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10 Mar 23. Melrose sets GKN demerger in motion.

Shareholders will vote on the plan to spin out Dowlais, which contributed 60 per cent of Melrose’s 2022 revenue of £7.5bn

March 10, 2023

By Michael Fahy

Turnaround specialist Melrose (MRO)’s demerger of its automotive and powder metallurgy arms into a new entity known as Dowlais is set to complete by 20 April, if shareholders agree to terms at a meeting later this month.

The company is proposing to first consolidate its share base, offering one new Melrose share for each three currently held. It will then grant holders one Dowlais share for each new Melrose share. This is being done “to enable the post-demerger share price of both Melrose and Dowlais to initiate at sensible levels”, it said in a circular published last week.

The Dowlais business, named after an ironworks built in 1759 from which the former GKN engineering group originated, is the biggest part of the current organisation, responsible for about 60 per cent of Melrose’s £7.5bn revenue last year.

It is made up of three divisions – automotive, powder metallurgy and a nascent hydrogen arm. Automotive dominates, generating 80 per cent of last year’s adjusted revenue. It produces drive systems and other parts found in 50 per cent of the world’s light vehicles, and employs 24,000 people in 17 countries.

Like the aerospace arm being retained by Melrose, Dowlais has experienced a rocky few years since being acquired as part of the £8.1bn takeover of GKN in 2018. The market cap of the combined businesses currently stands at £6.6bn.

The global pandemic and subsequent chip shortage have meant light vehicle production figures remain a quarter below 2019 levels in Europe and 12 per cent lower in the US.

The company has spent the intervening period restructuring the business and reckons it is in better shape to benefit from a recovery.  Around 4,000 jobs have been cut (13 per cent of the 2019 total) and 12 manufacturing sites closed. More than £100mn has been shaved from selling, distribution and administrative costs and an overhaul of procurement has knocked almost £80mn off its materials bill, according to the Dowlais prospectus. It says an adjusted operating margin of 11 per cent or more is achievable once volumes have recovered – last year, this stood at 6.3 per cent.

Analysts’ views on its ability to bridge the gap, and the company’s ensuing value, vary wildly.

One concern is the extent to which Dowlais will be affected by the switch to EVs, although these made up over 40 per cent of last year’s order intake. Dowlais is expected to carry net debt of around £850mn post-split, or around 1.5 times its cash profit. On a peer group valuation of 5.5 times, broker Numis puts its valuation at around £3.4bn, which is significantly lower than an earlier estimate of £4.6bn. Panmure Gordon estimates it will be worth even less, arguing that the deterioration in the Chinese economy (which is the highest margin market for the automotive arm) means it should have an enterprise value of “under five times”, or less than £3.1bn.

RBC Capital Markets analysts assume organic sales growth of 3.8 per cent for Dowlais between 2024 and 2026 and a gradual improvement in margin to its 11 per cent target, which would imply a valuation of £3.9bn. Whatever end of this range this proves to be, Melrose still has some work to do before it achieves the type of return on GKN that it made on its previous deals. (Source: Investors Chronicle)

 

09 Mar 23. Italy’s Leonardo beats orders guidance, maintains dividend. Italy’s state-controlled defence and aerospace group Leonardo (LDOF.MI) on Thursday beat its guidance on new orders as it posted full-year results for 2022 and announced an unchanged dividend of 0.14 euros per share. Leonardo said new orders rose by 21% year-on-year to 17.266bn euros ($18.26bn) last year, beating a guidance of more than 16bn euros. Earnings before interest, taxes and amortisation (EBITA) were up 9.3% to 1.218bn euros, while revenues rose 4.7% to 14.71bn euros.

The EBITA figure was at the top end of the range of company forecasts of 1.17-1.22 bn euros, while revenues were within the guidance range of 14.4-15bn euros.

“We met or exceeded all our key targets once again, we have structurally and strongly increased our cash generation, with a (free operating cash flow) FOCF of 539m euros in 2022, more than doubling 2021,” CEO Alessandro Profumo said in a statement.

For 2023, Leonardo gave guidance for new orders of around 17bn euros, revenues of 15-15.6bn euros and EBITA of 1.26-1.31 bn euros.

‘CHANGE OF MINDSET’

Profumo hailed a reduction in debt “thanks to higher cash generation” and the sale of some assets by its U.S. subsidiary Leonardo DRS.

Group net debt stood at 3.016bn euros at the end of last year, down 3.4% from end-2021. Leonardo also reported a reduced cash absorption for its loss-making aerostructures division (296m euros vs 339m euros in 2021), and said it aimed for breakeven in 2025.

Russia’s war on Ukraine has increased demand for military supplies from NATO members, likely benefiting companies including Leonardo.

Last month, CEO Profumo said the “change of mindset” in Europe on the need for higher military spending was “incredibly important”.

Leonardo’s shares on the Milan stock exchange have risen by almost 33% since the start of the year. On Thursday they closed down by 0.37% to 10.72 euros. ($1 = 0.9457 euros) (Source: Reuters)

 

09 Mar 23. GE sees aviation revenue boost from jet engines; shares hit highest since 2018.

Summary

  • Companies
  • Aviation business revenue, margins to rise through 2025
  • GE reiterates 2023 outlook amid economic worries
  • Says spin-off timeline unchanged

General Electric Co (GE.N) forecast revenue at its cash-cow aviation business to grow by at least low-double digits through 2025, sending its shares to levels not seen since 2018 on Thursday.

The shares rose 5.3% after Chief Executive Larry Culp said at the company’s annual day for investors that a recession was “the last thing on our mind.”

The Boston-based conglomerate’s shares have benefited from strong aerospace demand and the recent spinoff of its healthcare business, even as its renewable energy unit has struggled.

GE stuck to its profit expectations for 2023 despite the dim economic outlook and persistent supply shortages. It expects adjusted earnings per share of $1.60 to $2.00, with revenue growth in the high single digits.

“We’re well positioned to have a strong year,” Culp said.

Through 2025, GE expects profit margins at GE Aerospace to be about 20%, company executives told investors at a conference in Ohio.

A jump in air travel has driven up sales at its aerospace division, which makes and services engines for Boeing Co (BA.N) and Airbus SE (AIR.PA) jets.

“The bottom line is that management are putting out pretty impressive targets for Aero through 2025, with the long-term framework for Vernova also above our base case,” Wolfe Research analyst Nigel Coe said, referring to GE energy businesses.

Culp said while GE is not recession-proof, it is enjoying “incredible” order backlog and demand. (Source: Reuters)

 

09 Mar 23. Dassault Aviation seeks more Rafale exports, defends business jets. Dassault Aviation (AM.PA) highlighted negotiations for new Rafale fighter export orders and hit back at European critics of business jets as it posted higher profits on Thursday.

The maker of Rafale warplanes and Falcon business jets posted 2022 operating income of 572m euros ($604m), up from 527m euros the previous year, on net revenue that fell to 6.93bn euros from 7.23bn euros.

It booked new orders worth 21bn euros, including 92 Rafales and 64 Falcons. Shares in the French company were up more than 10% to 176 euros at 1030 GMT.

