Changin Focus: Munitions maker Chemring has shed its European ammunition business to Nexter. (Chemring)
LONDON — Chemring has sold its European munitions business to French armaments producer Nexter Systems in a deal that could net the British-based company up to £138 million (US $231.9 million).
The proposed sale will see Chemring’s Mecar ammunition operation in Belgium and the Simmel facilities in Italy pass into the hands of the French state-owned munitions, armored vehicle and artillery supplier.
The two operations, best known for the production of mortar and medium- and large-caliber ammunition, were purchased by Chemring between 2007 and 2010 as part of a six-year acquisition binge in its prime UK and US markets.
Their sale is part of a strategic review of the business undertaken last year by the then new CEO Mark Papworth.
The review, and the installation of the new CEO, was prompted by deteriorating performance at the British-based company, which had triggered several profit warnings.
“The sale of our European munition business implements a key recommendation of our strategic review and represents a significant milestone as we reposition Chemring for future growth. It not only enables us to strengthen our balance sheet through the reduction of net debt, but also provides us with the flexibility to invest in our core technologies,” said Papworth.
The two ammunition companies required high levels of working capital and were operating in a very competitive, volatile market dominated by international players, the Chemring CEO said.
In a statement, Nexter said the two acquisitions “constituted a unique growth opportunity for Nexter, which will enrich its products in land, sea and air ammunition and extend its commercial footprint in key export markets.”
The companies sell into NATO and non-NATO markets and Mecar, in particular, has a strong business base in the Middle East.
Philippe Burtin, chairman and CEO of Nexter Systems, said the acquisition “confirms the key role of the group in the momentum of European consolidation.”
Nexter is already a significant player in the medium caliber, artillery and tank ammunition markets.
Papworth said the munitions sale would allow Chemring to focus its efforts on core defense technology activities.
The company, which saw sales tumble 15 percent in 2013 to £624 million compared with the previous year, is a leading producer of counter-IED, missile countermeasures and sensors and electronics systems.
Reductions in defense spending in its biggest markets, particularly the US, and production problems at some of its manufacturing facilities were largely behind the performance problems.
Last year, Chemring’s European munitions business generated sales of £152 million and reported operating profits of £16.8 million. That compares with £206 million sales and £27 million operating profit the previous year
As a result, the Pyrotechnics and Munitions business unit of which Mecar and Simmel are a part saw revenues plunge 19.6 percent to £200 million in 2013.
Chemring retains a very small presence in the munitions market as Chemring Ordnance in the US will continue to make small caliber ammunition and 40mm grenade launched ammunition.
This business, along with Chemring Defence UK, is being folded into Energetic Systems so the company’s Pyrotechnics and Munitions unit will cease to exist once the sale goes through.
The company also announced that Chemring Defence Germany is being sold for €2.75 million (US $3.8 million). The identity of the buyer is not known at this stage.