Chemring bucks defence cuts, but sees another difficult year -UPDATE

published 24 January 2012

Military equipment maker Chemring saw revenues and profits rise in 2011 despite cutbacks in defence spending in its biggest markets.

Underlying profit before tax was up 6% to £125.6m in the year to the end of December.

Revenues were up 25% to £745.3m compared to the year before, allowing the firm to also hike its total year dividend 25% to 14.8p.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Basic earnings per share came in at 39.8p, up from 37.8p in 2010.

Group chairman Peter Hickson said national debt problems had affected defence procurement, leading to volume reductions and delays.

"The continuing problems of the Eurozone and the impact of possible sequestration in the US indicate that our traditional markets will not be any easier this year," he said.

"We continue to pursue our policy of reducing our dependence on these markets, and are actively seeking more business from elsewhere."

Chemring's year end order book was up 9% on 2010 at £878.3m, with its latest figures showing its order book was at £980m as of today, up 9% on January 2011.

The final dividend of the year is 10.8p, with Chemring saying it is "well positioned to increase its return to shareholders".

The group has also indicated that, given its strong annual cash generation, it believes it would be, "appropriate to bring the (dividend) cover down to three times over the next year. As part of this move, the proposed total dividend of 14.8p for 2011 will be covered 3.5 times by underlying after tax earnings, compared with 4.2 times last year."

The company will also seek buyback authorization for up to £50m of shares at its forthcoming Annual General Meeting.

As of 09:00 shares of Chemring are falling by 10.9% to 400p.