 10% (pro forma margin in 2020: 8.4%).
Forward-looking statements and projections
This publication includes forward-looking statements. These statements are based on Rheinmetall AG’s current estimates and projections and information available at this stage. Forward-looking statements are not a guarantee of future performance. They depend on a number of factors, include various risks and uncertainties and are based on assumptions that may prove to be incorrect. Rheinmetall is under no obligation to update the forward-looking statements in this publication.
05 Aug 21. Rolls-Royce Holdings Plc 2021 Half Year Results. Delivering on financial priorities and looking forwards to a lower carbon future.
- Good start to the year with improving cash flow and profits from continuing operations
o Underlying operating profit £307m, up from a £(1,630)m loss in 2020 H1
o Free cash flow £(1,174)m, significantly better than prior year (2020 H1: £(2,862)m)
o Strong liquidity position with no maturities before 2024
- Focused on delivering to plan and driving results
o Restructuring delivering results and expected to achieve >£1bn savings in 2021
o Disposal programme progressing well towards targeted proceeds of at least £2bn
o Target to turn free cash flow positive during the second half 2021
o On track to improve FY2021 free cash flow to approximately £(2.0)bn (2020: £(4.2)bn)
*Net zero pathway launched confirming our targets and commitment to play a leading role in the transition of the markets we serve to net zero carbon emissions by 2050
Warren East, Chief Executive said: “Our continued focus on the elements within our control, together with a good performance from Defence and order intake recovery in Power Systems have enabled us to deliver solid progress in the first half. The benefits of our fundamental restructuring programme in Civil Aerospace are evident in our reduced cash outflow and improved operational efficiency. This leaner cost base together with a strong liquidity position gives us confidence in our ability to withstand uncertainties around the pace of recovery in international travel and benefit from the eventual rebound. We are making disciplined investments in the new opportunities to drive future growth, particularly in net zero power where we are leading the way with innovation and engineering excellence. Our net zero pathway and targets, announced in June, set out our plan to enable the sectors in which we operate achieve net zero by 2050 by driving step-change improvements in engine efficiency, helping accelerate the take-up of sustainable fuels and developing new technologies.”
Business unit underlying performance summary
Underlying performance excludes the impact of period-end mark-to-market adjustments, the effect of acquisition accounting and business disposals, impairment of goodwill and other non-current and current assets, and exceptional items. Adjustments between the underlying income statement and the reported income statement are set out in note 2 in the condensed consolidated interim financial statements on page 28.
are presented net of internal sales and related consolidation adjustments.
Group underlying revenue from continuing operations of £5.2bn, down 2%, reflected a more balanced contribution from the business units compared with the prior period. It included a positive £160m Civil Aerospace LTSA revenue catch-up compared with a £(866)m negative revenue catch-up in first half 2020.
Group underlying operating profit from continuing operations of £307m included significant cost savings from the restructuring programme, primarily in Civil Aerospace, and favourable timing and mix of activity in Defence and Power Systems. The prior period comparative underlying loss of £(1.6)bn included £(1.2)bn of one-off charges mostly related to the impact of COVID-19 on Civil Aerospace.
In Civil Aerospace, our first half operational performance saw an overall improvement with a recovery in business aviation and domestic large engine flying activity together with substantial cost benefits from our fundamental restructuring programme, which is reducing the size of our cost base by around a third. Large engine LTSA flying hours were 43% of the 2019 level, up from the 34% in H2 2020; 92 large engine major shop visits were completed and 100 large engines were delivered. We have already seen a return to 2019 levels of flying activity for our business aviation engines and for large engines operated on domestic flying routes. However, international travel is recovering more gradually, hindered by global variation in vaccination rates and ongoing travel restrictions. We are continuing to mitigate this through the actions within our control.
Our Defence business continues to perform well with resilient demand that has not been impacted by COVID-19. First half performance benefitted from improving operational performance which enabled the earlier delivery of spare engines and higher spare parts sales, which historically have been more second half weighted. This favourable timing and mix in the first half is expected to result in a stronger first half versus second half performance, hence our full year expectations for Defence are unchanged. Our strong order book in Defence gives us confidence in our outlook with £1.2bn order intake in period and more than 70% of 2022 expected revenues covered by the order book.
In Power Systems, revenues were broadly stable in the first half with an increase in services offset by a reduction in original equipment (OE) deliveries. Operating profit benefitted from a rise in higher-margin aftermarket spare parts, partly offset by low factory utilisation on OE manufacturing. Order intake was up 19% to £1.4bn (2020 H1: £1.2bn), with a 1.2x book-to-bill ratio, showing recovery in our end markets led by demand in marine, governmental and power generation markets. Interest in lower carbon solutions is growing and we are increasing our relative R&D investment in these products. The recovery in OE order intake is expected to be realised as revenue over the next 6-12 months.
Delivering on our commitments
Our ongoing focus on areas within our control – cost reduction, liquidity and operational improvement -enabled us to deliver a significant improvement in first half profit and cash flow while continuing to invest in new products, including new low carbon technology and solutions to decarbonise our end markets.
- Restructuring: We delivered further good progress on our fundamental restructuring programme with around 8,000 roles now having been removed and we expect to deliver more than £1bn of savings in FY2021 as compared with FY2019. This keeps us on track to achieve our aim of a reduction of at least 9,000 roles and run rate savings of more than £1.3bn by the end of 2022.
- Disposal Programme: Our disposal programme, which aims to achieve at least £2bn in proceeds is progressing well. The planned sale of ITP Aero is moving forwards and we continue to work closely with all key stakeholders. Although the disposal of Bergen Engines was interrupted in the first half, we remain committed to its sale and this week announced a new disposal agreement with enterprise value of €63m and €40m cash on its balance sheet will remain with the Group. We expect to complete the disposal of the Civil Nuclear Instrumentation & Control business later this year.
Strong liquidity position and improvement in free cash flow
Our liquidity position is strong with £7.5bn of liquidity including £3.0bn in cash at the end of the half year after repaying the 2021 €750m loan notes and the £300m Covid Corporate Financing Facility (CCFF) loan in the first half. Net debt (before leases) was £(3.1)bn at the period end. This week the Group signed an extension to the 2022 £1bn unused loan facility to 2024, consequently the Group has no debt maturities before 2024 (excluding ITP Aero).
Free cash outflow of £(1.2)bn represented a significant improvement on the prior year period of £(2.9)bn, which included a £(1.1)bn negative impact from the cessation of invoice factoring. The £0.6bn underlying improvement reflected good progress on cost reduction, stronger operating performance and reduced capital expenditure.
Our £2.0bn UKEF-backed 2025 loan facility, which we drew down in the first half, restricts us from declaring or making shareholder payments until 2023. In 2023, payments can resume provided certain conditions are satisfied. Therefore, no interim shareholder payment will be made for 2021.
Our priorities for capital allocation are to rebuild the balance sheet and to invest in the business to grow returns ahead of returning surplus cash to shareholders. We are focused on generating appropriate value on our disposals and improving free cash flow. This will reduce net debt and take us towards our ambition to return to an investment grade credit profile in the medium term.
Outlook and financial guidance
We continue to expect to turn free cash flow positive sometime during the second half of this year and to achieve an improvement in full year free cash outflow to around £(2.0)bn (FY2020: £(4.2)bn). This is driven by our actions to reduce costs, continued strength in Defence, growth in Power Systems and a gradual recovery in Civil Aerospace. Our guidance remains sensitive to the timing of OE concession outflows on already delivered widebody engines, as we previously highlighted in our full year results in March.
Looking further ahead, we are confident that when border restrictions are lifted the recovery of international travel will accelerate. Free cash flow of at least £750m (before disposals) is still achievable in a 12-month period when EFH exceed 80% of 2019 levels, supported by our lower cost base in Civil Aerospace which is now a third smaller. However, based on current industry forecasts for the pace of recovery in international travel, this is likely to occur beyond the initial expected timeframe of 2022. We are positive on the near-term opportunities in Defence and Power Systems and in our new business areas in electricals and small modular reactors (SMR). We will remain agile in our response to external factors, continuing to deliver on our restructuring, rebuilding our balance sheet while investing in our future.
Our net zero commitment and new low-carbon growth opportunities
In June, we announced our net zero pathway setting our short and medium-term targets and showing how we will focus our technological capabilities to play a leading role in enabling significant elements of the global economy to reach net zero carbon by 2050. To achieve this, we are developing new technologies, enabling an accelerated take-up of sustainable fuels and driving step-change improvements in fuel efficiency, within aviation, shipping and power generation. By 2030, we plan to make all our new products compatible with net zero and by 2050 all our products in operation will be compatible.
In addition to meeting the net zero challenge for our existing activities, we are also investing in new opportunities and markets, laying the foundations for future growth beyond our current portfolio.
We are at the forefront of the development of electrical aerospace propulsion systems which are opening up exciting incremental growth opportunities with significant commercial potential. Earlier this year we announced an agreement with Wideroe and Tecnam to power an electric regional aircraft by 2026. We are testing our 2.5MW power generation system for potential use in hybrid-electric aerospace propulsion. Our urban air mobility partner, Vertical Aerospace, took a step forwards in June with the announcement of its planned US listing and up to $4bn in pre-orders for up to 1,000 eVTOL aircraft.
Rolls-Royce SMR power stations have been designed to deliver low cost, net zero carbon nuclear power and are on a pathway to be connected to the UK grid in the early 2030s with the further opportunity of substantial export potential. In addition to stable base load power, they will be able to provide energy for the net-zero manufacture of green hydrogen and synthetic fuels. We are now approaching the second phase of the programme, which will include entering the UK licensing process later this year, supported by new third party investment that unlocks multi-year UK Government matched funding of £210m.
To enable our net zero ambitions and to drive new business growth in low-carbon technologies we are increasing the proportion of gross R&D spend on lower carbon and net zero technologies to 75% by 2025.
Investors Chronicle Comment: Rolls Royce recovery ahead?
Half-year figures for Rolls-Royce (RR.) edged back towards respectability on the back of improved trading within its defence and power systems segments. The aerospace giant booked an underlying operating profit of £307m, against a loss of £1.63bn in H1 2020. Underlying revenue was down 2 per cent, though its core civil aerospace business benefitted from a partial recovery in business aviation. Large engine long-term service agreements (LTSA) flying hours stood at 43 per cent of 2019 levels, up from 34 per cent in H2 2020. That’s progress of sorts. The cost base of the civil aerospace business has been cut by a third due to the restructuring programme, and the group expects to turn free cash flow positive sometime during the second half of this year. There is plenty of headroom with £7.5bn of liquidity including £3.0bn in cash. The defence business continues to impress, though much depends on how rapidly international travel rates recover.
03 Aug 21. Curtiss-Wright Reports Second Quarter 2021 Financial Results; Raises Full-year 2021 Financial Guidance. Curtiss-Wright Corporation (NYSE: CW) reports financial results for the second quarter ended June 30, 2021.
Second Quarter 2021 Highlights:
- Reported sales of $621m, operating income of $95m, operating margin of 15.2%, diluted earnings per share (EPS) of $1.49, and free cash flow of $66m;
- Adjusted sales of $609m, up 14%;
- Adjusted operating income of $95m, up 24%;
- Adjusted operating margin of 15.6%, up 120 basis points;
- Adjusted diluted EPS of $1.56, up 22%; and
- New orders of $679m, up 11%, led by strong demand in our Commercial markets.
