Acquisition

RNS Number : 2284F

Chemring Group PLC

20 April 2011

 



THIS ANNOUNCEMENT (AND THE INFORMATION CONTAINED HEREIN) IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA OR AUSTRALIA, JAPAN OR SOUTH AFRICA OR ANY JURISDICTION IN WHICH SUCH PUBLICATION OR DISTRIBUTION IS UNLAWFUL.

20 April 2011

Chemring Group PLC

Acquisition of Detection Systems Operations of General Dynamics Armament and Technical Products for US$90.0 million

Introduction

Chemring Group PLC ("Chemring" or "the Group") announces that it has conditionally agreed to acquire the Detection Systems operations and certain related assets ("Detection Systems") of General Dynamics Armament and Technical Products, a subsidiary of General Dynamics Corporation, for a total cash consideration of US$90.0 million (£55.2 million) ("the Acquisition"). In addition, the Board has separately announced today a placing of new ordinary shares in Chemring (the "Placing"), the proceeds of which will, in part, be used to fund the cash consideration for the Acquisition.

Acquisition overview

Detection Systems, based in Charlotte, North Carolina, is a US leader in chemical and biological threat detection and has an advanced capability in stand-off detection of Improvised Explosive Devices ("IEDs"). 

Detection Systems is the incumbent supplier for two major US military vehicle-mounted detection programmes: the Joint Biological Point Detection System ("JBPDS") and the Joint Service Lightweight Standoff Chemical Agent Detector ("JSLSCAD"). In addition, Detection Systems' products include a stand-off IED and explosives detector and the Juno^TM hand-held chemical detector.

In the twelve months to 31 December 2010, Detection Systems reported an unaudited profit before tax of US$8.3 million (£5.1 million) (2009: US$8.3 million (£5.1 million)) on turnover of US$61.5 million (£37.7 million) (2009: US$69.8 million (£42.8 million)). The order book at 31 March 2011 was US$62.0 million (£38.0 million), US$46.0 million (£28.2 million) of which is expected to be delivered during 2011. The gross assets of Detection Systems at 31 December 2010 were US$23.0 million (£14.1 million).

Opportunity and Rationale

The Acquisition creates substantial opportunities for Chemring by enhancing its existing IED detection capabilities and through growth within Detection Systems' chemical and biological detection programmes.

Detection Systems' stand-off IED detection systems, developed in partnership with a third party, provide a complementary forward-look capability to NIITEK's HMDS ground penetrating radar which, when used in combination, has the potential to transform the speed of route-clearance operations in theatre.  In addition, Detection Systems is already under contract with its partner to develop and deliver a number of stand-off explosives detection systems.  Finally, Chemring sees significant potential to distribute Detection Systems' Juno ^TM hand-held chemical detector through its international sales and distribution network.

Chemring sees significant further growth opportunities based upon the production contracts in place in respect of Detection Systems' core products. In August 2010, Detection Systems was awarded a full rate production indefinite delivery, indefinite quantity ("IDIQ") contract for the JBPDS potentially worth up to $300 million (assuming options to extend are exercised), with the potential for further upgrade work. With the JSLSCAD, Detection Systems has a full rate production IDIQ contract, with the US defence budget planning for a doubling in the procurement of the Stryker Nuclear, Biological, and Chemical Reconnaissance Vehicle, which incorporates the JSLSCAD as an element of its mission equipment package.

The Acquisition is expected to be earnings accretive in the 12 months to 31 October 2012.

Principal terms of the Acquisition

The total consideration for the Acquisition is US$90.0 million (£55.2 million), which will be paid in cash on completion. The consideration is being funded by part of the proceeds of the Placing. The Acquisition is conditional on, inter alia, certain US regulatory approvals which are anticipated in around sixty days.

Dr David Price, Chief Executive of Chemring, commented:

"This acquisition substantially enhances our counter-IED business activities with leading-edge US technology for biological, chemical and stand-off explosive detection.  It will provide a complementary capability to our existing subsidiaries, NIITEK and Chemring EOD, and help us expand our growing global market."

Enquiries:

Dr David Price Paul Rayner	Chief Executive, Chemring Group PLC Finance Director, Chemring Group PLC	01489 881880
Keith Anderson Christopher Baird	Investec	020 7597 5970
Rupert Pittman	Cardew Group	020 7930 0777 / 07976 249289

Notes

1. Reported as net of allocated central costs from General Dynamics Corporation not being acquired as part of the transaction

2. The statements in this announcement regarding the enhancement of earnings per share do not constitute profit forecasts nor should they be interpreted as meaning that the earnings per share of the Company for the current or future years will necessarily match or exceed the historical published earnings share of the Company

3.  An exchange rate of £1:US$1.63 has been assumed in this announcement

 

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