Delays and uncertainties hit Chemring

Military decoy flare and mine detection firm Chemring was under fire on Friday morning after it said unexpected delays in customer orders means full-year revenues will be around 5% below the board's expectations, while operating profit will be shy of market projections.

The delays related to customer approval of product lot acceptance, as a result of which £37m of revenue, associated with finished product manufactured in September and October, slipped out of the last week of October into November. This revenue shortfall was principally in the Counter-IED (improvised explosive device) and Countermeasures business segments, with about one third associated with a delay in the agreement with the US Army procurement organisation on the final terms for delivery of Husky Mounted Detection System (HMDS) ground penetrating radars under the US contract "definitization" process. This has now been resolved,the group said.

The total revenue generated in the full year, subject to final audit, was £745m, 25% higher than the previous year. The gross margin associated with this delayed revenue is around £14m and will take the group operating profit below market expectations.

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Aside from the problems caused by the delays, the group said it put in a strong performance in the final quarter of its financial year, which runs to the end of October.

Revenue in the quarter was 18% higher than the year before at £252m, of which 11% was organic growth.

Trading in the period for Chemring's Counter-IED and Munitions business segments continued to be strong, with revenues up by 37% and 61% respectively compared with last year. Over half of the Munitions revenue is now generated from non-NATO markets.

Operating margins in the period have remained firm although pricing pressures continue in the group's Counter-IED markets.

The group's order book at the end of the year was £878m, which is 9% higher than at the end of 2010, but 12% lower than reported in the group's third quarter interim management statement. This reflects widespread delays in the placement of contracts because of the continued uncertainty in the US and European defence markets, as well as the impact of the timing of religious festivals with customers in the Middle East.

Net debt fell by 15% to about £260m at the year end, compared with £307m at the end of 2010.

"Whilst the first quarter of 2012 will benefit from the revenues that have slipped out of October, this is balanced by a backdrop of greater market uncertainty and potential order delays. Consequently, the board's expectations for the 2012 financial year remain unchanged," the company statement said.

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