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27 Jun 24. Serco raises guidance after strong first half.
- New contracts ramping up
- Revenue still expected to dip
Shares in Serco (SRP) are climbing again, following an upgrade to the outlook for 2024. The FTSE 100 outsourcer now expects to deliver an annual adjusted operating profit of £270mn, £10mn more than management had previously forecast. If achieved, this would represent a profit increase of 9 per cent versus 2023.
Serco expects to secure this growth by widening its margins, as opposed to boosting sales. Indeed, revenue is expected to dip by 2 per cent in the period.
2024 has got off to a strong start, with Serco reporting revenue of £2.4bn for the six months 30 June, according to a trading update. Adjusted operating profit was ahead of plan at £140mn. However, revenue and profits have come in below the same period last year, which management attributed to lower revenue from its new Medicare and Medicaid contract and the decision to ditch some low-margin work in the UK.
Serco expects growth to accelerate in the second half as new contracts ramp up and efficiency measures kick in. Second-half profit is expected to be nearly 30 per cent higher than the same period in 2023.
A key question for investors remains unanswered, however. Serco has provided facility management services to onshore immigration detention centres in Australia since 2009, and the contract is now up for rebid, with a decision due later this year. According to analysts at HSBC, this contract represented 5 per cent of group revenue in 2023 with a margin above group average. Should Serco’s rebid prove unsuccessful, therefore, the market is unlikely to take it well.
For now, however, the outsourcer is going from strength to strength, having shrugged off fears that it was a temporary pandemic winner.
Last IC View: Buy, 189p, 29 Feb 2024. (Source: Investors Chronicle)
27 Jun 24. Houlihan Lokey Advises Stellar Blu Solutions. Houlihan Lokey is pleased to announce that Stellar Blu Solutions LLC (Stellar Blu), a portfolio company of Fortress Investment Group LLC (Fortress) and Maz Group, has agreed to be acquired by Gilat Satellite Networks Ltd. (Gilat). The transaction is subject to customary regulatory approvals and is expected to close in the second half of 2024.
Stellar Blu is a leading avionics provider of next-generation SATCOM terminal solutions, offering turn-key inflight connectivity solutions, including terminal development, aircraft integration, and certification and installation packages. The company’s flagship product, SIDEWINDER, is a multi-orbit, multinetwork aero terminal that utilizes an open architecture and fuselage-mounted electronically steered array antenna. The SIDEWINDER has been selected by Intelsat, Panasonic, OneWeb, and others to redefine the in-flight connectivity paradigm for its airline customers with its network-agnostic design, high throughput, minimalist design, and significantly lower total cost of ownership.
Fortress is a leading, highly diversified global investment manager. Founded in 1998 and based in New York City, Fortress manages $48 bn of assets on behalf of approximately 2,000 institutional clients and private investors worldwide across a range of credit and real estate, private equity, and permanent capital investment strategies.
Gilat (NASDAQ:GILT) (TASE:GILT) is a leading global provider of satellite-based broadband communications. With more than 35 years of experience, Gilat creates and delivers deep technology solutions for satellite, ground, and new space connectivity and provides comprehensive, secure end-to-end solutions and services for mission-critical operations. Gilat’s comprehensive offerings support multiple applications with a full portfolio of products and tailored solutions to address key applications, including broadband access, mobility, cellular backhaul, enterprise, defense, aerospace, broadcast, government, and critical infrastructure clients, all while meeting the most stringent service level requirements.
Houlihan Lokey served as the exclusive financial advisor to Stellar Blu and assisted in structuring and negotiating the transaction on its behalf. Houlihan Lokey’s Aerospace and Defense practice is a leading M&A advisor, having closed more than 70 transactions worth over $12 bn in enterprise value since 2020. With a staff of approximately 20 investment bankers, Houlihan Lokey’s Aerospace and Defense practice is among the largest dedicated industry banking teams worldwide.
26 Jun 24. AeroVironment Announces Fiscal 2024 Fourth Quarter and Fiscal Year Results. AeroVironment, Inc. (“AeroVironment” or the “Company”) reported today financial results for the fiscal fourth quarter and year ended April 30, 2024.
Fourth Quarter and Fiscal Year Highlights:
- Record fourth quarter revenue of $197.0m and fiscal year revenue of $716.7m, up 6% and 33%, year-over-year, respectively
- Fourth quarter net income of $6.0m and adjusted EBITDA of $22.2m and fiscal year net income of $60.0m and adjusted EBITDA of $127.8m
- Company on track for nearly 12% top line growth in fiscal year 2025 with expected revenue of between $790 m and $820m
“AeroVironment has yet again delivered exceptional results this past quarter resulting in record revenue and full year profitability for the company,” said Wahid Nawabi, AeroVironment chairman, president and chief executive officer. “We are pleased to also announce our full year revenue increased 33% from last year’s results. Our Loitering Munitions Segment continues to be a key growth driver for our company, and we have expanded capacity to deliver these much-needed systems to keep up with increasing customer demand.
