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27 Dec 23. The order books of the world’s biggest defence companies are near record highs after growing by more than 10 per cent in just two years because of rising geopolitical tension, including the conflict in Ukraine. An analysis by the Financial Times of 15 defence groups, including the largest US contractors, Britain’s BAE Systems and South Korea’s Hanwha Aerospace, found that at the end of 2022 — the latest for which full-year data is available — their combined order backlogs were $777.6bn, up from $701.2bn two years earlier. The trend’s momentum continued into 2023. In the first six months of this year — the latest comprehensive quarterly data available — combined backlogs at these companies stood at $764bn, swelling their future pipeline of work as governments kept placing orders. The sustained spending has spurred investors’ interest in the sector. MSCI’s global benchmark for the industry’s stocks is up 25 per cent over the past 12 months. Europe’s Stoxx aerospace and defence stocks index has risen by more than 50 per cent over the same period. The gains reflect conviction among investors that higher defence spending by governments is here to stay. Total global military expenditure increased by 3.7 per cent in real terms in 2022 to a new high of $2,240bn, according to the Stockholm International Peace Research Institute. Military expenditure in Europe had its steepest year-on-year increase in at least 30 years as governments in the region announced new orders for ammunition and tanks to replenish national stockpiles depleted by donations sent to Ukraine. Hanwha Aerospace recorded the biggest rise in new orders, with its backlog soaring from $2.4bn in 2020 to $15.2bn at the end of 2022, according to the FT analysis. The company, the country’s biggest arms producer, which makes the K-9 self-propelled howitzer tank, has benefited significantly from Ukraine-related orders, in particular from Poland. South Korea has catapulted up the ranks of arms sellers over the past two years because of significant export orders, particularly from eastern European countries. It was the world’s ninth-largest seller of arms in 2022, up from 31st place in 2000, according to Sipri. German tank maker Rheinmetall has been another beneficiary of higher spending in the wake of the war in Ukraine, with its order backlog rising from $14.8bn in 2020 to $27.9bn in 2022. Its backlog stood at $32.5bn at the half-year. Not all of the higher spending is related to Ukraine. BAE Systems’ order backlog, for example, has risen from $61.8bn to $70.8bn in 2022 thanks to new orders for existing programmes, including submarines, frigates and fighter aircraft. Its order backlog hit a record $84.2bn in the first six months of 2023. Some of the causes of higher backlogs predate Russia’s full-scale invasion of Ukraine, according to Nick Cunningham, analyst at Agency Partners. “The reality is lead times for policymaking, budgets and placing orders are so long that the invasion of almost two years ago is only just appearing in orders and barely in revenues, except for a few shorter-cycle specialists such as Rheinmetall,” he said. Despite receiving new orders, many European and US defence companies have struggled to significantly increase production capacity amid persistent supply chain disruptions and labour shortages. Analysis by Sipri of the 100 largest companies found that revenues from sales of arms and military services totalled $597bn in 2022, 3.5 per cent less than 2021 in real terms, even as demand rose sharply. Cunningham said the order pipeline “looks really strong, so we expect more to come in”. He expects the “book to bill ratio” — the ratio of orders to deliveries — to stay above one, meaning backlogs should “increase for some time to come”. (Source: FT.com)
26 Dec 23. Kromek boss ‘might not have listed technology company on Aim.’
Arnab Basu joins other technology bosses ‘frustrated’ with London’s small-cap market after his firm’s share price dropped more than 90 per cent since 2013.
The boss of Kromek has said that with hindsight he might not have listed the scanning technology business on London’s junior stock market, adding his voice to those of other British technology chief executives who complain that the City lacks understanding of the sector.
The share price of the Co Durham-based company, which designs and makes high-specification materials for security and medical imaging, has fallen by more than 90 per cent since it was listed on Aim in 2013, despite Kromek increasing its revenue and market share.
Arnab Basu said it was “frustrating that the company’s value isn’t recognised”. The business, which celebrated its 20th anniversary this year, made £17m of revenue in 2022, a 44 per cent rise from the year before.
However, it has yet to make a profit, suffering an adjusted pre-tax loss of £7m in 2023, down from £7.8m the year before. About a third of its revenue is from the United States and a fifth from Britain.
