The new home for the University of Sheffield’s AMRC Composites centre is now open for business

Previously the centre was based in the original AMRC building on the Advanced Manufacturing Park, the new Composite Centre has now moved into bespoke facilities in a 1,800 sq m extension to the AMRC Factory of the Future. Construction of the extension was funded by the European Regional Development Fund and the UK Department of Business Innovation and Skills (BIS).

This new facility will allow the AMRC Composite Centre to provide a full range of design, manufacturing, assembly and structural testing services for advanced composite materials. The Composite Centre also works with complex hybrid components and systems, which require manufacturing expertise in both composite and metallic structures.

The new centre includes a general workshop and a controlled environment with high-spec clean rooms. It is equipped with a growing selection of state-of-the-art design, development and processing equipment, including a automated fibre placement robot, 5-axis machining centres, filament winding machine, and selection of autoclaves and ovens.

The new equipment includes a major upgrade to the AMRC’s fibre placement robot provided by member company Automated Dynamics. Using such robots to automate the production of composite parts can help ensure consistent high quality of production, and reduce material waste.

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Kratos currently provides electronics and avionics that are on board Composite Engineerings drone aircraft which are made using Composite materials, they also provide the ground flight control stations and electronics for the command and control of CEI aerial systems.

The range of unmanned drones from Composite Engineering are all jet engine powered, have advanced threat representative flight performance characteristics, including subsonic and sustained supersonic airspeed capability for the BQM-177A/i, external and internal payload capability and demonstrated altitudes from sea skimming to 50,000 ft.

In 2011, Composite Engineering generated revenue of $94 million and Adjusted EBITDA of approximately $16 million, generating an annual organic growth rate in excess of 25 percent over 2010. CEI’s primary customers are the United States Air Force, the United States Navy, other National Security related organisations and certain International National Security related agencies. The vast majority of CEI’s contracts are sole source in nature, and CEI has developed critical intellectual property for its aircraft which provide significant barriers to entry into CEI markets. As a result of CEI’s advanced composite aircraft and products having performance characteristics exceeding that of its competitors as related to current threat environment requirements. The largest current CEI disclosable contracts are currently in full rate production which is expected to continue for several years into the future, with a number of additional recent contract awards scheduled to achieve full rate production over the next two years. Composite Engineering’s current backlog is approximately $160 million, with a qualified bid pipeline in excess of $1 billion. The company expected future organic growth rate is expected to be at least 20 percent.

Eric DeMarco, Kratos’ President and CEO, said;

CEI is clearly a world leader in the design, engineering, development, manufacturing and production of leading edge unmanned aerial targets and airframe structures. Similar to the Kratos Aegis Readiness Assessment Vehicles, or ARAVs, certain of CEI’s products are also designed to replicate some of the most advanced aerial threats and potential adversary fighter aircraft in the world today, including next generation threats. Additionally, certain CEI products and aerial systems support leading edge electronic warfare programs, another area where Kratos is particularly well positioned.

The purchase consideration to be paid by Kratos for Composite Engineerings Inc is $135 million in cash and $20 million in Kratos’ stock, or $155 million. Additionally, the transaction is expected to be structured as a 338(h) (10) for income tax purposes, which will result in Kratos receiving approximately $130 million in federal and California state income tax deductions over a 15-year period. This tax structure and resulting income tax deductions will substantially reduce the cash paid for income taxes on CEI’s taxable income and significantly increase CEI’s Free Cash Flow generation for the foreseeable future. CEI personnel, including Mike Fournier have entered into long term employment agreements with Kratos. Accordingly, $10 million of Kratos restricted stock units will cliff vest in four years to certain members of the CEI management team, serving as an inducement to them to continue employment with Kratos after the acquisition and as a long term retention incentive.

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