It delivered 46 jets including 32 Falcons in 2022, down from 55 including 30 Falcons in 2021. It forecast 15 Rafale and 35 Falcon deliveries in 2023 and slightly lower sales, partly due to greater emphasis on the French version of Rafale, for which Dassault does not directly process the sale of all systems.

France had recently slowed deliveries for budget reasons.

CEO Eric Trappier said Rafale production remained below capacity of three planes a month and had scope for more export contracts, adding: “We will go looking for them”.

He said Dassault remained in talks to provide 26 carrier-borne Rafales to the Indian navy, in competition with Boeing’s (BA.N) F/A-18 Super Hornet. Unconfirmed Indian news reports have said the navy has told the government it prefers the Rafale.

Trappier confirmed export talks with Colombia and cited other prospects he did not identify. La Tribune newspaper reported in January that Dassault had failed to reach a fighter deal with Bogota at the end of 2022.

France last year placed a “Tranche 5” order for 42 Rafales.

Dassault said the business jet market remained active but had begun to slow towards the end of the year.

It is targeting an entry into service of its new Falcon 6X by the middle of the year but noted supply chain difficulties.

At a news conference, Trappier hit out at what he called “aviation bashing” by environmental groups and reeled off statistics comparing flights to other sectors of the economy.

One year’s use of the global fleet of Falcon business jets is equivalent to 24 hours of global video streaming or five hours of worldwide truck traffic, he said.

Environmental groups say industry efforts to curb emissions do not go far enough and need to focus on containing demand, and have particularly taken aim in France at private jet usage, prompting the industry to mount a campaign to restore its image.

Trappier predicted private jets would shift to alternative fuels more quickly than commercial jets because their passengers would be more likely to pay a premium for alternative fuels. Industry officials acknowledge the volumes are lower, however. ($1 = 0.9473 euros) (Source: Reuters)

 

09 Mar 23. Magellan Aerospace Corporation Announces Financial Results.

Magellan Aerospace Corporation (“Magellan” or the “Corporation”) released its financial results for the fourth quarter of 2022. All amounts are expressed in Canadian dollars unless otherwise indicated. The results are summarized as follows:

  1. Overview

A summary of Magellan’s business and significant updates

Magellan is a diversified supplier of components to the aerospace industry. Through its wholly owned subsidiaries, controlled entity and joint venture, Magellan designs, engineers and manufactures aeroengine and aerostructure components for aerospace markets, including advanced products for defence and space markets, and complementary specialty products. The Corporation also supports the aftermarket through supply of spare parts as well as performing repair and overhaul services.

Magellan operates substantially all of its activities in one reportable segment, Aerospace, which is viewed as one segment by the chief operating decision-makers for the purpose of resource allocations, assessing performance and strategic planning. The Aerospace segment includes the design, development, manufacture, repair and overhaul, and sale of systems and components for defence and civil aviation.

Business Update

On October 11, 2022, Magellan announced a contract award from Sikorsky Aircraft Corporation (“Sikorsky”), a Lockheed Martin Company, for low rate initial production (“LRIP”) of assemblies to support the production of the CH-53K® LRIP configuration helicopter. The multi-year, multi-m dollar agreement will be delivered from Magellan’s New York facility commencing in 2023. The contract consists of hard metal, machined deliverables for the U.S. Marine Corps (“USMC”) for the production of the CH-53K King Stallion, the next generation heavy-lift helicopter being produced to replace the CH-53E Super Stallion. The CH-53K achieved initial operating capability in 2022 and is on track to deploy to the fleet in 2024. The Marine Corps plans to deploy the first CH-53K Marine Expeditionary Unit detachment in fiscal year 2024. The USMC’s procurement objective is 200 helicopters.

On November 22, 2022, Magellan announced the award of a multi-year contract from Lockheed Martin Corporation (“LMCO”) for complex machined titanium components for all three variants of the F-35 aircraft. This multi- million dollar contract will be carried out at Magellan Aerospace’s facility in Kitchener, Ontario over the period of 2023 to 2027. The contract is for shipsets of machined wing tie bars for the aircraft’s leading edge flap. Magellan’s Kitchener facility has industry-leading expertise in titanium machining operations and world-class machining capability, with an emphasis on high speed machining of hard metals such as titanium, Inconel and stainless steel. This latest contract is a continuation of a long-established relationship with LMCO on the global F-35 fighter aircraft program. Magellan’s Kitchener facility was the first international partner on the F-35 program to deliver parts to the program in late 2003. Prior to these deliveries, Kitchener had made significant investment in both equipment and technology that proved to be pivotal in securing its role on the program.

On December 9, 2022, Magellan announced that it will continue producing F-35 Lightning II (“F-35”) horizontal tail assemblies under an agreement with BAE Systems. This significant, multi-year agreement is the continuation of contract awards made to Magellan by BAE Systems and will further Magellan’s participation on the global program. Magellan and BAE Systems have been working together to produce horizontal tails for the global F-35 program for more than a decade, signing the original Letter of Intent for this agreement in 2006. Both companies have since made significant investment in facilities, technologies and training to ensure the successful delivery of these flight-critical assemblies to F-35 prime contractor Lockheed Martin. The horizontal tail assemblies produced at Magellan’s facility in Winnipeg, Manitoba, will be used on the Conventional Takeoff and Landing variant of the F-35. Magellan is targeting to produce more than 1,000 ship sets of horizontal tail assemblies over the life of the F-35 program.

Impact of COVID-19 and Russia’s invasion of Ukraine

The COVID-19 pandemic and its variants continued to disrupt global health and impact economic conditions. Though global air travel has seen signs of recovery, Magellan’s financial results and operations continued to be impacted by the COVID-19 pandemic by way of production schedule changes, either by its customers’ build rate adjustments or due to a broader government directive which resulted in the need to modify work practices to meet appropriate health and safety standards, or by other COVID-19 related impacts on the availability of labour or to the supply chain. While governments have eased some COVID-19 restrictions, the reopening of businesses and economies in certain countries is creating a variety of new challenges, including, for example, higher prices for goods and services, limited availability of products, disruptions to supply chains and labour shortages. Magellan continues to monitor ongoing developments and attempts to mitigate the risks related to the COVID-19 pandemic and the impact on Magellan’s operations, supply chain, and most importantly the health and safety of its employees.

The ongoing invasion of Ukraine by Russia continued to disrupt supply chains and cause instability in the global economy. The extent and potential magnitude of economic impacts on the aerospace industry remains uncertain.

  1. Results of Operations

A discussion of Magellan’s operating results for the fourth quarter ended December 31, 2022

The Corporation reported revenue in the fourth quarter of 2022 of $193.1m, a $15.1m increase from the fourth quarter of 2021 revenue of $178.0m. Gross loss and net loss for the fourth quarter of 2022 were disappointing at $0.9m and $20.8m, respectively, in comparison to a $7.0m gross profit and $5.8m net loss for the fourth quarter of 2021.

Consolidated Revenue

Revenue in Canada decreased 5.7% in the fourth quarter of 2022 compared to the corresponding period in 2021 largely due to volume decreases, mainly for proprietary products and repair and overhaul services, offset in part by higher space revenues. On a currency neutral basis, Canadian revenues in the fourth quarter of 2022 decreased by 8.4% from the same period of 2021.