Kromek is covered by only one firm of City analysts — Cavendish, part of the finnCap Group. In July, after the company’s full-year results, Mark Brewer, finnCap’s director of research, wrote: “As the only independent supplier at scale of CZT [a semiconductor] for imaging systems, we believe there is substantial strategic value in Kromek that is not reflected in the current price.”
Another London technology analyst, who does not follow the stock, said: “The low end of the Aim market capitalisation spectrum can be a trap in terms of low valuations. The company capitalises a lot of development costs and has been cashflow-negative for the past two years; improving profitability and turning cash-positive will be keys to getting a higher valuation.”
Reflecting on its ten years as a public company, Basu, 50, said: “We have had a difficult time in the market, where the business has grown continuously but the value recognition has declined continuously. When you’re talking to retail investors, it must be very challenging for them to really understand a small, complex business. The relationship we had with private investors was much more interactive.”
He argued that technology businesses that required time and investment to grow were often ignored in favour of short-term successes. “Hardware tech is still rare in the UK. And I think if you’re not in certain segments, understanding and the pool of investors within that is reasonably limited, which creates a pressure. Kromek’s story is shared by many compatriots in the tech market.”
Basu moved to Newcastle from India for his degree and stayed in the city, spinning out his doctorate from Durham University into a business that supplies medical companies, airports and security services worldwide. Kromek developed a semiconductor technology and manufacturing process that goes into a range of applications, including creating Europe’s first liquid explosive detection system, and has won its first contract with the European Space Agency.
Based in Sedgefield, the company employs 150 people with offices and manufacturing facilities in Pennsylvania and California. It supplies the US Department of Homeland Security and works with Darpa, the US defence agency, producing a portfolio of products for the military in radiation detection.
Among the products in the pipeline, it is developing an airborne pathogen-testing system. The company works on detection in oncology, Alzheimer’s and cardiac processes and in the analysis of airborne diseases. Another area is radiation detection and Basu said it was looking at early warnings of biological or chemical weapons being used in public areas from cities to stadiums. (Source: The Times)
BATTLESPACE Comment: This article underlines the complete lack of technical expertise in analysts of AIM companies. Kromek possesses world beating technology developed and patented in the UK. Even with persistent positive articles in the Investor’s Chronicle, the shares languish at a miserly 4p. Expect Kromek to go to a foreign predator who will see the clear potential in this technology.
21 Dec 23. Blue Origin, Cerberus looking to buy rocket firm United Launch Alliance – WSJ.
Jeff Bezos’ Blue Origin and private equity firm Cerberus are among companies that have shown interest in buying rocket company United Launch Alliance (ULA), the Wall Street Journal reported on Thursday, citing sources familiar with the matter.
Lockheed Martin (LMT.N) and Boeing (BA.N) have equal ownership in ULA, which makes one of the launch vehicles for Amazon.com’s (AMZN.O) satellite internet network, Kuiper.
Business jet maker Textron (TXT.N) has also expressed interest in ULA, the report said adding that a bidding price could not be determined and a deal may not materialize.
“If I were buying a space business, I’d go look at ULA,” its CEO Tory Bruno told Bloomberg News in October.
ULA has faced delays in the development of its new rocket named Vulcan Centaur, which will carry Astrobotic’s Peregrine lunar lander in its first launch in January. Blue Origin’s BE-4 engine powers the spacecraft’s first stage.
Private equity firms have been showing interest in space companies that have exposure to government contracts, a segment dominated by Elon Musk’s SpaceX.
The U.S. Space Force has assigned 21 launches to SpaceX and ULA worth about $2.5bn, CNBC reported in November, with the Boeing-Lockheed Martin joint venture receiving 11 missions valued at $1.3bn.
Blue Origin, Cerberus, Textron, and Lockheed Martin did not immediately respond to Reuters’ requests for comment, while Boeing declined to comment. (Source: Reuters)
21 Dec 23. RTX shake-up signals a shift from change to steadiness, analysts say. Defense giant RTX last week announced CEO Greg Hayes will step down, and in his place will come Chris Calio, the company’s president and chief operating officer, who will take the top job in May.
For the world’s second-largest defense contractor, analysts say, the change in leadership reflects a transition from an era of disruption to one of maintenance.
Hayes oversaw the merger of Raytheon and United Technologies Corp. three years ago and the company’s rebranding as RTX this summer. Calio has been making sure the merger works, leading a recent reorganization of the company from four core divisions to three.