Raised Full-Year 2021 Financial Guidance:
- Adjusted sales increased by $15m due to ongoing recovery in general industrial market demand; Maintaining overall range of 7% to 9% sales growth;
- Adjusted operating income increased to new range of 9% to 12% growth (previously 9% to 11%);
- Adjusted operating margin increased by 10 basis points to new range of 16.7% to 16.8%, up 40 to 50 basis points compared with the prior year; and
- Adjusted diluted EPS increased by $0.05 to new range of $7.15 to $7.35, up 9% to 12%.
“We delivered strong second quarter results, as Adjusted diluted EPS grew by 22%, led by solid sales growth across the majority of our markets, and improved profitability in the Aerospace & Industrial and Naval & Power segments,” said Lynn M. Bamford, President and CEO of Curtiss-Wright Corporation. “We also benefitted from the continued execution of our operational excellence initiatives and savings generated by our prior year restructuring actions to drive continued operating margin expansion. In addition, we continued to direct incrementally higher investments in research and development projects that target the highest growth vectors in our end markets and support our long-term organic growth. Based on our solid year-to-date results and outlook for the remainder of 2021, we have increased our full-year Adjusted guidance for sales, operating income, operating margin and diluted EPS.”
“As we introduced at our recent Investor Day event in May, we are executing with confidence on our new Pivot to Growth strategy to unlock significant value for our shareholders. Through a renewed focus on disciplined, strategic investments and the deployment of our new operational growth platform, we are well-positioned to deliver on our new three-year targets through 2023, which includes a 5% to 10% revenue CAGR, continued operating margin expansion with operating income growth greater than revenue growth, adjusted diluted EPS CAGR at or above 10%, and sustained free cash flow conversion above 110% on average.”
Second Quarter 2021 Operating Results
- Adjusted sales of $609m, up $77m, or 14%;
- Aerospace & Defense market sales increased 11%, led by strong growth in naval defense and the contribution of the PacStar acquisition in ground defense, which more than offset lower aerospace defense revenues;
- Commercial market sales increased 21%, principally due to strong demand in the general industrial market, as well as higher power & process market sales;
- Adjusted operating income was $95m, up 24%, while Adjusted operating margin increased 120 basis points to 15.6%. This improvement was driven by favorable overhead absorption on higher organic revenues in both our Aerospace & Industrial and Naval & Power segments, as well as the benefits of our prior year restructuring and ongoing company-wide operational excellence initiatives, which were partially offset by $5m in higher research and development investments; and
- Non-segment expenses of $10m increased by $2m compared with the prior year, due to higher environmental and other corporate expenses.
Free Cash Flow
- Free cash flow of $66m, defined as cash flow from operations less capital expenditures, decreased $64m, or 49%, principally driven by the timing of collections and tax payments, partially offset by higher net earnings;
- Capital expenditures decreased $1m compared with the prior year, primarily due to lower capital investments as a result of the completion of our new DRG facility within the Naval & Power segment; and
- Adjusted free cash flow of $66m, down $70m, or 51%.
New Orders and Backlog
- New orders of $679m increased 11% compared with the prior year period, generating overall book to bill of approximately 1.1x, driven by strong demand in our Commercial markets, most notably for industrial vehicle products; and
- Backlog of $2.2bn improved slightly from December 31, 2020, principally reflecting the rebound in commercial market demand.
Share Repurchase and Dividends
- During the second quarter, the Company repurchased 100,719 shares of its common stock for approximately $13m;
- Year-to-date, the Company repurchased 206,208 shares for approximately $25m; and
- During the quarter, the Board of Directors declared a 6% increase in the quarterly dividend to $0.18 per share.
Other Items – Business Held for Sale
- During the fourth quarter of 2020, the Company classified its German valves business (previously within its Commercial/Industrial segment) as held for sale and its results have been adjusted from comparisons between our current and prior year results, and full-year financial guidance.
Second Quarter 2021 Segment Performance
Aerospace & Industrial
- Reported results reflected sales of $200m, operating income of $32m and operating margin of 16.0%;
- Adjusted sales of $194m, up $28m, or 17%;
- General industrial market revenue increased by nearly 40%, led by strong industrial vehicle demand for on- and off-highway platforms, and higher sales of surface treatment services due to improving economic conditions;
- Commercial aerospace market revenues were essentially flat, as higher sales of sensors products on narrowbody platforms were mainly offset by lower actuation sales on widebody platforms; and
- Adjusted operating income was $30m, up 138% from the prior year, while Adjusted operating margin increased 800 basis points to 15.7%, reflecting strong absorption on higher general industrial market sales, and the benefits of our ongoing operational excellence and prior year restructuring initiatives.
- Reported results reflected sales of $162m, operating income of $29m and operating margin of 18.0%;
- Adjusted sales of $163m, up $24m, or 17%, principally driven by the contribution from the PacStar acquisition for tactical battlefield communications equipment within our ground defense market;
- Aerospace defense market revenue declined due to the timing of sales of our embedded computing equipment on various programs;
- Higher commercial aerospace market revenues reflect increased sales of avionics and flight test equipment on various domestic and international platforms; and
- Adjusted operating income was $31m, down 8% from the prior year, while Adjusted operating margin decreased 510 basis points to 18.9%, reflecting unfavorable mix in defense electronics and $4m in higher research and development investments.
Naval & Power
- Reported results reflected sales of $259m, operating income of $43m and operating margin of 16.6%;
- Adjusted sales of $252m, up $25 m, or 11%;
- Strong naval defense market revenue growth primarily reflected higher production revenues on the CVN-80 and CVN-81 aircraft carrier programs;
- Higher power & process market revenues reflected increased nuclear aftermarket maintenance supporting existing operating reactors, as well as higher industrial valve revenues to the oil and gas market; and
- Adjusted operating income was $43m, up 13% from the prior year, while Adjusted operating margin increased 30 basis points to 17.2%, driven by solid absorption on higher revenues, as well as the benefits of our prior year restructuring initiatives.
Full-Year 2021 Guidance
A more detailed breakdown of the Company’s 2021 financial guidance by segment and by market, as well as all reconciliations of Reported GAAP amounts to Adjusted non-GAAP amounts can be found in the accompanying schedules. Historical financial results in the new segment structure for 2020 and 2019 periods are available in the Investor Relations section of Curtiss-Wright’s website.
03 Aug 21. L3Harris Reports Strong Second Quarter 2021 Results.
o $4.7bn, up 5.0% versus prior year and 6.2% on an organic1 basis
- Margins and earnings
o Net income margin of 8.8%; adjusted earnings before interest and taxes (EBIT) margin3 of 18.6%
o GAAP earnings per share from continuing operations (EPS) of $2.01, up 55%
o Non-GAAP EPS3 of $3.26, up 15%
- Cash flow and capital deployment
o Operating cash flow of $720m; adjusted free cash flow (FCF)3 of $685m
o Returned $1,057m to shareholders through $850m in share repurchases and $207m in dividends
- Raised 2021 adjusted EBIT margin guidance to ~18.5% and non-GAAP EPS guidance to $12.80 – $13.00
- Signed definitive agreement to sell Electron Devices business for $185m
L3Harris Technologies, Inc. (NYSE: LHX) reported second quarter 2021 revenue of $4.7bn, up 5.0% versus prior year, and up 6.2% on an organic1 basis. GAAP net income was $413m, up 49% versus prior year. Adjusted EBIT3 was $869m, up 7.3% versus prior year, and adjusted EBIT margin3 expanded 40 basis points (bps) to 18.6%. GAAP EPS was $2.01, up 55%, and non-GAAP EPS3 was $3.26, up 15% versus prior year.
“We are now at the 2-year mark for L3Harris and our second quarter results demonstrate the merger’s value creation and operating momentum. Our accomplishments to-date and a continued focus on execution give us confidence to raise guidance for the year,” said Christopher E. Kubasik, Vice Chair and Chief Executive Officer. “As we look forward, a commitment to our strategic priorities along with our differentiated capabilities position us for further value creation over the long term.”
Summary Financial Results
Second quarter revenue increased 5.0% versus prior year and 6.2% on an organic basis, with solid growth across key end-markets as well as growth in all four segments. At the segment level, organic revenue was driven by Integrated Mission Systems and Aviation Systems, up 12% and 4.7%, respectively, and 3.2% growth in both Communication Systems and Space and Airborne Systems. Funded book-to-bill2 was 1.00 for the quarter and 1.05 for the first half.
Second quarter net income margin expanded 250 bps and adjusted EBIT margin expanded 40 bps to 18.6% versus prior year. GAAP EPS increased 55% versus prior year driven by higher volume, operational excellence, integration benefits and a lower share count, along with net divestiture-related gains and lower acquisition-related amortization, partially offset by an increase in asset impairment charges and higher internal investments. Non-GAAP EPS increased 15% versus prior year driven by higher volume, operational excellence, integration benefits and a lower share count, more than offsetting the impact from higher internal investments.
Integrated Mission Systems
Second quarter revenue increased 12% from strong growth in ISR, driven by aircraft missionization on a recently awarded NATO program, and in Maritime from a ramp on key platforms, partially offset by a decline in Electro Optical due to product delivery timing. Second quarter operating income increased 2.2% to $229m, and operating margin contracted 150 bps to 15.3% versus prior year as cost management, operational excellence and integration benefits were more than offset by mix impacts, including a ramp on growth programs.
Segment funded book-to-bill was 0.81 and 1.06 for the quarter and first half, respectively.
ISR award activity continued with over $350m in orders for advanced capabilities across incumbent platforms, including the Rivet Joint reconnaissance, National Command Authority and classified aircraft, further strengthening the company’s position as a partner of choice with the U.S. Air Force.
In Maritime, the company received several key awards that strengthen its position as a leading provider of global maritime solutions, including:
- More than $100m in awards for sensors and shipboard systems on the U.S. Navy’s Virginia and Columbia-class submarines, increasing inception-to-date awards on the platforms to more than $700m
- $60m award to provide engineering support for the Medium Unmanned Surface Vehicle, a key platform in the U.S. Navy’s distributed maritime operations strategy and with significant follow-on opportunity
- More than $50m contract to provide imaging systems on a submarine from a customer in Europe
Within Electro Optical, WESCAM sensor demand remained strong and included a sole-source IDIQ contract for up to $96 m in support of the U.S. Special Operations Command’s Improved Rotary-wing Electro-optical/Infra-red Sensor program. The company also reinforced its international position with over $75m in orders for airborne sensor systems from customers primarily in the European and Asia Pacific regions.
Space and Airborne Systems
Second quarter revenue increased 3.0% versus prior year and 3.2% on an organic basis, primarily due to a ramp on missile defense and other responsive programs in Space, as well as classified growth in Intel & Cyber. Growth from these drivers was reduced by the transition towards Technology Refresh 3 (TR3) production on the F-35 platform in Mission Avionics and lower F-16 volume in Electronic Warfare. Second quarter operating income increased 7.7% to $253m, and operating margin expanded 90 bps to 19.7% versus prior year from operational excellence, including program performance, increased pension income and integration benefits, net of higher R&D investments.
Segment funded book-to-bill was 1.02 and 1.09 for the quarter and first half, respectively.
