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Rolls Royce to Shrink Workforce by 2,300

Related Stories: Americas - USA, Britain/U.K., Corporate Financials, Europe - Other, Rolls Royce

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BR710 engine
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At the end of November 2007, engine maker Rolls-Royce employed around 39,500 people in 50 countries: around 23,300 are employed in the UK, 8,300 in North America, 2,300 in Germany, 3,400 in the Nordic countries, 680 in Asia with an additional 2,000 working in joint ventures, and about 1,500 in the rest of the world. One of their managerial foci is the metric of sales per employee, and this has underpinned their approach in a number of areas, including investments in process controls and IT systems.

The firm is now negotiating with its employees and their unions with the aim of reducing 2,300 staff and management positions (about 5.8% of their workforce), focusing on overhead and support functions. The Independent is reporting that most of the job losses are expected to be in Britain, where executives hope to use voluntary buyouts. The firm says that it does not intend to lay off manufacturing employees, though a separate union/political battle is being fought over the proposed closure of the Merseyside, UK plant and relocation of its production to Mount Vernon, OH, USA. Rolls-Royce’s release said that the firm “will continue to recruit graduates, apprentices and those required directly to deliver growth.”

While the firm cites “external headwinds” like increasing raw material costs and the weak US dollar, the reductions are expected to have no net impact on the Group’s 2007 or 2008 performance, once all costs are factored in. The most likely explanation, therefore, appears to be the straightforward one of a corporation creating a leaner support structure and managing to its key metrics like productivity and sales per employee. Rolls Royce release | Reuters report | UPI report.

QinetiQ: The Men With the Golden IPO (updated)

Related Stories: Britain/U.K., Corporate Financials, Issues - Political, Legal, Official Reports, Partnerships & Consortia

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By 2005, QinetiQ (pron. “kinetic”) was a vital UK defense research firm whose owners included the British government and The Carlyle Group. This was a transformation from its previous role as part of Britain’s DERA government research agency, but relations remain close and the firm is involved with a wide variety of UK defense projects. DID has covered a number of projects in which QinetiQ has been involved.

As a second step in line with the UK’s 1998 Strategic Review that pressed for the movement of defense research to the private sector, QinetiQ announced on January 12, 2006 that it was headed for an IPO. Each of the current owners would sell a part of their holding in connection with the Global Offer, which was originally expected to raise gross primary proceeds of about GBP 150 million for the MoD, plus significant secondary proceeds from the sales by the MOD and the Carlyle shareholders.

The IPO ended up raising over GBP 600 million from a partial sale of shares, but now a recent NAO report concerning has ignited sharp political controversy…

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Another $7 billion in Share Buybacks for Boeing

Related Stories: Americas - USA, Boeing, Corporate Financials

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The Boeing Company board of directors has just approved a new repurchase plan for up to $7 billion of common stock, above and beyond the $8 billion invested in this area since resuming repurchases during 2004. This includes the $3 billion buy back that the board approved in August 2006, which is nearing completion.

Boeing Chairman, President, and Chief Executive Jim McNerney said that “We are executing a balanced cash deployment strategy that’s serving Boeing and its shareholders well.” The next wave of share repurchases will be made on the open market or in privately negotiated transactions.

Share buybacks seem to be popular in the industry, and it can be useful for our readers to understand them better. Investopedia has a very solid, very readable explanation of share buybacks and the accompanying shareholder positives and negatives. Once you’ve read that, the McKinsey Quaerterly’s September 2005 article “The Value of Share Buybacks” is an excellent next step for the larger corporate perspective. The money paragraph?

“Companies shouldn’t confuse the value created by returning cash to shareholders with the value created by actual operational improvements. After all, the market doesn’t.”

India Places Follow-On Order for Israeli Night Vision Equipment

Related Stories: Asia - India, Contracts - Awards, Corporate Financials, Middle East - Israel, Other Corporation, Sensors & Guidance, Transformation

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Noga Light products
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India Defence reports that Israeli firm Star Night Technologies Limited’s subsidiary, New Noga Light, has won a 100 million shekel (NIS, currently about $25 million) tender to supply more night vision equipment to 2 mountain divisions of the Indian Army. Star Night had already received an 38 million shekel (NIS) order from India’s army in November 2006, and its total 2006 sales amounted to NIS 57 million.

