Bloomberg News

Chemring May Shut Philadelphia Plant on U.S. Military Cutbacks

January 24, 2012

Jan. 24 (Bloomberg) -- Chemring Group Plc, the developer of missile-avoidance equipment for the Joint Strike Fighter, said it may close a plant in Philadelphia following reduced demand in advance of NATO troop withdrawals from Afghanistan.

“We are going through the reviewing process,” including whether demand can be met by operating a single factory, after Chemring shut one of its three countermeasures sites in the U.S. city last year, Chief Executive Officer David Price said in a phone interview today.

The company, based in Fareham, England, is considering how much capacity is needed at its U.S. division that produces decoys for protecting helicopters and transport aircraft, as U.S. and European governments scale back military stockpiles while preparing to pull troops out of Afghanistan by 2015. Declines in countermeasures business tied to the withdrawal have been compensated for by demand for flares as well as products for protecting combat aircraft and ships, Price said.

Net income in the year through Oct. 31 rose 11 percent to 73.9 million pounds ($115 million) as sales jumped 25 percent to 745.3 million pounds, Chemring said today in a statement. Pretax profit increased 1.9 percent to 90.8 million pounds, missing the 128.9 million-pound average of 12 analyst estimates compiled by Bloomberg.

Chemring dropped as much as 14 percent to 385.5 pence, the biggest intraday drop since Nov. 18, and trading at 387.2 pence at 10:44 a.m. in London. The stock has declined 42 percent in the past 12 months.

Regional Shift

Revenue from outside North Atlantic Treaty Organization member countries increased 81 percent and accounted for 29 percent of group sales last year compared with 20 percent a year earlier, Chemring said. Underlying operating profit at the countermeasures unit fell 21 percent, while sales at the division increased 3 percent.

The manufacturer is considering “a bit of a slowdown” in the pace of acquisitions, following an average of two to three annually in recent years, to protect its “strong” balance sheet, Price said. Chemring bought General Dynamics Corp.’s detection-systems unit in July. The U.K. company today said it’s also considering a share buyback.

--Editors: Tom Lavell, David Risser

To contact the reporter on this story: Sabine Pirone in London at spirone@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net


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