In Space, the company received several key awards across its ground, responsive and exquisite franchises, including:
- Multiple classified revenue synergy awards totaling more than $200m, leading to new franchises with a total potential value of over $500m
- An award for a telescope system in support of the U.S. Missile Defense Agency’s Next Generation Interceptor program, with a potential value exceeding $70m
- Multi-million-dollar initial award for concept formulation and design of next-generation weather imagers in support of the U.S. National Oceanic and Atmospheric Administration’s future Geostationary and Extended Orbits satellite system, with significant follow-on opportunity
Within Mission Avionics and Electronic Warfare, L3Harris recorded more than $300m in orders on long-term platforms (F-35, F/A-18 and F-16), increasing total orders for the year to approximately $650 m, which included contracts for the initial production lot of the Aircraft Memory System and Panoramic Cockpit Display Electronic Unit under the F-35 TR3 program. The company also received a $58m contract from a customer in the Asia Pacific region for maritime electronic warfare payloads to counter advanced anti-ship missiles, bringing inception-to-date awards to more than $200m.
In Intel & Cyber, the company recorded over $250m in orders primarily for complex mission solutions and specialized communications systems for both domestic and international customers.
Second quarter revenue increased 1.3% versus prior year and 3.2% on an organic basis driven by international demand in Tactical Communications, as well as strong growth in Global Communications Solutions and Integrated Vision Solutions, primarily from the continued ramp in U.S. DoD modernization. Growth from these drivers was partially offset by lower volume on legacy unmanned platforms in Broadband Communications and residual pandemic-related impacts within Public Safety. Second quarter operating income increased 8.3% to $287m, and operating margin expanded 170 bps to 25.5% versus prior year from higher volume, operational excellence and integration benefits.
Segment funded book-to-bill was 1.28 and 1.10 for the quarter and first half, respectively.
Tactical Communications received several key orders that strengthen its global leadership, including:
- $3.3bn, five-year, single award IDIQ from the U.S. DoD to provide radio systems and communications equipment to international countries under the Foreign Military Sales process, with initial task orders totaling more than $80m
- $76m in orders to provide a networked communications system and tactical radios for countries in the Middle East
- $60m for sustainment services and advanced multi-channel Falcon IV® handheld radios for a European country
- $61m in orders from the U.S. Marine Corps for vehicular C4I and radio systems, handheld full-motion video data link production and manpack upgrades
- $19m follow-on order for HF radios in support of the U.S. Army’s network modernization program
In Public Safety, the company was awarded a $451m, 15-year contract from the State of Florida to upgrade and continue operating the Statewide Law Enforcement Radio System for first responders.
Within Broadband Communications, L3Harris received a $57 m contract to provide depot and sustainment services for the Modernization of Enterprise Terminals program.
Second quarter revenue increased 1.1% versus prior year and 4.7% on an organic basis driven by recovering training and avionics product sales within the commercial aerospace business, a ramp in fuzing and ordnance systems in Defense Aviation and higher FAA volume in Mission Networks. The second quarter increase in GAAP operating income was driven by operational excellence, integration benefits, higher volume and the absence of prior-year COVID-related restructuring impacts, net of higher asset impairment charges. Non-GAAP operating income increased 17% to $117m, and operating margin expanded 200 bps to 14.5% versus prior year from operational excellence, integration benefits and higher volume.
Segment funded book-to-bill was 0.90 and 0.87 for the quarter and first half, respectively.
Mission Networks recorded more than $150m in orders on long-term air traffic management contracts, including the FAA Telecommunications Infrastructure and Automatic Dependent Surveillance-Broadcast programs.
Defense Aviation received a $14m initial production award to provide M-Code GPS receivers for a U.S. DoD weapon platform, with more than $500m in total awards to-date, and also recorded approximately $50m in orders for classified and advanced systems.
Cash and Capital Deployment
In the second quarter of fiscal 2021, L3Harris generated $685m in adjusted free cash flow and returned $1,057m to shareholders through $850m in share repurchases and $207 m in dividends.
L3Harris also completed the divestitures of the Military Training and Combat Propulsion Systems businesses, with total gross proceeds in the quarter of $1.45bn.
In addition, L3Harris signed a definitive agreement to sell its Electron Devices business for $185m, bringing total gross proceeds from completed and announced divestitures since the merger to approximately $2.7bn. The divestiture is subject to customary closing conditions, including receipt of regulatory approvals, and is expected to close in the second half of 2021.
L3Harris revised 2021 guidance as follows:
Attempts to contain and reduce the spread of COVID, such as mandatory closures, “shelter-in-place” orders and travel and quarantine restrictions, have caused significant disruptions and adverse effects on the U.S. and global economies, such as impacts to supply chains, customer demand, international trade and capital markets. L3Harris’ response has involved increasing its focus on keeping its employees safe while striving to maintain continuity of operations, meet customer commitments and support suppliers. For example, the company instituted numerous types of precautions, protocols and other arrangements designed to protect employees from COVID infections and to comply with applicable regulations and has also maintained an active dialog, and in some cases developed plans, with key suppliers in an effort to mitigate supply chain risks or otherwise minimize the impacts from those risks. The U.S. Government response to COVID has included identifying the Defense Industrial Base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the Defense Industrial Base, such as by increasing progress payments and accelerating contract awards, which enabled the company to keep its U.S. production facilities largely operational in support of national security commitments to U.S. Government customers (as part of the Defense Industrial Base) and to accelerate payments to small business suppliers, which it expects to continue while the U.S. Government’s responsive actions remain in effect.
Although the company believes that a large percentage of its revenue, earnings and cash flow that is derived from sales to the U.S. Government, whether directly or through prime contractors, will be relatively predictable, in part due to the U.S. Government’s responsive actions described above, the company’s commercial and international businesses are at a higher risk of adverse COVID-related impacts, and the company cannot eliminate all potential impacts to its business from supply chain risks, such as longer lead times and shortages of electronics and other components. For example, the severe decline in global air traffic from travel restrictions and the resulting downturn in the commercial aviation market and its impact on customer operations has significantly reduced demand for flight training, flight simulators and commercial avionics products in the company’s Aviation Systems segment.
The company’s 2021 guidance reflects the company’s current expectations and assumptions regarding COVID-related impacts, including on the U.S. and global economies. These assumptions continue to include a measured assessment of the downturn in the commercial aerospace business and in demand for public safety solutions, as well as additional potential risks from facility shutdowns, supply chain disruptions and international activity weakness. The company’s current expectations and assumptions could change, which could negatively affect the company’s outlook. The extent of these disruptions and impacts, including on the company’s ability to perform under U.S. Government and other contracts within agreed timeframes and ultimately on its results of operations and cash flows, will depend on future developments, including further COVID-related impacts and associated containment and mitigation actions taken by governmental authorities and consequences thereof, and global air traffic demand and governmental subsidies to airlines, and potential impacts to the company’s business from supply chain risks, all of which are uncertain and unpredictable, could exacerbate other risks described in the company’s filings with the SEC and could materially adversely impact the company’s financial condition, results of operations and cash flows. (Source: BUSINESS WIRE)
03 Aug 21. Frequentis acquires local L3Harris subsidiary. The firm has expanded its C4 offering after completing the acquisition of a Melbourne-based L3Harris subsidiary. Austria-based communications firm Frequentis has closed a deal to acquire C4i, as part of a broader US$20.1m ($27.1m) agreement to acquire several L3Harris business units. The acquisition of C4i expands Frequentis’ command and control offering, while also expanding C4i’s access to the global defence market. As part of the acquisition, C4i will operate as an independent brand in the ‘high-end defence trusted supplier market’ with a specific focus on delivering services to customers in the US, Australia, UK, and other allied nations.
“We are delighted that with the closing for C4i we completed the transaction with L3Harris in such a short time,” Frequentis CEO Norbert Haslacher said.
“As a new entity of the Frequentis Group, C4i will significantly reinforce Frequentis capabilities in the very important Australian and US markets for multi-domain cyber secure Defence communications.
“We will combine the strength of Frequentis and C4i mission-critical communication platforms, to provide market leading technology and solutions based on extensive security, compliance and export handling processes.”
Established over 20 years ago, C4i supports a workforce of approximately 80 employees, generating a revenue of almost $23m per annum.
C4i managing director Darren Gardner will continue to lead the independent Frequentis-owned brand, with Martin Rampl, Frequentis Australasia managing director, to support C4i’s integration and future positioning.
“Frequentis will further expand its Defence business in Australia and US with further investment into products and facilities,” Rampl said.
“Australia will benefit from C4i’s sovereign Australian capability and from increased global export opportunities.
“Finally, the close relationship between Australia and the USA will foster enhanced trusted collaboration for US based business.”
Frequentis’ broader arrangement with L3Harris also includes an acquisition of:
- L3Harris’ air traffic management (ATM) voice communications business line;
- Harris Canada System’s ATC Solutions business; and
- a complete acquisition of equity in Bremen-based Harris Orthogon.
Frequentis has also agreed to collaborate with L3Harris on a number of technology sharing arrangements, including the integration of Frequentis’ voice communication products within L3Harris’ business model.
(Source: Defence Connect)
03 Aug 21. Leidos Holdings, Inc. Reports Second Quarter Fiscal Year 2021 Results
– Revenues of $3.4bn, up 18% year-over-year
– Diluted Earnings per Share of $1.18, or $1.52 on a non-GAAP basis
– Net Bookings of $3.8bn (book-to-bill ratio of 1.1) build a strong foundation for growth
– Backlog grows for fourteenth consecutive quarter to $33.5bn, up 9% year-over-year
Leidos Holdings, Inc. (NYSE: LDOS), a FORTUNE 500® science and technology leader, today reported financial results for the second quarter of fiscal year 2021.
Roger Krone, Leidos Chairman and Chief Executive Officer, commented, “Our results in the second quarter reflect our leadership position in the government technology market. I am tremendously proud of the way Leidos has responded throughout the pandemic, as our employees and business partners continually delivered for our customers and shareholders. While we remain vigilant with the recent uptick in COVID-19 cases, Leidos is stronger than ever, with new quarterly record levels of revenue and backlog consistent with our industry-leading organic growth.”
Summary Operating Results
Revenues for the quarter were $3.45bn, up 18% compared to the prior year quarter. Excluding acquired revenues of $58m, revenues increased 16% organically. Revenues grew across all reportable segments; the largest contributors were the increase in veterans’ disability examinations after the pause from the COVID-19 pandemic and the start-up of the Navy Next Generation IT contract.
Operating income for the quarter was $269m, up 8.0% from the prior year quarter. Operating income margin decreased from 8.5% to 7.8% year-over-year as a result of the $81 m net gain recognized upon the receipt of proceeds related to the VirnetX, Inc. (“VirnetX”) legal matter in the second quarter of fiscal year 2020. Net income attributable to Leidos shareholders was $169m, or $1.18 per diluted share. Net income attributable to Leidos shareholders was up 10% and diluted EPS was up 11% from the second quarter of fiscal year 2020. The weighted average diluted share count for the quarter was 143m compared to 144m in the prior year quarter.
Adjusted EBITDA was $359m for the second quarter, up 5% year-over-year; adjusted EBITDA margin decreased from 11.8% to 10.4% over the same period. Excluding the VirnetX gain in the prior period, adjusted EBITDA margin increased by 140 basis points in the quarter, primarily due to strong program management and better direct labor utilization. Non-GAAP net income was $218m for the second quarter, which was down 2% year-over-year, and non-GAAP diluted EPS for the quarter was $1.52, which was down 2% compared to the second quarter of fiscal year 2020. Excluding the VirnetX gain, non-GAAP net income and diluted EPS were both up 37%.
Cash Flow Summary
Leidos generated $17m of net cash provided by operating activities, used $396m in investing activities, and provided $313m by financing activities in the second quarter of fiscal year 2021. After adjusting for payments for property, equipment and software, quarterly free cash flow was an outflow of $4m. The accounts receivable sale program decreased operating and free cash flow by $94m. In addition, consistent with the high levels of organic growth, operating and free cash inflows ran below their typical levels to fund the start-up of new programs and the expansion of existing programs.