“Hayes was a change agent,” said Loren Thompson, a defense industry consultant who doesn’t count RTX as a client. “What RTX needs now is somebody who can run a stable enterprise with huge potential as effectively as possible.”
RTX faces near- and long-term headwinds, both of which likely influenced the choice of Hayes’ successor, said Thompson, whose think tank, the Lexington Institute, receives donations from the company.
In the short term, said multiple analysts, the company’s top priority is to manage the crisis caused by a flaw in a geared turbofan engine manufactured by Pratt & Whitney, one of its subsidiaries. That flaw, announced this summer, sent RTX’s stock plummeting. Hundreds of aircraft will need their engines removed and inspected over the next several years as a result.
But in the longer term, RTX will need to navigate the potential for defense spending to plateau due to countries’ rising deficits, said analysts.
That potential was in part the thinking behind the company’s merger. RTX is an array of subsidiaries that straddle the commercial and defense markets. The mixture creates a diverse portfolio that can help lower risk for investors, said Jerry McGinn, who leads the Center for Government Contracting at George Mason University and previously oversaw industrial base policy at the Pentagon.
The commercial and defense markets “don’t always move in parallel,” he said. “Having both capabilities allows you some insulation.”
By appointing Calio, RTX is likely trying to prepare for both horizons, Thompson said.
Hayes worked as UTC’s chief financial officer before the merger, but his background is in the company’s engineering wing, historically part of the resume for top executives at major defense firms. Calio’s experience is largely on the business side of the house, which analysts told Defense News could help in communicating with shareholders and focusing on profitability.
RTX declined to make Calio available for an interview.
Calio “has got to be a critical public spokesperson for both [RTX’s] capabilities and an advocate in Congress and in the Pentagon,” said Alan Chvotkin, a partner at Washington’s Centre Law Group.
Despite potential for growth in the commercial sector, RTX is still heavily dependent on defense contracts and appropriations from Congress, which has yet to approve a full-year Pentagon budget.
The difficulty in securing a spending bill dampens prospects for the company’s defense sector, even as the wars in Ukraine and Gaza have focused new attention on Raytheon missiles.
Those conflicts have emphasized the importance of air defense and precision munitions, said Bryan Clark, a fellow at the Hudson Institute think tank.
“On the missile system side, you’re going to be probably trying to maximize returns and see if these multi-year procurements of missiles come through,” said Clark, referring to long-term contracts for precision missiles being considered by Congress.
While the Pentagon has worked to increase production of such munitions in the last two years, its long-term focus is on China, which the 2022 National Defense Strategy labels America’s “pacing challenge.”
Pentagon leaders have said innovation will be necessary to keep up, as demonstrated by new initiatives like Replicator.
Leaders with financial backgrounds, who may be more focused on their companies’ bottom lines, might be less inclined to make such ambitious investments, said Byron Callan, managing director at Capital Alpha Partners.
“If the DoD is expecting these large companies to pivot and spend less money on share buybacks and invest more in their businesses and free cash flow, some of these [leadership] changes suggest that is not going to happen,” said Callan. (Source: Defense News)
21 Dec 23. Luna Announces $50m Strategic Investment from White Hat Capital Partners.
Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced fiber optic-based technology, today announced a $50m investment by White Hat Capital Partners (“White Hat”), an investment firm focused on sustainable value creation in technology companies serving mission-critical applications.
Proceeds from this strategic investment were partially used to fund the acquisition of Silixa, also announced today, and related transaction costs in the aggregate amount of approximately $25 m. Remaining proceeds were used to repay the Company’s outstanding $17 m term loan with PNC Bank and strengthen the Company’s balance sheet.
Luna expects to apply the proceeds of this investment across a range of initiatives already in process to accelerate growth and increase profitability, including:
• Capitalizing on Inflection Point for Adoption of Fiber Optic Sensing Solutions: Aging infrastructure and rising security concerns for pipelines and critical infrastructure have led to increased market adoption of fiber optic sensing technologies for structural health monitoring. Luna is well-positioned to implement its solutions and drive recurring revenue through continuous monitoring of these key assets, such as bridges, tunnels and pipelines.
• Increasing Manufacturing Capacity to Meet Demand Arising from Strategic Partnerships: Luna has cultivated strategic relationships with several large global customers that are now expanding their use of Luna’s solutions, increasing demand for Luna’s products.
