Weekly Barometer 25 janvier 2012
Global Defense & Security Certificate – The Contribution to Peace
January 2018
ATONRÂ PARTNERS SA 12, Rue Pierre Fatio – 1204 GENEVA – SWITZERLAND - Tel: + 41 22 310 15 01 http://www.atonra.ch
Global Defense & Security Certificate 2
Investment Case
➢ Like many other industries, defense is in the early stages of its digital and tech transformation as
innovations in artificial intelligence, robotics and augmented reality make their way to the battlefield
➢ This tech upgrade cycle gives confidence that the current government spending momentum (fueled by
geopolitical tensions) will last several years and that private contractors will keep delivering above-
consensus revenue and earnings growth
➢ Space exploration could be another major source of upside for private contractors as the US plans
missions to the Moon and beyond and as the new NASA Administrator is a proponent of outsourcing
some of the NASA’s operations to the private sector
➢ Government-led space exploration will also give a boost to commercial space in the medium term
➢ Civil security will also be in the spotlight as the Internet of Things opens the way to new cyber
attacks and as smart cities become reality, pointing to strong demand for smart devices, inspection and
detection systems and cyber security
Global Defense & Security Certificate details
✓ Issuing bank: Natixis, Calculation agent: Natixis SA
✓ ISIN: XS1317057278
✓ Currency: USD
✓ Fees: 1.65% management fee + 15% performance fee, high water mark
✓ Bloomberg ticker: NXSRGDEF
Global Defense & Security Certificate 3
Space
Biometrics &
CyberSecurity
Military
Technologies
Security
Devices
Smart Cities &
Homes
Global Defense & Security Certificate 4
Defense And Innovation Share A Common History (I)
➢ Many civilian technologies and innovations find their roots in military missions. The CIA has its
own venture capital company that invests in Silicon Valley start-ups (Q-Tel)
Defense
Innovation
Global Defense & Security Certificate 5
Defense And Innovation Share A Common History (II)
Military
Medicine
The Defense Advanced
Research Projects Agency
(DARPA), responsible for
the development of military
technologies, has been
working for years on
Exoskeletons
The military played a role
in the development of
vaccines in order to fight
epidemics
The first automatic injection
device, the ComboPen, was
invented in the 70s for a military
use. The civil device to treat
allergic reaction, the Epipen, was
approved in 1987 by the FDA
The first blood bank was
created in 1917 for the US
Army Medical Corps. Blood
could be stored and used in
battlefield surgery. It paved the
way for modern blood storage
techniques
Global Defense & Security Certificate 6
A Major Tech Upgrade Cycle Is On Its Way (I)
Future Helmet – high precision visors,
augmented reality, sensors
Motorized limbs – help carry
the added weight from high tech
components while running or
climbing
Power – Batteries, cooling system
Physiological system – monitors
body temperature, heart rate,
body position and hydration levels
Liquid body armor – light and
flexible. When a bullet hits, the fluid
solidifies and absorbs the impact
over a wider area
The soldier 2.0
Global Defense & Security Certificate 7
A Major Tech Upgrade Cycle Is On Its Way (II)
Stratobus – project for 2020: half
satellite and half drone (Thales)
Cyborg Insects –battlefield reconnaissance
Tracking bullets –unprecedented accuracy in combat
Space-Based Laser –intercepts missiles or destroys
satellites
Invisible vehicles – becoming invisible to hostile
thermal imaging systems (technology called ADAPTIV
made by BAE Systems)
The high tech camouflage system uses modules (a) covering the vehicles
that can be cooled or heated up very quickly as well as controlled individually,
allowing different patterns to be created (b)
a/
b/
This Tech Upgrade Cycle Will Fuel An Already Strong Momentum
➢ An unstable and volatile geopolitical situation: external and internal threats
➢ Donald Trump’s FY18 budget points to a massive acceleration in defense spending:
✓ supplemental budget requests (like the $24.9bn one for FY17) will feed the momentum
➢ NATO countries meeting the 2% of GDP target points to $100bn spending upside
Global Defense & Security Certificate 8
USA Department of Defense Budget (US$ bn) last update: November 2017
495.5 496.3 497.3
521.3 524.6
622.0+24.9
440
460
480
500
520
540
560
580
600
620
640
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018*
Supplemental budget requests (March Request for Additional Appropriations)
DoD Budget; notes: excludes Overseas Contuining operations (war funding)
*
549 bn
* For FY2018: The president budget was $574 bn (May). In November, the US congress supported a plan of $622 bn (excl. OCO) in defense spending (should be updated in February 2018)
Catalysts All Around The World: The Global Geopolitical Instability
9Global Defense & Security Certificate
Asia
- Modernization budget growth
- Senate Increasemilitary spending
- Tax reform
USA
- NATO: Pressure by US on EUR defense spending 2% GDP- European defense fund in 2025
Europe UK
- Brexit:
US influence in Europe?