During the second quarter of fiscal year 2021, Leidos paid net consideration of $376m to acquire Gibbs & Cox, Inc. (“Gibbs & Cox”), the largest independent ship design firm focused on naval architecture and marine engineering. The acquisition positions Leidos to provide a broad set of engineering solutions to the U.S. Navy and to an expanding set of foreign navies. To finance the acquisition, on May 7, 2021, Leidos entered into a senior unsecured term loan facility in an aggregate principal amount of $380m with a maturity of 364 days.
In addition, Leidos paid down $27m of debt and returned $48m to shareholders as part of its regular quarterly cash dividend program. As of July 2, 2021, Leidos had $338m in cash and cash equivalents and $5.1bn of debt.
On July 30, 2021, the Leidos Board of Directors declared that Leidos will pay a cash dividend of $0.36 per share on September 30, 2021 to stockholders of record at the close of business on September 15, 2021. The $0.02 per share increase in the quarterly dividend reflects Leidos’ confidence in the future outlook and commitment to shareholder returns.
New Business Awards
Net bookings totaled $3.8bn in the quarter, representing a book-to-bill ratio of 1.1. As a result, backlog at the end of the quarter was $33.5bn, of which $7.2 bn was funded. Included in the quarterly bookings were several particularly important awards:
- En Route Automation Modernization (ERAM) System. The Federal Aviation Administration (FAA) has awarded initial tasking as part of a single source contract award to Leidos for the continued system integration, sustainment, and enhancement of the En Route Automation Modernization (ERAM) system. The ERAM system is critical for continued operations in the National Airspace System (NAS) and provides automation services for the en route domain at the 20 Continental United States Air Route Traffic Control Centers. This potential contract has a ten-year base period followed by two five-year option periods and a total estimated value of approximately $6.8bn, if all options are exercised.
- Reserve Health Readiness Program III. Leidos was awarded a new prime contract by the U.S. Army Contracting Command-New Jersey to provide commercial health services to all U.S. military reserve component forces. Under the contract, QTC Medical Services, a Leidos company, will work with the Defense Health Agency program office to help ensure service members meet health requirements before, during and after deployment. Services will include physical, mental health and dental assessments along with laboratory and diagnostic services supported by a secure IT infrastructure and customer service call center. The single award, firm-fixed-price, cost-no-fee contract has a one-year base period of performance followed by four one-year options and a total estimated value of approximately $999m, if all options are exercised.
In addition, Leidos received prime positions on several indefinite delivery/indefinite quantity (IDIQ) contracts that provide competitive differentiation and channels for future growth but are not included in bookings or backlog beyond any awarded task orders. The largest of these IDIQs were:
- Transportation Security Administration Screening Equipment Deployment Services. Leidos was awarded a prime contract by the Transportation Security Administration (TSA) to provide services related to the deployment of Transportation Screening Equipment (TSE). Under the contract, Leidos will conduct surveys while providing on-site coordination, design support, planning and execution for screening equipment installations, relocations and removals. In addition to airports, the contract includes security support for special events, such as presidential inaugurations and spectator events, along with international efforts. The single-award IDIQ award has a total ceiling value of $470.7m.
- U.S. Air Force Intelligence Surveillance Reconnaissance Support. Leidos has been awarded a prime contract by the U.S. Air Force to provide solutions for a broad spectrum of aviation requirements for the Intelligence Surveillance Reconnaissance & Special Operations Forces (ISR/SOF) Directorate (WI), Sensors Division (WIN) Non-Standard Foreign Military Sales (FMS) branches. Under the contract, Leidos will provide a cadre of professionals and tools from across the industry to improve both U.S. and allied ISR capabilities. Leidos will also provide full aircraft and ISR sensor integration, procurement of hardware and spares, sustainment support and inspections for airworthiness/configuration. The multi-award IDIQ contract has a total estimated value of $950 m and includes a 13-year base period of performance with a 10-year ordering period and options up to three years, if exercised. (Source: PR Newswire)
03 Aug 21. AMETEK Announces Record Second Quarter Results and Raises 2021 Guidance. AMETEK, Inc. (NYSE: AME) today announced its financial results for the second quarter ended June 30, 2021.
AMETEK’s second quarter 2021 sales were a record $1.39bn, a 37% increase over the second quarter of 2020, with organic sales growth of 25%. Operating income increased 39% to a record $316.6m and operating margins were 22.8%, up 40 basis points over the prior-year period.
On a GAAP basis, second quarter earnings per diluted share were $1.00. Adjusted earnings were a record $1.15 per diluted share, up 37% versus the prior year’s adjusted results. Adjusted earnings adds back non-cash, after-tax, acquisition-related intangible amortization of $0.15 per diluted share. A reconciliation of reported GAAP results to adjusted results is included in the financial tables accompanying this release and on the AMETEK website.
“AMETEK delivered outstanding results in the second quarter with record sales, operating income and adjusted earnings,” commented David A. Zapico, AMETEK Chairman and Chief Executive Officer. “Sales growth and operating performance were exceptionally strong while earnings exceeded our expectations. Order growth remains robust and broad-based resulting in a record $2.5 bn in backlog. Additionally, our businesses generated outstanding levels of cash flow with free cash flow conversion a strong 114% of net income.”
Electronic Instruments Group (EIG)
Second quarter EIG sales were a record $933.9m, up 44% compared to last year’s second quarter. EIG’s operating income in the quarter was up 42% to $226.6m, and operating margins were 24.3%.
“EIG performed exceptionally well in the quarter with a record level of sales driven by strong organic growth and contributions from the recent acquisitions,” noted Mr. Zapico. “EIG also delivered superb operating performance with operating income up more than 40% and strong core operating margin expansion.”
Electromechanical Group (EMG)
EMG sales in the second quarter were $452.4m, an increase of 24% over the second quarter of 2020. Operating income for EMG increased 33% over the prior-year period to a record $112.4m, and operating margins were up 170 basis points to a record 24.9%.
“EMG had an exceptional quarter with strong sales growth and outstanding operating performance,” commented Mr. Zapico. “Our team’s tremendous efforts during the pandemic positioned us well to benefit from the recovery resulting in robust margin expansion.”
“We are pleased with AMETEK’s performance through the first half of the year. Sales and orders growth has been broad based as the global economy continues its recovery. Our businesses are executing extremely well, generating strong levels of cash flow which firmly position us to continue investing in growth opportunities including strategic acquisitions. This outstanding performance, along with our proven ability to manage well through various economic cycles, reflects the strength and sustainable nature of the AMETEK Growth Model,” continued Mr. Zapico.
“Following our second quarter results, we are increasing our guidance for the year. For 2021, we now expect overall sales to be up approximately 20% with organic sales up approximately 10%. Adjusted earnings per diluted share are expected to be in the range of $4.62 to $4.68, up 17% to 18% over 2020 and an increase from our previous guidance range of $4.48 to $4.56 per diluted share,” he added.
“We expect overall sales in the third quarter to be up in the mid-20% range compared to the third quarter of 2020. Adjusted earnings per diluted share are anticipated to be in the range of $1.16 to $1.18, up 15% to 17% over the same period in 2020,” concluded Mr. Zapico.
AMETEK is a leading global manufacturer of electronic instruments and electromechanical devices with annualized sales of approximately $5.5 bn. The AMETEK Growth Model integrates the Four Growth Strategies – Operational Excellence, New Product Development, Global and Market Expansion, and Strategic Acquisitions – with a disciplined focus on cash generation and capital deployment. AMETEK’s objective is double-digit percentage growth in earnings per share over the business cycle and a superior return on total capital. The common stock of AMETEK is a component of the S&P 500. (Source: PR Newswire)
05 Aug 21. Serco Group plc half year results 2021.
- Revenue(1) grew by 19% to £2.2bn, with organic growth of 15%, a 5% uplift from acquisitions and a 1% FX drag.
- Underlying Trading Profit(2) increased by 58% to £123m; 8%, or £6m, contributed by acquisitions of Facilities First in Australia and WBB in North America.
- Group Margin strengthened from 4.3% to 5.7%.
- Reported Operating Profit increased by 31%.
- Diluted Underlying EPS increased by 75%, reflecting the growth in Underlying Trading Profit, unchanged finance costs and a lower effective tax rate. Reported EPS benefits from one-off credit of £155m on recognition of an increased UK tax asset.
- Free Cash Flow(4) up 61% to £130m, supported by strong cash collections and some favourable timing effects.
- Adjusted Net Debt(5) increased by £82m to £225m in the last 12 months, despite spend of £249m on acquisitions and £40m on share buy-backs. Covenant leverage 1.0x EBITDA (2020: 0.7x).
- Interim dividend of 0.8p per share, the first interim dividend since 2014.
- Order Intake was extremely strong at £4.1bn, 190% book-to-bill. Approximately 60% of the order intake related to new work and 40% contracts being rebid. Pipeline of £5.8bn up 40% year-on-year, and largely rebuilt since the start of the year despite exceptionally strong order intake.
- Order Book increased from £13.5bn at the end of 2020 to £14.1bn.
Rupert Soames, Serco Group Chief Executive, said, “These are very strong results, with revenue up 19%, Underlying Trading Profit up 58%, and Free Cash Flow up 61%. We have had extremely strong order intake, and the book-to-bill ratio was 190%, which bodes well for the future. Our three largest divisions – Asia Pacific, North America and UK & Europe – all delivered good growth, and this reflects both the trust our government customers have shown in us during the pandemic, and Serco’s ability to respond to their requirements with speed and at scale.
Serco has grown very rapidly in the past two years, made possible by the investment we have made since 2014 in transforming our culture, systems and processes, re-gaining the trust of our customers, and building a strong and experienced management team. Over 60% of our profits now come from outside the UK, which reflects the success we have had in developing our businesses around the world. We now employ 83,000 people, which is around 21,000, or a third, more than we did a year ago; notwithstanding this rapid expansion, we have delivered an extremely strong operational performance. In the last six months we have completed two acquisitions, mobilised and trained thousands of people for new contracts, de-mobilised others, and responded with agility to constantly changing customer requirements. At the same time colleagues have had to deal with challenges and sometimes tragedies in their personal lives. For too many, home-life has provided little respite from the pressures of work-life. My respect and admiration for them all is unbounded.
About 17% of our first half revenues were directly associated with the critical work of supporting governments in their response to Covid-19. These revenues will fall away as the pandemic fades; for all our sakes, the sooner the better. In the meantime, our job is to deliver great service and value to governments on these contracts while they are needed, and to wind them down in an orderly manner when they are not. This work, whilst temporary in nature, will leave an enduring legacy for Serco and make it an even stronger company. It has shown our customers that they can trust us to respond at speed and scale to extremely demanding requirements; it has enabled us to invest in the development of systems, processes and skills which will further strengthen what is already a powerful proprietary platform for delivering complex government services. We believe that as a result of Covid-19 related contracts our skills and capabilities will be greater and our reputation with governments will be enhanced. We take the £4bn of order intake we have won in the first half as encouraging early evidence of this, and it will certainly help to cushion the impact of the inevitable wind-down of Covid-19 related work.
For the year as a whole, we expect to deliver Underlying Trading Profit of around £200m, or nearly 30% growth in constant currency. Profits in the year will be weighted to the first half, and will include contributions from the WBB and FFA acquisitions, which will enable us to partially offset the impact of the end of the AWE contract in June, the mobilisation costs of the recently-signed DWP contract, an expected reduction in Covid-19 related activities, and investments in our operating platform.”
