Czech group signs 7-year ammunition deal with Slovakia worth up to 58 billion euros

PRAGUE - Czech defense group CSG has signed a framework deal with Slovakia’s defense ministry to supply ammunition to EU states worth up to 58 billion euros ($67.54 billion).

CSG said its Slovak subsidiary ZVS Holding, which is jointly owned with Slovakia, concluded the seven-year deal, with purchases potentially financed under the European Union’s SAFE programme, which offers long-term loans to strengthen defense capabilities.

Slovakia, like other European countries, is seeking to build its defense industry as the EU and NATO boost spending in response to Russia’s 2022 invasion of Ukraine.

CSG, owned by 33-year-old billionaire Michal Strnad, has grown into a major player and is among Europe's largest makers of artillery ammunition for NATO countries and Ukraine. The company has recently considered an initial public offering to fund further expansion.

OFFER TO EU STATES TO JOIN

The value of the deal reflects the maximum potential volume of deliveries and based on available production capacity, CSG said.

ZVS Holding will supply 155 mm artillery ammunition, 120 mm tank ammunition, and 30 mm and 35 mm cannon ammunition for Slovakia and other EU member states, it said in a statement with the Slovak ministry.

Slovakia is offering EU member states the opportunity to join the framework agreement.

Under SAFE, Slovakia aims to draw 2.3 billion euros, of which 38.5 million euros is for the purchase of large- and medium-caliber ammunition.

"Slovakia has the ambition to become a leader in the supply of large- and medium-caliber ammunition for EU member states," Defence Minister Robert Kalinak said.

CSG ON UPSWING

CSG has grown in the past year following a $2.2 billion acquisition of U.S.-based small-calibre ammunition maker Kinetic Group last year.

In the first three quarters this year, CSG reported revenue of 4.49 billion euros ($5.2 billion) while operating profit (EBIT) rose by 77% to 1.10 billion euros. It has an order backlog of 14 billion euros.

European defense-related stocks have been among the best-performing this year, with a STOXX index of aerospace and defence companies .SXPARO up around 50%.

While prospects of peace in Ukraine have brought some stock volatility, analysts see the sector supported by rising defense spending despite any potential deal ending the war.

($1 = 0.8587 euros)

Jan Lopatka and Jason Hovet/Reuters