• Enhancing Investments in Innovation: Luna intends to leverage its increased financial flexibility to execute against its robust product roadmap and continue to be a leading developer of innovative technologies with new applications, building upon its already large library of intellectual property.
In conjunction with the strategic investment, David Chanley joined Luna’s Board of Directors. Mr. Chanley is a Co-Founder and Managing Partner of White Hat and has more than 20 years of experience in the technology sector. With this addition, Luna’s Board expanded to eight members.
“We are thrilled to welcome White Hat as a new partner,” said Scott Graeff, President and Chief Executive Officer of Luna. “David and his team bring years of experience advising and supporting technology companies, particularly in the optics and test & measurement industries. When I first met them, I was struck by how well they understood both our industry and our technologies. Their investment is not only a vote of confidence in the acquisition of Silixa, but also a strong endorsement of our strategic vision and market opportunities.”
“White Hat is excited to partner with the Luna management team to support the Company in its next stage of growth,” said David Chanley, Managing Partner at White Hat Capital Partners. “Our thorough evaluation highlighted the quality and depth of Luna’s management team and the promising addition of the talented team from Silixa. With additional scale and financial flexibility, Luna is uniquely positioned as the largest pure-play company to address the rising demand for fiber optic sensing solutions in its key end markets. These include pivotal roles in energy transition initiatives like carbon capture and storage (CCS) and electric vehicle (EV) adoption, as well as critical structural health monitoring and specialized aerospace & defense applications. We are eager to partner with Luna as the company accelerates its mission of enabling the future with fiber.”
Summary of Investment Terms
White Hat has initially purchased 52,500 shares of Series B convertible preferred stock at a purchase price of $50.0m. Each share has an initial liquidation preference of $1,000 per share and subject to certain conditions and limitations will be convertible into shares of Luna common stock, beginning one year from issuance, at a conversion price of $6.70 per share, representing a 10% premium to the Company’s 30-day volume-weighted average price. The preferred stock will accrue quarterly dividends payable, at the Company’s option, at either 8.5% annual rate if paid in cash or a 10% annual rate if paid in kind. Until December 21, 2026, White Hat will have the right to purchase up to an additional $12.5 m of Series B convertible preferred stock at par and otherwise on the same terms. Further details concerning the transaction and the terms of the Series B convertible preferred stock will be included in a Current Report on Form 8-K to be filed by the Company with the Securities and Exchange Commission.
Cooley LLP acted as legal advisor to Luna and Schulte Roth + Zabel LLP acted as legal advisor to White Hat in the transaction.
About Luna
Luna Innovations Incorporated (www.lunainc.com) is a leader in optical technology, providing unique capabilities in high-performance, fiber optic-based, test products for the telecommunications industry and distributed fiber optic-based sensing for a multitude of industries. Luna’s business model is designed to accelerate the process of bringing new and innovative technologies to market.
About White Hat Capital Partners
Founded in 2016, White Hat Capital Partners LP focuses on concentrated, value-oriented investments in publicly-traded technology companies. White Hat partners with its portfolio companies to improve strategy and capital allocation decisions, implement operational efficiencies and strengthen governance, all with a view toward improving corporate competitiveness and creating shareholder value. The Firm is based in New York. For more information, visit www.whitehatcp.com. (Source: BUSINESS WIRE)
21 Dec 23. Luna Acquires Silixa. Luna Innovations Incorporated (NASDAQ: LUNA), a global leader in advanced fiber optic-based technology, today announced the strategic acquisition of Silixa, a UK-based leader in distributed fiber optic sensing solutions. The acquisition further propels Luna’s position in the fiber optic sensing market, adding capabilities in distributed acoustic sensing (DAS), distributed temperature sensing (DTS) and distributed strain sensing (DSS) that offer enhanced performance for applications in energy, natural environments, mining and defense.
Silixa is expected to achieve approximately $30 m in 2023 revenue, representing approximately 15% annual growth on a constant currency basis. The purchase price consists of $21.5 m in upfront cash consideration and up to an additional $16.5 m in earnouts payable in 2025 upon the achievement of certain 2024 financial performance milestones. The transaction was funded with a portion of the proceeds from White Hat Capital Partners’ strategic investment in Luna, which was also announced today. Inclusive of modest cost synergies, the acquisition is expected to be accretive to non-GAAP earnings in the first year.