Our guidance for 2021 remains unchanged from that stated in our Pre-Close Update on 30 June 2021, except for cash and net debt, which has been updated following the very strong first half performance.
05 Aug 21. Serco profit boosted by Test & Trace contracts. Almost a fifth of its revenue came from Covid related contracts but the company is confident it can maintain momentum after the pandemic is over.
- Efficient billing meant free cash flow was up 61 per cent to £130m
- Manageable debt gives it headroom for future acquisitions
The outsourcer Serco (SRP) has posted a jump in profits off the back of its Covid Test & Trace contract. Covid-19 related contracts made up 17 per cent of its revenues and contributed to a 31 per cent increase in reported operating profit. The company expects revenues to be lower in the second half of the year, as the Covid effect dissipates, but believes the good will it has built up will stand it in good stead.
Organic revenue for the period was up 15 per cent while total revenue grew 19 per cent. This pandemic induced bump in revenue contributed to a 61 per cent boost to free cash flow. The strong free cash flow performance was also helped by the fact that 89 per cent of UK supplier invoices were paid within 30 days. Proving it can quickly turn billings into cash is essential for convincing the market that a Carillion like bankruptcy is unlikely.
A strong balance sheet also protects them and Serco’s net debt and cash profit are in equilibrium, with the former measure up by £82m compared to last year because of £249m worth of acquisitions. However, its net debt/cash profit ratio is still well below its 3.5 times covenant requirement, meaning it has plenty of headroom for future acquisitions.
Since it tried to acquire Babcock (BAB) in 2019, it has shown appetite for deals and the acquisition of US defence business Whitney, Bradley & Brown in February looks shrewd. The US defence budget is unlikely to be cut and President has just asked for a $10bn increase to $715bn for the 2022 budget. This makes the US government a reliable customer.
Serco is currently trading at a 12 month forward PE ratio of 13.9 compared to 4.4 for rival Capita (CPI), according to FactSet broker consensus. This is justified given Capita’s net debt to cash profit ratio is three times higher and that Serco was the go-to contractor during the Covid crisis. The Financial Times reported that Serco secured £157m of UK government contracts between February 1 and September 7 last year, the most of any outsourcer.
The only concern is that revenues linked to the virus may slow in the second half of the year. However, Serco is confident it will be offset by stronger performance from businesses that were negatively impacted by the pandemic like UK Leisure, Health and Transport. Buy.
Last IC view: Buy, 136p, 25 Feb 2021. (Source: Investors Chronicle)
02 Jul 21. Serco acquires Clemaco, a specialist supplier to the Belgian Armed Forces. Serco Group plc (Serco), the international services company, has completed the acquisition of Clemaco, a family owned business based in Ostend, Belgium, which specialises in the support and maintenance of the ships of the Belgian Navy.
Clemaco has been a partner of the Belgian Armed Forces since 1964, in particular working closely with the Belgian Navy. Its operations are mostly at the Zeebrugge naval base, where its teams are in charge of the maintenance of Belgian naval vessels, including its fleet of minehunters. Clemaco employs 150 people and provides a wide range of services and support to other Belgian public institutions including the Belgian customs and police, although the majority of its revenues are generated from its work for the navy.
Serco has extensive experience in the maintenance of military vessels, working for several major navies, including the US Navy, Australian Navy and Royal Navy. More than 1,000 vessels and small craft are operated, supported or maintained by Serco at more than 30 sites around the world, from small support craft to the latest generation icebreakers and the most complex submarines. Serco employs more than 200 people in Belgium and operates support services from maintenance to IT management, for Defence, European institutions and international organisations.
Clemaco CEO Frank Verdonck believes the sale of Clemaco to Serco Belgium is reassuring and he is delighted: “With Serco Belgium, we have the certainty of continuity and stability of operations and further development of the business “.
For Gaëtan Desclée, CEO of Serco Europe, bringing Clemaco into Serco fits perfectly into Serco’s strategy, with maritime operation and maintenance services constituting an important axis for future development. “We are delighted to welcome our new Clemaco colleagues into the Serco family. The combination of the skills, experience and knowledge of Clemaco with Serco’s global expertise and capability will provide added value for existing Serco and Clemaco customers, including in particular the Belgian Ministry of Defence. We are pleased that this acquisition will allow Serco to expand its existing activities with the Belgian Navy.”
The news has been well received by Rear Admiral Jan De Beurme, Commander of the Belgian Navy “We are reassured to know that Serco Belgium is taking over the activities of Clemaco. The family business was looking for a buyer. The two partners have been working side by side for several years, this takeover guarantees us continuity in the quality of services. The support of Serco is a real added value, without additional costs and allows us to concentrate on the essential tasks. In conclusion, we have more services and fewer worries. This acquisition is excellent news.” This operation is fully in line with a win-win policy pursued for years by Defense and which involves partnerships with private providers.
05 Aug 21. Leonardo DRS Acquires Small-Form Gimbal Company. Leonardo DRS, Inc. announced today that it has acquired Ascendant Engineering Solutions (AES), one of the world’s most advanced gimbal producers. AES is a leader in the design, development and manufacturing of high-performance, stabilized, multi-sensor gimbal systems for the growing market of Group 1, 2 and 3 Unmanned Aerial Systems (UAS) across U.S. military services. With its advanced systems, the company is focused on gimbal payload opportunities in strategic U.S. government programs including those intended to counter current and next-generation anti-access and area-denial systems. AES is located in Austin, Texas, home of the Army’s Futures Command.
This acquisition will enable Leonardo DRS to integrate its own state-of-the-art Electro-Optical and Infrared components and systems with the AES advanced gimbals to offer integrated solutions that can address the fast-growing market for lightweight military platforms including small UAS.
“The compelling need for smaller and more lightweight sensing systems is one of the most critical priorities of defense forces around the world,” said Jerry Hathaway, Senior Vice President and General Manager of the Leonardo DRS Electro-Optic and Infrared Systems business. Leonardo DRS is well-positioned to address this fast-growing small gimbal market with the new lightweight capabilities that AES brings across a wide range of military platforms, from aircraft to maritime to ground vehicles as well as ground-based security platforms, Hathaway said. “Leonardo DRS is proud to add this smaller and more advanced integrated solution set that combines our leading sensors into best-in-class, small-form gimbal-based sensor systems to give our warfighters one more battlefield edge.”
Leonardo DRS is a world leader in state-of-the-art sensor systems addressing a range of military needs including targeting, surveillance and force protection. This acquisition will allow Leonardo DRS to further vertically integrate its advanced sensors and gimbals. These integrated technologies permit military platforms to sense their environments at greater distances in real-time providing intelligence, surveillance, reconnaissance (ISR) imagery and targeting information to airborne and ground forces to extend their reach and survivability.
Gimbal-based sensor technology is part of the larger Leonardo DRS advanced sensor technology portfolio, which has an extensive installed base across the U.S. military. Force protection is a key strategic focus for Leonardo DRS as the company brings together its world-leading sensing and laser technologies to provide defensive protective systems for the men and women of the U.S. armed forces.
03 Aug 21. ZeroEyes Secures Series-A Funding to Further Scale Industry-Leading, AI-Based Weapons Detection Platform. Led by Octave Ventures, investment enables ZeroEyes to meet increased market demand for its proprietary weapons detection platform and better protect schools, commercial buildings and government sites from active shooters. ZeroEyes, Inc., creators of the only AI-based platform focused solely on weapons detection, today announced it has secured $20.9 m in Series-A funding led by Octave Ventures, bringing the company’s total amount raised to date to $26.1m.
Founded by a team of former Navy SEALs and military veterans, ZeroEyes’ AI weapons detection platform is a key component to a multi-tiered security approach that integrates with customers’ existing camera systems and video analytics. If a visible gun is detected, an alert is sent to the ZeroEyes military-trained monitoring team, followed by notifications to local emergency dispatch and onsite security staff – a process that takes three to five seconds. By seeing exactly where a threat is in real time, ZeroEyes closes the critical seconds between when a gun could be spotted to when it’s fired, helping save lives.
ZeroEyes’ software has recently been installed in schools, commercial buildings and government sites. The Series-A funding will enable ZeroEyes to continue providing best-in-class support and services for its fast-growing and high-profile customer base and allow for business expansion, product innovation, recruitment and further growth in North America.
“Since day one, we’ve been on a mission to help mitigate the damage done by gun violence and active shooter situations, which have become an epidemic in the U.S.,” said Mike Lahiff, Founder and CEO, ZeroEyes. “This significant funding round will allow us to further develop our proprietary AI technology to help stem the overwhelming impact of gun violence on our streets, in our schools, at businesses and public venues.”
“Octave Ventures looks to partner with high-growth companies with an aim of making a meaningful industry and societal impact,” said Michael Kim, Founder of Octave Ventures. “ZeroEyes’ world-class and military veteran-led management team has a deep understanding of the security and technology markets. With this investment, the company is positioned to continue its market leadership. This isn’t only about AI technology to detect weapons – it is about making a significant impact to help save lives.”
Additional investors in this round of Series-A funding include Legion Capital, Grateful Investments, Alliance Holdings, and Alpha Intelligence Capital.
ZeroEyes is the industry’s leading AI-based weapons detection solution. Its software integrates into existing security and surveillance camera systems and sends out a series of alerts when a verified gun is detected via our best-in-class weapons detection algorithms. The ZeroEyes platform is the most proactive and actionable early-warning system on the market, allowing users to “stop threats at first sight, not first shot.”
Founded by a team of Navy SEALs and military veterans with more than 50 years of military experience with special operations and intelligence community expertise, ZeroEyes is the trusted weapons detection provider of numerous clients, including the US Department of Defense, leading public K-12 school districts, commercial property groups, Fortune 1000 corporate campuses, shopping malls, and big-box retail. The company is headquartered in the Philadelphia area and has additional locations in Washington DC, Hawaii, and Kansas.
About Octave Ventures
Octave Ventures is a global venture capital investor with a particular focus in deep tech and biotech investments. Under “Octave Life Sciences” and “Octave Tech Investment,” Octave invests in a variety of pre-IPO companies at various stages of their development, several of which have later gone public. Octave is committed to leveraging its experience and knowledge to partner with founders to foster growth and the development of advanced technologies. (Source: PR Newswire)
04 Aug 21. SPX Announces Acquisition of Enterprise Control Systems Ltd. Expands and Strengthens SPX’s Communication Technologies Platform. SPX Corporation (“SPX”) (NYSE: SPXC) today announced that it has completed the acquisition of Enterprise Control Systems Ltd (“ECS”). Headquartered near Northampton, UK, ECS is a leader in the design and manufacture of highly-engineered tactical datalinks and radio frequency (RF) countermeasures, including counter-drone and counter-IED RF jammers.
ECS’s results will be reported as part of SPX’s Communications Technology (“CommTech”) platform within its Detection & Measurement segment. SPX anticipates updating 2021 guidance to reflect ECS when reporting Q2 2021 results on August 5th, and currently anticipates that ECS will contribute annualized revenue in a range of $12 to $14m. ECS is expected to be accretive to Detection & Measurement segment margin once fully integrated.
“We are excited to welcome ECS to the SPX team,” said Gene Lowe, President and CEO of SPX. “As our first acquisition in our CommTech platform, ECS expands and strengthens SPX’s position in COMINT by adding highly complementary, world-class products and technology. We see significant opportunities to grow our presence in COMINT, and complementary technologies and solutions worldwide. We view ECS’s expertise in encrypted data link systems and RF countermeasures as a perfect fit with the high-value RF monitoring, detect and locate technologies and products of our TCI business.”
