Action to reposition Chemring's (CHG) operations against a backdrop of weak military spending explains another poor set of annual results. Yet an end to restructuring and a healthier balance sheet offer some hope for a new era under former Australian army veteran Michael Flowers.
US defence budgets remain subdued: recent geopolitical tensions have yet to translate into more orders. Mr Flowers therefore sees margin improvement as the key to driving the bottom line, and he plans to focus on specialist sectors that command higher margins. Cash generation should also improve as the company's debt-interest bill falls. Chemring sold its underperforming munitions business in May and used the proceeds to slash net debt by 45 per cent to £136m.
Chemring has implemented cost-saving measures to salvage its countermeasures unit, after a fatal accident at its flares factory in Kilgore, Tennessee, forced it to suspend production. The crucial sensors and electronics division, which accounts for 56 per cent of underlying operating profits, also had a tough year as production contracts ended and it transitioned to lower-margin research and development projects. The only bright spot was energetic systems, where underlying operating profit rocketed 77 per cent thanks to operational improvements, a favourable product mix and emerging market demand.
Broker Investec expects adjusted pre-tax profits of £37.8m this year, giving adjusted EPS of 15.2p (up from 12.4p).
| CHEMRING (CHG) | ||||
|---|---|---|---|---|
| ORD PRICE: | 231p | MARKET VALUE: | £447m | |
| TOUCH: | 230-231p | 12-MONTH HIGH: | 290p | 182p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | NA | |
| NET ASSET VALUE: | 155p* | NET DEBT: | 45% | |
| Year to 31 Oct | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2010 | 597 | 89.1 | 37.8 | 11.8 |
| 2011 | 724 | 85.4 | 37.7 | 14.8 |
| 2012 | 740 | 18.8 | 6.80 | 9.5 |
| 2013 | 472 | -57.4 | -25.0 | 7.2 |
| 2014 | 403 | -58.9 | -28.4 | 4.1 |
| % change | -15 | - | - | -43 |
Ex-div: 16 Apr Payment: 8 May *Includes intangible assets of £206m, or 106p a share | ||||