Revenue in the United States in the fourth quarter of 2022 increased 21.5% from the fourth quarter of 2021 largely driven by volume increases, mainly in single aisle aircraft specifically the Boeing 737, and favourable foreign exchange impact due to the strengthening of the United State dollar relative to the Canadian dollar. On a currency neutral basis, revenues in the United States increased 12.7% in the fourth quarter of 2022 over the same period in 2021.

European revenue in the fourth quarter of 2022 increased 22.3% compared to the corresponding period in 2021 primarily driven by build rate recovery for single aisle aircraft, specifically the Airbus 320. On a currency neutral basis, European revenues in the fourth quarter of 2022 increased by 20.8% when compared to the same period in 2021.

Gross (Loss) Profit

Gross loss of $0.9m for the fourth quarter of 2022 was $7.9m lower than the $7.0m gross profit for the fourth quarter of 2021, and gross loss as a percentage of revenues of (0.5%) for the fourth quarter of 2022 decreased from 3.9% gross profit recorded in the same period in 2021. The decrease in profitability is mainly the result of the effect of inflation in materials, supplies, utilities and labour; and supply chain disruptions which impacted production of goods resulting in production system inefficiencies and lower absorption of manufacturing supplies.

Administrative and General Expenses

Administrative and general expenses as a percentage of revenue was 5.8% for the fourth quarter of 2022, lower than the same period of 2021 percentage of revenue of 6.2%. Administrative and general expenses were consistent with the fourth quarter of 2021.

Restructuring

Restructuring costs of $3.7m incurred in the fourth quarter of 2022 as compared to $0.8m in the fourth quarter of 2021, both mainly related to the closure of the Bournemouth treatment and manufacturing facilities. Included in the restructuring charge for the fourth quarter of 2022 is an additional $1.1m of workforce reduction costs. (Source: Google/BUSINESS WIRE)

 

08 Mar 23. PwC hit with $8.9m penalty for ‘serious breaches’ on Babcock audits. Britain’s auditing watchdog has imposed a 7.5 m pound ($8.9 m) penalty on PwC for “serious breaches” found in audits of engineer Babcock International (BAB.L), the regulator said on Wednesday.

The Financial Reporting Council (FRC) said the penalties related to failings on audits of Babcock’s accounts up to the end of March 2017 and 2018, as well as one of its subsidiaries in the latter year.

The fine was discounted by 25% to 5.6 m pounds due to early resolution, the regulator said.

Auditing firms have faced tighter political scrutiny over the quality of their work in recent years, following a slew of high profile accounting scandals linked to some of Britain’s best-known companies including retailer BHS and builder Carbn.

The FRC said breaches identified on PwC’s audits of Babcock included repeated failures to challenge management and obtain sufficient appropriate evidence.

The firm also showed a lack of competence, care and diligence, the regulator said, citing one example where it found no evidence the audit team had read a 30-year contract with lifetime revenue of 3 bbn pounds written in French.

In this case, the audit team neither possessed French language skills nor obtained a translation of the contract, the FRC said.

“We’re sorry that the work in question was not of the standard required and that we demand of ourselves,” a PwC spokesperson said.

Babcock, which was not a party to the FRC investigation, said it had conducted a review of its contracts and balance sheet which reported initial findings in April 2021, resulting in a write-off of around 2bn pounds.

“This established an appropriate baseline for the financial performance of the group,” a Babcock spokesperson said.

Two PwC partners – Nicholas Campbell Lambert and Heather Ancient – were also fined 200,000 pounds and 65,000 respectively, discounted to 150,000 pounds and 48,750 pounds respectively.

The FRC’s investigation into PwC’s statutory audits of the Babcock group financial statements for 2019 and 2020 is ongoing. ($1 = 0.8460 pounds) (Source: Reuters)

BATTLESPACE Comment: This news vindicates the excellent Boatman Research which first warned about accounting problems at Babcock.

 

08 Mar 23. VSE Corporation Announces Fourth Quarter and Full Year 2022 Results. VSE Corporation (NASDAQ: VSEC; “VSE”, or the “Company”), a leading provider of aftermarket distribution and maintenance, repair and overhaul (“MRO”) services for land, sea and air transportation assets for government and commercial markets, today announced results for the fourth quarter and full year 2022.

FOURTH QUARTER 2022 RESULTS

(As compared to the Fourth Quarter 2021)

  • Total Revenues of $234.3m increased 11%
  • GAAP Net Income of $4.8m decreased 22%
  • GAAP EPS (Diluted) of $0.38 decreased 22%
  • Adjusted EPS(1) (Diluted) of $0.68 increased 28%
  • Adjusted EBITDA(1) of $22.9m increased 29%

FULL-YEAR 2022 RESULTS

(As compared to the Full-Year 2021)

  • Total Revenues of $949.8m increased 26%
  • GAAP Net Income of $28.1m increased 252%
  • GAAP EPS (Diluted) of $2.19 increased 248%
  • Adjusted EPS(1) (Diluted) of $2.91 increased 32%
  • Adjusted EBITDA(1) of $92.1m increased 27%

(1) Non-GAAP measure, see additional information at the end of this release regarding non-GAAP financial measures

MANAGEMENT COMMENTARY

“We completed a defining year in our company’s history by delivering strong fourth quarter and full year results as we advanced our business transformation strategies, culminating in significant year-over-year growth, robust new business wins, and record full year revenue in our Aviation and Fleet segments,” stated John Cuomo, President and CEO of VSE Corporation. “These successful fourth quarter results were underpinned by continued program execution excellence and commercial market momentum.”

“In the fourth quarter, our Aviation segment revenue grew by nearly 30% versus the prior-year period, with segment margin reaching 2019 levels, driven by an increased mix of higher-margin repair revenue,” continued Cuomo. “Both our Aviation distribution and MRO businesses are now performing above pre-pandemic levels, with Aviation representing nearly 70% of total fourth quarter profit for VSE.”

“Our Aviation segment completed the acquisition of Precision Fuel Components in February 2023,” continued Cuomo. “This transaction expands our MRO capabilities within the B&GA and rotorcraft markets, supporting our value proposition to provide VSE Aviation customers access to differentiating, full-service, on-demand repair and distribution solutions. We will remain an opportunistic acquirer of complementary, accretive Aviation assets that enhance our capabilities within high-value, underserved portions of the market.”

“Our Fleet segment reported commercial revenue growth of approximately 20% in the fourth quarter, with commercial fleet revenue representing nearly 40% of total segment revenue in the period,” continued Cuomo. “In January 2023, we announced the opening of a new distribution and e-commerce fulfillment center in the greater Memphis, Tennessee area. This 450,000 square-foot distribution center more than doubles the existing warehouse footprint of VSE’s Fleet segment, providing our Wheeler Fleet Solutions subsidiary the capacity required to meet the growing demand for our aftermarket products across e-commerce fulfillment and commercial fleet customers. We anticipate this distribution center will contribute approximately $50 m in new, incremental sales to our Fleet segment in 2023.”

“We remain well positioned to grow, and in 2022, we reduced our net leverage ratio by nearly a full turn driven by stronger earnings led by Aviation and Fleet. Interest expense increased in the fourth quarter due to a higher Federal Funds Rate and the timing of cash flow in the quarter,” stated Stephen Griffin, CFO of VSE Corporation. “We utilized our strong operating and free cash flow to drive reduction in our debt in the fourth quarter, while strategically investing over $10 m in inventory for new distribution programs set to launch in 2023. We remain focused on disciplined capital allocation, while seeking to invest in accretive, value-enhancing growth opportunities.”