As the need for our autonomous systems continues to rapidly increase worldwide, AeroVironment stands ready to meet our customer’s needs while delivering solid bottom-line results for our shareholders. We are therefore issuing fiscal year 2025 revenue guidance of between $790m and $820 m, another record year and double-digit revenue increase from fiscal year 2024.”
FISCAL 2024 FOURTH QUARTER RESULTS
Revenue for the fourth quarter of fiscal 2024 was $197.0m, an increase of 6% as compared to $186.0m for the fourth quarter of fiscal 2023, reflecting higher product sales of $23.1m, partially offset by a decrease in service revenue of $12.1m. From a segment standpoint, the year-over-year increase was due to revenue growth in Loitering Munitions Systems (“LMS”) of 74%, partially offset by decreases in UnCrewed Systems (“UxS”), the renamed Unmanned Systems segment, of 15% and MacCready Works (“MW”) of 9%.
Gross margin for the fourth quarter of fiscal 2024 was $75.6m, an increase of 11% as compared to $68.4m for the fourth quarter of fiscal 2023, reflecting higher service margin of $8.0m, partially offset by lower product gross margin of $0.8m. As a percentage of revenue, gross margin increased to 38% from 37%, primarily due to a decrease in the proportion of service revenue to total revenue driven by the closure of COCO site locations, partially offset by product mix. Gross margin was favorably impacted by a decrease in depreciation charges for in-service assets of $4.4m related to the closure of COCO site locations during fiscal year 2023. Gross margin was negatively impacted by $3.9m of intangible amortization expense and other related non-cash purchase accounting expenses in the fourth quarter of fiscal 2024 as compared to $3.6m in the fourth quarter of fiscal 2023.
Income from operations for the fourth quarter of fiscal 2024 was $5.9m as compared to loss from operations of $(165.7)m for the fourth quarter of last fiscal year. The increase year-over-year was primarily due to the MUAS goodwill impairment of $156.0 m recorded during the fourth quarter of fiscal 2023, lower selling, general and administrative (“SG&A”) expense of $27.0m inclusive of $34.1m of accelerated intangible amortization expenses associated with the closure of all of the Company’s MUAS COCO sites during the fourth quarter of fiscal 2023, and higher gross margin of $7.2m, partially offset by an increase in research and development (“R&D”) expense of $18.6m.
Other loss, net, for the fourth quarter of fiscal 2024 was $1.5m, as compared to $0.8m for the fourth quarter of last fiscal year. The increase in other loss, net was primarily due to increases in net unrealized losses on investment holdings, partially offset by a decrease in interest expense.
Provision for (benefit from) income taxes for the fourth quarter of fiscal 2024 was $1.8m, as compared to $(6.3)m for the fourth quarter of last fiscal year. The increase in provision for income taxes was primarily attributable to the increase in net income before income taxes.
Net income attributable to AeroVironment for the fourth quarter of fiscal 2024 was $6.0m, or $0.22 per diluted share, as compared to net loss of $(160.5)m, or $(6.31) per diluted share, in the prior-year period, respectively.
Non-GAAP adjusted EBITDA for the fourth quarter of fiscal 2024 was $22.2m and non-GAAP earnings per diluted share were $0.43, as compared to $46.4m and $0.99, respectively, for the fourth quarter of fiscal 2023.
BACKLOG
As of April 30, 2024, funded backlog (defined as remaining performance obligations under firm orders for which funding is currently appropriated to us under a customer contract) was $400.2 m, as compared to $424.1 m as of April 30, 2023. Funded backlog as of April 30, 2024 does not include new orders related to recently announced program wins such as the Low Altitude Stalking and Strike Ordnance or “LASSO” program, Organic Precision Fires-Light or “OPF-L” program, the Replicator Initiative and the Ukraine Aid Initiative as well as our first Lithuanian order for Switchblade 300 and 600.
FISCAL 2025 — OUTLOOK FOR THE FULL YEAR
For fiscal year 2025, the Company expects revenue of between $790m and $820m, net income of between $74m and $83m, Non-GAAP adjusted EBITDA of between $143m and $153m, earnings per diluted share of between $2.61 and $2.92 and non-GAAP earnings per diluted share, which excludes amortization of intangible assets, other non-cash purchase accounting expenses and equity securities investments gains or losses, of between $3.18 and $3.49.
The foregoing estimates are forward-looking and reflect management’s view of current and future market conditions, subject to certain risks and uncertainties, including certain assumptions with respect to our ability to efficiently and on a timely basis integrate acquisitions, obtain and retain government contracts, changes in the timing and/or amount of government spending, react to changes in the demand for our products and services, activities of competitors, changes in the regulatory environment, and general economic and business conditions in the United States and elsewhere in the world. Investors are reminded that actual results may differ materially from these estimates. (Source: BUSINESS WIRE)
26 Jun 24. Solus Power, an innovator of portable electric vehicle charging solutions, has revealed a £22m (US$28m) funding deal received from Dubai-based Petra Equity Partners, helping the UK company accelerate the development of its battery technology.
Solus Power has devised a revolutionary mobile solution to solve the key challenges of providing flexible electric vehicle charging where infrastructure is limited, as well as hard-to-access and off-grid environments.
