Interim Management Statement


 

TIDMCHG 
 
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 GBP176 million from 
GBP143 million in the same period last year. Revenue in the ten month period to 
the end of August 2010 was GBP432 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 GBP819 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 
GBP55 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 GBP290 million (31 August 2009: GBP167 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. 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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