Colin Bullock, founder of ECS, commented “We are very pleased to be part of SPX, as it creates numerous opportunities for employees and customers to continue our growth journey. Combining ECS’s expertise in RF countermeasures and encrypted data links systems with SPX’s strengths in RF detection and location systems, as well as its global infrastructure and resources, is a great opportunity to further advance product development and extend the reach of our combined, high-value solutions to a broader customer base.”
Together, ECS and TCI will provide a more holistic, yet increasingly customer-tailored solution for COMINT and RF countermeasures. Hardware and software integration across offerings from both companies will optimize signals intelligence, paint a clearer battlefield picture and facilitate threat interdiction. One example is counter-drone operations, pairing TCI’s Blackbird for detection and location of drones and controllers with ECS’s Claw for jamming them. These synergistic solutions will provide domestic and allied government agencies enhanced capabilities to deal with the threats posed by asymmetric warfare, non-state actors and near-peer adversaries.
About SPX Corporation: SPX Corporation is a supplier of highly engineered products and technologies, holding leadership positions in the HVAC and detection and measurement markets. Based in Charlotte, North Carolina, SPX Corporation had more than 4,500 employees in 15 countries. SPX Corporation is listed on the New York Stock Exchange under the ticker symbol “SPXC.” For more information, please visit www.spx.com.
About Enterprise Control Systems Ltd: Enterprise Control Systems Ltd is a leading designer and manufacturer of highly engineered communications intelligence systems, including RF inhibitors (RF jammers) and encrypted data links. Headquartered near Northampton, UK, ECS was founded in 1988 and has grown steadily in size over the past 30 years. For more information, please visit www.enterprisecontrol.co.uk.
BATTLESPACE Comment: This is a smart move by SPX as it brings vital C-UAS and jamming technology into their portfolio. ECS was a founding member of the AUDS C-UAS consortium providing vital jamming technology. ECS has developed more advanced C-UAS with AI applications which will be applied to more advanced C-UAS systems.
03 Aug 21. Thales enters into agreement in view of selling its Ground Transportation Systems business to Hitachi Rail.
- Entry into exclusive negotiations with Hitachi Rail on the sale of “Ground Transportation Systems” business, for an enterprise value of € 1,660m
- Compelling valuation reflecting effective turnaround
- Reinforcement of Thales’s strategic focus on 3 long-term growth markets: Aerospace, Defense & Security, Digital Identity and Security, driving accelerated EBIT margin accretion and further deleveraging
- Combined GTS and Hitachi Rail business to be positioned as a global leader in the rail signaling market
- Employee representative bodies of both Thales and Hitachi Rail are being consulted on this project, which is also subject to usual closing conditions
Thales (Euronext Paris: HO) and Hitachi Rail announce today that they are entering into exclusive negotiations on the sale of Thales’s Ground Transportation Systems Global Business Unit (“Ground Transportation Systems” or “GTS”) for an enterprise value of € 1,660m.
With around 9,000 employees at the end of 2020, Ground Transportation Systems is a global leader in Rail Signaling and Train Control Systems, Telecommunications and Supervision systems and Fare collection solutions, key technologies for a more sustainable mobility. Around 8 billion passengers benefit from GTS’s rail technologies every year.
Thanks to the engagement of GTS employees and, more globally, of Thales’s management team, the business achieved a remarkable turnaround over the past 5 years, delivering in 2020 and H1 2021 its best financial performance of the past 7 years, in spite of the Covid-19 crisis.
Thanks to the strong technical, geographical and commercial complementarities between Hitachi Rail and Ground Transportation Systems, the combination will create a leading rail signaling provider with a broader product offering and stronger capabilities to meet customer demand around the world. In addition, it will offer GTS’s employees enhanced professional opportunities. The combined strength of Hitachi and GTS’s digital expertise will also help Hitachi Rail to accelerate its Mobility as a Service (“MaaS) offering.
Through this transaction, Thales reinforces its strategic focus on 3 long-term high technology growth markets: Aerospace, Defense & Security, and Digital Identity & Security. Each of its businesses is an industry leading pure player focused on intelligent systems and digital solutions, able to sustainably deliver double-digit EBIT margins. This move enables the Group to now target an EBIT margin of 12% in the medium-term.
The transaction will also strengthen Thales’s balance sheet and provide substantial cash optionality.
“After discussions with key market players, Thales has selected the best industrial partner to ensure a successful long term development of its ground transportation business. This move is creating significant value for our clients, employees and shareholders, and enables Ground Transportation Systems to be at the forefront of growth in sustainable mobility.” – Philippe Keryer, EVP Strategy, Research & Technology, Thales
“With this major strategic move, we will be able to focus on the development of our 3 high-tech long-term growth businesses, each of them able to sustainably deliver double-digit margins — Aerospace, Defense & Security, and Digital Identity & Security — further strengthening their best-in-class market position.” – Patrice Caine, Chairman and CEO, Thales
“Today’s announcement marks an exciting opportunity for the teams at Hitachi Rail and Thales’s Ground Transportations Systems business to create new value for our customers, cities and passengers around the world. Not only will we grow the reach of our core signaling capabilities as part of our turnkey offering, but we are also bringing together our digital and MaaS capabilities. The strong teams, customer relationships and technologies at GTS will help us grow to become a major player, further enabled by Lumada and the digital engineering of our teams at GlobalLogic and the broader Hitachi Group.” – Andrew Barr, Chief Executive Officer, Hitachi Rail.
04 Aug 21. Rolls-Royce agrees sale of Norway’s Bergen for $131m. Rolls-Royce (RR.L) said it agreed to sell its Norwegian maritime engine business Bergen to UK-based Langley Holdings, in a deal which will boost the British aero-engine maker’s finances by 110m euros ($130.6m). The sale is a small part of Rolls’s £2bn disposal plan to help repair its finances after the pandemic. For investors, progress with the sale of Rolls’s Spanish unit ITP Aero, which could fetch 1.5bn euros, is of more interest. Rolls-Royce had previously agreed to sell Bergen for 150m euros to a Russian company but the deal was blocked in March by Norway on national security grounds. After that attempt failed, Bergen will now only return 110 m euros to Rolls. Rolls said on Wednesday that privately-held industrial group Langley was buying Bergen for an enterprise value of 63m euros, and it would benefit from sale proceeds of 70m euros plus the 40m euros of cash currently held by Bergen. Closing of the deal is subject to the satisfaction of certain closing conditions, said Rolls, adding that it had notified Norway and effective completion was scheduled for Dec. 31. Langley, is based in Nottinghamshire, central England, employs 4,600 people and has units in Germany, France and Italy. It will operate Bergen as a stand-alone business, said the statement. ($1 = 0.8423 euros) (Source: Reuters)
02 Aug 21. Meggitt PLC 2021 Interim results. Meggitt PLC (“Meggitt” or “the Group”), a leading international engineering company specialising in high performance components and sub-systems for the aerospace, defence and selected energy markets, today announces unaudited interim results for the six months ended 30 June 2021. Tony Wood, Chief Executive, commented: “The sequential quarterly improvement we have seen in our civil aerospace business in the first half is encouraging including a 31% increase in civil aftermarket organic revenue, reflecting the progressive increase in global air traffic and the active fleet. Thanks to the ongoing dedication of our global teams, we delivered a strong cash performance underpinned by our continued focus as we manage the Group through the recovery and position our operations for the anticipated increase in new build rates. With a strengthening order book, particularly in Energy, the pick-up in order activity in the second quarter provides a supportive backdrop as we enter the second half.”
- Recommended cash offer for Meggitt at a price of 800p per share by Parker Hannifin Corporation as set out in the separate Rule 2.7 firm offer announcement released this morning
- Sequential quarterly improvement in civil aerospace performance during the first half: civil aerospace aftermarket organic orders and revenue up 40% and 31% respectively in the second quarter compared with the first quarter of 2021
- Increase in Group organic order intake in the second quarter up 20% sequentially; book to bill ratio in Energy at 1.38x, with book to bill in civil aerospace at 1.04x
- Performance of the Group in the first half reflects the impact of COVID-19 on civil aerospace, with Group organic revenue down 16% in the period against a comparator of a normal trading first quarter in 2020 before the onset of the pandemic
- Defence revenue 9% lower on an organic basis compared with a strong first half in 2020
- Underlying operating profit for the first half 37% lower on an organic basis at £61.7m (H1 2020: £102.2m) reflecting a strong comparator in the first quarter of 2020. Sequential improvement in Group profitability in the second quarter after COVID-related disruption and lower productivity at two of our US sites in the first quarter 1 Organic numbers exclude the impact of acquisitions, disposals and foreign exchange.
2 Underlying profit and EPS are used by the Board to measure the trading performance of the Group as set out in notes 5 and 10. 3 Underlying EBITDA represents underlying operating profit adjusted to add back depreciation, amortisation and impairment losses. Meggitt PLC 2021 Interim results 2
- Statutory operating profit of £49.0m (H1 2020: loss of £348.7m)
- Strong cash performance with free cash outflow ahead of expectations at £34.5m (H1 2020: outflow of £121.5m)
- Net debt of £822.6m (H1 2020: £1,000.2m) with ratios of net debt:EBITDA of 2.
Net debt of £822.6m (H1 2020: £1,000.2m) with ratios of net debt:EBITDA of 2.4x and interest cover of 9.7x at 30 June 2021, well within covenant limits
- Liquidity remains strong with committed facilities of £1,516.3m and headroom of £857.6m
- Continued focus on key strategic initiatives and rate readiness ahead of recovery in civil OE and AM demand
- The Board recognises the importance of the dividend to its shareholders, but has taken the decision not to pay an interim dividend in light of ongoing market conditions
- Notwithstanding the difficulties in forecasting demand within civil aerospace with precision and the risks associated with regional spikes in COVID-19 infections, for the full year, we continue to expect the Group to generate: o Revenue broadly in line with 2020 on an organic basis o Underlying operating profit ahead of 20204
o Positive free cash flow
03 Aug 21. PCX Aerosystems, LLC Announces Acquisition of Integral Aerospace. PCX Aerosystems, LLC (“PCX”), a market leader in advanced mechanical systems for the aerospace industry, today announced the acquisition of Integral Aerospace (“INTEGRAL” or the “Company”) from an affiliate of Admiralty Partners, Inc. Integral is a Santa Ana, CA based aerospace systems manufacturing company specializing in metallic and composite solutions for mission-critical military, commercial aerospace and space launch applications.
“The addition of Integral further strengthens our ability to offer an unmatched level of manufacturing capabilities directly to our customers. The PCX brand has long been synonymous with quality and expertise within the aviation community. Our latest partnership with Integral only further extends our broad range of Flight Critical subsystems, components and assemblies to better serve the aerospace market as a whole,” stated Jeff Frisby, PCX President & CEO.
With this newly expanded footprint in fixed and rotary wing platforms, PCX Aerosystems will provide even greater advanced manufacturing solutions to OEM, Tier One and direct Government customers.
John Alves, President of Integral said, “PCX and Integral have a shared vision for growth through the expansion of flight critical complex components and assemblies. We are thrilled to be part of the PCX team and the opportunity it creates to bring new resources to the Santa Ana facility.”
Headquartered in Connecticut, PCX Aerosystems is a leading privately owned supplier of highly engineered, precision, flight critical assemblies for rotorcraft and fixed wing aerospace platforms. PCX focuses on producing complex parts machined from alloys such as aluminum, magnesium, titanium, and steel – where tight tolerances and quality are imperative. The company provides direct delivery of components and large assemblies to customers such as Boeing, General Electric Aircraft Engines, Bell and Sikorsky. PCX Aerosystems is owned by Greenbriar Equity Group, L.P.