STRATEGIC UPDATE

In 2022, VSE continued to successfully execute on its multi-year business transformation plan of establishing a leading aftermarket parts distribution and MRO services platform in high-growth, fragmented market segments.

New Business and Long-Term, Sustainable Revenue Channels

On February 1, 2023, the Aviation segment acquired Precision Fuel Components, a leading provider of MRO services for engine accessory and fuel systems supporting the business and general aviation (“B&GA”) market. This transaction expands VSE Aviation’s MRO capabilities in B&GA and rotorcraft markets, while positioning the Company to capitalize on higher-margin technical service opportunities.

In January 2023, the Fleet segment opened a new, state-of-the-art e-commerce fulfillment and distribution center in the Memphis, Tennessee area to expand capacity and support faster, same-day order-to-delivery times; to allow for additional shipping carrier options; and to continue the highest level of service for commercial aftermarket parts distribution. The new facility is expected to contribute approximately $50m in incremental commercial sales to the Fleet segment in 2023.

The Federal & Defense segment is actively investing in business development to ensure sustainable long-term growth. In 2022, business development resources increased five times over 2021, with a focus on core capability competencies and new customer channels. This deliberate, strategic approach resulted in a 60% expansion in the pipeline for new business opportunities. As of December 31, 2022, the segment submitted bids totaling $1.5bn, now currently awaiting award.

Growing Profit

Aviation operating income and adjusted EBITDA grew to $12.3m and $15.8m in the fourth quarter, an increase of 173% and 102%, respectively, versus the prior-year period. The strong execution of new programs, as well as market recovery and growth within MRO activities, propelled the business and resulted in a year-over-year margin expansion of +500bps, driving positive outcomes for the quarter.

Fleet operating income and adjusted EBITDA grew to $5.6m and $7.9m in the fourth quarter, an increase of 6% and 4% versus the prior-year period, respectively. The increase is driven by a successful commercial expansion strategy and stable revenue from the USPS. Growing adjusted EBITDA remains a key priority for this segment. The margin compression in the fourth quarter was primarily driven by $0.6 m in anticipated pre-launch expenses for the new Memphis-area distribution center.

Optimizing Legacy Programs

During the fourth quarter, the Aviation segment commenced inventory purchases for a previously announced expansion into the Asia Pacific region supporting its existing Pratt & Whitney Canada distribution agreement. As part of the expanded agreement, VSE Aviation will provide engine spare parts and exchange support for accessories to B&GA engine customers, operators, and maintenance providers in the Asia Pacific region.

Fleet segment revenue from USPS increased to $39.8m, up 6% in the fourth quarter versus the prior-year period. As the provider of maintenance services for all vehicle types in the 230,000+ USPS fleet, the Fleet segment continues to fulfill its critical role as a key partner in USPS operations, supporting the complexity of its supply chain and providing parts solutions for older long-lived vehicles (LLV), commercial off-the-shelf vehicles (COTS), and next-generation delivery vehicles (NGDV).

In March 2023, the Federal & Defense segment received a 6-month contract extension to its Naval Sea Systems Command (NAVSEA) program. The contract extension allows the segment to continue providing Foreign Military Sales (FMS) and Follow-on Technical Support (FOTS) services to NAVSEA, which has a funded backlog greater than $125m.

SEGMENT RESULTS

Aviation segment revenue increased 29% year-over-year to a record $107.2m in the fourth quarter 2022. The year-over-year revenue growth was attributable to share gains within the B&GA market and continued commercial aftermarket recovery, supported by global air traffic recovery. Aviation distribution and repair revenue increased 22% and 53% respectively in the fourth quarter versus the prior-year period. The Aviation segment reported operating income of $12.3m in the fourth quarter, compared to $4.5m in the same period of 2021. Segment adjusted EBITDA increased by 102% in the fourth quarter to $15.8m, versus $7.8m in the prior-year period. Adjusted EBITDA margins were 14.7%, an increase of 528 basis points versus the prior year period, driven by the execution of new program awards and strong MRO results.

Fleet segment revenue increased 7% year-over-year to $64.8m in the fourth quarter of 2022. Revenues from commercial customers increased 19% on a year-over-year basis, driven by growth in commercial fleet demand and e-commerce fulfillment sales. Commercial revenue represented approximately 40% of total Fleet segment revenue in the period for the fourth consecutive quarter. The Fleet segment reported operating income of $5.6m in the fourth quarter, compared to $5.3m in the same period of 2021. Segment adjusted EBITDA increased 4% year-over-year to $7.9m, while adjusted EBITDA margin was 12.2%, a decline of 41 basis points versus the prior-year period, primarily driven by planned $0.6m in pre-launch expenses for the new e-commerce fulfillment and distribution center in the Memphis area.

Federal & Defense segment revenue decreased 7% year-over-year to $62.3m in the fourth quarter 2022, driven by decline in U.S. Army work due to program completions, partially offset by increases in a Foreign Military Sales (FMS) program with the U.S. Navy. The Federal & Defense segment reported an operating loss of $4.6m in the fourth quarter 2022, primarily due to a contract loss recognized in the current quarter. The loss is related to a specific fixed-price, non-DoD contract with a foreign customer that is not considered indicative of ongoing business operations and strategy. We expect no further loss related to this contract, which was completed in 2022. Segment adjusted EBITDA declined 77% year-over-year to $0.8m in the period, given a higher mix of cost-plus contracts and program completion expenses. Funded backlog increased 1% year-to-date to $187m, while bookings decreased 6% on a year-to-date basis.

FINANCIAL RESOURCES AND LIQUIDITY

As of December 31, 2022, the Company had $160m in cash and unused commitment availability under its $350m revolving credit facility maturing in 2025. As of December 31, 2022, VSE had total net debt outstanding of $286m and $92m of trailing-twelve months Adjusted EBITDA. (Source: BUSINESS WIRE)

 

08 Mar 23. TT Electronics, the global provider of engineered electronics for performance critical applications, this morning announces its full year results for the year ended 31 December 2022.

Highlights include:

  • Record order intake in 2022 and strong organic revenue growth of 20%, reflecting its successful positioning in structural growth markets and new project and customer wins
  • Adjusted operating profit up 19% at constant currency reflecting growth, self-help actions and recovery of cost inflation – much improved H2 performance as anticipated
  • Leverage back into target range and reduced by 0.4x from June 2022 as expected
  • Total dividend increase of 13% to 6.3p, reflecting strong performance and positive outlook
  • Strong delivery in key markets:

o In healthcare, working with a new customer who specializes in diagnosing breast cancer with a new electromagnetic (EM) tracking system, taking this from prototype to full launch in 2022

o In defence, following the successful contract win for power converters on the UK Boxer army vehicle programme, the Group has been awarded additional contracts for electrical cable harnesses

Richard Tyson, Chief Executive Officer, commented:

“2022 was a year of strong operational and financial progress. We delivered excellent top line growth for the Group as we executed on our record order book, which reflected a significant number of new customer wins, incremental business opportunities with existing customers, and market share gains. Our teams across the Group have performed exceptionally well in a year characterised by significant volatility, ongoing supply chain issues and cost inflation. At the same time, we have completed our programme of site rationalisation and finalised the buy-in of our UK pension scheme.