“The addition of Silixa not only elevates the portfolio of solutions we already offer in our key end markets, but also further strengthens our position as an enabler of energy transition by extending our reach into exciting new growth sectors, such as carbon capture and storage, as well as into monitoring processes that will help sustain ecosystems and safeguard fragile environments,” said Scott Graeff, President and Chief Executive Officer of Luna. “Silixa brings important technology capabilities and strong talent that we expect to leverage across our EMEA footprint, which we expect will drive profitable growth across our European enterprise.”
Strategic Benefits
• Enhances Luna’s Product Offerings: Silixa’s highly complementary portfolio of sensing technologies and monitoring capabilities augments Luna’s current product portfolio. Silixa advances Luna’s solutions-based offerings with highly integrated monitoring and real-time data solutions that yield valuable insights and drive recurring revenue.
• Expands Luna’s Serviceable Addressable Market: Silixa not only provides Luna access to emerging end markets, such as carbon capture and geotechnical monitoring, but also adds incremental capabilities and geographical reach within key existing end markets, such as energy and mining.
• Increases Luna’s Scale: In addition to greater financial and operational scale, Silixa brings proprietary sensing technologies, expanding Luna’s industry-leading patent portfolio to nearly 1,000 with the addition of Silixa’s 200+ patents. Silixa’s established presence in the U.K. adds significant talent in sales, marketing, engineering and R&D, helping to round out Luna’s EMEA organization.
“Today’s announcement is a pivotal milestone in the history of Silixa and a testament to the hard work and dedication of our employees,” said Co-Founders Mahmoud Farhadiroushan and Tom Parker, who are both continuing with Luna. “We’re thrilled to be joining a company that shares our focus on innovation and our passion to provide solutions to some of the world’s most critical challenges,” added Glynn Williams, CEO at Silixa, who will remain as an advisor to Luna through 2024.
Needham & Company, LLC acted as financial advisor and Cooley LLP acted as legal counsel to Luna in the transaction. PWC acted as financial advisor and Addleshaw Goddard LLP acted as legal counsel to Silixa.
(Source: BUSINESS WIRE)
21 Dec 23. Red Cell Partners Announces $91m Incubation Fund for Defense and Healthcare. Red Cell Partners today announced the close of $91m new capital for a new incubation fund, RCIF I. The new fund allows the firm to back incubations raising early stage rounds. Red Cell is a McLean, VA-based incubation firm building rapidly scalable technology-led companies that are bringing advancements to market in healthcare and national security.
Grant Verstandig, who founded Rally Health – which was acquired by UnitedHealth Group, where he then served as Chief Digital Officer – launched Red Cell in 2020 to leverage AI and other advanced tech to address the nation’s biggest problems in healthcare and defense. The leadership team includes former Secretary of Defense Mark Esper and Federal Reserve Vice Chair Roger Ferguson.
The firm has launched six companies, Zephyr AI, TARA Mind, Savoy Life, DEFCON AI, and Eyris. The firm has also invested in five companies, including Eprius.
21 Dec 23. DCS Corporation and Infoscitex Merge. DCS Corporation announced the successful merger of its wholly owned subsidiary, Infoscitex (IST) into DCS effective January 1, 2024.
“The completion of this merger represents an important milestone in our company’s journey,” said Jim Benbow, DCS CEO. “This is an exciting next step in the evolution of DCS, further integrating IST’s impressive array of technical capabilities to better serve our customers.”
Since its acquisition by DCS in 2012, IST has operated as a wholly owned subsidiary to preserve brand equity and name recognition within the marketplace. The companies have worked together to leverage cross-corporate capabilities including a complementary portfolio of aerospace and defense technologies. The integrated DCS organization will continue to build on program support areas including human-machine interfaces, modeling and simulation frameworks, weapon systems effectiveness analysis, simulation-based research and development, human-autonomy systems, cognitive neuroscience, aerospace physiology, biodynamics research, intel production, operations research and analysis, human-centered AI development, and sensor modeling simulation and analysis.
“IST and DCS are fully integrated and now work under common processes and systems,” commented Mike Gilkey, DCS Executive Vice President and IST Sector Manager. “We are especially strong here in Dayton, supporting DCS and IST legacy customers including eight Directorates of AFRL, AFLCMC, AFNWC, ACC, DARPA and Army DEVCOM/CCDC/AvMC.”