Defense budget reallocation in
EU army?
- Political instability
- Terrorist groups
-Growth of Chinese influence in the Chinese Sea
-End of Asian Pivot?
- North Korea nuclear rally
Africa & Middle East
Source: AtonRâ Partners; Heidelberg Institute - Conflicts in 2016
Global Defense & Security Certificate 10
➢ During the Cold War, the US and the Soviet Union used space exploration to:
Space Exploration Enters Into Its Next Chapter
➢ The return to the Moon and the potential first journey to Mars planned by the US are intended to
develop other
military applications
demonstrate ballistic
missile technology
Ensure the survival of the human species
Better understand our planet
Get some hints about the origin of life
CST-100 Starliner is planning to fly
for the first time NASA astronauts
to the ISS by December 2018
Global Defense & Security Certificate 11
Space Exploration A Major Source Of Revenue For Private Companies
➢ The NASA budget is expected to balloon over the years to fund these new space missions
➢ Importantly, the NASA is expected to develop public-private partnerships with the likes of:
(Northrop Grumman)
Dragon V2, a new version of
the spacecraft, will take
astronauts to the space station
Cygnus spacecraft is on its way to
the International Space Station
Global Defense & Security Certificate 12
Commercial Space To Develop In The Medium Term: Space Tourism First
Georges Whitesides, CEO Virgin Galactic
Blue Origin (Jeff Bezos) is developing
the New Shepard to enable short-
duration space tourism Virgin Galactic (Richard Branson)
provides suborbital spaceflights to
space tourists
SpaceX CEO Elon Musk
shared a picture of his
company’s new space suits
Global Defense & Security Certificate 13
Asteroid Mining Will Fuel Travel Within Space: A Modern Day Gold Rush
Global Defense & Security Certificate 14
Satellites have four major roles
➢ Space exploration is a source of innovations in the fields of healthcare, materials, robotics and
transportation systems
➢ But also remains important in defense-related fields such as aeronautics and IT & Telecoms
(satellites)
➢ Satellites appear as a major actor in the global security value chain, creating the fundamentals
for telecommunication technologies
Satellites Make The Link Between Space And Earth
➢ Thanks to the Internet of Things and Artificial Intelligence, smart cities are about to become reality
✓ Traffic and parking space management, safety and law enforcement and smart grids will
be in the spotlight
15Global Defense & Security Certificate
The Rise Of Smart And Safe Cities (I)
16Global Defense & Security Certificate
The Rise Of Smart And Safe Cities (II)
FACIAL RECOGNITIONBODY-WORN CAMERAS
CYBERSECURITY
SENSORS AND DRONES
SMART HOME CAMERASSECURITY CAMERAS/
VIDEO ANALYTICS
Global Defense & Security Certificate 17
Biometrics To Identify, Target and Protect
➢ Biometrics uses facial image, fingerprint, iris, DNA or voice pattern to identify individuals
✓ the US Department of Defense is working with multi-modal biometrics (ABIS- Automated
Biometric Identification System), a combination of above mentioned technologies
✓ Biometrics has many applications in the civil world as well:
Accessing
corporate buildingsAccessing devices
Opening one’s
house doorUnlocking car doors
Global Defense & Security Certificate 18
The Internet of Things Opens the Way to New Cyber Attacks
➢ All connected devices and systems will be exposed to security threats
➢ Attacks on the IoT will hit healthcare, financial services, manufacturing…
50% of new business processes and systems will include an IoT
component by 2020 (source: Gartner)
Pacemakers can be
attacked remotely
ATTACKS
Take control Steal information Disrupt servicesControls for smart doors
locks or lighting systems can
be vulnerable
Infotainment systems are exposed to threats
Global Defense & Security Certificate 19
Cyber Security: A Major Action Field For Both States And Corporations
➢ The cyber security market is expected to grow from USD 122 bn in 2016 to USD 202 bn by 2021, a
10.6% CAGR (Source: Research and Markets)
➢How to protect against cyber attacks?