TT is well-aligned with global mega trends, driving demand from high-growth markets. While we are mindful of the wider macro environment, we enter 2023 with good momentum underpinned by a strong order book. This unprecedented visibility, coupled with further benefits of our self-help programme, mean we are confident in our ability to deliver further progress in 2023.”

 

08 Mar 23. Orders and revenue build at TT Electronics. Organic sales grew by 20 per cent in 2022 at the electronics components maker.

  • Negative free cash flow
  • Statutory loss

There’s a lot to like in TT Electronics’ (TTG) full-year results. Organic revenue growth is high at 20 per cent, driven primarily by volumes, and momentum is building: the electronic components manufacturer has reported a ‘record’ order intake, with its book-to-bill ratio (orders received to units shipped and billed) sitting at 118 per cent. This has translated into a profit beat and excellent visibility for 2023, with 90 per cent of sales already covered.

There have been some sizeable adjustments to the group’s figures, however. Adjusted operating profit jumped by 19 per cent on a constant currency basis in 2022, but the group reported a statutory operating loss of £3.4m. This was caused in part by a £23.1m impairment linked to a Covid testing project and the group’s connectivity business, which is taking longer than expected to recover from the pandemic.

This impairment – together with a one-off pension settlement charge of £11.8mn relating to its defined-benefit scheme – was non-cash. However, TT’s cash conversion was also low at just 33 per cent. This was partly a result of investment in the self-help programme to improve margins. However, cash was also gobbled up by higher inventory levels, material cost inflation and supply chain issues. An expected improvement in the second half didn’t emerge due to “higher than anticipated receivables”.

Management stressed that cash flow is expected to improve in 2023. However, TT’s big debt pile could prove a problem, with leverage sitting right at the top end of its target of one to two times.

Demand for TT’s products is clearly high. The group is selling into structurally growing markets such as healthcare and defence, and its forward price/earnings ratio is undemanding at 10.2, compared with a five-year average of 12.7. However, we’re still awaiting progress on cash flow and margins. Hold. Last IC View: Hold, 180p, 4 Aug 2022. (Source: Investors Chronicle)

 

08 Mar 23. France’s Thales sees robust demand after core profit growth in 2022. Thales (TCFP.PA) on Wednesday posted a 15.6% rise in 2022 core operating profit to 1.935bn euros as sales rose by an underlying 5.5% to 17.569bn euros, led by higher demand for military and jetliner parts despite fractured supply chains.

Europe’s largest defence electronics company – which is also a major civil supplier – predicted 2023 sales of 18-18.5 bn euros, representing underlying growth of between 4% and 7%.

The French company’s operating margin rose to 11.0% from 10.2% the year before, and Thales said it was targeting a further increase to 11.5-11.8% in 2023.

With its core defence and aerospace markets growing and companies facing labour pressures worldwide, Chief Executive Patrice Caine set out plans to recruit more than 12,000 people in 2023, on top of 11,500 last year, as it ramps up capacity.

But he sounded a cautious note about stretched global supply chains, telling reporters that the situation was patchy, with concerns growing over the availability of some mechanical parts.

Thales reported 23.551 bn euros of new orders in 2022, up 16% like for like. It proposed a 15% hike in the dividend.

Thales, whose wares range from combat radar to in-flight entertainment, forecast broadly higher demand in 2023 and 2024.

Fuelled by rising arms budgets, Thales said it expected sales growth at its largest division, Defence & Security, to speed up, with the operating margin staying at around 13%.

With air traffic and jetliner production recovering and space agencies upping their spending, Thales said it expected Aerospace sales to post high single-digit growth, up from 2.4% last year, with margins rising to 8.5-9% in 2024 from 5.0%.

At the smallest but most profitable unit, fast-growing Digital Identity & Security, Thales said it expected its 14.9% sales growth to “consolidate” this year and next, with the operating margin dipping slightly to 13.5-14.5% from 14.9%.

But it cited a series of risks from the speed of air traffic recovery to more chip shortages or pressure from inflation. (Source: Reuters)

 

08 Mar 23. Thales reports its 2022 full-year results.

  • Order intake1: €23.6bn, up 18% (+16% on an organic basis2)
  • Sales: €17.6bn, up 8.5% (+5.5% on an organic basis)
  • EBIT3: €1,935m, up 17.3% (+15.6% on an organic basis)
  • Adjusted net income, Group share3: €1,556m, up 14%
  • Consolidated net income, Group share: €1,121m, up 3%
  • Free operating cash flow3: €2,527m, 162% of adjusted net income, Group share
  • Dividend4 of €2.94, up 15%
  • 2023 objectives:

o Book-to-bill5 above 1

o Organic sales growth of between +4% and +7%, corresponding to sales between €18 and €18.5bn

o EBIT margin between 11.5% and 11.8%

  • 2019-2023 cash flow generation target again revised upwards:

o Conversion ratio of adjusted net income6 to free operating cash flow greater than 130%

o Around €6.5bn of free operating cash flow expected for 2021-2023

Thales’s Board of Directors (Euronext Paris: HO) met on March 7, 2023 to review the 2022 financial statements7.

“Thanks to the commitment of all its employees, Thales has achieved high quality results in 2022. Commercial momentum was strong in all business lines. With 29 contracts with a unit value of over €100m, the order intake reached a record level of over €23bn.

​Despite a complex operating environment, sales growth was at the upper end of the range announced in July 2022, and the EBIT margin surpassed pre-Covid-19 levels.

​Cash generation was once again well above €2bn and the Group is expected to generate nearly €6.5bn in free operating cash flow over the 2021-2023 period.

​We continued to optimize our business portfolio with four acquisitions and two disposals. We are ahead of schedule on our ESG action plan to build a safer, more environmentally friendly and more inclusive world.

​To support our growth we are significantly ramping up our recruitment and capex plans. After hiring 11,500 people in 2022, we will recruit more than 12,000 employees in 2023. Our 2023 capex will be 20% above 2022, and 46% above 2021.

​With its technologies, its capacity for innovation and the commitment of all its teams, Thales demonstrated once again the relevance of its business model, both resilient and consistently creating value for its stakeholders.” Patrice Caine, Chairman and Chief Executive Officer

Key figures

In accordance with standard IFRS5, the financial data for the “transport” operating segment for 2021 and 2022 have been classified under “discontinued operations” following entry into exclusive negotiations with Hitachi Rail with a view to disposing of this business.

Order intake for financial year 2022 reached a new all-time high of €23,551m, up 18% from 2021 (+16% on an “organic” basis, i.e. at constant scope and exchange rates). The Group enjoyed strong commercial momentum in all its businesses. At December 31, 2022, the consolidated order book stood at €41.0bn, a new all-time high, up more than €6.2bn year-on-year.

Sales reached €17,569m, up 8.5% from 2021 in total change, and up 5.5% in organic change, driven in particular by the dynamism of the Digital Identity and Security (DIS) businesses.

For 2022, the Group posted EBIT8 of €1,935 m (11.0% of sales), compared to €1,649 m (10.2% of sales) in 2021, up +17% in total change, and +16% in organic change.

