Sunday, September 26, 2021

Czech Gunmaker Bet on Riding Colt in New Markets

For Prague-Czech gun maker CZG-Ceska Zbrojovka Group, the recent acquisition of the Colt brand includes both the potential to become a major player in the global firearms market and the challenge of reviving the fortunes of a well-known American name.

Shares of CZG, which listed on the stock exchange last October, have risen 60 percent in Prague this year as investors welcomed solid revenue growth and the company’s $222 million purchase of privately held Colt Holding Company—the last in May. Basically a deal that would make CZG a competitor to American leaders such as Smith & Wesson and Sturm, Ruger & Co.

Colt, with plants in the United States and Canada, would give CZG the ability to expand production beyond its main factory in the Czech Republic and allow it to compete in US military contracts as it would “Buy America” ​​requiring US production. “Will meet the rules.

CZG says it aims to nearly double the combined revenue of CZG and Colt’s pro-forma to about $570 million within a few years — equaling Smith & Wesson’s annual net sales of $1.1 billion in the previous fiscal year. Keep.

In 2020, the United States accounted for 66 percent of the Czech gunmaker’s annual revenue, primarily sales of guns under its CZ (Ceska Zbrojovka), Dan Wesson and Brno Rifles brands to individuals and police departments.

“Colt is an important step in realizing our vision of reaching 1 billion” [euros] in revenue by the end of 2025,” CZG president Jan Drota told Reuters in an interview at the company’s Prague headquarters.

“We … must be thinking about how to make sure the brand is even bigger than it is now and is offered more widely. [markets].

Yug Times Photos
An employee presents a rifle inside a showroom at the eska Zbrojovka small arms factory in Uhurski Brod, Czech Republic, on August 31, 2021. (David W. Cerny/Reuters)

“It’s a privilege, but it’s also a pressure on us,” he said.

Some pressure may come from investors. The revenue target seems ambitious to some analysts and would require investment by CZG, whose roots stretch back to before World War II.

“It’s certainly an ambitious goal,” said Pavel Riska, analyst at J&T Banka in Prague. “In my view, this can be accomplished on two conditions. First, US civilian demand remains strong and continues to grow, and second, CZG further enhances production capacity through its own capital expenditures or through additional acquisitions that execute well.

Founded by Samuel Colt, the American company produced one of the first revolvers and its single-action revolver known as “The Peacemaker” became synonymous with lawmakers and outlaws in the Wild West in the 19th century. However, as of 2015, the company was filing for bankruptcy protection after several wrongdoings and the loss of a significant contract with the US military.

Those issues allowed rivals to steal a march on Colt, though it emerged from bankruptcy in 2016 and grew revenue by a quarter last year.

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low investment

CZG, which used the proceeds of the IPO and issued bonds to help finance the Colt deal, will outline investment plans later this year. They will likely include introducing new products and investing in upgrades at Colt’s main factory in West Hartford, Connecticut, Drhota said.

He added that the upgrade would also mean “essentially increased capacity due to less investment in the past”.

CZG is also considering whether to produce certain CZG products in the United States, he said, adding that there is little overlap with Colt products.

“We have to consider from the group level what will be the production division at each location,” he said. “One plus one is more than two. We believe we can take advantage of each other’s success.”

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Nearly half of Colt’s revenue in 2020 came from the vast US military and law enforcement (M&LE) segment and Drota said he saw “huge room” for the brand to grow in the global civilian and M&LE markets.

Analysts at Czech-based Fio Banka predict that the military and law enforcement share of CZG’s North American sales will climb from 10 percent to 50 percent with the Colt acquisition, which will increase the company’s revenue as M&LE firearms move into higher price ranges. come.

Global demand for small firearms is expected to increase from about 1.09 billion units in 2019 to 1.26 billion units in 2023, CZG said in its annual report, citing the BIS Small Arms Market Report, with the civilian market now accounting for 62 percent of sales . Military and law enforcement 38 percent.

The market’s good growth prospects have helped the shares of Smith & Wesson and Sturm, Ruger & Co. to rise 21 percent and 16 percent, respectively, this year.

CZG, whose operating profit grew 12 percent last year, has so far mainly competed with European groups such as Belgium’s FN Herstal, Italy’s Beretta and Austria’s Glock Gesellschaft, and last year with the Czech military and law enforcement bodies in Brazil. made deals with. Kenya, as well as contracts to help retreat the Hungarian army.

Buying the Colt would also put it in contact with the UK and Canadian forces, as well as others, and Drhota said the market would continue to move toward more advanced weapons as military customers demand. CZG, which last year took a minority stake in Spuhr i Dalby AB, a Swedish manufacturer of optical mounting solutions for weapons, will also consider further acquisitions, particularly in areas such as optics or optoelectronics.

“We want to grow from acquisitions, but we will be disciplined,” Drota said.

by Michael Kahn and Jason Howett

Reuters

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This News Originally From – The Epoch Times

Czech Gunmaker Bet on Riding Colt in New Markets
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