March 21, 2015 By Pierre Tran – Defense News
PARIS — Nexter and German family-controlled Krauss Maffei-Wegmann are on track to forge a cross-border link up in the land weapons sector this year, the French state-owned company said.
"On July 1, 2014, the shareholders of the two French and German companies signed a memorandum of understanding for an equally owned alliance. This project is progressing and should produce concrete results in 2015," Nexter said in a March 17 statement with financial results for 2014.
On the business front, the Direction Générale de l'Armement has awarded a contract worth some €330 million (US $349.4 million) to Nexter Systems to upgrade 200 Leclerc tanks and 18 tank recovery vehicles with delivery from 2020, the procurement office said in a statement March 12.
Defense Minister Jean-Yves Le Drian has written into his 2015 agenda an agreement for the joint venture deal in July or August, an announcement which caught some in industry by surprise.
The proposed joint holding company is named KMW and Nexter Together, or KANT. The Bode family controls KMW through the Wegmann firm.
An accord in the summer, however, seems unlikely as there is a political drag effect due to Nexter's privatization being caught up in an attempt to liberalize the ailing French economy.
There is no problem on the industrial front as Nexter and KMW opened up their books for due diligence and that detailed examination of their businesses will lead to a valuation of the two companies. That scrutiny is going ahead smoothly even if the conclusion might miss the April 1 deadline, an industry source said.
The due diligence allows the two shareholders to negotiate the valuation and whether amounts must be paid to bring each side to the 50:50 share in the holding company.
On the political front, France must privatize Nexter to allow the company to form the planned joint holding company with KMW. However, that will likely take longer than expected as the privatization has been written into a wide-ranging draft legislation proposed by Economy Minister Emmanuel Macron, a former investment banker who seeks to inject more competition into the domestic economy.
The proposed Macron law has run into strong political resistance from both the Union pour un Mouvement Populaire conservative party and left wing of the Socialist Party. That will likely delay the joint venture agreement to the autumn, the source said.
There was lively debate on Feb. 9 in the lower house National Assembly amid concern Germany would restrict exports of the alliance, particularly to Saudi Arabia, as the Economics Minister Sigmar Gabriel has spoken against foreign arms sales.
Macron acknowledged there is a German "political sensitivity" on weapon exports "but the option taken is to develop strategic and commercial synergies with our German partner so that it is not a barrier to continue to define a common policy and to deal with this sensitivity, which is a reality, but to be frank poses more problems for Airbus than for this joint project."
KMW Chairman Frank Haun on Jan. 14 told the French National Assembly defense committee the alliance would work over the next five years developing a tank — whether it be called Leopard 3, Leleo or Leoclerc — and the new heavy armored vehicle could be delivered 2025-2030 to replace the Leclerc and Leopard 2.
The Russians are working hard on tank development, and Nexter and KMW could exchange their "very interesting" technology to build replacements for the Leclerc and Leopard, he said.
Fully automated artillery, smart munitions and laser weapons are among the new weapons on which the KANT alliance would work, he said.
Nexter Chairman Philippe Burtin told the committee the Scorpion Army modernization program will generate an average annual €200 million of work.
The companies will have five years to see if the alliance works and if not, they can back out, Macron said.
Macron told the French lower house Feb. 9 that under the bilateral agreement there would be five years of stability, which would allow each side to see whether the alliance worked. The joint holding company will take charge of commercial and product launch strategy, while industrial production will stay with the operating companies and under domestic management.
"It would be possible, after five years and before a decision which would aim to bring the operating companies to the level of the joint holding company, to go into reverse," Macron said.
The contract to upgrade the Leclerc tank was signed March 5, a DGA spokesman said.
The modernization will fit the tank into the Contact tactical radio and the Scorpion information and command system, the DGA said. There will also be new armor kits to protect against threats such as improved explosive devices.
The upgrades are intended to maintain the Leclerc's "first entry" capability in an international coalition beyond 2040, the DGA said.
Nexter reported 2014 sales of €1.1 billion, compared with €787 million a year ago. That 2014 figure includes the sales of Mecar and Simmel Difesa, two munitions firms bought from Chemring last year. Detailed figures were not immediately available.
The acquisitions boosted the ammunition activity to €883 million.
Exports accounted for 53 percent of sales.
Net profit rose to €118 million from €74 million, with the former boosted by the acquisitions. Orders rose to €1.2 billion from €612 million, with foreign orders making up 53.2 percent.
The order book stood at €5 billion, of which €2.8 billion are conditional tranches of contracts.
On March 18, 2014, Nexter said on the 2013 results that the order book stood at €2.6 billion or nearly three years of business.
Operating profit was 13 percent of sales, down from 14 percent a year ago.
In the Scorpion program, Nexter will work on development and building the chassis for the Véhicule Blindé Multirole, a six-wheel troop carrier named Griffon, and Engin Blindé de Reconnaissance et de Combat, a six-wheel combat vehicle named Jaguar. Renault Trucks Defense will work respectively on the engine and driveline, and Thales on electronics and communications systems.