Acquisition(s)

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES,
CANADA, AUSTRALIA, SOUTH AFRICA OR THE REPUBLIC OF IRELAND.

 

1 February 2006

 

 

               Chemring Group PLC ('Chemring' or the 'Company')                

 

 

  Acquisition of Technical Ordnance, Inc. and Vendor Placing of 2,900,000 new  
                         Ordinary Shares in Chemring                           

                                                                               

                 Acquisitions of Leafield Engineering Limited                  

                          and Leafield Marine Limited                          

                                                                               

Introduction

 

The Board of Chemring announces that it has conditionally agreed to acquire
Technical Ordnance, Inc. ('Technical Ordnance'), a specialty manufacturer of
pyrotechnic and explosive devices for use in the defence, aerospace and
commercial industrial sectors, for a consideration of USD 70.0 million (£39.3
million) . The consideration is payable in cash and is being funded in part by
way of a vendor placing of 2,900,000 new Ordinary Shares in Chemring ('new
Ordinary Shares') at 955 pence per share (the 'Vendor Placing') to raise
approximately £27.7 million before expenses, with the balance of the
consideration being funded by new bank facilities.

 

In addition, the Board also announces the acquisitions of Leafield Engineering
Limited ('Leafield Engineering') and Leafield Marine Limited ('Leafield
Marine'), providers of safety and explosive systems for the aerospace and
defence industries, and energetic inflation systems for the maritime industry,
for a total consideration of £5.0 million, £4.4 million of which will be paid
in cash and £0.6 million of bank overdrafts will be assumed. The consideration
is funded by bank facilities.   

 

 

Acquisition of Technical Ordnance and Vendor Placing

 

Established in 1964 by the current owner, Technical Ordnance operates from
facilities in Minnesota and South Dakota which manufacture a range of
pyrotechnic and explosive devices, including impulse cartridges, fuse
components, ammunition and pellets, Load Assemble and Pack ('LAP'), cutting
devices and non-electric detonators. Its customers include the US Air Force,
the US Army and the US Navy, a number of large defence contractors and some
commercial entities.

 

In the year ended 31 December 2005, Technical Ordnance reported an unaudited
profit before tax of USD 8.8 million (£4.9 million) on turnover of USD 32
million (£18.0 million). The unaudited gross assets at that date were USD 19.0
million (£10.7 million).

 

The acquisition of Technical Ordnance provides Chemring with a high volume,
energetic material manufacturing operation, located in the US. Its technology
and product range is similar to that of Chemring's UK business, Nobel
Energetics, which was acquired in September 2005. Technical Ordnance offers a
substantial opportunity for future organic growth, both through the transfer of
products and technologies to address the large US defence market, and through
the increased export potential which will become available to the acquired
business utilising Chemring's global market access. The acquisition is expected
to be earnings enhancing in the first twelve months of ownership. 

 

The consideration for the acquisition is USD 70 million (£39.3 million).  The
consideration is being funded in part by the placing of 2,900,000 new Ordinary
Shares at 955 pence per share, to raise approximately £27.7 million before
expenses. The consideration is subject to adjustment depending on the working
capital of Technical Ordnance at completion.  The sale and purchase agreement
(the 'Acquisition Agreement') is conditional, upon, inter alia, the expiry of
the thirty day waiting period imposed by Hart-Scott-Rodino and Exon-Florio
filings.

 

The Vendor Placing has been fully underwritten by Investec pursuant to the
terms of an agreement entered into by the Company and Investec (the 'Placing
Agreement').  The Vendor Placing is conditional, inter alia, on the admission
of the new Ordinary Shares to the Official List of the UK Listing Authority and
to trading on the London Stock Exchange's Main Market ('Admission'), and the
Acquisition Agreement being completed in all respects (save for any condition
relating to the Placing Agreement being unconditional and payment of the
consideration). On Admission, the new Ordinary Shares will rank pari passu in
all respects with the existing ordinary shares in Chemring, save that they will
not be entitled to receive the final dividend of 7.30 pence per share payable
in respect of the year ended 31 October 2005.

 

 

Directors' participation in the Vendor Placing

 

As part of the Vendor Placing, Mr I F R Much and Sir Peter Norriss, both
non-executive directors of Chemring, have agreed to accept allotment of 1,000
and 3,600 new Ordinary Shares respectively at 955 pence per share. Following
the issue of these shares, Mr Much will be beneficially interested in 1,000
Ordinary Shares representing 0.003% of the enlarged issued share capital and
Sir Peter Norriss will be beneficially interested in 3,600 Ordinary Shares
(representing 0.011% of the enlarged issued share capital).

