PRE-CLOSE TRADING UPDATE

RNS Number : 3373S

Chemring Group PLC

18 November 2011

 



FOR IMMEDIATE RELEASE                                                                                      18 NOVEMBER 2011

CHEMRING GROUP PLC

PRE-CLOSE TRADING UPDATE

Chemring Group PLC ("Chemring" or "the Group") today provides an update on trading before entering the close period in respect of its preliminary results for the year ended 31 October 2011, which are expected to be announced on 24 January 2012.

Trading

The Group performed strongly in the last quarter of the financial year with revenue in the period increasing substantially to £252 million, up 16% from £218 million in the same period last year. Organic growth from our continuing businesses was 11% in the period, which remains encouraging in the current uncertain market conditions. Trading in the period for our Counter-IED and Munitions business segments continues to be very strong, with revenues up by 37% and 61% respectively compared with last year. In line with our strategy to diversify our geographic customer profile, over half of the Munitions revenue is now generated from non-NATO markets. Operating margins in the period have remained firm although pricing pressures continue in our Counter-IED markets.  

However, as a result of unexpected delays in customer approval of product lot acceptance, £37 million of revenue, associated with finished product manufactured in September and October, slipped out of the last week of October into November. This revenue shortfall was principally in the Counter-IED and Countermeasures business segments, with about one third associated with a delay in the agreement with the US Army procurement organisation on the final terms for delivery of Husky Mounted Detection System (HMDS) ground penetrating radars under the US contract "definitization" process. This has now been resolved.

The total revenue generated in the full year, subject to final audit, was £745 million, 25% higher than the previous year, but 5% lower than the Board's expectations. The gross margin associated with this delayed revenue is approximately £14 million and will take the Group operating profit below market expectations, albeit there will still be positive growth on last year's figure.

The Board's expectations for the 2012 financial year remain unchanged.

The Group's order book at the end of the year was £878 million, which is 9% higher than at the end of 2010, but 12% lower than reported in our third quarter interim management statement. This reflects widespread delays in the placement of contracts because of the continued uncertainty in the US and European defence markets, as well as the impact of the timing of religious festivals with our Middle East customers.

Financial Position

As anticipated, there was a significant operating cash inflow of £86 million in the quarter. As a result, net debt fell by 15% to approximately £260 million at the year end, compared with £307 million at the end of 2010.

During the summer, we were in discussions with a third party regarding a significant acquisition which we are no longer pursuing. There are no other material acquisitions under consideration at this time.

Update on Market Conditions

The US has seen a repeat of the continuing resolution process which adversely affected order placement last year. Furthermore, the Budget Control Act was enacted in August 2011, as a measure to cap overall public sector spending over the next ten years. These events have significantly disrupted the usual procurement process and are likely to result in the delay in the placement of orders, driving a second half bias in 2012 comparable to that in the 2011 financial year.

The European market continues to be dominated by government deficit reduction programmes, which are expected to generate further short-term uncertainty in European defence budgets and disrupt current procurement plans. Over the next twelve months, we expect this uncertainty to translate into weaker defence spending and delays to the traditional timing of the placement of orders. 

Our non-NATO markets have remained buoyant with strong GDP growth and sustained high oil prices. In line with our strategy, we continue to grow our presence within the Middle East and Asia as we move towards our medium term target of 40% of revenues coming from non-NATO markets.

Outlook

Whilst the first quarter of 2012 will benefit from the revenues that have slipped out of October, this is balanced by a backdrop of greater market uncertainty and potential order delays. Consequently, the Board's expectations for the 2012 financial year remain unchanged. Looking further forward, the Board believes that our strong market positions, diverse product portfolio and strategy for expansion in non-NATO markets will continue to generate growth into the medium term.

For further information

Chemring Group PLC:

Dr David Price	Chief Executive	01489 881880
Paul Rayner	Finance Director	01489 881880
Rupert Pittman	Director of Communications and Investor Relations	01489 881880

Cardew Group:

Anthony Cardew		020 7930 0777
Emma Crawshaw		020 7930 0777

 

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