To learn more about PCX please visit www.pcxaero.com.
Founded in the late 1950’s, Integral is a long term supplier supporting the Aerospace and Defense markets. The Integral Aerospace legacy began as Royal Industries and emerged from industry leading names such as BFM, Smiths Aerospace and GE Aviation. Integral provides detailed manufacturing solutions through composite manufacturing, filament winding of pressure vessels, hard metals machining and sub-system assemblies, from rapid proto-typing through testing and qualification. (Source: PR Newswire)
02 Aug 21. The boards of directors of Parker-Hannifin Corporation (Parker) and Meggitt PLC (Meggitt) are pleased to announce that they have reached agreement on the terms of a recommended cash acquisition of the entire issued and to be issued ordinary share capital of Meggitt by Parker. Under the terms of the Acquisition, each Scheme Shareholder will receive:
*for each Meggitt Share: 800 pence in cash
valuing Meggitt’s existing issued and to be issued ordinary share capital at approximately £6.3bn on a fully diluted basis.
The price of 800 pence per Meggitt Share represents:
- a premium of approximately 70.5 per cent. to the Closing Price of 469.1 pence per Meggitt Share on 30 July 2021, the last business day before this announcement; and
- a premium of approximately 73.8 per cent. to the volume-weighted average Closing Price of 460.2 pence per Meggitt Share for the six-month period ended on 30 July 2021, the last business day before this announcement.
- It is intended that the Acquisition will be implemented by means of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act.
Background to and reasons for the Acquisition
Parker believes Meggitt is very well aligned with Parker and the goals of The Win Strategy™, Parker’s global business system, representing a unified strategic vision for its team members worldwide. Parker believes that the Acquisition would be strategically and culturally compelling, and enhance the future prospects of the Combined Group within global aerospace and defence industries, for the following key reasons:
- Meggitt is an international group headquartered in the United Kingdom and is a high-value, leading provider of proprietary and differentiated aerospace & defence technologies with over 70 per cent. of revenue from sole-source positions.
- Meggitt, like Parker, has a rich heritage in the aerospace and defence segments with a strong culture, underpinned by a number of core values focusing on teamwork, engagement, integrity, operational excellence, and innovation.
- Meggitt has a global brand, a complementary business mix, an impressive international base of blue-chip customers and a leading product portfolio.
- Meggitt has been transforming its business over the last four years through its focused strategy, streamlining its portfolio, investing in new technologies, and growing through its customer-aligned divisions.
- Meggitt and Parker are complementary across diverse portfolios of products.
- The acquisition of Meggitt nearly doubles the size of Parker’s Aerospace Systems segment.
- Parker believes the Combined Group will be able to provide a stronger value proposition for customers. Parker also believes the Combined Group is poised for strong growth, supported by the commercial aerospace recovery, and will be able to maximise its potential by building on a combined product portfolio and geographic footprint and by sharing operational and functional best practices.
- Meggitt and Parker share a heritage as established manufacturers with significant presence across the UK, serving as trusted defence suppliers to the UK and US governments, and governments across the EU and globally. The UK is an important market to Parker and a key part of its business. Parker is a highly experienced acquirer with prior experience of successfully integrating UK companies in the industrial sector (including a publicly listed company) into its business. These continue to thrive within the Parker Group.
- Parker expects the combination to be earnings accretive in the first full 12 months after closing. The Acquisition is expected to drive incremental sales growth and cash flow accretion, and to deliver a high single-digit ROIC in year 5 which should grow thereafter. Parker remains committed to maintaining a strong balance sheet and investment grade credit rating.
Binding commitments to HM Government
- Recognising the importance of Meggitt’s rich UK heritage and relationships with its key stakeholders, Parker has agreed with Meggitt that it will offer a number of legally binding commitments to HM Government, including to:
(i) ensure that Meggitt will continue to meet its contractual obligations in respect of goods and services supplied to or for the benefit of HM Government,
(ii) maintain its existing technology and manufacturing that resides in the UK for the benefit of HM Government, and (iii) ensure that Meggitt continues to comply with and enforce security protocols prescribed by HM Government and allows for officials to inspect Meggitt’s premises to verify compliance, in each case unless HM Government otherwise consents;
(iii) ensure that the majority of the board of directors of Meggitt will be UK nationals;
(iv) maintain Meggitt’s UK headquarters, operate each of Meggitt’s existing divisions under the combined Parker-Meggitt name and ensure all four current divisions of Meggitt remain in place;
(v) maintain Meggitt’s existing R&D, product engineering and direct manufacturing labour headcount in the UK at no less than current levels, while increasing by at least ten per cent. the number of overall apprenticeship opportunities currently offered by Meggitt in the UK;
(vi) at least maintain Meggitt’s existing level of R&D expenditure in the UK and, subject to normal levels of aerospace industry growth and activity, increase this by at least 20 per cent. over the next five years; and
(vii) commit to Meggitt’s targets of reducing net carbon emissions by 50 per cent. by 2025 and achieving net zero greenhouse gas emissions by 2050 across the existing Meggitt business.
Meggitt pension schemes
Parker is delighted to confirm that it has entered into a legally binding memorandum of understanding with the trustee of the Meggitt UK DB Pension Plan which sets out the parties’ agreement with respect to the future funding of the Meggitt UK DB Pension Plan.
The directors of Meggitt, who have been so advised by Rothschild & Co and Morgan Stanley as to the financial terms of the Acquisition, consider the terms of the Acquisition to be fair and reasonable. In providing their advice, Rothschild & Co and Morgan Stanley have taken into account the commercial assessments of the directors of Meggitt.
In addition to the financial terms of the Acquisition, the directors of Meggitt have carefully considered Parker’s plans for the Meggitt business under Parker’s ownership, including the complementary cultures of Parker and Meggitt, the alignment of both Groups’ long-term strategies and the commitments Parker has agreed with Meggitt to offer to HM Government to safeguard the interests of Meggitt’s key stakeholders.
Accordingly, the directors of Meggitt intend unanimously to recommend that Meggitt Shareholders vote in favour of the Scheme at the Court Meeting and the Resolutions to be proposed at the General Meeting as the directors of Meggitt have irrevocably undertaken to do in respect of those Meggitt Shares they hold and in respect of which they control the voting rights (representing approximately 0.05 per cent. of the issued ordinary share capital of Meggitt on 30 July 2021 (being the last business day before this announcement)).
Information on Parker
Parker is a leading worldwide diversified manufacturer of motion and control technologies and systems, providing precision engineered solutions for a wide variety of mobile, industrial and aerospace markets.
Parker has a long and successful history in the UK, having operated in the UK for over 50 years, and currently employs more than 2,100 team members in 18 facilities across the country.
Comments on the Acquisition
Commenting on today’s announcement, Tom Williams, Chairman and Chief Executive Officer of Parker said: “The combination of Parker and Meggitt is an exciting opportunity for both companies’ team members, customers, shareholders and communities. We strongly believe Parker is the right home for Meggitt. Together, we can better serve our customers through innovation, accelerated R&D and a complementary portfolio of aerospace and defense technologies. We are committed to being a responsible steward of Meggitt and are pleased our acquisition has the full support of Meggitt’s Board. We fully understand these responsibilities and are making a number of strong commitments that reflect them. During our longstanding presence in the UK we have built great respect for Meggitt, its heritage, and its place in British industry. Our own journey over more than 100 years has taught us the importance of a strong culture and reputation.”
Commenting on today’s announcement, Sir Nigel Rudd, Chairman of Meggitt, said: “Meggitt is one of the world’s foremost aerospace, defence and energy businesses, leading the market with a strong portfolio of technology and manufacturing capabilities, and holding a significant amount of intellectual property. Whilst Meggitt is currently pursuing a strong, standalone strategy which will deliver value to shareholders over the long-term, Parker’s offer provides the opportunity to significantly accelerate and de-risk those plans, while continuing to deliver for shareholders. Parker’s offer also includes far-reaching commitments that will ensure that Meggitt remains a significant presence in the UK, increasing investment in research and development, and increasing the number of apprenticeship opportunities. The Board of Meggitt is confident that Parker will be a responsible steward of Meggitt and unanimously recommends Parker’s offer.”
Tony Wood, Chief Executive of Meggitt, said: “Bringing together the Meggitt and Parker businesses will provide increased benefit to the UK with the provision of technologies, products and capabilities through Meggitt, and a leading aerospace business in Parker. The offer from Parker is an endorsement of the work undertaken to transform the Meggitt Group in recent years, and the Combined Group will maximise the opportunities for future growth and profitability with a shared commitment to operational excellence, allowing us to continue to invest in our people, products and services for customers worldwide for years to come.”
Implementation, Conditions and Timing
The terms of the Acquisition will be put to Meggitt Shareholders at the Court Meeting and the General Meeting. The Court Meeting and the General Meeting are required to enable Meggitt Shareholders to consider and, if thought fit, vote in favour of the Scheme and the Resolutions to implement the Scheme. In order to become effective, the Scheme must be approved by a majority in number of Scheme Shareholders, present and voting at the Court Meeting, whether in person or by proxy, representing 75 per cent. or more in value of the Scheme Shares voted. In addition, a special resolution implementing the Scheme must be passed by Meggitt Shareholders representing at least 75 per cent. of votes cast at the General Meeting.
The Acquisition is conditional on a number of antitrust and regulatory approvals and Parker will make further announcements in respect of such approvals as appropriate.
It is expected that the Scheme Document, containing further information about the Acquisition and notices of the Court Meeting and General Meeting, together with the Forms of Proxy, will be sent to Meggitt Shareholders as soon as practicable and in any event within 28 days of this announcement. It is expected that the Acquisition will complete during Q3 of 2022, subject to the satisfaction (or, where applicable, waiver) of the Conditions and certain further terms. An expected timetable of principal events will be included in the Scheme Document.
The person responsible for making this announcement on behalf of Meggitt is Marina Thomas, Company Secretary.
