Interim Management Statement

RNS Number : 7833S

Chemring Group PLC

16 September 2010

 



FOR IMMEDIATE RELEASE                                                                                   16 SEPTEMBER 2010

CHEMRING GROUP PLC

INTERIM MANAGEMENT STATEMENT

Chemring Group PLC ("Chemring" or "the Group") today issues its Interim Management Statement covering the period from 1 May 2010 to date, as required by Rule 4.3 of the Disclosure and Transparency Rules of the UK Listing Authority.

Current Trading

Trading for the four month period to the end of August 2010 continued to strengthen, with revenue in the period increasing by 23% to £176 million from £143 million in the same period last year. Revenue in the ten month period to the end of August 2010 was £432 million, 15% higher than in the same period in 2009. The Board is therefore confident that the outlook for the financial year ending 31 October 2010 remains in line with its previous expectations. 

The Group's order book is currently £819 million, which is 43% higher than at this time last year. The majority of the Group's business is short-cycle consumables, with most of its contracts placed with six to twelve months' duration. The value of the order book remains the most relevant forward-looking indicator and, accordingly, the Board continues to believe that the prospects for the Group for 2011 are good.

Market Conditions

Over the last six months, European governments have made a series of announcements concerning planned reductions in future defence expenditure. The Group does, however, continue to see a robust market in the USA and continued growth in defence expenditure within its Middle East and Far East markets. Our acquisitions over recent years and our geographic strategy has ensured that less than 25% of our 2011 revenues will come from European customers. The Board does, therefore, remain confident about the longer term future.

Countermeasures

All of our countermeasures businesses performed well during the period. Our US subsidiary, Kilgore, is currently achieving record levels of production, with year-to-date revenue more than 30% higher than at this time last year. Line qualification of the M206 helicopter flare has now been completed and qualification of the M212 spectral flare is expected shortly. Production of both of these US helicopter flares over the next few months is expected to contribute to a record performance for the full year.

At Chemring Countermeasures in Salisbury, full production of all flare products has been resumed following the fire in April 2010. The UK Government has recently awarded the business a new development contract for the next generation advanced naval decoy and we are currently negotiating a multi-year production contract for an upgraded chaff decoy round.

Explosive Ordnance Disposal

Trading at our Explosive Ordnance Disposal businesses continues to be very encouraging.  Production of our Husky Mounted Detection System ("HMDS") Ground Penetrating Radar ("GPR") at NIITEK continues to grow, with additional production facilities brought into operation over the last few months. Production has started on the $217 million US Army contract for 76 HMDS systems, and we have started to increase the number of deployed maintenance and training staff towards the 70 planned under the contract. The Overseas Contingent Operation ("OCO") funding for the US Army has recently been approved, with $78 million of funding for an additional 43 HMDS systems and support. The two contracts will underpin the performance of NIITEK throughout the 2011 financial year. The planned multi-year IDIQ (indefinite delivery, indefinite quantity) contract for further system purchases looks likely to be delayed towards the second half of next year. 

In Europe, good progress has been made on the qualification of insensitive explosive variants of our full range of demolition stores. All of the products will be in production by the end of the first half of 2011, and considerable interest has already been shown in the products from both our Middle East and Far East customers.

Pyrotechnics

Trading in our pyrotechnics businesses remains rather flat on a year-to-year basis, principally due to the timing of orders from UK and European customers. The US businesses continue to perform well and have recently successfully completed a number of restructuring and product upgrade programmes. We have completed the upgrade programme to our M228 training grenades and re-started production on both our manual and automated lines. Factory acceptance of our Mk59 marine location markers has been achieved, and production will be accelerated for the remainder of the financial year. We also completed the transfer of our battlefield effects system ("BES") launcher products from the Titan facility in Texas to our electronics facility in Illinois, and our BES cartridges production from Texas to our pyrotechnics facility in Florida.   

Munitions

Trading in munitions products and components increased substantially over the period with increased deliveries to our Middle East customers. The qualification of our 76mm naval rounds was also completed for the French Navy, and a large production contract is now under negotiation. Further production contracts for our low-velocity and high-velocity 40mm grenades have recently been received from Australia, New Zealand and several Middle East countries. We have also concluded negotiations on a two year contract for the supply of electronic safety and arming fuses ("ESAF") for the Patriot missile programme. Production under this contract is expected to be over 30% higher than at present, underpinning the performance of our Hi-Shear Technology subsidiary in California.

Recent Incidents

On 7 September 2010, a fire occurred at our newly-acquired Mecar SPRL facility in Belgium. An investigation into the cause of the fire is currently underway, and production is expected to resume in November 2010, subject to addressing any additional safety requirements. On 14 September 2010, a separate incident occurred at our Kilgore Flares facility in Tennessee, USA. A full and immediate investigation into the cause of the incident has been launched in co-operation with the local regulatory authorities.

Neither incident is expected to have any material adverse impact on the Group's performance in either the current or 2011 financial year.    

Acquisitions

On 10 August 2010, the Group announced the conditional acquisition of Roke Manor Research Limited ("Roke") from Siemens Holdings plc for a cash consideration of £55 million. Roke, based in Romsey, UK, is a world-class engineering company that provides contract research, product development and low volume production for a wide range of UK and international customers. It is a leading developer of advanced sensors, signal processing, communications and network solutions for the countermeasures, counter-improvised explosive device, counter-terrorism and industrial markets. Completion of the acquisition is expected to take place at the end of September 2010.

The acquisition ofMecar SPRL, based in Nivelles, Belgium, and the business and assets of Mecar USA, Inc., based in Marshall, Texas, was successfully completed on 1 September 2010. 

Current Financial Position

As expected, there has been a net outflow of cash across the Group since the half year, principally due to the increase in working capital required for the growth of the business. Significant cash inflow is expected in the last two months of the financial year.  

Net debt at 31 August 2010 was £290 million (31 August 2009: £167 million). Following completion of the two acquisitions referred to above and taking into account the anticipated cash inflows from trading, net debt at the year end is forecast to be in the region of two times EBITDA for the current year (equivalent to approximately 95% gearing).  

For further information:

Dr David Price                        Chief Executive, Chemring Group PLC          01489 881880

Paul Rayner                            Finance Director, Chemring Group PLC        01489 881880

Rupert Pittman                       Cardew Group                                                 0207 930 0777 

Cautionary Statement: 

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as anticipate, target, expect, estimate, intend, plan, goal, believe, will, may, should, would, could, is confident, or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this document and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Chemring's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are; increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approvals for engineering or price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment projects.

Chemring undertakes no obligation to revise or update any forward-looking statement contained within this announcement, regardless of whether those statements are affected as a result of new information, future events or otherwise, save as required by law and regulations.

 

END

 

 

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