Author Topic: Colt will ruin CZ.  (Read 23413 times)

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Offline MeatAxe

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Re: Colt will ruin CZ.
« Reply #120 on: September 16, 2022, 11:06:08 AM »
First and foremost, I'd encourage everyone to review this marketing slide deck from Feb 2021 (and realize it's spin to the extent allowed under financial law): https://cdn.czg.cz/docs/CZG_Corporate_Introduction_final_CS_KB_16022021_v2.pdf

Main takeaway on my end is that 1) CZ more than tripled their debt to buy Colt, 2) existing debt and probably this new debt as well appears to variable rate per the 2020 report (anyone remember the variable rate subprime mortgage crisis of the Obama years where buyers who should have been unqualified lost their homes? -- and remember we're in a rising interest rate environment), 3) their production facilities are overwhelmingly in Europe -- Czech Republic, Germany, and Sweden -- and 4) their shotguns are produced in Turkey, which I didn't realize.

And BLUF: from my perspective is that CZ-UB rolled the dice and decided to buy Colt as a gambit.  The problem though is that Colt has a very different business model with expensive materials, labor, and real estate, while CZ-UB had cheap materials, labor, and real estate...  And now given the Ukraine war and Russian sanctions, CZ is not only cut off from cheap materials from Russia, but also is facing skyrocketing energy costs in both the Czech Republic and Germany...  In fact, the Czech's now have the most expensive electricity costs in Europe AND many European metals manufacturers/smelters are ceasing operations due to energy costs multiples of retail products of refined metals...  Sweden is less affected than the CR or Germany, but also feeling the pinch.

Meataxe: Honestly, the only interest I have in Colt is Canada's Diemaco, which to date, they've refused to offer in the US.

Tdogg: Many of us have seen this game before, and know that it usually goes badly.  Granted there are now geopolitical events that are exacerbating the albatross that is Colt, but even then -- anyone in the firearms industry for any length of time would also tell you the price inflation and firearms buying frenzy that followed Biden's "coronation" is par for the course and unsustainable long-term -- it was roughly a 50% jump in US sales revenues in 1 year, and CZ's slide deck above appears to be advertising it as not only sustainable but indicative of future growth potential...  That's nuts!

To be clear, I do appreciate your comment and perspective, but for anyone who knows finance bros/B-school grads or has worked for a company in the modern mergers & acquisitions era in the process of M&A, knows that this is a shell game to extract value for shareholders regardless of detriment to underlying businesses tends to go badly long-term (financial pros/bros are only interested in quarterly reports).  And we just saw this exact same thing domestically with the bankruptcy of Freedom Group -- Remington, Tapco, Para, Barnes, etc. -- owned by Cerebus Capital Management...

So it's most certainly informed concern, and nothing that any of us CZ enthusiasts here are wishing or take any pleasure in sharing, but it is reality.  Do with this info what you may.

Thanks for that info! Interesting…and sobering. I hope CZ can digest this large Colt acquisition cost, with its obsolete production facilities, but (probably) high cost real estate. It’s too bad CZ didn’t just acquire the name and trademark at relatively low cost, like Armalite, Springfield Armory, etc.
« Last Edit: October 21, 2022, 06:38:25 AM by Wobbly »

Offline MeatAxe

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Re: Colt will ruin CZ.
« Reply #121 on: September 16, 2022, 11:24:46 AM »
If half of CZ's sales funnel thru CZ-USA, CZ-USA would have significant influence on an enlightened parent company.

The US being one-half of CZ-UB's revenues was pre-Colt acquisition FWIW...  So that share has almost certainly hugely risen for the parent company -- I'd guess ~85% is now US consumer or Colt sales.  Probably in the sllde deck I shared if you want to dig into it.

Further, the US spends more on defense than the next 9 countries (2-10) combined.  Just like w/ Colt, consumers will now be second fiddle to military and LE pursuits.  Which is why they're removing options from their (CZ) catalog that appeal to the American consumer IMO. 
https://www.pgpf.org/blog/2022/06/the-united-states-spends-more-on-defense-than-the-next-9-countries-combined

Want certain colors, optics ready, suppressor ready, etc., guns -- no soup for you!

