23rd Jan 2014 08:49
LONDON (Alliance News) - Chemring Group PLC said Thursday its revenue for the full-year declined by more than 15% and that pretax profit dropped by a quarter after the firm's order book was hit by knocks including the US shutdown amid an increasingly challenging defence market.
The British military equipment manufacturer has reported a GBP56.6 million pre-tax loss from continuing operations, against a GBP18.8 million profit the previous year. The total after tax loss from continuing operations came in at GBP47.5 million, down from a GBP15.3 million profit last year.
In its pre-close statement for the year to October 31 2013, Chemring said revenue for continuing operations for 2013 was GBP624.9 million, a 15.6% drop, compared with the prior-year figure of GBP740.3 million. Revenue in the final quarter was approximately GBP185 million, down 24% on last year's GBP242 million.
As of the year-end Chemring's order book was significantly down on 2012. Order intake was down 14.5% on revenue at GBP534.5 million. As a result the closing order book was valued at GBP675.5 million, down 11.2% from GBP760.9 million last year. Due to exchange rate fluctuations, the closing order book is lower than the value of GBP702 million disclosed in the Group's trading update published on November 25 2013, said Chemring.
The company said that it retains the Board's expectations for the fiscal trading year, with the 2013 performance remaining in line with previously issued guidance.
Chemring said that the poor results can be attributed to aspects including significant budgeting pressure in its core defence markets, order referrals among its non-NATO customer base, and the US government shutdown in October last year. Delays in deliveries to customers in the Middle East have also had a short-term interest on cash receipts, said the company, reducing the operating cash flow for the final quarter of the year.
The company noted that the issues regarding the US Government shut down have now largely been resolved and that it continues to work through specific production issues, particularly those at Kilgore, the worst-affected site.
Chemring reported a 23.4% decrease in countermeasures revenue, driven by lower demand from the US and UK as a result of the continuing drawdown from Afghanistan.
Looking ahead, in order to improve its operating performance, the firm has identified a number of its business lines that no longer fit within its long-term strategy and has subsequently commenced the divestment focus, which, "should lead to a reduction in the Group's debt."
The process of divestment began last month when a conditional agreement for the cash sale of Chemring Energetic Devices' build-to-print business located in Clear Lake, South Dakota to AMTEC Corporation for USD10.0 million (GBP6.1 million) was accepted. Completion of the sale, which is conditional upon regulatory approvals and subject to a working capital adjustment, is expected within the next few weeks.
An increasingly competitive market has driven the firm to reshuffle and restructure its core business interests, with the new management team beginning implementation of a Performance Recovery Programme last January, Chemring said. The directive is designed to help Chemring focus on improvements to operational performance and boosting resilience in its markets.
The reorganisation continues at a cost of GBP15 million, a cost that rose in the year to October 31 2013, which is set to deliver annual savings of approximately GBP10 million annually from this year.
Areas of focus include a simplification of the organisational structure, integrated business units, operational improvements, re-focused bsuiness development tactics. The firm has also integrated a tighter central management structure, resulting in a 46% headcount reduction.
Despite the challenging market, Chemring said that it believes it is well-placed to manage its risks, "Whilst the current volatility in financial markets has created general uncertainty, the Group continues to have working capital headroom. The Group has been in compliance with its revolving credit facility and loan note covenants throughout 2013 and is forecast to be in compliance for the coming twelve months," it said in a statement.
Loss per share came in at 24.6 pence this year, versus a 7.8 pence profit a year before. Underlying earnings per share amounted to 21.2 pence during the recent year.
Peter Hickson, Chemring Group Chairman said, "At the end of a year of significant change, Chemring is now a more resilient business, with a clear strategic direction. Much has been achieved by the new management team during the year, with the positive impact of the Performance Recovery Programme beginning to bear fruit. In addition, the Strategic Planning Process has provided a clear view of the market, competitive dynamics and prospects for each of the businesses, as well as identifying the core markets in which the Group will focus investment."
Looking ahead, Hickson added, "Chemring will continue to drive improvements in operational performance, and pursue the growth opportunities that exist, particularly within non-NATO markets where defence spending is expected to increase. It will also reshape and strengthen its portfolio of businesses through the disposal of non-core activities and technology investment in those businesses that can achieve sustainable growth and margin improvement."
Chemring said the Board is recommending a final dividend payment for the year of 3.8 pence per share, down from the 4.2 pence in 2012. With the interim dividend of 3.4 pence (2012: 5.3 pence), paid in August 2013, this results in a total dividend in respect of 2013 of 7.2 pence, down from the 9.5 pence paid in 2012.
The firm is set to release its annual results on January 23 2014.
Shares in Chemring were trading up 2.60% at 246.25 pence per share Thursday morning.
By Alice Attwood; [email protected]; @AliceAtAlliance
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