The London-based company’s highly engineered, products include a portable military-grade, ruggedised power unit named ‘Kratos’ each of which is the size of an attaché case for easy transportation and deployment as well as specifically designed to discretely slide under vehicles to be out of sight and avoid any obstruction.
The Lithium-ion power units, described as ‘Jerry Cans of electricity’, can deliver ultrafast charging to the likes of electric vehicles, drones, or electrical equipment, anywhere in an instant. Through its innovative and simple modular design, users can scale the number of packs to increase energy capacity depending on their needs.
Petra Equity Partners is an investment firm that specialises in identifying disruptive technologies, such as Solus Power, that are poised to reshape industries. Its intent to invest ideally aligns Solus Power’s game-changing solution with its commitment to shaping the future of technology and nurturing high-potential opportunities.
The announcement of Solus Power securing a funding pledge from Petra Equity Partners to develop its technologies follows a recently signed Memorandum of Understanding (MoU) with QinetiQ Group, a defence and security technology company, to explore the deployment of its charging technology to provide a viable, flexible energy solution in challenging environments as militaries seek to maintain operational advantage and be less reliant on adversaries for energy.
A spokesperson for Petra Equity Partners, said: “Solus Power’s push into the defence and security sector and its ambitious plan to help electrify and evolve such a key, yet sometimes overlooked, sector aligns with our approach to identify key opportunities within certain industries.
The UAE’s mission has always been to be at the forefront of clean energy and is a strategic player within the defence industry. We are excited about the potential impact of Solus Power’s technology to help advance the electrification of not only the battlefield but also our ever-evolving cities.”
Solus Power Chief Executive Officer, Stas Leonidou, said: “Receiving the incredible support and pledged investment from Petra Equity Partners, which is renowned for backing cutting-edge technology innovators, is testament to our effort to radically rethink how to mobilise energy and solve the biggest challenge of electrification.
Our collaboration will help accelerate the development and deployment of our charging technologies to transform mobility across the globe, including the defence sector where we believe we can support the evolving criteria of its sustainable and adaptable energy needs.”
Since Solus Power was established in 2020 it has experienced formidable momentum and investment from a range of commercial customers who have expressed interest in the modular charging solutions for applications including car parks, car hire, and defence use. It recently received financial backing from US investment firm Marbanc International to expedite the development of its technology to market.
About Solus Power
Established in 2020, Solus Power specialises in the generation, storage, management, and distribution of power for electric vehicles as well as delivering innovative solutions to sectors where the mobilisation of energy is critically needed. Headquartered in London with its engineering division part of The Innovation Centre Warwick, Solus Power is at the forefront of an energy revolution, focussed on EV charging and off-grid solutions and committed to advancing sustainable energy practices.
About Petra Equity Partners
Petra Equity Partners is a cutting-edge private equity firm focusing on the GCC and other emerging markets. We specialize in backing disruptive technology ventures poised to reshape industries. Our team of sector-focused investors and entrepreneurs leverages deep industry knowledge and strategic insight to identify high-potential opportunities. With a track record of driving growth and maximizing returns, we’re committed to shaping the future of technology through strategic investments and partnerships. As an innovative private equity and venture capital group, our core focus spans across clean energy, digital infrastructure, and Artificial Intelligence.
25 Jun 24. Kingswood U.S., part of a network of independent wealth management firms that oversees more than $14 bn in client assets globally, today announced the launch of Kingswood Defense Group (KDG), a team of senior veteran military leaders and capital market experts who will support companies in the national defense and aerospace sectors.
“This new group represents a balanced combination of defense expertise and world-class investment capabilities that will help our clients gain access to capital markets and catapult them to their next stage of growth within these incredibly competitive and complex sectors,” said Michael Nessim, CEO and Managing Partner of Kingswood U.S. “We’re honored that this incredible team of decorated U.S. military veterans has made their home at Kingswood.”
KDG is at the forefront of driving innovation and growth in the national defense and aerospace sectors. With its deep-rooted and enduring connections at all levels within the defense and financial industries, KDG is well-positioned to support companies through various stages of Department of Defense (DOD) contract negotiation and capital markets activities.
KDG collaborates with both public and private companies on their strategic planning, mergers and acquisition and capital market needs, and provides guidance to enhance their current operations, product development, DOD procurement strategies and evaluation of global markets. By leveraging KDG, clients gain accelerated decision-making capabilities across various segments of the national defense and aerospace sectors.
Kingswood Defense Group Team
With over two decades of experience in financial services and entrepreneurship, Army veteran Jeff Thompson heads this team of senior-level executives and former military leaders.
Thompson has amassed expertise across capital markets, investment management, private equity, venture capital and banking. He has led organizations through transformative change and growth, driving market share and revenue growth initiatives while spearheading sales and distribution efforts for a $200 bn investment management and private banking business, specializing in alternative assets, structured lending and lower mid-market investment banking.
“We are thrilled to begin our work as Kingswood Defense Group,” Thompson said. “I am honored to work with this team of exceptional Army veterans; they have extensive expertise in bringing cutting-edge technology and capabilities to our Armed Forces, deep networks and an unparalleled understanding of what is needed to be successful in the defense procurement and contracting process. I can’t think of another group more capable.”