At €1,556 m, the adjusted net income, Group share8 was up +14% compared to 2021.

The consolidated net income, Group share, stood at €1,121m, up +3% from 2021.

The free operating cash flow8 stood at €2,527m compared to €2,515m in 2021. The conversion ratio of adjusted net income, Group share to free operating cash flow was 162% (185% in 2021). This once again exceptional performance continues to reflect both the strong order intake on export markets, the phasing effects on cash inflows related to contract execution, as well as the continued progress of teams on the measures implemented since 2020 under the “CA$H!” initiative.

In this context, the Board of Directors decided to propose the payment of a dividend of €2.94 per share, corresponding to a payout ratio of 40% of the adjusted net income, Group share, per share.

Order intake

Order intake for the 2022 financial year totaled €23,551m, up 18% from 2021 in total change, and 16% at constant scope and exchange rates11. The ratio of order intake to sales (“book-to-bill”) was 1.34 compared to 1.23 in 2021. It even reached as much as 1.43 when excluding the Digital Identity & Security segment, for which the order intake is structurally very close to sales.

Thales booked 29 large orders with a unit value of over €100 m, representing a total of €8,198m:

  • 2 large orders booked in Q1 2022:

o the order for 2 Space Inspire satellites by Intelsat

o the order of an additional Space Inspire satellite by SES

  • 10 large orders recorded in Q2 2022: the jumbo contract linked to the supply of Rafale to the United Arab Emirates (80 aircraft), as well as 9 orders for a unit value of between €100 m and €500 m:

o the order of a Space Inspire satellite by Arabsat

o an amendment to the contract for the development and qualification of the payloads of the first two satellites of the CO2M mission, which aims to measure the quantity of CO2 produced by human activity (Copernicus European program)

o a contract related to the supply of 6 additional Rafale aircraft to Greece

o a contract to supply the Sea Fire digital radar for 3 defense and intervention frigates (FDI) sold to Greece

o the order for a secure communications system by a military customer

o an amendment to the contract securing the 10-year supply of ammunition to the Australian Defence Force (SDMM)

o the order by a Middle Eastern country of 3 radars and associated support

o a new tranche of the Scorpion program for the French Army

o an amendment to the contract for the supply and support of CONTACT next-generation tactical radios for the French Army

  • 4 large orders booked in Q3 2022:

o a contract to install next-generation in-flight entertainment systems on Emirates’ future Airbus A350 fleet

o an amendment to the contract for the development of the SICRAL 3 satcom system for the Italian Ministry of Defense, including the associated ground segment

o the order of the KOREASAT 6A telecommunications satellite by the operator kt sat

o the order of Sea Fire naval radars by a major military customer

  • 13 large orders booked in Q4 2022:

o a contract to upgrade the French Army’s Tigre helicopters to Mark III standard

o the 3 additional development tranches of the ROSE-L, CIMR and CHIME missions of the ESA Copernicus program

o a contract signed with the European Commission (EUSPA) to develop a new version of the EGNOS navigation support system

o the construction of a new generation Space Inspire satellite for Eutelsat

o a contract related to the supply of Rafale to Indonesia (6 aircraft)

o a contract related to phase 1B of the Future Air Combat Program (FCAS)

o a support contract for the SAMP/T medium-range air defense program

o the renewal of several French Armed Forces radars and the order for a new Aerospace Operations Command and Control System as part of stage 5 of the SCCOA program

o the order for a secure communications system by a military customer

o a contract for the production of 81mm ammunition for the French Army

o a contract to supply Luxembourg with on-board vetronics and communication systems for 80 armored command, liaison and reconnaissance vehicles (CLRV)

At €15,353m, order intake with a unit value of less than €100 m was up 14% from 2021, with a significant increase of 36% in orders with a unit value between €50 m and €100 m, particularly in defense businesses.

Geographically12, order intake in emerging markets amounted to €7,516 m, up 68% at constant scope and exchange rates, driven by commercial successes in defense. At €16,034m, order intake in mature markets remained high (+1% at constant scope and exchange rates), driven primarily by 16 large military contracts in 7 countries.

Order intake in the Aerospace segment totaled €5,892m compared to €5,631m in 2021 (+3% at constant scope and exchange rates). This performance is explained by a strong rebound in aeronautics order intake (avionics and in-flight entertainment (IFE)), which in particular recorded two major contracts with a unit value of more than €100m, the first since 2019 (see details above). After-sales activities in the civil aviation sector were up 32%. Moreover, Thales Alenia Space maintained a book-to-bill ratio of more than 1 thanks to new commercial successes, both in earth observation (Copernicus), navigation (Egnos) and commercial telecommunications (with five additional orders from the new generation “Space Inspire” digital satellites). At December 31, 2022, the segment’s order book stood at €9.2bn, up 17%.

At €13,955m compared to €11,185m in 2021, order intake in the Defense & Security segment set a new record (+23% at constant scope and exchange rates). The book-to-bill ratio consequently exceeded 1.52, compared to 1.30 in 2021 and 1.23 in 2020. This high level is explained by the recording of 16 contracts worth more than €100m, including the jumbo contract for the supply of Rafale to the United Arab Emirates (80 aircraft). The segment’s order book consequently reached a new record at €31.0bn, corresponding to 3.4 years’ worth of sales, strengthening visibility for the years ahead.

At 3,616m, order intake in the Digital Identity & Security (DIS) segment was structurally very close to sales as most business lines in this segment operate on short sales cycles. The order book is therefore not significant.

Sales

Sales for the 2022 financial year totaled €17,569m, compared to €16,192m in 2021, up 8.5% in total change and 5.5% in organic terms (at constant scope and exchange rates14), driven particularly by the Digital Identity & Security (DIS) segment. The shutdown of activities in Russia had an impact on sales estimated at €135m for the Group (€80m for Aerospace and €55m for DIS).

Geographically15, sales growth was stronger in mature markets (+6.3% organic), while emerging markets returned to organic growth (+2.9%), driven by the Middle East and Latin America regions.

Sales in the Aerospace segment totaled €4,705m, up 5.4% from 2021 (+2.4% at constant scope and exchange rates). The segment was affected by the shutdown of activities in Russia (total impact estimated at around €80 m in 2022), a slowdown in the growth of space businesses after record momentum in 2021, and by an unfavorable basis of comparison for the microwave tubes business. Civil aero aftermarket sales continued to recover, with growth of +23% over the full year 2022, even though the slow recovery of the wide-body aircraft market continued to weigh on the overall civil aviation business.

Sales in the Defense & Security segment totaled €9,154m, up 6.0% from 2021 (+3.8% at constant scope and exchange rates). The good momentum of several business lines (including integrated systems for airspace protection, activities related to the Rafale programs, surface radars, cyber defense solutions, and tactical radios) was, however, impacted by tensions both in supply chains (with an estimated impact of around €100 m on sales for 2022) and in recruitment. These operational constraints are temporary, and the Group can rely on a considerable order book of nearly €31.0bn at the end of December 2022 to accelerate its growth in the coming years.

