Connect with us

Published

on

BAE Systems, the UK’s biggest engineering company, has enjoyed a record year for new orders as western governments stepped up defence spending in response to Russia’s attack on Ukraine..

Britain’s premier defence contractor saw a record order intake of £37.1bn – taking its order backlog to £58.9bn.

BAE, whose current work includes building type 26 frigates for the Royal Navy, making electronic warfare systems for the F-35 jet fighter and making the Beowulf unarmoured all-terrain vehicle for the US Army, said it was expecting order growth this year to be better still.

Underlying operating profits for 2022 came in at £2.5bn – up 12.5% on 2021 – as top line sales grew by 4.4% to £23.3bn.

BAE, one of the biggest suppliers to the US Pentagon, also enjoyed a tailwind from the strength of the US dollar against the pound.

The results allowed the company to raise its dividend to shareholders for the 19th consecutive year.

But it was that big increase in the size of the order book that really caught the eye.

More on Bae Systems

The biggest portion of the new orders came in air, driven by new orders from Saudi Arabia and for MBDA, the European missiles systems business in which BAE is a partner.

The tanks will be able to automatically launch a counter-explosive at incoming anti-tank missiles. Pic: BAE Systems
Image:
Pic: BAE Systems

Maritime, driven by orders for the type 26 frigate and the UK’s dreadnought submarine programme, also contributed a big chunk of new business.

However, the other three key product and service areas – electronic systems, platforms and services and cyber and intelligence – all enjoyed growth in new orders as well.

The latter, while still the smallest part of BAE in terms of sales and profits, is among its most profitable businesses in terms of returns.

‘Tremendous potential ahead’

Charles Woodburn, the chief executive, said: “This is just the start. I still see tremendous potential ahead. We are investing in the business to support the future. We have leading technology solutions for our customers.”

He said BAE’s diverse geographic footprint, its deep customer relationships in the US, Europe and the Middle East and the multi-year nature of many contracts would create numerous opportunities in the future.

Mr Woodburn said it was not widely enough appreciated that BAE’s ability to export from the US, UK, Australia and Sweden meant it was “uniquely well equipped” to compete in multiple markets.

Re-equipping ammo stocks amid Ukraine war

He highlighted the urgent need to re-equip armed forces with ammunition – much of which has been diverted to Ukraine by its western allies – as one area where BAE’s strengths would stand it in good stead.

Read more: War in Ukraine helps boost earnings outlook at BAE Systems

BAE, which has two major Swedish subsidiaries in Hagglunds and Bofors, is also seen as a potential beneficiary if Sweden and Finland’s applications to join NATO are approved and the two countries raise defence spending accordingly.

Interestingly, while some of the sales growth is coming from BAE passing on inflation to customers, the vast majority comes from actually growing sales.

Please use Chrome browser for a more accessible video player

Nov 2022: MD of BAE Systems’ naval ships business, speaks on Ian King Live

Only around a third of contracts are linked to the rate of inflation – a headwind that Mr Woodburn said BAE was increasingly comfortable with managing.

Cognisant of past criticisms of BAE for being too heavily dependent on Saudi defence orders, Mr Woodburn also stressed that no one programme represents more than 10% of group revenues.

UK-Australia security pact

Disappointingly, though, there was little news around the potential benefits for BAE from AUKUS, the new security pact between Australia, the UK and the US, which was announced 18 months ago.

Mr Woodburn said there was little he could say publicly but pointed to some work already being done around submarines – Australia’s decision to switch from French-made to British-made submarines created fury in Paris – cyber security and quantum computing.

The governments of the three countries are due to provide an update next month on the agreement and Mr Woodburn said he had no reason to think that would not be delivered.

There was, though, an update on the work BAE is doing as the lead contractor in the future combat air system programme, aimed at building Tempest, the sixth-generation jet fighter.

The project recently won a boost as Japan joined the Anglo-Italian programme. The company said work was progressing well and reiterated – as was announced before Christmas – that there are plans for the UK to lead the development of a new flying combat air demonstrator set to fly within the next five years.

