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Chemring (LSE:CHG) shares dropped over 8% today following its reporting of its half year results to 30 April 2012. The share price had fallen by 26.80 pence to 296.60 by 1:00 p.m. UCT.
Highlights of the Report
Although total revenue was up 4% from continuing operations (that is, excluding the Marine division which was sold on the 6th June 2012), shareholders reacted negatively to a 21% decline in pre-tax profit year on year. The company generated £39.2 million in profits on revenue of £333.3 million. Chemring blamed the negative results on a second straight year of delays in the approval of the US defence budget, delays in approvals of export licences for Middle East countries, and the general uncertainty of defence markets globally.
Shareholders may have missed the balance of the report, which was largely positive. Whilst it poorly affected the first half, the US DOD finally awarded a $579 million project for Ground Penetrating Radar for Husky Mounted Detection Systems to the NIITEK division of Chemring on the last day of the reporting period. This will have a significantly large positive effect on the second half numbers. The company’s order book grew to a record £1 billion, covering nearly 95% of the expected total projected revenue for the entire year. As the company is expanding its global footprint, business from non-NATO countries increased by 31% to £101.6 million and not accounts for 30% of the group’s overall revenue. Whilst shareholder confidence may have eroded somewhat, analysts continue to look toward a strong second half performance and for results to meet expectations.
Some shareholders may also have missed the 33% increase in dividends announced in the report.
Executive Comments
David Price, Chemring CEO appeared unflappable in his response to the first half results, saying, “As expected, the Group’s results for the first six months of the year were affected by the Continuing Resolution in the US and the US Government’s delay in awarding the NIITEK $579 million multi-year support contract until the last day of the period.” He went on to say that, “The second half has started well, with trading in May up over 50% year-on-year. The Board is confident that the Group will deliver a strong second half trading performance, with increased operating margins that will enable us to meet our full year expectations.”
Company Spotlight
Chemring Group is a world leading manufacturer of explosives, munitions and countermeasure products for the defence sector, and is the world’s only manufacturer of covert multi-spectral IR decoys. The company’s move into high tech threat detection systems is reshaping the company into, at least in part, electronics manufacturing. That part of the group’s business now accounts to 40% of the group’s revenues. The company’s manufacturing capabilities range from production of miniature detonators to advanced Ground Penetration Radar. It provides complete life-cycle service including demilitarization, disposal, and combat zone rehabilitation. The company employs over 4,500 people in Europe, the US and Australia.