At €3,618m, sales in the Digital Identity & Security segment were up 14.9% at constant scope and exchange rates, and 20.8% in total. This performance reflects the strong momentum of cybersecurity activities, which grew organically by more than 15%, as well as the price effect on EMV payment cards and SIM cards, reflecting the significant increase in purchase costs. After 2 years of health crisis, the recovery in biometrics continued despite persistent tensions on supply chains, particularly of chips. After 9 months of 2022 disrupted by supply chain tensions, the IoT connectivity module business experienced a very strong recovery in Q4. As part of the creation of Telit Cinterion, a new leader in IoT solutions, the bulk of this business (i.e. €360 m in 2022 sales) has been deconsolidated as of January 1, 2023. As of this date, Thales held a 25% stake in the new company, which is therefore consolidated using the equity method.

Results

For 2022, the Group posted EBIT16 of €1,935m, or 11.0% of sales, compared to €1,649m (10.2% of sales) in 2021. This level included two one-off items that largely offset each other:

  • Firstly, the economic and trade sanctions imposed on Russia led to the recognition, in the H1 2022 financial statements, of non-recurring expenses for an amount of €52m, in the “cost of sales” line, mainly in the Aerospace segment.
  • Secondly, the compensation agreement signed between Australia and Naval Group resulted in a non-recurring income of €45 m in 2022.

The Aerospace segment recorded an EBIT of €235 m (5.0% of sales), compared with an EBIT of €202m (4.5% of sales) in 2021. Segment EBIT margin growth slowed due to supply chain tensions, cost inflation and the one-off negative impact from the shutdown of operations in Russia. Adjusted for these non-recurring expenses, the EBIT margin would have increased by an additional 1 point.

In the Defense & Security segment, EBIT stood at €1,179m, compared to €1,111m in 2021 (+2.7% at constant scope and exchange rates). As in 2021, the margin in this segment was 12.9%. This robust EBIT margin, at the top of the medium-term guidance range (12%-13%), confirms the resilience of this segment despite the supply chain tensions and the associated cost inflation that affected 2022.

At €494 m (13.7% of sales), EBIT in the Digital Identity & Security segment continued to benefit from the improvement in the commercial margin of all its activities and from the leverage on the strong sales growth. The segment thus exceeds its medium-term EBIT margin target (12.5% to 13.5% in 2023) one year in advance.

Excluding Naval Group, unallocated EBIT was stable at -€92m compared with -€91m in 2021, including the reallocation of certain costs following the classification of Transport as a discontinued operation.

At €119m in 2022 versus €69 m in 2021, Naval Group’s contribution to Group EBIT increased mainly thanks to the non-recurring income mentioned above.

At -€50m versus -€57m in 2021, net financial interest mainly benefited from a higher average level of cash than in 2021. The decrease in other adjusted financial income17 (-€34m in 2022 versus -€21m in 2021) is explained by less favorable foreign exchange income. The change in the adjusted financial expense on pensions and other long-term employee benefits17(-€35m versus -€30 m in 2021) reflects the decrease in net liabilities combined with the increase in discount rates.

As a result, adjusted net income, Group share17 was €1,556m, compared to €1,361m in 2021, after an adjusted income tax charge17 of -€331m compared to -€244m in 2021. At 20.6% in 2022 compared to 17.3% in 2021, the effective tax rate returned to a normalized level. The 2021 rate had benefited from one-off tax items of €46 m related to changes to tax rules in Italy and the United Kingdom.

The adjusted net income, Group share, per share17 amounted to €7.35, up 15% from 2021 (€6.39).

The consolidated net income, Group share, stood at €1,121m, up 3% from 2021. This improvement, which is lower than that of adjusted net income, Group share, is explained by a set of one-off items that were more negative in 2022 than in 2021: capital losses on disposal, pension plan modifications, change in the fair value of derivative instruments, and costs related to the disposal of the Transport business.

Financial position at December 31, 2022

Free operating cash flow18 amounted to €2,527m compared to €2,515m in 2021. It included a contribution of €2,595m from continuing operations and -€68m from discontinued operations. The conversion ratio of adjusted net income, Group share to free operating cash flow was 162% (185% in 2021). This new exceptional performance was, like in 2021, due simultaneously to strong export order intake, the positive phasing effects on cash inflows related to contract execution, as well as continued progress of teams on the actions implemented since 2020 under the “CA$H!” initiative.

The net balance of acquisitions and disposals of subsidiaries and affiliates amounted to -€453m. As part of its bolt-on acquisition strategy, the Group finalized four significant acquisitions in 2022: two companies operating in cybersecurity, OneWelcome and Maxive (which includes S21 Sec and Excellium), RUAG’s simulation & training business, and the 51% it did not hold in Advanced Acoustics Concept. The creation of Telit Cinterion did not result in an entry in the cash flow statement, as the disposal took place in exchange for a 25% stake in the new entity. In 2023, the Group anticipates the closing of two disposals: the sale of the Transport business to Hitachi Rail and the sale of the aeronautical electrical systems business to Safran.

As part of the share buyback program covering a maximum of 3.5% of the capital announced in March 2022, 2,765,104 shares were repurchased during 2022, i.e. 1.3% of the share capital, for an amount of €329m. As of February 28, 2023, the Group had purchased 3.3m shares, representing 1.5% of the share capital. This program will end by March 31, 2024 at the latest. On March 7, 2023, the Board of Directors approved the cancellation of 3,201,169 shares. The share capital will therefore comprise 210,210,140 shares once these shares have been canceled.

At December 31, 2022, net debt stood at €35m, compared with €795m at December 31, 2021, after taking into account new lease liabilities totaling €199m (€137m in 2021) and after the payment of €563m in dividends (€417m in 2021).

Shareholders’ equity, Group share, totaled €7,174m, compared to €6,474m at December 31, 2021, with the reduction in net pension obligations from continuing operations (+€457m) being combined with consolidated net income, Group share (€1,121m).

Non-financial performance

Based on its corporate purpose of “building a future we can all trust”, Thales has set itself an ambition for its non-financial impact on the planet and society based on two pillars. Firstly, the Group seeks to maximize the contribution of its portfolio of solutions to a more sustainable world – safer, more environmentally friendly and more inclusive. Secondly, Thales has set itself ambitious targets on four main priorities:

  • The fight against global warming
  • Strengthening diversity
  • The permanent implementation of the best standards in terms of ethics and compliance
  • Strengthening the health and safety at work of all employees

Quantitative targets have been set for each of these priorities, and progress on these metrics has been integrated into the compensation structure of all employees eligible for variable compensation (i.e., over 60% of the workforce).

With regard to the fight against global warming, operational CO2 emissions19 for 2022 were down 9% compared to 2021 despite the resumption of business travel linked to the end of the Covid-19 crisis. This performance reflects, firstly, the 11% decrease in energy consumption relative to sales, obtained thanks to the renewal of industrial equipment and energy reduction actions, and the sharp increase in renewable electricity purchases, which represented 74% of electricity purchases in 2022 compared with 32% in 2021. As a result, the drop was -40% compared to 2018, well ahead of the 2023 target (-35%).

The Group continued to deploy the best practices in eco-design. At 84% in 2022, the percentage of new developments incorporating eco-design remained high, in line with the target of 100% by 2023.

At the same time, the teams have strengthened their engagement with the most emissive suppliers. CO2 emission reduction targets were formally submitted for SBTi certification in July 2022 and are expected to be validated in 2023.