Additional KDG members are:
- Scott Robison is a Special Forces veteran, with more than 22 years on active duty. He has eight years of operational test experience as an acquisition officer testing many new technologies for the Army and establishing testing protocols that later became the U.S. Army Futures Command. Robison’s extensive background in managing teams and programs to evaluate emerging technology in both the military and commercial business, combined with his success as a serial entrepreneur and business consultant, means he is regularly sought out by companies looking to strengthen their market presence within both federal and commercial markets.
- Marcos A. Cervantes is a veteran with an established career spanning over two decades in venture capital and the Army. He served as the DOD expert in weapons systems, procuring innovative technologies for the Special Operations community and supporting broader national security initiatives. Cervantes founded the Army’s Rapid Capabilities and Technologies Office, contributing to the formation of the Army’s Future Command. At the helm of Coppertone Venture Firm as Managing Partner, and as CEO at Q-Branch, Cervantes has concentrated on leading global projects and strategic investments aimed at driving technological progress and expansion. His efforts have involved active investment and support of entrepreneurs, companies and governments in their commercial ventures.
- Jay Wisham, a 25-year Army veteran who commanded at multiple levels, is the former Executive Director of the Army Applications Laboratory, the only unit with the sole mission to conduct innovation activities and partner with private capital investments for the Army. He also led several successful initiatives in Army Futures Command to make AI and data-enabled systems a reality at the tactical edge. Wisham has led a broad technology investment portfolio leveraging private sector innovators, DOD expertise and technical subject matter experts to deliver multiple technologies and capabilities to Army and SOCOM units.
The Kingswood Investment Banking Group provides access to capital to mid-market businesses undergoing varying degrees of operational, financial or market-driven change. Recently, the team served as the sole bookrunners for the Syra Health Corp and SolarMax public offerings. The Kingswood Investment Banking Group comprises senior professionals with an average of more than 20 years in investment banking, located in New York, Florida and Texas.
About Kingswood U.S. / Kingswood Group
Kingswood U.S., part of the Kingswood Group, is a network of wealth management firms that includes an SEC-registered RIA and a FINRA-licensed broker-dealer, offering comprehensive wealth management and business-building services, designed specifically for the independent financial advisor. With our parent company, we represent more than $14 bn in AUM, and support 400 registered individuals. Kingswood has the resources and capital of a very large financial services firm and the personalized touch and feel of a boutique company. Kingswood has earned a reputation as a firm built for advisors by advisors.
(Source: PR Newswire)
25 Jun 24. Australian cyber security business CSO Group and xAmplify, Australia’s leading automation systems and artificial intelligence (AI) integrator, today announced that they intend to merge. The merger will create the nation’s largest Australian-owned and operated integrator of AI, cyber security, technology and business automation services, to bring a sophisticated suite of solutions to digitally advance and protect government and corporate clients.
Once complete, the merged business will deliver some of the most innovative and digitally advanced AI, automation and cyber solutions to over 110 enterprise and government organisations across Australia spanning industries such as defence, federal and state government, energy, financial services, health, logistics, retail, construction and mining.
The new entity will be headquartered in Sydney and have a significant national presence with operations across every state and territory, with a combined headcount of more than 160 staff.
Michael Simkovic, CEO and Founder of CSO Group said: “The merger of CSO Group and xAmplify will create Australia’s largest home-grown cyber security, AI and automation consulting business, with a gross turnover exceeding AU$100 m annually. We see an enormous market and growth opportunity to disrupt and challenge the traditional large global service provider models.”
“This is a true merger of equals. The integration of the two businesses will create an amplifier effect, enabling us to deliver a new generation of innovative and integrated business solutions with the convergence of cyber security, automation and AI technologies. Ultimately this will bring more intelligence, optimisation and value to our clients, while also building greater Australian sovereign capability and expertise,” he added.
The merger will enable government and corporate clients to access the capabilities of both CSO Group and xAmplify, spanning strategy, governance, risk and compliance, managed security, AI and both technology and business automation services. It will also bring a renewed cyber security lens to provision high performance IT service and sovereign-secure AI technologies.
Wayne Gowland, CEO and Co-founder, xAmplify commented: “This merger will create a fully integrated national business that will work across every state and territory, enabling clients to leverage AI, automation and cyber security to deliver greater innovation, efficiency, assurance, and business value. The business and technology worlds are changing rapidly, and our customers are wanting to transform and adopt the next generation of groundbreaking technologies in a safe and secure way. Together, we aspire to create a digitally advanced and protected Australia by helping clients to identify, solve and manage their real-world problems of today, while safeguarding them for tomorrow.”
With the number of cyber attacks increasing exponentially, analyst group Gartner forecasts that Australian organisations will spend more than AU$7.3 bn on information security and risk management products and services in 2024, an increase of 11.5% from 2023. National spending on AI systems will grow to over AU$3.6 bn by 2025, according to the Commonwealth Scientific and Industrial Research Organisation.
The merger is expected to be completed in the second half of 2024.