DCS and IST share long histories of innovation and a successful partnership. DCS was founded in 1977 by three men brought together by a common vision—to form a company that was “employee oriented, produced quality products and had integrity” to support the Warfighter. DCS has experienced steady growth, and today has more than 2,100 employee-owners at locations across the United States.
IST was formed in 2000 in Waltham, Massachusetts as an IT services company. In 2005, IST acquired the Small Business Portfolio of Foster-Miller. In 2006, IST acquired Systran Federal Corporation to expand its support to the U.S. Air Force, establishing the company’s presence in Dayton, Ohio.
About DCS
An employee-owned company, DCS offers advanced technology, engineering, and management solutions to government agencies in the national security sector. The transformative ideas, commitment to quality, and entrepreneurial spirit that characterize our employee-owners allow us to ensure the success of each customer’s mission and actively contribute to the well-being of the Nation. For more information, please visit: https://www.dcscorp.com.
(Source: PR Newswire)
20 Dec 23. Saudi Advanced Industries sells Al-Salam Aerospace stake.
Saudi defence prime SAMI will acquire the 10% stake, which has a book value of $5.2m.
Saudi Advanced Industries has announced the signing of an agreement to sell its entire 10% stake of Al-Salam Aerospace Industries to Saudi Arabian Military Industries (SAMI), which is affiliated with the Public Investment Fund.
In a statement on the Tadawul stock exchange on 13 December 2023, Saudi Advanced Industries said that the book value of its share in Al-Salam Aerospace was SR19.52m ($5.2m). Al-Salam Aerospace is a limited liability company established under the patronage of the Saudi Arabian Ministry of Defense Economic Offset Programme.
The reason for the sale was stated as being “due to the losses” exceeding the capital of Al-Salam Aerospace Industries.
SAMI is a growing Saudi Arabian defence prime, operating across all defence domains, and is a key element of the country’s drive to reduce its reliance on foreign military imports.
The deal appears in line with a Q3 trend that saw an increase in mergers and acquisitions (M&A) in the defence and aerospace sector. In the North American sector alone, there were 30 M&A deals announced in Q3 2023, worth a total value of $5.9bn, according to GlobalData’s Deals Database. (Source: army-technology.com)
19 Dec 23. Czech ammo maker Colt CZ to buy Brazilian-owned competitor. Czech firearms and ammunition producer Colt CZ plans to buy competitor Sellier & Bellot for $350m, the former announced Monday.
Pending “regulatory approval in various countries,” Colt CZ is expected to finalize the deal in the first half of 2024, according to the news release.
The Brazil-based holding company CBC Global Ammunition owns Sellier & Bellot, which was founded in 1825 and employs approximately 1,600 people. Sellier & Bellot’s main production facility is located in in Vlašim, Czech Republic.
Colt CZ has a presence in the Czech Republic, the United States, Canada, Sweden, Switzerland and Hungary. It employs more than 2,000 people and is majority owned by Česká zbrojovka Partners SE.
As part of the deal, CBC Global Ammunition will gain a 27%-28% stake in Colt CZ, becoming its second-largest shareholder behind René Holeček, which owns Česká zbrojovka Partners SE.
CBC Global Ammunition exports to more than 130 countries and is one of “the largest suppliers to NATO and allied forces, worldwide,” according to the firm. It has three factories in Brazil, including its headquarters; two factories in Europe, in Germany and the Czech Republic; and its Magtech Ammunition subsidiary in the United States, which serves as the lead distributor to the American market for all the brands made by the group.
CBC employs 3,500 people and produces more than 1.5bn rounds of ammunition each year, not including rimfire cartridges and shotshells, the company notes on its website.
“The successful contribution of one of CBC Global Ammunition Group’s flagship companies to Colt CZ Group in exchange for a significant shareholding marks the starting point of an impactful strategic collaboration. We are convinced of Colt CZ management’s long-term vision and believe the transaction will lead to remarkable value creation between the ammunition and firearms segments,” Fabio Mazzaro, CBC’s chief financial officer, said in a statement.
He added that Magtech Ammunition will continue to sell Sellier & Bellot ammunition in the American market.