With regard to strengthening diversity, at the end of 2022, 76% of the Group’s management committees included at least 3 women, compared with 71% at the end of 2021 and 49% at the end of 2018. The highest levels of responsibility20 had 19.4% women at this date, compared to 18.9% at the end of 2021 and 16.5% at the end of 2018. The target for women on management committees (75% in 2023) was therefore achieved one year ahead of schedule, while the level of women in management was in line with the 2023 target (20%). Initiatives to further promote women at all levels of the organization and promote their access to positions of responsibility are therefore bearing fruit. Thales actively supports an ecosystem of associations to transform its culture in terms of diversity, and invests in raising awareness among young girls on the Group’s scientific jobs, in particular by supporting the “Elles Bougent” association. On the occasion of today’s International Women’s Day, the French daily newspaper Les Echos is publishing an Op-Ed article by Patrice Caine on this important topic.

In the area of ethics and compliance, the Group is focusing on team training and certification. As a result, in 2022, 100% of potentially exposed employees who were to be trained during the year, i.e. more than 6,100 people, were trained in the fight against corruption. In March 2021, Thales received ISO 37001 “anti-bribery management systems” certification for its main French subsidiaries. In 2022, this approach was extended to two major countries in its international footprint, the United Kingdom and the Netherlands. In 2023, this certification will be further extended to other major countries where the Group operates.

Finally, despite the sharp drop in remote working following the end of the Covid-19 crisis, the frequency of workplace accidents21 (-34% compared to 2018) remained below the 2023 target (-30%), as in 2021. It reflects the development of a culture of safety at work that relies on increased team training and the monitoring of proactive prevention KPIs.

Details of all action plans and associated metrics can be found in the non-financial performance statement that will be included in the 2022 Universal Registration Document scheduled for publication at the end of March 2023.

In 2023, the Group will define its new ESG roadmap for the coming years. It will aim to strengthen the integration of societal issues into its growth strategy and set new medium-term non-financial targets.

Proposed dividend

The Board of Directors decided to propose to the shareholders, who will convene at the Annual General Meeting on May 10, 2023, payment of a dividend of €2.94 per share. This level corresponds to a payout ratio of 40% of the adjusted net income, Group share, per share.

If approved, the ex-dividend date will be May 23, 2023, and the payment date will be May 25, 2023. This dividend will be paid fully in cash and will amount to €2.24 per share, after deducting the interim dividend of €0.70 per share paid in December 2022.

 

08 Mar 23. Darktrace adjustments undermine investor confidence.

  • Share-based payments hit profits
  • Management promises to improve cash generation in the medium term

Earlier this year, short seller Quintessential Capital Management accused Darktrace (DARK) of beefing up its revenue by selling products to resellers even when they didn’t have customers lined up.

Darktrace has rebutted the claims, but the company doesn’t do itself any favours with the size of its adjustments. In the six months to December, adjusted operating profits (Ebit) increased 25.9 per cent to $32.4m (£27.4m). However, its reported operating profit fell 92 per cent to just $577,000, after stripping out $27.7m of share-based payment charges.

Darktrace says these payments will normalise because the share-based payments promised at IPO have now vested. However, financing this was an expensive business, with cash spent on share buybacks increasing from $13.5m to $33.9m. Cash swung from an inflow of $26m to an outflow of $15m.

If you ignore the shifting floors of the adjusted figures, then some of Darktrace’s numbers look promising. Annual recurring revenue grew 37 per cent to $557m. This growth is down from 46 per cent last year, but still impressive.

Darktrace said new customer acquisition did slow in the second half of the year due to the macroeconomic conditions. To offset this, it has been trying to upsell its existing customers and it has reiterated its full-year guidance, although free cash flow will be lower than the January guidance because of taxes owed on IPO share awards.

Other than this year when share buybacks hit cash flow, Darktrace is usually very cash generative. Management expects annual free cash flow to be between 75 per cent and 105 per cent of adjusted cash profit (Ebtida). Brokers agree, which means it is trading on an affordable Factset consensus 2024 free cash flow yield of 5 per cent.

If you trust management’s promises, there is cheap growth on offer here. But we would like to see some consistency first. Hold. Last IC View: Hold, 336p, 08 Sep 2022. (Source: Investors Chronicle)

 

03 Mar 23. TRM Equity Acquires Assets of Gamma Aerospace, LLC. TRM Equity II (“TRM”) has acquired substantially all of the assets of Gamma Aerospace, LLC (“Gamma”).  With three production facilities, including its headquarters in Mansfield, TX, assembly location in southern California and machining location in Mexicali, Gamma is a leading manufacturer of multi-contoured formed and multi-axis machined parts serving Aerospace and Defense.  The transaction was completed on March 2, 2023.  Gamma employs over 200 people.

Jeff Stone, Managing Director for TRM, commented:  “Gamma has been entrusted by the Defense Industry Primes and commercial OEMs with responsibilities to provide critical components on high-profile programs for years.  These customers have supported our efforts to move the business forward from a very challenging operating environment caused by a combination of uncertain demand during the COVID pandemic, labor market tightness and supply chain dislocations during the rebound from COVID, as well as ongoing aggressive inflationary pressure.  As we move forward, Gamma will be a stable and predictable performer for our customers while the industry continues to navigate ongoing supply chain challenges.”

TRM Equity Acquires Assets of Gamma Aerospace, LLC

About TRM Equity

TRM Equity is a private equity firm that seeks controlling investments in situations where the experience of our team can assist companies with operational improvement or transformation. The Firm’s core team has worked and invested together for approximately 20 years, applying a consistent approach in targeted manufacturing industries, and has a demonstrated track record of above-market returns. (Source: PR Newswire)

 

06 Mar 23. Rcapital acquires specialist nuclear decommissioning business, James Fisher Nuclear. Private investor Rcapital, has today announced the acquisition of James Fisher Nuclear (JFN) from James Fisher & Sons plc.  The business has over 30 years’ experience in the UK nuclear sector and has built a strong heritage of design, manufacture, testing and inspection skills, to ensure the efficient and safe operations of many of the UK’s highest profile nuclear decommissioning projects.

Headquartered in Preston, the business operates from six locations around the UK, as well as having a presence close to the decommissioning sites of live projects such as Sellafield and Dounreay. JFN employs over 240 highly skilled workers across the sites.

JFN has a healthy forecast pipeline thanks to the scale of the nuclear decommissioning task ahead. The Nuclear Decommissioning Authority estimates that is will take more than 100 years to complete the UK nuclear clean-up and waste management programme and has a planned expenditure for 2022/23 of £3.65bn across its 17 sites.

Peter Greenhalgh, Managing Director of James Fisher Nuclear commented: “I’m delighted to confirm that James Fisher Nuclear has been acquired by Rcapital.   We look forward to taking the business from strength to strength as it plays its crucial role in dealing with Britain’s nuclear legacy safely and effectively.”

Josie Richardson, Investment Director at Rcapital, said: “James Fisher Nuclear occupies a unique place in the UK’s nuclear decommissioning industry and has a 30-year track record of providing market-leading technical services and expertise to some of the most challenging projects.  We are pleased to be supporting Peter and his team as they take the business into a new phase of growth and development.”

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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.

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