April 24, 2014 / 10:00 AM / in 4 years

UPDATE 2-Chemring to sell European munitions business for 167.8 mln euros

* Targeting India, Brazil for non-NATO markets expansion

* Looking at expansion in commercial space in the U.S.

* Shares rise as much as 5 percent (Adds CEO comment; updates share move)

By Aashika Jain

April 24 (Reuters) - British defence contractor Chemring Group Plc said it would sell its European munitions business to France’s state-owned Nexter Systems SA for up to 167.8 million euros ($232 million) to focus on its core defence technology business.

Chemring, whose profit has been hit by budgetary cuts in the United States, has been selling its non-core businesses since last year and pushing into non-NATO markets.

Chief Executive Mark Papworth told Reuters on Thursday that the company is targeting India and Brazil for expansion of its highest margin business, Sensors & Electronics.

The division makes detection systems for IEDs, chemical and biological threats, detonators and interception equipment.

Papworth, who began a restructuring of Chemring’s businesses last year, said the company is looking at expanding in the commercial space in the United States as its traditional markets remain subdued.

The United States accounted for 45 percent of revenue in the year ended Oct. 31, while Europe and the UK together brought in 27 percent.

Chemring’s defence technology business would now have three divisions, Sensors & Electronics, Countermeasures and Energetic Systems. The company said it would merge the remaining pyrotechnics and munitions products business with its Energetic Systems division.

The company, which also makes ejector seats for fighter jets and decoy flares used to counter heat-seeking missiles, said the sale of the business, Mecar and Simmel, is unlikely to lead to further reduction in order volumes.

The pyrotechnics and munitions division accounted for 32 percent of total revenue in 2013.

Chemring said it would use the expected cash proceeds of 131.4 million pounds to reduce debt by 120.4 million pounds to 128.3 million pounds.

“This (reducing debt) is positive, in our opinion, as it reduces balance sheet risk and provides management with flexibility to address tough defence end markets,” analysts at Investec Securities wrote in a note.

The analysts said the management was making good progress in implementing its strategic plans, and improving Chemring’s position in a difficult market.

Chemring said it expects to incur a loss of about 61.4 million pounds ($103 million) from the sale.

Nexter Systems, a weapons manufacturer whose munitions business line specialises in artillery, tank and medium-calibre munitions, reported revenue of 787.3 million euros in 2013.

The company’s shares were marginally up at 239.25 pence at 1338 GMT. Shares in the company, which slipped out of the FTSE-250 Midcap Index last year, rose nearly 5 percent in early trade. ($1 = 0.72 Euros) ($1 = 0.59 British Pounds) (Reporting by Tasim Zahid and Aashika Jain in Bangalore; Editing by Gopakumar Warrier and Sriraj Kalluvila)

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