“We are proud to welcome one of the oldest and most important producers of small caliber ammunition, Sellier & Bellot, to Colt CZ Group,” Jan Drahota, chief executive of Colt CZ Group, said in a statement. “This acquisition fits into our long-term strategy to expand not only in our core segment of small arms, but also in related areas, with ammunition being a natural complement to our products.” (Source: Defense News)
18 Dec 23. Wars raise profit outlook for US defense industry in 2024. When the Pentagon pulled the world’s biggest defense contractors into a meeting to tell them to ramp up production shortly after Russia invaded Ukraine, one CEO hesitated, saying they did not want to be stuck with a warehouse full of rockets when the fighting stopped, according to three people familiar with the discussion.
Nearly two years later, big defense firms are singing a different tune, with several expecting strong demand in 2024 as the U.S. and its allies load up on expensive weaponry and munitions with an eye on what they perceive as more aggressive actions from Russia and China.
The math is simple. For example, to meet demand for missile defenses, production of Patriot interceptors for the U.S. Army – a projectile fired at an incoming missile with the aim of knocking it down – will rise from 550 to 650 rockets per year. At around $4m each, that’s a potential $400m annual sales boost on one weapons system alone.
Since increasing production volumes of older systems is always more profitable than the high investment costs associated with ramping up production of new systems, stronger demand will flow quickly to the corporate bottom line.
Shares of the biggest defense companies, which have handily beat the benchmark S&P 500 stock index for the last two years, are expected to keep rising, according to Wall Street estimates.
Lockheed Martin (LMT.N), General Dynamics (GD.N) and Northrop Grumman (NOC.N) shares are forecast to rise between 5% and 7% over the next 12 months, while the S&P is seen making limited gains.
US weapons stockpiles were not “full” before Russia invaded Ukraine, said Eric Fanning, chief executive of the U.S. Aerospace Industries Association, and “adversaries are seeing our stockpiles starting thin and being depleted.” As a result, demand is being driven by Chinese aggression, fear about Russian aggression and to support allies in the Middle East, he said.
PATRIOTS AND ROCKET MOTORS
Patriot systems production can be broken down to show how sales of basic items will impact a range of companies. To start, RTX (RTX.N) manufactures the radars and ground systems, and Lockheed Martin manufactures the latest generation interceptor missiles.
RTX boosted launcher and control system production to 12 units a year. A launcher and radar together cost around $400 m each.
Boeing (BA.N) has said over the next few years it will increase its Huntsville, Alabama, factory production capacity for sensors that are used to guide Patriot missiles by more than 30%.
Another strong demand signal can be seen in the backlog of solid rocket motors which are used by the vast array of arms in high demand since Russia’s full scale invasion of Ukraine in February 2022.
The U.S. has two main rocket motor makers, Northrop Grumman, and L3Harris Technologies (LHX.N), which both said they have seen demand increase.
Northrop said much of the increase is due to demand for its rocket motors and warheads in the Guided Multiple Launch Rocket Systems (GMLRS) which are heavily used in Ukraine.
GMLRS are GPS-guided rockets with 200-pound (90kg) warheads. Lockheed Martin makes 10,000 of the missiles per year and is increasing production to 14,000. They have an average cost of $148,000 each according to Army documents and more than 6,100 have been sent to Ukraine so far, according to a Reuters analysis.
“Each day the munitions are being fired reinforces the need for substantive stockpiles,” Tim Cahill, who runs Lockheed’s Missiles and Fire Control business – a prime contractor for Patriot interceptors and GMLRS – said in a Reuters interview. “And I don’t see that going down.”
An executive at a rocket motor maker said the administration of President Joe Biden prioritized munitions in its 2024 Pentagon budget request.
He expected a boost to order backlogs once contracts came through following the passage of the $886 bn defense policy bill known as the NDAA, or National Defense Authorization Act. It was approved by Congress last week and Biden is expected to sign it into law. (Source: Reuters)
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SPX CommTech, part of SPX Technologies Inc, innovates specialised technologies within the Radio Frequency (RF) spectrum to ensure a smarter, more secure future for all. Formed by TCI and ECS, SPX CommTech’s Battlespace portfolio enables defence and security teams to detect, defeat and exploit RF signals to enhance communications intelligence (COMINT) and counter unmanned aerial systems (Counter-UAS). Additionally, its Tactical Data Link portfolio allows intelligence gathering agencies, special forces, emergency response, and security teams to securely and reliably transfer video and data between enabled-aircraft and ground teams over long distances for airborne Intelligence, Surveillance, Reconnaissance (ISR). For more information visit www.tcibr.com and www.enterprisecontrol.co.uk
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