The overall picture is one of a business that is diversified both in terms of its geographic footprint, customer base and its products and services.

Crucially, a major criticism often levelled at BAE in the past – that it fails to generate enough cash from its activities – also appears to be being addressed.

Shares of BAE, which with an increase of 48% have been the best performer in the FTSE 100 over the last 12 months, fell by just over 1% having hit an all-time high on Wednesday evening.

Rolls-Royce

Rolls-Royce takes City by surprise

Elsewhere, another of the UK’s big prestige engineering companies, Rolls-Royce, was taking the City by surprise with appreciably better results than expected.

The aircraft engine maker reported an underlying operating profit for 2022 of £652m – up 57% on 2021 – thanks to a better performance in its civil aerospace and power systems operations.

The shares were ahead by as much as 20% at one stage as investors digested not only this news but guidance that the company is expecting operating profits of £800m-£1bn for 2023.

Tufan Erginbilgic, the new chief executive, said Rolls had benefitted from a 35% increase in flying hours for its engines and highlighted new large engine orders received from Malaysia Aviation Group, Norse Atlantic Airways and Qantas.

He said Rolls was assuming large engine flying hours this year would come in at 80-90% of the 2019 level.

Underperforming for extended period

However, in his assessment or the company’s prospects, Mr Erginbilgic – a former BP executive who succeeded the long-running Warren East at the start of the year – pulled no punches.

He said Rolls had been underperforming for an extended period.

He added: “This is not just a COVID issue. Cash generation is unsatisfactory and our debt is too high.”

Mr Erginbilgic said too much of the company’s resources were simply covering its costs and interest payments and stifling its ability to invest.

He said it had a relatively high fixed cost base and lower profit margins than its rivals: “In the last five years, even excluding the COVID year of 2020, we have averaged a return on capital employed of just 3.5%.”

Arguing that Rolls had in the past lacked strategic clarity and tried to keep too many options open, he added: “I believe we have the potential to be a much higher quality and much more competitive company.

“We must only invest in new technologies where we are differentiated, where the market opportunity is sufficiently large and where there are synergies with our existing operations.”

‘Monumental uncertainties’

It will be tempting to suggest that, with massive demand still pent-up for flying, a strong 2023 for Rolls is all but guaranteed.

But Mr Erginbilgic warned there were “monumental uncertainties and challenges” in the guidance he was offering for the year, including inflation, potential supply chain disruption, interest rate rises and possible recessions around the world.

Investors also have other questions.

One is that, with civil aerospace set to continue growing in 2023, how easily they will be able to discern how well Rolls has done due to its own self-help measures – as opposed to just a general improvement in market conditions.

Looming redundancies but good potential to generate cash

Another is that with big a round of redundancies looming, Rolls may lose some people it would rather hang onto, due to the tight labour market.

Mr Erginbilgic said: “When we engage with our people, they are very excited about the future. Who doesn’t want to work for a successful company? And who wants to work for an underperforming company? Everybody has a role and we need to mobilise the whole workforce.

“Starting with clarity, why we need to change, and a very clear strategy, everybody knows their role.”

Rolls also still has net debt of £3.3bn and there is a degree of scepticism among investors that the company will be able to get that down by self-help measures and increased cash generation rather than by a sale of new shares.

This business, if it is managed the right way, has good potential to generate cash.

“We are already into our performance improvement agenda. We are looking to drive performance improvement as we speak. There is a huge sense of urgency there. Strategic clarity will follow that and then we will combine the two. Both of them will come together.”

After the near-death experience that the company went through during the pandemic, that will be music to the ears not only of investors but also the government, which is looking to Rolls to play a key role in the energy transition with the delivery of small modular nuclear reactors.

Continue Reading

Business

ITV back in spotlight as suitors screen potential bids

Published

on

By

ITV back in spotlight as suitors screen potential bids

Potential suitors have again begun circling ITV, Britain’s biggest terrestrial commercial broadcaster, after a prolonged period of share price weakness and renewed questions about its long-term strategic destiny.