Unfortunately, in comparison to its big budget / high tech weapons systems, the US Military doesn’t spend much on small arms, other than periodic “trials” which go nowhere. Otherwise, they’d have done away with the M16 / M4 and 5.56 caliber a long time ago in favor of something better. It’s taken them 60 years to (more or less) “perfect” the M16, which is still way less than perfect IMO, especially in this day and age.

Offline RSR

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Re: Colt will ruin CZ.
« Reply #122 on: September 16, 2022, 06:44:03 PM »
Unfortunately, in comparison to its big budget / high tech weapons systems, the US Military doesn’t spend much on small arms, other than periodic “trials” which go nowhere. Otherwise, they’d have done away with the M16 / M4 and 5.56 caliber a long time ago in favor of something better. It’s taken them 60 years to (more or less) “perfect” the M16, which is still way less than perfect IMO, especially in this day and age.

Colt's got a fair bit of business repairing and replacing M4/M16 variants during the GWOT.

But, the US Army awarded its NGW/NGSW to Sig this year: https://www.defense.gov/News/News-Stories/Article/Article/3005746/army-announces-2-new-rifles-for-close-combat-soldiers/
That appears to be more of a frontline or infantry-specific weapon, with the M4 to remain in service for other troops however.  It's also not a NATO standard weapon as of yet.

Last contract I see for Colt was in 2020, which they split w/ FN for foreign military sales: https://www.shootingillustrated.com/content/colt-and-fn-land-foreign-department-of-defense-contract/

This is a solid article on acquisition and plans -- main takeaway for me is that they plan additional mergers and acquisitions in order to "grow": https://www.reuters.com/world/europe/czech-gunmaker-bets-riding-colt-into-new-markets-2021-09-13/

Quote
Colt, with plants in the United States and Canada, will give CZG the capacity to expand production beyond its main factory in the Czech Republic and allow it to compete in U.S. military contracts because it will fulfil "Buy America" regulations requiring U.S. production.

CZG says it aims to almost double CZG and Colt's pro-forma combined revenue of around $570 million last year within a few years - putting it on a par with Smith & Wesson's annual net sales of $1.1 billion in the last fiscal year.

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

"Colt is an important step in realising our vision of getting to 1 billion (euros) in revenue by the end of 2025," CZG's Chairman Jan Drahota told Reuters in an interview at the company's Prague headquarters.
Quote
Some of the pressure could come from investors. The revenue target looks ambitious to some analysts and will require investment by CZG, whose roots stretch back to before World War II.

"It is definitely an ambitious goal," said Pavel Ryska, analyst at J&T Banka in Prague. "In my view, it could be met on two conditions. First, the U.S. civilian demand remains robust and keeps rising, and second, CZG adds further production capacity either through its own capex or through additional acquisitions that are well executed.

Founded by Samuel Colt, the U.S. company produced one of the first revolvers and its single-action revolver known as “The Peacemaker” was synonymous with lawmen and outlaws in the Wild West in the 19th century. By 2015, however, the company was filing for bankruptcy protection following a series of missteps and the loss of a key contract with the U.S. Army."

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

Upgrades will also mean "essentially an enlargement of capacity because of underinvestment in the past," he said.

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

"We have to consider from a group level what ... the production split will be at each location," he said. "One plus one is more than two. We believe we can leverage on each other's success."

About half of Colt's revenues in 2020 came from the massive U.S. military and law enforcement (M&LE) segment and Drahota said he saw "huge room" to grow the brand in global civilian and M&LE markets.

Analysts at Czech-based Fio Banka estimate the military and law enforcement portion of CZG's North American sales will climb to 50% from 10% with the Colt acquisition, boosting the company's revenue as M&LE firearms fall into higher price categories.

Global demand for small firearms is expected to rise from around 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% of sales and military and law enforcement 38%.

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CZG, whose operating profit rose 12% last year, has until now mainly competed with European groups like FN Herstal of Belgium, Beretta of Italy and Glock Gesellschaft of Austria and struck deals last year with the Czech Army and law enforcement bodies in Brazil and Kenya, as well as contracts to help rearm Hungary's army.