25 Jun 24. European shares fall as Airbus hammers aerospace shares, tech slips.
- Summary
- Airbus tumbles on profit warning
- Other aero-related stocks slide
- Tech, industrials lead sell-off
- STOXX 600 down 0.3%
European shares declined on Tuesday as Airbus tumbled after a profit warning and dragged down aerospace-related stocks, while technology shares slumped tracking the overnight selloff on Wall Street.
The continent-wide STOXX 600 (.STOXX) fell 0.3% by 0819 GMT.
Airbus (AIR.PA) tumbled nearly 11%, and was among the biggest drags on the index, after Europe’s largest aerospace group cut its industrial and financial targets and took a hefty 900m euro ($965m) charge for its troubled space activities.
Its profit warning and forecast for fewer plane deliveries dragged jet-engine manufacturers Rolls-Royce (RR.L), and MTU Aero Engines (MTXGn.DE), lower.
Indeed, the wider STOXX Europe aerospace and defence index (.SXPARO), slid 5.1%, on track for its biggest one-day drop since November 2021.
The tech sub-index (.SX8P), which houses some of Europe’s biggest chip-related firms, dropped 1.4%, tracking the Nvidia-led (NVDA.O), pullback in U.S. stocks.
Still, some market strategists spotted an opportunity in tech stocks, whose 14% gain so far this year places it among the best-performing sectors in Europe.
“We’re seeing a pretty healthy broadening of a longer-term equity rally … tech stocks had an amazing run and it’s nothing but healthy that they’re taking a bit of a pause giving opportunity to investors to catch their breath and reposition,” said Tom Gehlen, senior market strategist at SG Kleinwort Hambros.
The market’s focus would remain on the first round of French parliamentary elections later in the week.
Paris stock market operator Euronext’s CEO said the prospect of a politically extreme party with little or no government experience reaching power is worrying investors.
France’s benchmark CAC 40 (.FCHI), slipped 0.6% amidst the broader sell-off. (Source: Google/Reuters)
24 Jun 24. Safran in talks to buy French AI startup Preligens for €220m. Aerospace firm Safran is in exclusive talks to buy French defense artificial-intelligence startup Preligens, whose algorithms are used to analyze satellite data for the French and U.S. militaries, for an enterprise value of €220m, or $236m.
Safran said the potential deal is a “unique opportunity” to add cutting-edge AI to its product offering. The transaction is subject to the usual regulatory approvals, and is expected to close in the third quarter of 2024, the Paris-based company said in a statement on Monday
“The proposed acquisition of Preligens will boost the adoption of AI within the group,” Safran CEO Olivier Andriès said in the statement. “It will represent a step-change for our defense and space technology businesses.”
The acquisition would ensure French control of a technology that the country’s Armed Forces Ministry has identified as crucial in the competition between global powers. The French government owns 11.2% of Safran and 18.1% of voting rights. Other bidders for Preligens included Sweden’s Hexagon and the Leonardo-Thales joint venture Telespazio, Les Echos reported in April.
The Preligens AI has been trained specifically for detecting military equipment such as armored vehicles, aircraft and ships on satellite or drone images, and France’s military intelligence uses the technology to monitor activity at strategic sites. The startup also works with NATO, the U.S., the U.K. and the EU, and last month announced a new contract with an Asia-Pacific customer for AI analysis of high volumes of government satellite images.
The startup was approached in 2020 by the CIA-sponsored investment fund In-Q-Tel, prompting French government-owned defense investment fund Definvest to participate in a €20m funding round that same year to keep ownership fully in France. The French armament agency DGA signed a framework contract for AI analysis with Preligens in 2022 with a value of as much as €240m over seven years.
France in March announced plans to reallocate €2bn of funding from its 2024-2030 defense budget to artificial intelligence. Armed Forces Minister Sébastien Lecornu last week announced plans to build Europe’s most powerful classified supercomputer to take the lead in AI for defense purposes, saying France will be the European power that will devote most resources to military AI.
Preligens had sales of €28m in 2023 and employs about 220 people, including 140 engineers in research and development. The company’s products include Xerus, which uses AI to map terrain for military purposes such as mission planning, and Robin, which provides AI-based monitoring of activity at strategic sites such as air bases. The Paris-based startup is also working with the French Navy on AI-powered analysis of underwater acoustic signals.
Adding the Preligens technology will allow Safran deploy AI-enabled digital inspection focused on flight safety and quality, the company said. Safran gets more than three-quarters of its revenue from civilian aerospace.
Safran Electronics & Defense presented an AI solution called Advanced Cognitive Engine (ACE) at the Eurosatory defense show here last week, adding AI-based target detection and tracking to the company’s optronics for land vehicles, naval sights and aircraft. The company plans to integrate ACE with its drones and robotic systems.