Sky News has learnt that a number of possible bidders for parts or all of the company, whose biggest shows include Love Island, have in recent weeks held early-stage discussions about teaming up to pursue a potential transaction.

TV industry sources said this weekend that CVC Capital Partners and a major European broadcaster – thought to be France’s Groupe TF1 – were among those which had been starting to study the merits of a potential offer.

The sources added that RedBird Capital-owned All3Media and Mediawan, which is backed by the private equity giant KKR, were also on the list of potential suitors for the ITV Studios production arm.

One cautioned this weekend that none of the work on potential bids was at a sufficiently advanced stage to require disclosure under the UK’s stock market disclosure rules, and suggested that ITV’s board – chaired by Andrew Cosslett – had not received any recent unsolicited approaches.

That meant that the prospects of any formal approach materialising was highly uncertain.

The person added, however, that Dame Carolyn McCall, ITV’s long-serving chief executive, had been discussing with the company’s financial advisers the merits of a demerger or other form of separation of its two main business units.

More from Money

Its main banking advisers are Goldman Sachs, Morgan Stanley and Robey Warshaw.

ITV’s shares are languishing at just 65.5p, giving the whole company a market capitalisation of £2.51bn.

The stock rose more than 5% on Friday amid vague market chatter about a possible takeover bid.

Bankers and analysts believe that ITV Studios, which made Disney+’s hit show, Rivals, would be worth more than the entire company’s market capitalisation in a break-up of ITV.

People close to the situation said that under one possible plan being studied, CVC could be interested in acquiring ITV Studios, with a European broadcast partner taking over its broadcasting arm, including the ITVX streaming platform.

“At the right price, it would make sense if CVC wanted the undervalued production business, with TF1 wanting an English language streaming service in ITVX, along with the cashflows of the declining channels,” one broadcasting industry veteran said this weekend.

“They would only get the assets, though, in a deal worth double the current share price.”

Takeover speculation about ITV, which competes with Sky News’ parent company, has been a recurring theme since the company was created from the merger of Carlton and Granada more than 20 years ago.

ITV said this month that it would seek additional cost savings of £20m this year as it continued to deal with the fallout from last year’s strikes by Hollywood writers and actors.

It added that revenues at the Studios arm would decline over the current financial year, with advertising revenues sharply lower in the fourth quarter than in the same period a year earlier because of the tough comparison with 2023’s Rugby World Cup.

Allies of Dame Carolyn, who has run ITV since 2018, argue that she has transformed ITV, diversifying further into production and overhauling its digital capabilities.

The majority of ITV’s revenue now comes from profitable and growing areas, including ITVX and the Studios arm, they said.

By 2026, those areas are expected to account for more than two-thirds of the group’s sales.

This year, its production arm was responsible for the most-viewed drama of the year on any channel or platform, Mr Bates versus The Post Office.

In its third-quarter update earlier this month, Dame Carolyn said the company’s “good strategic progress has continued in the first nine months of 2024 driven by strong execution and industry-leading creativity”.

“ITV Studios is performing well despite the expected impact of both the writer’s strike and a softer market from free-to-air broadcasters.”

She said the unit would achieve record profits this year.

ITV and CVC declined to comment, while TF1, RedBird and Mediawan did not respond to requests for comment.

Continue Reading

Business

Ann Summers’ family owners to explore options for lingerie chain

Published

on

By

Ann Summers' family owners to explore options for lingerie chain

The family which has owned Ann Summers, the lingerie and sex toy retailer, for more than half a century is to explore options for the business which could include a partial or majority sale.

Sky News has learnt that the Gold family is close to hiring Interpath, the corporate advisory firm, to work on a strategic review which could lead to the disposal of a big stake in the chain.

Retail industry sources said this weekend that Ann Summers had been in talks with Interpath for several weeks, although it has yet to be formally instructed.

The chain, which was founded in 1971 and acquired by David and Ralph Gold when it fell into liquidation the following year, trades from 83 stores and employs over 1,000 people.

The family continues to own 100% of the equity in the company.