Israel’s business daily Globes added that the order will be supplied over a two-year period, the firm is currently negotiating with Indian authorities on a date for the start of deliveries. A Ha’aretz newspaper report, however, said that the Israeli company is to provide 35% of the contracted items by mid-2008. A toehold in this market may be significant over the longer term, if the right local partners can be found – those of watching US night-vision buys weren’t surprised when India Defence added:

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“Though almost all the front line units and those engaged in counter-insurgency have been equipped with night vision devices, according to Army estimates such equipment worth over USD 500 million was still needed to arm the remaining units.”

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US Defense Firms Report Q4 2006 and Year-End Results

Related Stories: Boeing, Corporate Financials, General Dynamics, Lockheed Martin, Northrop-Grumman, Raytheon

Yes, it’s that time again. Obviously, the results below are extremely brief, and we’ve now added Boeing and Raytheon. Full statements and figures can be found at each of the linked URLs:

  • Boeing Company. Boeing’s overall revenue rose 15% to $61.5 billion reported and earnings were up 7% to $3.014 billion, but a slight decline in operating margins dropped reported net income by 14%; on the other hand, record operating cash flow of $7.5 billion offers strong liquidity, and commercial aircraft sector sales, backlog, et. al. remain very strong. Boeing’s stock price rose after the release. Boeing Integrated Defense Systems (IDS) also had its ups and downs; revenues were up 4% to a record $32.4 billion, but problems with its 737 AEW&C program and associated penalties in Turkey and Australia were visible on the bottom line. While Boeing IDS operating margins absent divestitures were higher in 2006 than 2005, the hit to “Precision Engagement & Mobility Systems” dropped the 2006 figure to 9.3% vs. 12.6% in 2005 (including divestitures) despite gains from F-15 fighter sales and H-47 helicopter contracts. Network and Space Systems saw a 2% revenue decrease and 32% earnings decrease from 2005, while Support Systems which includes the C-17 GSP and other offerings was the only solid winner with revenues up 14% and earnings up 9%. See Q4/2006 results release [PDF format] | Webcast | Financial Slide Presentation [PDF format].
  • General Dynamics. Earnings from continuing operations for 2006 grew by 18.1% to $1.71 billion, or $4.20 per share on a fully diluted basis, compared with earnings of $1.45 billion ($3.58 fully diluted) in 2005. Revenue for the full year of 2006 increased 14.7% to $24.1 billion, compared with $21 billion for 2005.
  • Lockheed Martin. Net earnings for the year ended December 31, 2006 were $2.5 billion ($5.80 per share), compared to $1.8 billion ($4.10 per share) in 2005. Net sales were $39.6 billion, up 6% from $37.2 billion. Cash from operations was $3.8 billion, and Return on Invested Capital (ROIC) was 19.2% compared to 14.5% in 2005.
  • Northrop Grumman. Income from continuing operations for 2006 rose 13% to $1.6 billion ($4.44 per diluted share), from $1.4 billion ($3.83 per diluted share) in 2005. Sales for 2006 were comparable to 2005. Net income for 2006 rose 10 percent to $1.5 billion ($4.37 per diluted share), from $1.4 billion ($3.85 per) in 2005. Total operating margin for 2006 increased 12% to $2.5 billion from $2.2 billion, driven by higher operating margin in all 4 of the company’s businesses, and double-digit percentage increases in Information & Services and Ships operating margin.
  • Raytheon: Total 2006 net sales were $20.3 billion, up 7% from $19.0 billion for 2005. In 2006, net income rose 47% to $1.283 billion ($2.85 per diluted share) vs. $871 million ($1.92 per diluted share) in 2005. Improved operating results at Integrated Defense Systems, Missile Systems and Network-Centric Systems combined with lower net interest expense and a reduction in pension expense, brought income from continuing operations up 35% to $1.107 billion ($2.46 per diluted share) compared to $818 million ($1.80) in 2005. Net income for 2006 included $176 million of income from discontinued operations, and Raytheon’s sales of its civil aircraft division was factored in to the way it reported its results, as well as the results themselves. See release for details.

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ScanEagle Maker Gets Venture Financing

Related Stories: Americas - USA, Boeing, Corporate Financials, Other Corporation, UAVs

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ScanEagle returns
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The Seattle Post-Intelligencer reports that ScanEagle UAV makers The Insitu Group of Bingen, WA just received $23 million in venture capital financing from Battery Ventures, Second Avenue Partners and others. The firm has grown quickly since 1992, posting revenues of $25 million last year after a UAV it developed to monitor tuna schools and dolphins turned out to have exactly the characteristics that the Marines were looking for. A partnership with Boeing firmed up their marketing channels, and the US Navy has also deployed these UAVs on the HSV-2 high-speed catamaran and the LPD 14 USS Trenton amphibious support ship, where it has been used to help protect oil platforms in the Persian-Arabian Gulf.