Preligens was founded in 2016 by Arnaud Guérin, a former executive at French government-owned nuclear-power technology firm Areva, and Renaud Allioux, previously an engineer at Airbus Defence and Space focusing on remote sensing for Earth observation. (Source: Defense News)
25 Jun 24. The US defence industry is enjoying a munitions “boomlet” thanks to jumbo aid packages for Ukraine, Israel and Taiwan, allowing it to better meet surging orders after years of declining demand. Aid bills for the three countries allocated nearly $13bn for boosting weapons production at the US’s five biggest defence groups — Lockheed Martin, RTX, Northrop Grumman, Boeing and General Dynamics — and their suppliers. But despite the jump in funding, defence experts warn that uncertainty around future contracts means the sustained, longer-term growth needed to supply its — or its allies’ — armed forces is not guaranteed. “It is not quite a bonanza” for missiles and munitions “but it is, for the first time in a long time, a significant uptick in this area that has been sustained”, said Stacie Pettyjohn, director of the defence programme at the Center for a New American Security, a think-tank. She added that the injection of aid funds “alone isn’t going to fix the problem [of inconsistent demand] or be a long-term solution, as these are sort of one-off Band-Aids”. The war in Ukraine revitalised global demand for weaponry as western nations donated their stocks to Kyiv, and moved to bolster their own defences and replenish their stockpiles. The Ukraine bill set aside $5.4bn to develop and expand production of artillery, air defence munitions, anti-drone systems and critical munition components. The aid to Israel included $1bn to expand artillery production, while the Indo-Pacific bill allocated $3.3bn to expand the submarine industrial base, $2.5bn for a submarine and $133mn for making artillery and cruise missiles. Soon after the Ukraine war broke out, aerospace and defence executives warned that it would take years to ramp up to meet demand due to supply chain snarls, labour shortages and a fragile defence industrial base. They say they would like more multiyear contracts to allow them to invest in new facilities and expand production capacity. Even with the extra funding, defence analysts say the US could still struggle to supply its allies should a conflict break out between China and Taiwan. The structure of the industry has made it difficult to respond to sudden changes in demand. In the 1990s it began consolidating rapidly and eventually adopted “lean manufacturing” — a just-in-time delivery strategy. This left supply chains populated by fewer companies, leaving limited recourse should something go wrong at a supplier. It also left the five big defence companies interlinked, with each subcontracting to the others on various programmes, which meant that a problem for one affected the whole industry.
As a result, when the war in Ukraine broke out, they quickly found their production lines stretched to the limit. Mark Cancian, a former Pentagon procurement official now at the Center for Strategic and International Studies think-tank, estimates the aid funding will increase the Pentagon’s procurement spending by 5 per cent or 6 per cent between 2024 and 2030. “This will be a boomlet” for defence companies, he said, adding that “for the defence industry, that’s nice . . .[but] it’s not a huge spike”. Still, more than two years on, the sector is in better shape than it was before the Russian invasion. The industry is recruiting workers at the fastest clip since the end of the cold war. And US executives are bullish about their businesses’ top lines. Lockheed chief financial officer Jay Malave said late last month that with the current conflicts, the group’s missiles division is “going to be our highest grow over the next three or five years”, at an estimated $750mn annually. Revenue across the entire company is increasing more than originally anticipated this year. Northrop Grumman has tripled its production of rocket motors — which propel tactical missiles — in recent years, and chief executive Kathy Warden said the new funds will allow it to boost capacity further. Meanwhile, General Dynamics opened a new ammunition facility in Texas at the end of May, which chief executive Phebe Novakovic has said will increase production of sought-after 155mm ammunition rounds by 83 per cent. But the long-term future of government funding for weaponry remains uncertain. While US President Joe Biden signed a 10-year bilateral security pact with Ukrainian President Volodymyr Zelenskyy this month, the agreement could be torn up by Donald Trump should he end up back in the White House. Republicans put up fierce resistance to passing the supplemental aid bill, and many US voters are sceptical about continued assistance for Kyiv, even though about 86 per cent of the military aid will be spent in the US. The most recent FT-Michigan Ross poll found that nearly half of respondents think Washington is giving too much aid to Ukraine, while 45 per cent believe too much is going to Israel. “It makes it really difficult for industry to plan with all the uncertainty,” said Elizabeth Hoffman, director of congressional and government affairs at CSIS. That and the systemic weakness “prevent industry from really ramping up probably in the way they — even Congress and the administration — would like to see”, she added. Hoffman added that the Pentagon had yet to sign contracts from supplemental packages that would show its longer-term commitment to the industry. The exception is in munitions production. New money has been going towards expanding production of High Mobility Artillery Rocket Systems (Himars) and the guided multiple-launch rockets (GMLRS) that they fire, as well as Javelin and Stinger missiles, rocket motors and AIM-9X Sidewinders, which are short-range, air-to-air missiles, among others. Almost everything in Lockheed’s missile portfolio “is increasing its rate of production over the next couple of years”, according to chief operating officer Frank St John. Production capacity for its Himars is expected to double from its 2022 level by the end of this year, while its annual production of GMLRS has jumped from about 6,000 to 10,000 this year, and is expected to rise to 14,000 by 2025. (Source: FT.com)
24 Jun 24. Airbus provides 2024 guidance update.
- Charges of around €0.9bn reported on certain telecommunications, navigation and observation space programmes
- A320 ramp-up trajectory adjusted to reflect specific supply chain challenges in a degraded operating environment; around 770 commercial aircraft deliveries now expected in 2024; target production rate of 75 A320 Family aircraft a month maintained and now expected to be reached in 2027
- 2024 guidance updated
Airbus SE (stock exchange symbol: AIR) is providing a market update to report on new developments related to its space activities and commercial aircraft business, the impact of which is leading the Company to update its 2024 guidance.
