Tuesday 17 July 2018

Salisbury attack and global tensions boost defence market for Chemring

The defence firm swung to a profit in the first six months of the financial year.

Personnel in hazmat suits in Salisbury, where former Russian double agent Sergei Skripal and his daughter Yulia were found critically ill by exposure to a nerve agent (Andrew Matthews/PA)
Personnel in hazmat suits in Salisbury, where former Russian double agent Sergei Skripal and his daughter Yulia were found critically ill by exposure to a nerve agent (Andrew Matthews/PA)

By Kalyeena Makortoff, Press Association Chief City Correspondent

Chemring said geopolitical tensions following events such as the Salisbury poisoning and Syrian attacks have revived the defence market, with the company already swinging to a profit in the first half of the year.

The British defence equipment firm logged bottom line profits of £4.3 million in the six months to April 30, having reported a loss of £6.8 million during the same period last year.

That was despite an 8% drop in revenues to £229.3 million, though it said foreign exchange effects on the back of the stronger pound impacted top line growth.

Chemring chief executive Michael Flowers said: “Market conditions and business performance in the first half of 2018 have continued to strengthen, with margins and earnings improving across the group.”

The company singled out its so-called “countermeasures” segment for driving growth in the first half, having seen higher demand in the US, and increased activity in the UK and Australia.

“Geopolitical unrest in multiple markets, particularly the Middle East, appears to be growing in complexity,” the company said.

“This increased tension has brought defence spending into greater focus as nations respond to increased threats, and consequently we are seeing signs of improvement in some markets.”

It added that the recent use of chemical weapons in Syria and also in Salisbury – where former spy Sergei Skripal and his daughter were poisoned – had “highlighted the need for Chemring’s products in the sensors segment”.

Chemring’s order book struggled to keep up with last year’s figures, coming in at £442 million for the six months to April, against £478 million a year earlier.

However, the board still managed to raise its dividend to 1.1p per share.

Highlighting the overall improvement of market conditions, Mr Flowers said: “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.”

He said the outlook for the full year “remains positive”, with strength in the countermeasures market continuing to offset a “scheduled reduction” in its energetics division – which focuses on explosives.

Chemring shares were up nearly 3.5% in morning trading.

The company is still in the throws of a criminal investigation by the Serious Fraud Office (SFO) amid allegations of money laundering, bribery and corruption linked to business conducted by Chemring and one of its subsidiaries.

Chemring has said that neither of the two incidents were considered material, but that it was “too early” to determine the outcome of the SFO’s investigation, which is still ongoing.

Press Association

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