To date, the paper reports that Insitu has produced 190 aircraft. The article offered the interesting tidbit that the UAVs are designed to last about 2,000 flight hours, but crash landings, system failures, and weather-related mishaps have ensured that none of their military UAVs have hit that target yet. Interest in the $100,000 UAVs remains high, however, including the possibility that Canada may appreciate their land and naval versatility enough to select the ScanEagle in its mini-UAV competition. Insitu is currently developing additional UAV platforms, including the SeaScan and GeoRanger for commercial and research purposes. Readers are invited to peruse the newspaper article for further details.

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Reports & Analysis: BAE in Talks to Sell Its 20% Stake in EADS Airbus (updated)

Related Stories: Americas - USA, BAE, Britain/U.K., Corporate Financials, EADS, Europe - France, Europe - Other, FOCUS Articles, Industry & Trends, Issues - International, Issues - Political, L3 Communications, Mergers & Acquisitions, Other Corporation, Satellites & Sensors, Specialty Aircraft, Thales, Transport & Utility

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Both BAE Systems and EADS have confirmed that BAE has initiated a discussion on the potential disposal of BAE Systems’ 20% stake in Airbus.” Negotiations were described as being in “the very early stages”; BAE’s 20% holding is valued at EUR 3.5 billion ($4.3 billion) in EADS’s books, but The Scotsman newspaper noted that analysts expect any sale to be worth GBP 3.0-4.5 billion ($5.2-7.8 billion at current conversion). EADS adds that the initiation of these discussions does not represent an exercise of the put option held by BAE Systems in relation to this stake.

More details regarding the potential deal, its military procurement significance, and some analysis regarding both its strategic implications and BAE’s future options can be found below… along with updates as the deal progresses.

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DaimlerChrysler’s and Lagardere Selling EADS Shares in Est. $3.02B Deal

Related Stories: Corporate Financials, EADS

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EADS’s two biggest corporate shareholders, DaimlerChrysler and Lagardere SCA, announced on April 4, 2006 that they’re each selling 7.5% stakes in EADS in simultaneous transactions. Bloomberg reports that the transaction is valued by sale managers JP Morgan Chase & Co. and Morgan Stanley at about EUR 2.5 billion ($3.02 billion at current conversion).

DID covered EADS FY 2005 year-end financials recently, for those who are interested. Details of the transactions can be found below…

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Thales Turns in FY05 Results, Prepares to Make Acquisitions

Related Stories: Corporate Financials, Mergers & Acquisitions, Thales

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French defense electronics group Thales announced a modest 2.5% rise in net profit for 2005 to EUR 334 million, while announcing plans to go on the offensive in foreign markets with a EUR 1 billion ($1.19 billion at current conversion) fund for acquisitions. In its news release, Thales noted that its “ambition, as compared to its current position, is to achieve, by 2008, a 25 percent growth in revenues, 15 percent from organic growth and the remainder through acquisitions”.

The firm may already have begun. In December, DID covered Thales’ deal with French state-owned naval shipyards DCN, giving it a 25% stake in the company (note that Thales is itself 31.3% owned by the French state). The company also revealed its intention to buy the 50% of Australia’s ADI recently, conditional on the approval of Australia’s Foreign Investment Review Board (see ADI release, PDF format). This would complete its takeover of Australia’s largest military manufacturer, and extend the firm’s drive to expand its Pacific Rim operations and sales.

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EADS Announces FY 2005 Results

Related Stories: Corporate Financials, EADS

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European defense industry giant EADS recently announced its FY 2005 results. Amidst a year that saw it close out a deal for 10% of Russia’s SU-30 source Irkut Corp., buy Atlas Elektronik from BAE, and open an Alabama facility to help it focus on the US market, Revenues were up only 8% to EUR 34.2 billion. Yet EBIT pre-goodwill impairment and exceptionals was up 17% to EUR 2.85 billion, and Net Income rose 39% to EUR 1.7 billion. EADS’ Airbus civil aircraft segment was largely responsible for these results, accompanied by a combination of modest gains and modest losses in its defense and space businesses. EADS Eurocopter, which includes military and civilian aircraft but is tilted toward the civilian side, saw EBIT rise about 6% to EUR 212 million while revenues increased by 15% to EUR 3.21 billion.

EADS also announced that FY 2006 revenues were expected to exceed EUR 37 billion, with 2006 EBIT expected to grow to between EUR 3.2-3.4 billion. See the full release for complete figures and more in-depth breakdowns.

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