Buying Colt will also give it exposure to the UK and Canadian militaries, among others, and Drahota said the market will continue to shift to more advanced weapons as demanded by military customers. CZG, which last year took a minority stake in Spuhr i Dalby AB, a Swedish maker of optical mounting solutions for weapons, would also look at further acquisitions, especially in areas like optics or optoelectronics.

"We want to grow by acquisitions but we will be disciplined," Drahota said.

And here's their press release on Q1 2022 results:
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Prague (26 May 2022) ? Colt CZ Group SE (“Colt CZ, the “Group” or the “Company”) today announced its consolidated unaudited financial results for the first three months of 2022 ending 31 March.

Q1 2022 Financial Highlights: https://www.coltczgroup.com/en/media-press-releases/colt-cz-group-se-increased-its-ebitda-by-120-in-the-first-quarter-of-2022

?     The Group’s revenues in the first three months of 2022 amounted to CZK 3.5 billion, up by 74.7% y-o-y, mainly due to higher sales volume in all regions and consolidation of Colt’s revenue.

?     EBITDA reached CZK 954.7 million, up by 120.0% y-o-y for the first quarter of 2022.[1]

?     Operating profit in the first three months of 2022 was CZK 749.3 million, up by 123.7% compared to the first three months of 2021.

?     Net profit for the first three months of 2022 reached CZK 544.7 million, which is 97.6% more compared to the same period in 2022.

?       The number of firearms sold in the first quarter of 2022 increased by 46.1% compared to the same period in 2021, exceeding 200 thousand units sold.

Offline RSR

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Re: Colt will ruin CZ.
« Reply #123 on: October 06, 2022, 12:55:03 AM »

Offline JGW006

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Re: Colt will ruin CZ.
« Reply #124 on: October 06, 2022, 01:40:34 AM »
CZ doesn’t seem ruined yet, at least per the above financials.

JGW

Offline RSR

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Re: Colt will ruin CZ.
« Reply #125 on: October 06, 2022, 06:51:50 PM »
CZ doesn’t seem ruined yet, at least per the above financials.

JGW

Would encourage you to read the latest financial postings that went public after this thread started.
https://www.coltczgroup.com/en/investors-financial-results-and-presentations/

They've massively increased dividends (pulling capital out of the company) by 230% vs 2021, massively increased debt by over 3 times due to M&A (not just Colt, but starting there -- more revenues now must service greater debt, not grow the group), and energy costs are projected to explode by over three times this year vs 2021 to nearly 6 times 2021's costs in 2023 (effectively doubling again next year) -- part of this is undoubtedly due to projected growth, but going from 70M CZK to 240M CZK to 450 CZK is alarming.  That's just for starters, and who will be able to buy guns when their basic bills are exploding no doubt also leading to an economic recession to depression, as CZ's own energy projections detail?

Bottom line, there's a lot of aggressive gambling going on here by modern B school grads, and they'll either prove to be 1) fortuitous "geniuses" or 2) complete and utter failures whose mistaken strategy/mismanagement destroyed many if not all of the legendary firearms companies their highly aggressive merger and acquisition strategy will ultimately lead them to acquire.  Given the highly cyclic and highly regulated nature of the global firearms markets, it's almost exclusively been option #2 in recent history...  Again, Freedom Group is one of the most recent and prominent examples.

And this from their September semi-annual report foreshadows what I'm referencing:
Quote
Operating units in North America, specifically in the US and Canada, have not been directly impacted
by the Russian invasion of Ukraine. However, combined with the growing inflationary pressures in
the US and the Federal Reserve’s interest rate hike in June 2022 and the continuing effects of the
Covid-19 pandemic on the supply chain, the Company has noted a slowdown of its growth on the US
commercial market.
« Last Edit: October 06, 2022, 07:06:52 PM by RSR »

Offline JGW006

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Re: Colt will ruin CZ.
« Reply #126 on: October 06, 2022, 09:15:07 PM »
It’s been 32 years since my BBA in Finance, and 31 years since I realized I really didn’t learn much so decided to “start over” by going to law school.  I stopped pretending to have insight into a company via financials (other than completely obvious, which of course doesn’t require insight).  I have no idea if Colt will be good or bad for CZ, or whether CZ will be good or bad for Colt.

