Ongoing military activity boosts defence firm’s profits

Jun 24 2009 by Iain Laing, The Journal

A DEFENCE firm specialising in flares, explosives and mine-detection has reported a 44% leap in profits and said ongoing military activity worldwide would maintain strong growth.

Hampshire-based Chemring said while the Iraq war was over, continued hostilities in areas such as Afghanistan, Pakistan and the Middle East were keeping up demand for its products.

The group reported profits of £29.9m in the six months to April 30, up from £20.7m a year earlier.

The weak pound and recent takeovers provided a major boost, with exchange rates accounting for 17% of the underlying profits growth and around half of the remaining rise from acquisitions.

Chemring is an expert in pyrotechnics and explosives for the defence, security and safety markets – such as flares for battlefield and marine use, as well as land-mine detection technology and aircraft counter-measures against missile threats. It employs more than 3,000 people in the UK, Europe, Spain and Australia.

Military activity in recent years has helped business boom for Chemring, although the group admitted the performance over the past 10 years is not sustainable in the long run.

But it is confident of another good full-year, confirming that forward orders are up 42% since June 2008 to a record £603m.

Underlying revenues in the half-year rose 55% to £233.5m but Chemring revealed some reduction since the US partial withdrawal from Iraq, in particular in its counter-measures division, although it stressed there would not be a material hit to profits.

Its “energetics“ business – the pyrotechnics and explosives arm – saw revenues rise by 86% and earnings more than double in the half-year.

Andrew Douglas, analyst at Royal Bank of Scotland, said: “With energetics growing as a percentage of group profits, this should be well received at a time of concern over defence budget cuts.”