 

 

Acquisitions of Leafield Engineering and Leafield Marine

 

Leafield Engineering is a niche designer, assembler and supplier of complex
components and systems to the defence industry. Whilst it has a wide range of
products and expertise, it has a particular specialisation in pyro-mechanical
devices and weapon sub-systems.  The business has recently won, as part of the
SAAB Bofors Dynamics team, the competition for the next generation light
anti-armour weapon for the UK and Swedish armed forces. Leafield Engineering's
role is in the manufacture of the safety and arming unit, key pyro-mechanisms
and the insensitive munitions miniature detonating cord.

 

In the year ended 30 September 2005, Leafield Engineering reported an audited
profit before tax of £0.5 million on turnover of £5.8 million. Gross assets as
at that date were £2.7 million.

 

Leafield Marine is the world leader in the design, development and manufacture
of air valves for inflatable structures. The business has an extensive range of
valves that encompasses complex valves used by the leading life raft
manufacturers, low cost products used by most of the leading inflatable boat
and river raft manufacturers, and special, low volume valves for use in
commercial and military safety critical applications.

 

In the year ended 30 September 2005, Leafield Marine reported an audited profit
before tax of £0.1 million on turnover of £1.4 million.  Gross assets as at
that date were £0.5 million.

 

The total consideration for the Leafield Engineering and Leafield Marine
acquisitions of £5.0 million is being funded by new bank facilities. 

 

The acquisition of Leafield Engineering offers Chemring improved access to the
European complex weapon market, and substantially enhances its
electro-mechanical and sub-system engineering capability. Its integration
within Chemring's broader energetic materials capability should provide
attractive opportunities for organic growth.

 

The acquisition of Leafield Marine is driven by commonality with Chemring's
existing marine pyrotechnic activities, and offers the opportunity to access
this market in a more cost-effective manner.  

 

 

Current Trading and Prospects

 

In its preliminary results for the year ended 31 October 2005, announced
separately today, Chemring stated that the market outlook for its
Countermeasures business continues to be very positive. In 2005, the global
market increased by 12%, driven by the increased requirements of the US. Over
the next three years the global market is expected to grow, with significant
growth in demand from both the US Army and the US Air Force, particularly for
special material decoys. The Group's order book is at a record level, demand
for its decoys promises solid growth in Countermeasures, and its concentration
on Energetics will produce a strong second division.  Chemring looks forward to
reporting further dynamic progress of the Group, including its newly-acquired
businesses, at the half year. 

 

 

Admission, Settlement and Dealings

 

Application has been made to the UK Listing Authority for the new Ordinary
Shares to be admitted to the Official List and to the London Stock Exchange for
the new Ordinary Shares to be admitted to trading on its Main Market. It is
expected that Admission will become effective and that dealings will commence
at 8.00am on the third business day following the receipt of regulatory
clearances and that CREST accounts will be credited on that date.

 

 

Dr David Price, Chief Executive of Chemring, commented:

 

'The acquisition of these three companies will dramatically increase the scale
and capability of our Energetics division, and will provide a more balanced
business model for the Group. The companies are an excellent fit with our
existing businesses, and should offer substantial opportunities for growth in
the future.'

 

 

 

Enquiries:

 

Chemring Group PLC

Tel: [phone]

Ken Scobie, Chairman

Dr David Price, Chief Executive

Paul Rayner, Finance Director

 

Investec
                                                                                 
Tel: [phone]

Keith Anderson

Michael Ansell

 

Cardew Group
                                                                                   
Tel:  [phone]

Rupert Pittman

 

Investec Investment Banking, a division of Investec Bank (UK) Limited, which is
authorised and regulated by the Financial Services Authority and is a member of
the London Stock Exchange, is acting exclusively for Chemring  in connection
with the Vendor Placing and is not acting for any other person other than
Chemring and will not be responsible to any person other than Chemring  for
providing the protections afforded to its customers or for providing advice on
the transactions or arrangements referred to in this announcement.

 

Nothing in this announcement should be construed as a profit forecast or be
interpreted to mean that the future earnings per share or profits of Chemring
will necessarily be greater than the historic published earnings per share.