As a proud American, I hope that CZ will save and resurrect Colt to be a preeminent designer and manufacturer again.  If any company can do it, it is CZ.

As a great admirer of CZ, I hope that Colt will be good for CZ, and won’t hurt, but if any company could hurt CZ its Colt.

I’m not worried about CZ though. 

JGW


Offline RSR

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Re: Colt will ruin CZ.
« Reply #127 on: October 07, 2022, 03:55:14 AM »
As a proud American, I hope that CZ will save and resurrect Colt to be a preeminent designer and manufacturer again.  If any company can do it, it is CZ.

As a great admirer of CZ, I hope that Colt will be good for CZ, and won’t hurt, but if any company could hurt CZ its Colt.

I’m not worried about CZ though. 

I mean this non-offensively, but the excerpted reply certainly highlights a legal/debate background -- covers all the bases.

I worry about CZ.  Structurally, this appears -- just the CZ - Colt portion -- to be similar to Sig USA - Sig GMBH approach.  However, on  a practical level, their product offering largely rejects Sig's strategy of many unique offerings (CZ removing most of their options) as well as a focus on tangible quality (real or perceived -- for instance, Sig USA's India-made MIM parts as a case in point on the detriment but their highly finished stainless slides on the positive, while and CZ-UB sticking w/ Czech-made parts and minimally finished Czech slide internals while Colt increasing outsources manufacturing to who knows per MAC's video above with no real focus on quality/finishing details or function)...  Even European SF forces are now moving away from Colt Canada carbines per reports to more modern weapon systems...  Sig's biggest win was working the military bureaucracy/hiring enough retired generals/admirals to get both the next military sidearm and infantry rifle/SMG under their umbrella from Beretta and Colt and FN.  CZ's apparent hire of Wesley Clark simply isn't enough to compete and those contracts won't be up again for decades anyways, AND CZ-USA effectively cancelled their highly popular MIL/LE program following the Colt merger, kneecapping themselves further.  Unless CZ somehow manages to pull a Glock mass replacement/adoption w/ US LE, I simply don't see the inherent built-in market demand/growth that Sig has and will continue to experience for decades...

Bottom line from my perspective is that Colt remains in denial about their failings/shortcomings and continues to ride on the coattails of their brand's reputation as well as the US gov't's foreign aid packages that still give them a fair bit of reliable business.  But without reform including new machinery and moving from CT, Colt's a dead man walking as far as I'm concerned.

I am worried about CZ b/c of the albatross of Colt as well as their financial PROJECTIONS being highly dependent on a yet unrealized mergers and acquisition strategy that at its heart relies on the American consumer being 2/3rds+ of their revenue stream and continuing to increase purchases of their offerings YTY similar to recent years post Biden's indoctrination.  I simply don't see how the numbers actually add up.  Danged lies and statistics, if you will...

To be clear, I hope I'm wrong, but I just don't see enough "there" there unless say Smith and Wesson, FN, Springfield Arms, etc. peer competitor, goes bust and Colt - CZ manages to keep the bulk of the business.

Certainly, the Supreme Court's Bruen Decision is the best possible outcome preventing bans that would have largely torpedoed Colt - CZ's current growth strategy/product catalog (after the recent many product cancellations), but that decision alone doesn't have insane growth prospects -- at least as of yet...  And even if the NFA is repealed, there's no guarantee Europe would allow export of "military-grade" weapons or that consumer-hesitant Colt would sell F/A weapons to civilians...

Bottom-line, we're in interesting times where everything's accelerated, so we'll probably know what's what sooner rather than later.
« Last Edit: October 07, 2022, 03:59:27 AM by RSR »

Offline Hammer Time

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Re: Colt will ruin CZ.
« Reply #128 on: October 07, 2022, 08:13:40 AM »
I'd be curious to learn more about what sort of investment has gone into the Colt side of manufacturing since this acquisition. Have there been significant upgrades to their facilities?

I really do believe Colt is capable of producing quailty firearms (again) and I hope that, at a minimum, their production
operation is seeing improvement as a result of all this.

