UPDATE: Chemring First-Half Earnings Rise 7% But Shares Fall

22nd Jun 2010 09:34

(Adds detail and comment.) By Jonathan Buck Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. missile-defense company Chemring Group PLC (CHG.LN) Tuesday posted a 7% rise in fiscal first-half pretax profit and gave an upbeat assessment of its prospects on the strength or a record order book, but its shares fell as analysts said the performance was disappointing and contained no positive surprises. At 0920 GMT, Chemring's shares traded down 189 pence, or 5.7%, at 3121 pence, making it the biggest loser in the FTSE 250 index, which traded down 0.5%. The stock has gained 14% in value since the start of the 2010 and 70% in the past 12 months. "On the face of it, the interim figures look a bit light," said Arden Partners, adding that a good second half was needed to meet full-year forecasts. Its buy recommendation is under review. "In spite of many commentators' reservations about the immediate future for the defense industry, the group's order book has reached record levels across all our divisions, and the board believes that we have the products, the services and the dynamism to secure continuing success both in the second six months of this year and in the future," said Chairman Ken Scobie in a statement. Chemring said its order book had grown 16% to GBP651 million from GBP559 million at the end of October 2009 and had reached record levels across all its divisions. Chief Executive David Price told Dow Jones Newswires in an interview that the munitions business is likely to suffer as governments curb spending to reduce budget deficits, but the pyrotechnics and explosive ordnance disposal businesses would be "quite robust" due to military training and to government commitments to maintain activities in Afghanistan. Order intake in Europe slowed in the first half of the year but is expected to pick up in the second half, Price said. The U.S. had "caught up on slowness in procurement," he added. U.S. sales in the first six months of the year rose 33% to GBP141.8 million from GBP106.6 million in the same period a year ago, reflecting a strong performance in countermeasures and the continued success of Niitek, which develops robot and vehicle-mounted mine-detection systems. The U.S. Army has ordered another 76 Husky Mine Detection Systems for delivery in May 2011 in a deal worth $217 million, including spares, training and support. The Pentagon is expected to contract for up to 600 more systems in early 2011, and Chemring said it is confident it will retain its incumbent position. Pretax profit excluding intangible amortization arising from business combinations and loss on fair value movements on derivatives of GBP17 million for the six-month period to April 30 climbed to GBP42.3 million from GBP39.5 million in the same period a year earlier. Revenue jumped 10% to GBP255.9 million from GBP233.5 million but net profit fell to GBP18.4 million from GBP21.5 million. In a sign of confidence in its outlook, the company increased its interim dividend 21% to 17 pence per share from 14 pence a year ago. Chemring's net debt at the end of April jumped to GBP260 million from GBP167 million a year ago largely due to the $132 million acquisition of California-based Hi-Shear, a leading manufacturer of high-reliability energetic products for use in key space and defense programs. Gearing climbed to 92% from 66%, but Price said that would fall in the second half of the year due to anticipated cash flows. After a $280 million private placement last year, the company has acquisition finance and working capital. It has no debt due for repayment until 2016. In a separate statement, Chemring said Peter Hickson will be appointed as an independent non-executive director from July 1 and will succeed Scobie as chairman following his retirement on October 1. Hickson, 65 years old, currently is chairman of marketing services company Communisis PLC (CMS.LN), senior independent director of London & Continental Railways Ltd., a subsidiary of the U.K.'s Department of Transport, and a non-executive director of mining group Kazakhmys PLC (KAZ.LN). -By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 9237; [email protected] (END) Dow Jones Newswires June 22, 2010 04:34 ET (08:34 GMT)