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Chemring Group surges on back of improved showing from its Countermeasures division

Published: 17:28 21 Jun 2018 AEST

Bullets
Revenue fell as a result of lower deliveries of 40mm ammunition to customers in the Middle East

Defence contractor Chemring PLC (LON:CHG) remains confident of a positive full-year outcome after a surge in profits in the first half of the year.

Underlying profit before tax in the six months to the end of April 30 rose 31% (or 42% at constant exchange rates) to £14.8mln from £11.3mln a year earlier on revenue that fell 8% (-2% at constant exchange rates) to £229.3mln from £244.8mln.

READ: Chemring continues recovery after tough 2016, with first-half losses reduced as revenues grew strongly

Underlying earnings before interest, tax, depreciation and amortisation fell 3% to £29.0mln from £30.0mln the previous year but were up 4% on a constant exchange rates basis.

The company, which went through a tough time in the middle of the decade, sliding into the red, appears to be firmly on the comeback trail with management signalling confidence in the future by increasing the interim dividend by 10% to 1.1p.

Net debt at the end of April had narrowed to £84.6mln from £111.7mln a year earlier.

The group's order book at the end of April was £441.5mln, down from £556.2mln a year earlier, of which around £212.0mln is scheduled for delivery during the second half of 2018, representing cover of roughly 80% of expected second-half revenue.

The order book level has fallen £26.5mln since the end of October, which the group said is attributable to the weaker US dollar and delivery of 40mm and non-standard ammunition orders, offset by an increase in orders for the Countermeasures division, particularly from the US and UK.

“After a number of years of weakness in the countermeasures markets that followed the end of the Iraq and Afghanistan conflicts, the outlook for the segment is increasingly positive,” Chemring said.

The group said its outlook for the full-year remains unchanged.

"Market conditions and business performance in the first half of 2018 have continued to strengthen, with margins and earnings improving across the group. We expect this trend to continue as the impact of significant increases to the US defence budget start to flow through, with the group maximising the impact of these improvements through improved delivery performance resulting from the Operational Excellence Programme,” said Michael Flowers, the chief executive of Chemring Group.

“Our Countermeasures segment continues to grow, with a strengthening order book and increased global market activity underpinning capital investments in all facilities, most notably our recently approved transformation programme at the Tennessee site. Improved operational performance, improved capability, and an improved market all point to strong future performance in the segment,” Flowers continued.

“With contract finalisation on the first phase of the Husky Mounted Detection System programme expected shortly and customer decisions on the Next Generation Chemical Detector and Enhanced Maritime Biological Detection programmes imminent, the second half is key to our long-term growth in the US sensors market,” he added.

Shares in Chemring were up 3% in early deals.

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