I have purchased two Colts in the past several years (a revolver and a 1911) and both have been well executed (other than a very tight plunger spring on the 1911) and reliable.

Offline tdogg

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Re: Colt will ruin CZ.
« Reply #129 on: October 07, 2022, 02:35:47 PM »
I'd be curious to learn more about what sort of investment has gone into the Colt side of manufacturing since this acquisition. Have there been significant upgrades to their facilities?

Even if CZ decided to invest in Colt right away, the current state of supply chain issues will delay any real improvements for 6-9 months minimum.  It seems that getting anything at the moment is difficult but equipment related controls/hardware is really impacted.

Cheers,
Toby
This forum rocks!

Offline RSR

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Re: Colt will ruin CZ.
« Reply #130 on: October 08, 2022, 08:16:01 AM »
Uh-oh: unissued Colt LEO firearms are back on the surplus market -- AND not immediately selling out: https://mailchi.mp/aimsurplus/colt-leo-trade-ins-are-back

Offline JGW006

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Re: Colt will ruin CZ.
« Reply #131 on: October 09, 2022, 09:50:25 AM »
I mean this non-offensively, but the excerpted reply certainly highlights a legal/debate background -- covers all the bases.

No offense taken. 

I collect CZ 27s and War and pre-War CZ pistols.  In connection therewith, I’ve studied early CZ history somewhat.  It is a remarkable company that has survived numerous, significant challenges. 

My primary, but perhaps poorly articulated point, is that while Colt management has been its own albatross to one of the great American brands / companies, and while it could indeed burden CZ for some period of time, this is far from the greatest challenge the company has faced.

JGW
« Last Edit: October 21, 2022, 06:36:11 AM by Wobbly »

Offline Hammer Time

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Re: Colt will ruin CZ.
« Reply #132 on: December 10, 2022, 07:33:57 PM »
Crickets....

I really hope the CZ/Colt/DW conglomerate is planning on some exciting new releases in 2023.  :(

Offline RSR

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Re: Colt will ruin CZ.
« Reply #133 on: December 15, 2022, 11:56:10 PM »
Crickets....

I really hope the CZ/Colt/DW conglomerate is planning on some exciting new releases in 2023.  :(

All I've seen is that they've now fully acquired Spuhr: https://www.thefirearmblog.com/blog/2022/10/17/colt-cz-group-acquires-spuhr-dalby/

And they and other Czech companies are knee-deep in supplying the Ukraine Armed Forces in that meat-grinder: https://www.sueddeutsche.de/wirtschaft/ukraine-waffen-tschechien-1.5716278

Offline MeatAxe

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Re: Colt will ruin CZ.
« Reply #134 on: December 16, 2022, 02:51:54 AM »
Crickets....

I really hope the CZ/Colt/DW conglomerate is planning on some exciting new releases in 2023.  :(

All I've seen is that they've now fully acquired Spuhr: https://www.thefirearmblog.com/blog/2022/10/17/colt-cz-group-acquires-spuhr-dalby/

And they and other Czech companies are knee-deep in supplying the Ukraine Armed Forces in that meat-grinder: https://www.sueddeutsche.de/wirtschaft/ukraine-waffen-tschechien-1.5716278

I realize CZ is supplying Ukraine with guns, i.e. the Bren 2, which is seriously underfunded and underserved for parts in the US for us.

But let’s look at the economy of scale. I remember when the USA was arming friendly forces in Iraq after Gulf War II with Bulgarian Arsenal full-auto milled SAM7s (arguably the highest quality AK made today) for the princely price of $35.00 per unit, while at the same time, semi-auto SAM7s in the US were selling for $700 - $800 a pop (at that time, now those same semi-auto rifles are selling for @ $1,800.00 a pop today, here in the US).

So, hey, let’s go ahead and fully supply the US civilian market at 20 times the price that it would cost to supply Ukraine. Obviously , it makes more sense to (fully) supply the US civilian market at 20 times the price so you can supply the Ukraine military for next to nothing.
« Last Edit: December 16, 2022, 02:58:31 AM by MeatAxe »