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Nexter In Hot Pursuit of Foreign Sales

Mar. 4, 2012 - 02:08PM   |  
By PIERRE TRAN   |   Comments
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PARIS — Nexter doubled its bids into foreign tenders last year, reflecting an active — and highly competitive — world market for armored vehicles and land armaments, Executive Chairman Philippe Burtin said Feb. 29.

The French company filed 210 submissions in international competitions, indicating a “very competitive environment” marked by an “overabundance” of supply, Burtin said at a news conference on 2011 results at the Invalides national army museum here.

“The challenge for us is exports,” Burtin said. “Our sales will mirror our success in export markets.”

Like other defense firms, Nexter sees its future depending on export success as European governments adopt austerity plans to cut deficits. But elsewhere, particularly in the Middle East and Asia, there is demand for six- and eight-wheel-drive, medium-weight armored vehicles, artillery and sophisticated munitions such as modular charges. Even with budget cuts, the U.S. is a vast market, spending large amounts in research and development.

“There has never been so many competitions,” said Michel Bonnefis, Nexter strategy director.

That pursuit of foreign deals marks a further step in Nexter’s evolution, after the former arsenal, then named Giat, underwent a deep domestic restructuring in the last decade, shedding jobs and shutting factories.

Foreign contracts made up 38 percent of Nexter’s 2011 total new orders of 633 million euros ($851 million), with French deals making up the rest, Burtin said — that compares with 45 percent the previous year. New orders fell from 801 million euros in 2010.

Exports accounted for 28 percent of annual sales totaling 851 million euros, down from 1.1 billion a year ago.

The sales decline reflects Nexter’s eating into its order book as production for domestic orders runs down, Burtin said. Sales for this year were expected to fall slightly, he said.

“Two years ago, I said I would be relatively satisfied with over a third in exports,” Burtin said, referring to new orders. “The ambition is to go much higher than that level.”

Burtin would like to see this year’s export drive flip the ratio of orders to two-thirds foreign and one-third domestic. The orders would feed into results in 2013 and 2014.

Nexter reported net profit of 114 million euros, down from 164 million a year ago. Operating profit margin was 16.2 percent, after 17.2.

The company could show six straight years of profits, with underlying earnings above 10 percent of sales. That latter figure would be above 8 percent for 2012.

Cash holdings totaled 695 million euros, up from 585 million. The return on capital employed stood at 55 percent.

Nexter spent 62 million euros of company money on research and development, accounting for almost half of the 131 million euro R&D budget, with the government providing 69 million. The combined sources totaled 15 percent of annual sales. That level of company funding compared with 14 million euros in 2006, Burtin said, with government providing 80 million.

The order backlog totaled 2.6 billion euros, down from 2.9 billion euros.

Nexter cut production costs by 25 percent to boost competitiveness.

Burtin predicted a “significant increase in orders” for 2012, adding this would be “a real challenge.”

As part of its quest for foreign deals, Nexter recently signed a first export contract with Saudi Arabia for 73 Aravis highly protected armored vehicles. Talks continue for a potential further order. Burtin avoided referring to Saudi Arabia, saying only it was a Middle Eastern client, but the French procurement office DGA disclosed the deal during a Feb. 20 news conference on its 2011 results.

France ordered 15 Aravis units in 2009 for almost 20 million euros as part of a national recovery plan.

The Saudi authorities also have a requirement for 300 vehicles for the Royal Guard, and Nexter has partnered with a Saudi company to bid for about 100 105mm light guns.

The Saudi requirements illustrate the active world market for vehicles in the 20- to 30-metric-ton class, with contracts for hundreds, Burtin said. But competition is fierce, with the return of aggressive U.S. companies, he said.

Denmark issued a request for information last week for 364 vehicles; Canada is expected to decide this summer on a contract for 108; Spain, with its financial crisis, has a tender for 300; and the United Arab Emirates expects bids to be handed in next week for 700 armored vehicles.

Nexter views the UAE tender with great interest but also prudence, as Abu Dhabi wants to build up a defense industrial base in land systems around the vehicle selected. The Tawazan holding company would act as local prime contractor in a 51 percent owned joint venture company.

If Nexter wins the UAE deal, it would have to protect intellectual property rights on its Véhicule Blindé Combat d’Infantrie (VBCI) fighting vehicle, while agreeing for its local partner to “pilot” the program.

Nexter sees itself as a systems integrator and architect, rather than a manufacturer. Of its 2,600 employees, only 600 are production workers, as much of the manufacturing is subcontracted. That leaves flexibility for agreeing to local assembly in the UAE.

Abu Dhabi has said it would pick a winner six weeks after the tender closed.

For Nexter’s Caesar 155mm and 105mm artillery, Indonesia, Malaysia and Thailand are seen as prospects. India also is in the market for 700,000 rounds of modular charge munitions.

“India is the artillery market for the next five years,” Burtin predicted.

Nexter will set up an Indian subsidiary company to act as its sales office.

On Anglo-French cooperation, there is British interest in the VBCI for a requirement for an eight-wheel-drive utility vehicle, Burtin said.

There was no mention of land systems in the Lancaster House bilateral treaty signed in 2010, but last year the sector “was taken into account,” marking a step forward in cooperation, he said.

The British “wish to explore with France the possibility of cooperation” on this subject, he said. Competition is part of Britain’s procurement approach, but Burtin said he hoped the VBCI trials for various countries would convince U.K. authorities to pick the French vehicle.

A British acquisition made sense but it is not clear a deal would go ahead, said David Chuter, senior research fellow at Cranfield University.

“Clearly the right answer is to cooperate in equipment procurement,” he said.

But given the track record of Anglo-French equipment cooperation, Chuter expressed an “intelligent skepticism” as to whether the interest would yield a contract. For instance, Britain pulled out of the Horizon frigate program and built Puma and Gazelle helicopters under license, rather than buy them directly from France under a reciprocal purchase.

The domestic market is still vital. Nexter expects a tender to be launched later this year for the Véhicule Blindé Multi-Role (VBMR), a multirole replacement for the Véhicule Avant Blindé troop carrier.

“VBMR is of capital importance for us,” Bonnefis said.

Nexter has teamed with Renault Trucks Defense to pitch for the VBMR deal, and is open to other companies, foreign and domestic, joining the partnership, Burtin said.

Nexter

• 2011 sales: 851 million euros (28 percent from exports).

• New orders: 633 million euros (38 percent from foreign contracts).

• Net profit: 114 million euros.

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