In the first half of 2024, the Space Systems management team conducted an extensive technical review of all programmes, identifying further commercial and technical challenges. On that basis, the Company has decided to record charges of around € 0.9bn in the H1 2024 accounts. These are mainly related to updated assumptions on schedules, workload, sourcing, risks and costs over the lifetime of certain telecommunications, navigation and observation programmes.
In commercial aircraft, Airbus is facing persistent specific supply chain issues mainly in engines, aerostructures and cabin equipment. The Company now intends to deliver around 770 commercial aircraft in 2024 and continues to ramp up towards a rate of 75 A320 Family aircraft per month, which is now expected in 2027.
Accordingly, Airbus is updating its 2024 guidance.
As the basis for its updated 2024 guidance, the Company assumes no additional disruptions to the world economy, air traffic, the supply chain, the Company’s internal operations, and its ability to deliver products and services.
The Company’s 2024 guidance is before M&A.
On that basis, in 2024, the Company now targets to achieve:
- Around 770 commercial aircraft deliveries;
- EBIT Adjusted of around € 5.5bn;
- Free Cash Flow before Customer Financing of around € 3.5 bn.
The Company’s half-year results will be disclosed on 30 July 2024.
24 Jun 24. Ukraine tactics are reshaping the defence industry.
Tanks and armoured vehicles are being destroyed in their thousands, expert says
- Drones now the ‘largest built components’ of modern war
- Defence companies raising capex, but profits sustainable
The war in Ukraine is leading to a fundamental reshaping of the defence industry in Europe, given the scale of drone use and widespread loss of tanks and other armoured fighting vehicles.
The number of armoured fighting vehicles lost by both Russia and Ukraine since the conflict started two years ago “is basically the equivalent of all of Europe’s armoured fighting vehicle production”, said Phillips O’Brien, professor of strategic studies at the University of St Andrews.
Speaking in a webinar organised by HanETF, O’Brien said there had been at least 3,000 “visually confirmed” losses of main battle tanks by Russia and 827 by Ukraine, although actual losses are likely to be much higher. “We’re looking at 4,000 main battle tanks lost on both sides, which is a number that would dwarf European defence capacity to replace.”
The UK, France and Germany currently only operate around 700 main battle tanks between them, he added.
If losses of armoured personnel carriers and other fighting vehicles are added in, the number tops around 10,000. This begs the question as to whether a new kind of war has emerged “where we don’t need to build or invest a huge amount” in heavily armoured vehicles, O’Brien said.
Increased drone use is the reason for such heavy losses. Although drones have been used in wars before, the scale of their deployment, production and destruction is unprecedented. Tens of thousands of unmanned aerial vehicles (UAVs) are being lost each month and Ukraine has set an optimistic target of building a m this year.
“Even if they get anywhere close to that figure, that would make UAVs one of the largest built components of modern war.”
Meeting pledges
Defence spending is ramping up across Europe. The number of countries expected to meet their commitment to Nato to spend at least 2 per cent of gross domestic product on defence will more than double this year, the organisation said.
Some 23 out of 32 members of the pact will meet the goal this year, an increase from just 10 last year. Nato has forecast an 18 per cent increase in spending this year, up from 9 per cent last year.
The UK’s three main political parties have all committed to increasing defence spending to 2.5 per cent of GDP, although the Conservatives are the only party to set a timeline to achieve this. Its manifesto not only pledged to hit 2.5 per cent by 2030 but to lobby for all other Nato members to do the same.
The UK has historically been one of the countries that has met the target, and currently spends around 2.3 per cent of GDP on defence. Other major member nations are falling well short – Italy is expected to spend less than 1.5 per cent of GDP this year, Canada less than 1.4 per cent and Spain less than 1.3 per cent, Nato’s figures show.
Labour’s manifesto acknowledged the changing nature of war, including the greater use of hybrid warfare, and pledged to conduct a strategic defence review within its first 12 months. The Liberal Democrats pledged to “tackle longstanding problems in defence procurement”.
Europe’s defence companies have re-rated since Russia’s invasion of Ukraine in February 2022. Shares in Germany’s Rheinmetall (DE:RHM) have increased fivefold, while those in Italy’s Leonardo (IT:LDO) have doubled.
In the UK, BAE Systems (BA.) shares are up 128 per cent, Babcock International’s (BAB) have gained 75 per cent and Qinetiq’s (QQ.) 45 per cent.
The strong tailwind that increased spending will provide “is now largely priced in for most UK defence companies, as shown by increased valuation multiples”, said Jamie Murray, an equity analyst at Shore Capital.
For example, shares in BAE Systems traded at 13 times earnings as the war broke out, a discount to US peers such as Northrop Grumman (US:NOC) and Lockheed Martin (US:LMT). They now trade at a premium, at 19 times earnings, and Murray said that, given the company’s sheer size, it is unlikely to grow at a rate that would outpace the wider market. But he still expects the sector as a whole to outperform the market over the medium term.