Parker will hold a press conference at 10.00 a.m. BST today. To pre-register for the conference call, please go to the following link:
https://www.incommglobalevents.com/registration/client/8419/brunswick/ (Source: proactiveinvestors.co.uk)
02 Aug 21. UK takes ‘active interest’ in proposed takeover of Meggitt by US rival. Parker Hannifin makes £7.1bn bid in latest move from an American buyer targeting a British group. Shareholders of Meggitt, which supplies parts for the Bell Boeing V-22 Osprey, would receive 800p a share in cash in the agreed deal. The UK government is taking an “active interest” in a £7.1bn proposed takeover of aerospace and defence company Meggitt by US rival Parker Hannifin as fears rise over its impact on British jobs and investment. It is the second time in a handful of days that Kwasi Kwarteng, the UK business secretary who has powers to intervene in takeovers on national security grounds, has taken an “active interest” in a proposed takeover. Kwarteng signalled last week he may intervene in the £2.6bn proposed bid of US private equity backed Cobham for UK defence group Ultra Electronics after worries on national security grounds surfaced. The bid for Coventry-based Meggitt on Monday would give shareholders 800p a share in cash, representing a premium of 71 per cent to Friday’s closing price. The move prompted the company’s share price to rise 55 per cent to 728p by Monday afternoon in London, surpassing its previous record high just below 700p. Kwarteng is said to be seeking more details from the two companies over their long-term intentions, and their plans to protect jobs and local operations in Britain. The bid is the latest in a string from US buyers targeting UK companies, particularly those in the defence sector, raising concerns among officials. No decision to intervene in the Meggitt transaction has been taken, but Kwarteng is said to be determined to ensure the deal, involving one of the few remaining UK-headquartered civil aerospace and defence companies, works in the national interest. The Department for Business, Energy and Industrial Strategy, BEIS, did not immediately respond to a request for comment. Meggitt, which traces its roots back to the invention of the world’s first altitude meter for the hot air balloon in 1850, is considered by the government as a “critical supplier” to BAE and Rolls-Royce. To appease potential concerns, Cleveland-based Parker has made a series of commitments to the UK government, including honouring contracts, ensuring the majority of the board are UK nationals, and increasing research and development spend in the country by 20 per cent for the next five years. Together with the legally binding commitments made by Parker, Meggitt’s board put its support behind the offer because of the significant premium and enhanced scale. Sir Nigel Rudd, chair of Meggitt, said: “The board of Meggitt is confident that Parker will be a responsible steward of Meggitt and unanimously recommends Parker’s offer.” Tom Williams, chair and chief executive at Parker, told the Financial Times: “We’re now reaching out to government officials as we speak.” He said he was confident that talks would go well since the Fortune 250 company was not private equity but a “strategic buyer” that already supplied the UK military. British government officials say that while Parker has made a commitment to maintain some of Meggitt’s 2,300 headcount in the UK — in R&D, product design and direct manufacturing — it did not cover all jobs. Kwarteng’s team is said by government officials to want additional safeguards and guarantees over “further new opportunities” in the UK; further assessment of the deal will now be completed by officials at BEIS and the Ministry of Defence. Under the Enterprise Act 2002 the business secretary has quasi-judicial powers to intervene in mergers and takeovers on grounds of national security, financial stability and media plurality. A broader national security and investment regime comes into force in January 2022. The US motion and control technologies specialist has a history of taking over UK companies, spending just less than $970m on a spate of deals, the largest of which was the buyout of Domnick Hunter in 2005. Howard Wheeldon, independent defence analyst, said: “The future of Meggitt is best served by the company being part of a strong international organisation.” The bid came as Meggitt reported half-year pre-tax profits of £49m, reversing losses a year ago, on revenues of £680m. The company has been hit hard by the downturn in civil aviation but the second quarter showed signs of improvement over the first three months of the year. (Source: FT.com)
02 Aug 21. Meggitt agrees to £6.3bn takeover by US rival. Parker-Hannifin’s offer represents a 71 per cent premium to Meggit’s last closing price
- Parker-Hannifin has agreed to acquire the company for £6.3bn in cash
- Interim results revealed that operating profit had dropped by two-fifths
rival Parker-Hannifin, in a deal that values the engineering group at £6.3bn. The cash offer of 800p per share represents a 70.5 per cent premium to Meggitt’s closing price on Friday 30 July – the last trading day prior to the offer.
News of the knockout bid came alongside the company’s interim results for 2021, which revealed that operating profit had dropped by two-fifths to £61.7m in the first half of the year.
Revenues from its civil aerospace business dropped by a quarter on an organic basis to £172m, even as international travel began its tentative recovery. But management said it is still “cautiously optimistic”, as its aftermarket business, which provides ‘maintenance, repair and overhaul’ (MRO) services and spare parts, registered a 31 per cent increase in revenues in the second quarter compared with the first.
Meggitt’s defence division proved more resilient, with revenues falling by 9 per cent on an organic basis to £302m, against a strong comparative period. Its potential new American parent Parker-Hannafin made much noise on results day about its commitment to the UK: including honouring its contracts with the government, ensuring that the majority of the board are British nationals and growing its research and development spend in the UK by 20 per cent over the next five years.
Meggitt’s energy business was the only segment to post organic growth in the first half, with revenues up by 4 per cent to £60.1m.
The group’s net debt stood at 2.4 times cash profits. It has not sought covenant waivers, nor does it intend to pay an interim dividend given market conditions. Parker-Hannafin has swooped in before Meggitt is able to ride the potential recovery brewing in civil aerospace, but the premium is hard to resist, especially given the market backdrop. Await documents. Last IC view: Hold, 288p, 08 Sep 2020. (Source: Investors Chronicle)
02 Aug 21. Let the Good Times Roll: Collins on Path to Recovery. Raytheon Technologies (RTX) – BUY, $87.65 PT: $105.00. RTX showcased a put together post COVID version of us all. Q2:21 EPS was better led by Collins. There is continued momentum in profitability and the next leg up likely depends on WB/int’l traffic (down 75% vs. 2019 in May). The outlook for Collins appears conservative. As such, we raise our 2021 EPS est to $4.00 from $3.70 to reflect better Collins trends w/ EPS rising to $6.40 through 2023.The biggest risk in our view is execution as it relates to FCF.
Raising Estimates on Better Collins Performance (Again). Revs grew 10% organically in Q2 w/ a similar trajectory (10% increase for Q3) and sales up 1% for 2021. We forecast 2021 sales of $65.2BB w/ the Aerospace franchise up 1% and Defense advancing 3%. Our 2021 EPS est. moves to $4.00 from $3.70 to reflect better Collins performance ($0.12 beat in Q2) coupled with a lower tax rate (16% vs. 19% previously adding $0.13). EPS rises to $6.40 through 2023. This reflects comm’l AM sales surpassing its 2019 peak by 4%, while OE remains ~20% below. We est. a 3% CAGR for the defense businesses (RMD + RIS) over the period.
Drivers of Recovery With AM Support in H2. We est. Collins and P&W expand 16% and 18% in H2, an acceleration from the 17% and 7% declines in H1, respectively. For Collins, AM leads the recovery up 5% y-o-y (43% growth in H2) and exiting the year at 74% of 2019 levels (Ex. 5). OE is more constrained (down 10% in 2021 at Collins, +11% in H2) given ongoing destocking for the 787 (~$10MM/shipset) partially offset by NB improvements (Ex. 6). GTF engine deliveries drive OE growth in 2021, following a 26% drop in 2020, given a modest recovery in A320neo production rates. Large Commercial engine shipments were up 57% in the Q.
Defense Some Deceleration in H2. RMD and RIS reported Q2 B2B of 1.55X (YTD 1.12X) and 1.13X w/ mgmt targeting a 1X B2B for the year. Sales grew 6% in Q2 w/ guidance for the year of LSD to MSD, or 1% growth on our estimates for H2.
Opportunities at the Margin and Approaching Near-Peak in 2023. For 2021 we est sales up 1% w/ segment profit up 6% leading to 2021 segment margins of 8.4% up 40 bps from 8.0% in 2020. Margins rise to 13.0% in 2023 vs 13.7% in PF2019. The opportunity with Collins is likely tied to volume and mix, with each incremental point of AM growth worth 10 bps to margins on our estimates.
Driving Incremental FCF Drop Through – Deploying ~90% of Cash. Q2 FCF of $966m beat expectations on better w/c with YTD FCF of $1.3bn ~27% of guidance of $4.5-5.0bn for the year. We forecast 2021 FCF of $4.8bn, which assumes a ~$200m inflow in 2021 vs. a WC usage of $300m in 2020 coupled w/ a $1bn tailwind from lower pension contributions. We est FCF rises to $7.4bn through 2023, with the driver mainly $3.4bn of incremental NI relative to 2021. Cap deployment is another lever w/ $2BB of share repos in 2021 ($1bn YTD) and 7% divi increase in Q2 ($2.04/share annually) equating to a ~$3bn usage for the year. In aggregate, share repo + divi consume $16.8bn over the next 3 yrs or 90% of FCF.
Valuation. Assuming a blended peer multiple we arrive at our PT of $105. This is based on 17.5x our FY23 EPS of $6.40. (Source: Jefferies)
02 Aug 21. Aerospace supplier Senior posts first-half profit as markets recover. British jet and auto parts supplier Senior Plc (SNR.L) on Monday reported a first-half profit compared with a loss a year ago, as its end markets showed signs of recovery, encouraging the company to keep its annual outlook unchanged. The engineering firm, which supplies equipment to planemakers including Boeing (BA.N) and heavy equipment maker Caterpillar (CAT.N), said profit before tax for the six months ended June 30 was 22.3m pounds ($31.01m), compared with a loss of 136.3m pounds a year earlier. Senior last month lifted its annual forecast after “clear signs of recovery” in the pandemic-hit aerospace and oil and gas sectors, with planemakers picking up their production rates. But it still faces production cuts from automakers hit by chip shortages. read more The company, however, added that its second half would be slightly weaker than the first as defence sales could fall, partly due to the divestment of its Senior Aerospace Connecticut unit and lower sales of spare parts to the military. Revenue for the half year was 332.8m pounds, down 19%. ($1 = 0.7191 pounds) (Source: Reuters)
02 Aug 21. The positive impact of Senior’s self-help measures. The group continues to drive efficiencies and it is seeing signs of improvement in its main markets.
- Inventory management a priority
- Free cashflow up by a fifth
In its July trading update, Senior’s (SNR) said that full-year results for 2021 were likely to be slightly ahead of expectations. The aviation and motor parts supplier has reiterated the view that there are “clear signs of recovery in [its] end markets”, but given events of the past 15-months, a degree of caution is still warranted. Indeed, the group cited “well-publicised headwinds associated with freight and commodity costs; semiconductor supply chain challenges for [its] land vehicle customers”. But bosses remain confident of achieving a targeted return-on-capital-employed of 13.5 per cent over the medium-term. (It was neutral in the period under review).
Leaving aside the £24.2m gain on disposal of Senior Aerospace Connecticut, the group still swung to a trading profit of £4.9m against a loss of £126m in HY 2020. The loss was largely the result of an impairment of £110.5m that was recognised in relation to the goodwill allocated to the Aerostructures CGU group. During 2020, several programmes were either cancelled or put on the back-burner because of the pandemic, so Senior was left with excess inventory, leading to impairments as part of the wider restructuring programme.
The programme has been designed to drive cash-flows with an emphasis on tightly managing working capital and capital expenditure outflows. Remedial measures, including further action on inventory levels, together with job losses, have continued into 2021 in the face of changing conditions in some of the Flexonics and Aerospace markets. The restructuring is already having a positive effect, judging by a one-fifth increase in free cashflow to £19.2m, but the group admitted that the second half would be slightly weaker than the first as defence sales contract.
Much rests with the health of global aviation markets, as Senior’s Civil Aerospace division accounts for 36 per cent of group sales. The group notes that the International Air Transport Association has forecast that global air travel passenger numbers will return to 2019 levels by the end of 2022 and will reach 105 per cent of pre-pandemic levels by 2023. Management reckons that demand for parts will be driven by the normal replacement cycle of “older, less efficient, aircraft” and that the long-term catalysts for growth in global passenger air miles remain in place.
Management deserves credit for reacting efficiently to unprecedented challenges on the operational front, particularly regarding inventory levels. But the aviation industry is still hostage to the edicts of global health authorities. The shares are trading at a 14 per cent discount to Jefferies’ new target price of 200p a share. Hold. Last IC view: Sell, 114p, 08 Mar 2021. (Source: Investors Chronicle)
TCI International, Inc., is a wholly-owned subsidiary of SPX Corporation. TCI provides turn-key solutions for spectrum management and monitoring, direction finding, geolocation and communications intelligence to civilian, government, military and intelligence agencies as well as antennas for communications and high-power radio broadcasting. TCI is headquartered in Fremont, California, USA. For more information, visit www.tcibr.com.