1st Feb 2006 07:00
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 acquireTechnical Ordnance, Inc. ("Technical Ordnance"), a specialty manufacturer ofpyrotechnic and explosive devices for use in the defence, aerospace andcommercial industrial sectors, for a consideration of USD 70.0 million (‚£39.3million) . The consideration is payable in cash and is being funded in part byway of a vendor placing of 2,900,000 new Ordinary Shares in Chemring ("newOrdinary Shares") at 955 pence per share (the "Vendor Placing") to raiseapproximately ‚£27.7 million before expenses, with the balance of theconsideration being funded by new bank facilities. In addition, the Board also announces the acquisitions of Leafield EngineeringLimited ("Leafield Engineering") and Leafield Marine Limited ("LeafieldMarine"), providers of safety and explosive systems for the aerospace anddefence industries, and energetic inflation systems for the maritime industry,for a total consideration of ‚£5.0 million, ‚£4.4 million of which will be paidin cash and ‚£0.6 million of bank overdrafts will be assumed. The considerationis funded by bank facilities. Acquisition of Technical Ordnance and Vendor Placing Established in 1964 by the current owner, Technical Ordnance operates fromfacilities in Minnesota and South Dakota which manufacture a range ofpyrotechnic and explosive devices, including impulse cartridges, fusecomponents, ammunition and pellets, Load Assemble and Pack ("LAP"), cuttingdevices 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 somecommercial entities. In the year ended 31 December 2005, Technical Ordnance reported an unauditedprofit before tax of USD 8.8 million (‚£4.9 million) on turnover of USD 32million (‚£18.0 million). The unaudited gross assets at that date were USD 19.0million (‚£10.7 million). The acquisition of Technical Ordnance provides Chemring with a high volume,energetic material manufacturing operation, located in the US. Its technologyand product range is similar to that of Chemring's UK business, NobelEnergetics, which was acquired in September 2005. Technical Ordnance offers asubstantial opportunity for future organic growth, both through the transfer ofproducts and technologies to address the large US defence market, and throughthe increased export potential which will become available to the acquiredbusiness utilising Chemring's global market access. The acquisition is expectedto be earnings enhancing in the first twelve months of ownership. The consideration for the acquisition is USD 70 million (‚£39.3 million). Theconsideration is being funded in part by the placing of 2,900,000 new OrdinaryShares at 955 pence per share, to raise approximately ‚£27.7 million beforeexpenses. The consideration is subject to adjustment depending on the workingcapital of Technical Ordnance at completion. The sale and purchase agreement(the "Acquisition Agreement") is conditional, upon, inter alia, the expiry ofthe thirty day waiting period imposed by Hart-Scott-Rodino and Exon-Floriofilings. The Vendor Placing has been fully underwritten by Investec pursuant to theterms of an agreement entered into by the Company and Investec (the "PlacingAgreement"). The Vendor Placing is conditional, inter alia, on the admissionof the new Ordinary Shares to the Official List of the UK Listing Authority andto trading on the London Stock Exchange's Main Market ("Admission"), and theAcquisition Agreement being completed in all respects (save for any conditionrelating to the Placing Agreement being unconditional and payment of theconsideration). On Admission, the new Ordinary Shares will rank pari passu inall respects with the existing ordinary shares in Chemring, save that they willnot be entitled to receive the final dividend of 7.30 pence per share payablein 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, bothnon-executive directors of Chemring, have agreed to accept allotment of 1,000and 3,600 new Ordinary Shares respectively at 955 pence per share. Followingthe issue of these shares, Mr Much will be beneficially interested in 1,000Ordinary Shares representing 0.003% of the enlarged issued share capital andSir 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 complexcomponents and systems to the defence industry. Whilst it has a wide range ofproducts and expertise, it has a particular specialisation in pyro-mechanicaldevices and weapon sub-systems. The business has recently won, as part of theSAAB Bofors Dynamics team, the competition for the next generation lightanti-armour weapon for the UK and Swedish armed forces. Leafield Engineering'srole is in the manufacture of the safety and arming unit, key pyro-mechanismsand the insensitive munitions miniature detonating cord. In the year ended 30 September 2005, Leafield Engineering reported an auditedprofit before tax of ‚£0.5 million on turnover of ‚£5.8 million. Gross assets asat that date were ‚£2.7 million. Leafield Marine is the world leader in the design, development and manufactureof air valves for inflatable structures. The business has an extensive range ofvalves that encompasses complex valves used by the leading life raftmanufacturers, low cost products used by most of the leading inflatable boatand river raft manufacturers, and special, low volume valves for use incommercial and military safety critical applications. In the year ended 30 September 2005, Leafield Marine reported an audited profitbefore tax of ‚£0.1 million on turnover of ‚£1.4 million. Gross assets as atthat date were ‚£0.5 million. The total consideration for the Leafield Engineering and Leafield Marineacquisitions of ‚£5.0 million is being funded by new bank facilities. The acquisition of Leafield Engineering offers Chemring improved access to theEuropean complex weapon market, and substantially enhances itselectro-mechanical and sub-system engineering capability. Its integrationwithin Chemring's broader energetic materials capability should provideattractive opportunities for organic growth. The acquisition of Leafield Marine is driven by commonality with Chemring'sexisting marine pyrotechnic activities, and offers the opportunity to accessthis market in a more cost-effective manner. Current Trading and Prospects In its preliminary results for the year ended 31 October 2005, announcedseparately today, Chemring stated that the market outlook for itsCountermeasures business continues to be very positive. In 2005, the globalmarket increased by 12%, driven by the increased requirements of the US. Overthe next three years the global market is expected to grow, with significantgrowth in demand from both the US Army and the US Air Force, particularly forspecial material decoys. The Group's order book is at a record level, demandfor its decoys promises solid growth in Countermeasures, and its concentrationon Energetics will produce a strong second division. Chemring looks forward toreporting further dynamic progress of the Group, including its newly-acquiredbusinesses, at the half year. Admission, Settlement and Dealings Application has been made to the UK Listing Authority for the new OrdinaryShares to be admitted to the Official List and to the London Stock Exchange forthe new Ordinary Shares to be admitted to trading on its Main Market. It isexpected that Admission will become effective and that dealings will commenceat 8.00am on the third business day following the receipt of regulatoryclearances 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 scaleand capability of our Energetics division, and will provide a more balancedbusiness model for the Group. The companies are an excellent fit with ourexisting businesses, and should offer substantial opportunities for growth inthe future." Enquiries: Chemring Group PLCTel: 01489 881880Ken Scobie, ChairmanDr David Price, Chief ExecutivePaul Rayner, Finance Director Investec Tel: 020 7597 5970Keith AndersonMichael Ansell Cardew Group Tel: 020 7930 0777Rupert Pittman Investec Investment Banking, a division of Investec Bank (UK) Limited, which isauthorised and regulated by the Financial Services Authority and is a member ofthe London Stock Exchange, is acting exclusively for Chemring in connectionwith the Vendor Placing and is not acting for any other person other thanChemring and will not be responsible to any person other than Chemring forproviding the protections afforded to its customers or for providing advice onthe transactions or arrangements referred to in this announcement. Nothing in this announcement should be construed as a profit forecast or beinterpreted to mean that the future earnings per share or profits of Chemringwill necessarily be greater than the historic published earnings per share.ENDCHEMRING GROUP PLCRelated Shares:
Chemring