Wednesday, January 25, 2012

Cherming eyes growth in Mid East and Asia

LONDON — British-based Chemring, which produces munitions countermeasures, managed to grow its non-NATO business on the back of a huge rise in munitions sales in the Middle East and Asia, the company announced as it rolled out 2011 results on Jan. 24.
With austerity measures reducing defense spending across the alliance, Chemring said it is succeeding in building its non-NATO order book, but the downturn is threatening further rationalization in its key U.S. business, the company said.
Companies’ abilities to grow their businesses outside of depressed North American and European markets will likely be a growing theme as they turn to burgeoning spending in South America, the Middle East and Asia.
“The continuing problems of the Eurozone and the impact of possible sequestration in the U.S. indicate that our traditional markets will not be any easier this year. We continue to pursue our policy of reducing our dependence on these markets,” Chemring chairman Peter Hickson said in a statement.
Chemring reckons there will be a boom in the South Asia market until at least 2015 and says the major economies in South America will see defense budgets grow between 6 and 16 percent a year. The Middle East will see a 3.5 percent rise in defense budgets until 2015, Chemring said
“It’s encouraging to note that 44 percent of today’s order book emanates from non-NATO markets, compared with 33 percent at the same time last year,” Hickson said.
Overall, the company-reported revenues rose 25 percent to 745 million pounds ($1.16 billion). Non-NATO revenues rose 81 percent to 29 percent of total revenue compared with 20 percent in the previous year. Organic growth accounted for 9 percent of the total revenue growth.
Underlying profit before tax was up 6 percent to 125 million pounds ($194 million) even though the company reported pressure on margins across all of its business sectors.
It wasn’t all good news in the non-NATO markets, though. Chemring had to rely on a 216 percent rise in munitions sales to the Middle East and Far East to achieve its figures with countermeasures and pyrotechnics, both registering hefty reductions across the regions.
The company said it is looking to form a countermeasures joint venture in Saudi Arabia later this year and is looking for a similar arrangement in Brazil in a non-specified sector.
The picture is not so positive in its principal market. Chemring said it is looking at further possible rationalization of its business in the U.S.
The company closed an Alloy Surfaces countermeasures plant in the U.S. last year with the loss of 120 jobs and said it was reviewing further site rationalization at Alloy and Niitek, its strong growing counter-IED business.
Chemring was hard hit by a 31 percent slump in helicopter and transport-aircraft flares demand from NATO nations. The reduction was more severe than anticipated, said the company.
The U.S. markets accounted for 43 percent of Chemring revenues last year.

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