Many companies face a few years of increased capex to meet additional demand. Once complete, the investment will underpin their long-term potential, he said, citing Hampshire-based Chemring (CHG) as an example.
Chemring is currently spending £200mn to ramp up the production of energetics used in artillery shells, whose stocks have been severely depleted. This will add £100mn to its top line and £30mn to its operating profit once work completes in 2028.
Although Chemring’s valuation multiples might appear elevated in the short term, “if you look further out towards 2028, it is clear the current valuation is very appealing”, Murray said.
(Source: Investors Chronicle)
24 Jun 24. Skynopy raises $3.1m to bring a simple and seamless connectivity for Low Earth Orbit satellites. Skynopy, a Paris-based space start-up specialised in satellite connectivity, announces a fundraising of $3.1m closed in only 3 weeks, just months after its creation. This funding round was supported by a pool of investors, including the pan-European fund Heartcore Capital, Kima Ventures, Better Angle, and BPI France, alongside well-known entrepreneurs like Thibaud Elziere (e-founders, Hexa) and Yohann Leroy (CEO of Maia Space). This initial funding will enable Skynopy to develop its turnkey connectivity service for LEO satellite operators, addressing the growing needs of the rapidly expanding space industry.
Imagine, when sending a video with your phone, having to locate the nearest antenna, orient your smartphone towards the antenna, define and adjust the radio settings, including modulations and protocols, and then being charged per minute of antenna use for this service. This is the technical and commercial complexity that all satellite operators currently face when downloading a picture or video taken by a satellite. Skynopy aims to solve this complexity.
Founded in October 2023 by Pierre Bertrand and Antonin Hirsch, former directors of Loft Orbital, Skynopy has an ambition: to bring the simplicity of mobile phone connectivity to low-orbit satellites and constellation sector, thanks to a unique business model and key interface technologies.
Skynopy offers a seamless, simplified and worldwide service for satellite operators to connect their satellites (send commands and receive data) using its hybrid network of ground antennas. This “as-a-service” approach allows operators to focus on their missions without worrying about the technical details of connectivity or the costly internal infrastructure of ground antennas, providing smooth communication with their satellites, similar to a mobile phone experience. Skynopy is developing universal connectors capable of interfacing with existing ground station networks allowing Skynopy to scale much faster than a more traditional approach. This strategy allows Skynopy to offer high-bandwidth connectivity while limiting its CAPEX needs, thus positioning itself as the Airbnb of ground antennas.
By managing the entire value chain of satellite mission connectivity, Skynopy aims to become a leader in the rapidly expanding ground segment market. This unique positioning has already enabled Skynopy to sign and deliver several contracts with key players in the French space ecosystem, including HEMERIA and CNES, just six months after its incorporation.
The funds raised will enable Skynopy to accelerate the commercial deployment of its “as-a-service” ground station offering. The start-up has already signed industrial partnerships to integrate initial ground station networks and implement its vision of turnkey connectivity. Finally, this funding will allow Skynopy to structure its teams through new recruitment.
Pierre Bertrand, CEO of Skynopy, commented: “The ground segment, and specifically ground stations, is the third pillar of any space infrastructure, alongside the launch vehicle and the satellites. Today, industrial players and public policies have tended to underestimate this essential pillar, which is crucial for data creation and retrieval, representing up to 20% of a mission’s cost. Skynopy aims to solve this deadlock and offer a true innovation in the business model. In this context, this funding round marks a major milestone for Skynopy and the development of the first seamless satellite connectivity service, meeting the growing needs of the space industry.
Yohan Pereira, Representative of Heartcore Capital: “Skynopy offers an innovative solution to a major challenge in the space industry. Pierre and Antonin’s profound market knowledge, coupled with their ambitious international vision— made obvious through their significant contributions to Loft’s success in Europe —strengthens our belief in their ability to revolutionize the satellite connectivity sector. We are fully convinced of their transformative potential and are thrilled to be part of the Skynopy journey.”
Lionel Suchet, Director of Innovation, Applications, and Science at CNES: “Skynopy’s ground station service addresses a well-identified commercial need within the satellite ecosystem, thus filling a commercial and industrial gap. Such a player, with sufficient commercial traction, can leverage major advantages, whether geographical, industrial, or institutional.”
About Skynopy
Founded in October 2023 by Pierre Bertrand, CEO, and Antonin Hirsch, CTO—both former directors at Loft Orbital, a US/French startup that develops shared satellites and sells them as a service, having raised a total of $200M—Skynopy aims to bring the economic model of infrastructure service (as-a-service) to the ground segment, specifically through a network of hybrid ground stations (antennas) necessary for downloading data from satellites in orbit. Skynopy offers a turnkey service, enabling satellite operators to enjoy seamless and accessible communication and control with their satellites as easily as a mobile phone. Through its established partnerships, Skynopy already has a global network of antennas and currently offers its connectivity optimization services to initial clients such as Hemeria. Its ambition is to meet the growing needs of the low Earth orbit space industry with an innovative and efficient solution that brings the simplicity of mobile connectivity to the satellite sector.
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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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