Network security
Data encryption
Data encryption translates data into
another form, or code, so that only
people with a secret key can access
Security features such as antivirus and
antimalware as well as firewalls and
intrusion prevention and detection
systems
Data analytics
Authentication security
Robust authentication mechanisms
such as two-factor authentication,
digital certificates and biometrics
Collecting and monitoring data to
build predictive and anomaly
detection models
➢ Two directives will boost the level of cybersecurity in the European Union
20Global Defense & Security Certificate
➢ All companies involved in the digital transformation will have to reach a standard of protection
Cybersecurity Spending To Get A Boost From Regulations
Conclusion: Innovation At The Heart Of Both Civil And Military Security
➢ Technology as a driver of defense capabilities
✓ Land: Unmanned vehicles /
Drones
✓ Sea: Submarines / Carrier /
Destroyers
✓ Air: Fighters / Bombers / Transport
planes
✓ Space: Ballistic missiles / Military
spacecraft
Global Defense & Security Certificate 21
➢ Innovation at the service of security and public safety
✓ Satellites & telecommunications
✓ Real time surveillance & smart cities
✓ Cybersecurity & biometrics
✓ Security of IoT devices
22Global Defense & Security Certificate
Ethical Standards
AtonRâ Defense & Security certificate does not invest into companies which
manufacture anti-personnel mines and cluster bombs
We also avoid companies manufacturing chemical weapons
A Huge $1.68bn Defense Spending Bill Globally, With Significant Upside In NATO (I)
Global Defense & Security Certificate 24
Source: AtonRâ Partners & www.sipri.org
➢ Top 5 spenders account for 61% of global military spending in 2016
In billion USD
36%
13%4.1%3.8%
3.3%3.3%
2.9%
2.7%2.4%
2.2%
26% USAChinaRussiaSaudi ArabiaIndiaFranceUnited KingdomJapanGermanySouth KoreaOthers
($ billion)
55.9
63.7
69.2
215
611
0 100 200 300 400 500 600 700
India
Saudi Arabia
Russia
China
USA
Top 5
spending:
$1,015bn
3.6% GDP
1.9% GDP
5.3% GDP
10% GDP
2.5% GDP
➢ Geographical breakdown of global defense spending in 2016
Global Defense & Security Certificate 25
A Huge $1.68bn Defense Spending Bill Globally, With Significant Upside In NATO (II)
➢ NATO Meeting The 2% Of GDP Target Points To $100bn Spending Upside
Source: AtonRâ Partners & www.nato.int
3.61%
2.38%
2.18% 2.15%
1.79%
1.55%1.47% 1.41%
1.28%1.20% 1.19% 1.16% 1.15% 1.12%
1.04%0.97% 0.93%
0.81%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
NATO’s
2% of
GDP
target
Defense Expenditure in 2016 as a % of GDP in NATO
➢ Since WWII, each defense cycle has lasted between 5 and 10 years on average, suggesting that the
current upcycle could run until 2020 at least
The Length Of Defense Cycles Offers Strong Visibility For Investors
Global Defense & Security Certificate 26
An Overview of US Defense Budget History
Focusing On Military Aircrafts, Naval Ships And Drones
Global Defense & Security Certificate 27
➢ Even if the US defense budget and most
budgets across the world are well balanced
➢ We believe that the focus will be on:
✓ next generation aircrafts,
submarines and ships
➢ Drones also a top priority given:
✓ surveillance needs
✓ precision weapon functions
30%
28%
24%
18%Navy
Air Force
Army
Defense Wide
Source: Comptroller.defense.gov;
2015 US Military budget, by département
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Any indices cited herein are provided only as examples of general market performance and no index isdirectly comparable to the past or future performance of the Certificate.
It should not be assumed that the Certificate will invest in any specific securities that comprise any index,nor should it be understood to mean that there is a correlation between the Certificate’s returns and anyindex returns.
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28Disclaimer