Sources said that some dilution of the Golds’ interest was probable, although it was far from certain that they would sell a controlling stake.

In a statement issued in response to an enquiry from Sky News, Vanessa Gold, Ann Summers’ chair, commented: “We, like many other retailers, are dealing with the unhelpful backdrop to business of the decisions announced by the government at the Budget and the rising cost to retail.

More from Money

“As a family-owned business, we are in a fortunate position and have committed investment for over 50 years.

“This has created a robust and resilient business.

“We are exploring a number of options to further grow the brand into 2025 and beyond.”

Ms Gold is among many senior retail figures to publicly criticise the tax changes announced in the Budget unveiled by Rachel Reeves, the chancellor, last month.

The British Retail Consortium published a letter last weeks signed by scores of its members in which they warned of price rises and job losses.

Private equity firms and other retail groups are expected to express an interest in a takeover of Ann Summers.

One possible contender could be the Frasers billionaire Mike Ashley, who already owns upmarket rival Agent Provocateur.

Any formal process is unlikely to yield a result until next year, with the key Christmas trading period the principal focus for the shareholders and management during the next month.

Ann Summers is one of Britain’s best-known retailers, with a profile belying its relatively modest size.

In the early 1980s, Jacqueline Gold, the then executive chairman who died last year, conceived the idea of holding Ann Summers parties – a key milestone in the company’s growth.

At its largest, the chain traded from nearly twice the number of shops it has today, but like many retailers was forced to seek rent cuts from landlords after weak trading during the COVID-19 pandemic.

This week, The Daily Telegraph reported that the Gold family had stepped in to provide several million pounds of additional funding to Ann Summers in the form of a loan.

Vanessa Gold – Jacqueline’s sister – also asked bankers to explore the sale of part of the family’s stake in West Ham United Football Club last year.

That process, run by Rothschild, has yet to result in a deal.

Interpath declined to comment.

Continue Reading

Business

Thousands of jobs to go at Bosch in latest blow to German car industry

Published

on

By

Thousands of jobs to go at Bosch in latest blow to German car industry

Bosch will cut up to 5,500 jobs as it struggles with slow electric vehicle sales and competition from Chinese imports.

It is the latest blow to the European car industry after Volkswagen and Ford announced thousands of job cuts in the last month.

Cheaper Chinese-made electric cars have made it trickier for European manufacturers to remain competitive while demand has weakened for the driver assistance and automated driving solutions made by Bosch.

The company said a slower-than-expected transition to electric, software-controlled vehicles was partly behind the cuts, which are being made in the car parts division.

Demand for new cars has fallen overall in Germany as the economy has slowed, with recession only narrowly avoided in recent years.

The final number of job cuts has yet to be agreed with employee representatives. Bosch said they would be carried out in a “socially responsible” way.

About half the job reductions would be at locations in Germany.

Read more:
Son’s anger after mum jailed in second Post Office scandal
The ‘double life’ of people-smuggling car wash bosses

Bosch, the world’s biggest car parts supplier, has already committed to not making layoffs in Germany until 2027 for many employees, and until 2029 for a subsection of its workforce. It said this pact would remain in place.

The job cuts would be made over approximately the next eight years.

The Gerlingen site near Stuttgart will lose some 3,500 jobs by the end of 2027, reducing the workforce developing car software, advanced driver assistance and automated driving technology.

Other losses will be at the Hildesheim site near Hanover, where 750 jobs will go by end the of 2032, and the plant in Schwaebisch Gmund, which will lose about 1,300 roles between 2027 and 2030.

Bosch’s decision follows Volkswagen’s announcement last month it would shut at least three factories in Germany and lay off tens of thousands of staff.

Its remaining German plants are also set to be downsized.

While Germany has been hit hard by cuts, it is not bearing the brunt alone.

Earlier this week, Ford announced plans to cut 4,000 jobs across Europe – including 800 in the UK – as the industry fretted over weak electric vehicle (EV) sales that could see firms fined more for missing government targets.

Continue Reading

Trending