24th Jun 2014 11:18
LONDON (Alliance News) - Defence technology company Chemring Group PLC Tuesday appointed insider Michael Flowers as chief executive, as it reported a wider loss for the first half of its financial year and joined other British companies in warning of a growing hit from the strength of sterling in coming months.
Flowers, who will become CEO with immediate effect, has been with the company since 2006, most recently as head of its countermeasures business. He's a former Australian Army officer and worked at BAE Systems PLC before joining Chemring. Mark Papworth is standing down with immediate effect, the company said.
"Much has been achieved during Mark Papworth's tenure, including a significant reorganisation and refocusing of the Group and a substantial reduction in the cost base and we are grateful for his leadership during this period," Chairman Peter Hickson said in a statement.
"We are now moving from a period of critical and significant change to one where we must take maximum advantage of the stronger platform that has been created. To achieve this, a different set of skills is required in the role of chief executive, in particular extensive knowledge and understanding of the defence markets in which we operate," he added.
The company, like peers, has been hit by the recent slowdown in defence spending in both the US and UK that has been caused by budget uncertainties in the wake of the financial crisis and the winding down of operations in recent war zones like Iraq and Afghanistan.
In response, the company has been restructuring and cutting costs, and looking for applications for its technologies outside the defence markets. In April it sold its European munitions business, Mecar and Simmel, to French firm Nexter Systems SA for up to EUR167.8 million, leaving it focused on defence technology like countermeasures and sensors. It bought Norway-based radar technology company 3d-Radar AS, a unit of Curtiss-Wright Corp, for GBP1.8 million in cash in May. 3d-Radar makes ground penetrating radar, which also has uses in transport markets.
The company reported a pretax loss of GBP72.0 million for the six months to April 30, wider than the GBP9.2 million loss it reported a year earlier, as revenue declined to GBP277.4 million, from GBP297.4 million. It blamed lower activity levels and the hit from sterling's strength. It said revenue was only down 2.8% on a constant currency basis.
Edison Investment Research noted that the loss included GBP57 million of goodwill writedowns, a result of previous acquisitions.
"The first half results are not pretty: within the GBP72 million loss is GBP57 million of goodwill write-downs, a legacy of a decade's acquisition-fuelled growth under successive CEOs, the last as of today effectively ejected from the cockpit 18 months into the job as US defence cuts tighten," Edison analyst Sash Tusa said.
Excluding the energetic devices businesses it sold in December, the Chemring order book stood at GBP401.8 million at the end of April, down from GBP485.2 million at the end of October, of which GBP175.6 million is scheduled for delivery during the current financial year.
It posted a pretax profit of GBP5.1 million from continuing operations, compared with a loss of GBP12.7 million a year earlier, even though revenue from continuing operations fell to GBP208.8 million, from GBP225.4 million.
Chemring also said it had made significant progress cutting debt, which stood at GBP229.2 million at the end of the fiscal first half, down from GBP275.1 million a year earlier.
"While end markets remain challenging and customer behaviour difficult to predict, we will continue to drive operational efficiencies. We are also pursuing growth opportunities, particularly in non-NATO and commercial markets. Excluding the effects of further movements in exchange rates, the board's outlook for the full year remains broadly unchanged," Hickson said in the earnings statement.
It warned of a further hit from the strength of sterling in the second half of the year, and cut its interim dividend to 2.4 pence, from 3.4p.
Edison Investment Research noted the warning over sterling's strength and said it expects Chemring's full-year results to decline between 5% and 10%.
Chemring shares were down 9.2% at 188.425 pence Tuesday.
By Steve McGrath; [email protected]; @SteveMcGrath1
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