Chemring ends year as expected, US sensors business under review

The FTSE 250 company expected net debt at year-end to be £14.4m, widening from £7.2m at the end of 2022.

It said it achieved a solid operating cash conversion rate of 90% of EBITDA, enabling investments in organic and bolt-on growth opportunities, a 20% increase in dividends, and a £9m contribution to its £50m share buyback programme announced on 1 August.

Chemring attributed its positive performance to robust market conditions, with growing customer demand for technology-driven solutions and a resurgence in demand for traditional defence capabilities.

The favourable growth outlook was expected to persist in the long term.

Looking at its Energetics business, Chemring saw a substantial rise in demand for energetic materials and devices.

Its Norwegian subsidiary Chemring Nobel secured orders exceeding £40m in the final month of the financial year.

Additionally, its US-based subsidiary Chemring Energetic Devices secured a $46m order from United Launch Alliance (ULA) to support the Vulcan launch vehicle.

To capitalise on increased demand for energetic materials, Chemring said it was planning to invest around £30m in expanding Chemring Nobel’s capacity.

The investment would be in addition to the previously announced £90m capacity expansion plan across the group’s three Energetics businesses, which are expected to generate around £25m in annual revenue.

The group was planning to invest about £120m in capacity expansion over the next three years, resulting in increased revenue of about £85m and a higher operating profit of around £21m.

Chemring said it had reviewed its US Sensors business in a strategic move.

With both of its US Department of Defense sole-source biological detection programmes now in production phases and changes in the Husky Mounted Detection System programme, the firm said it had decided to focus on biological detection and security markets to maintain strong margins and achieve growth.

As a result, the Explosive Hazard Detection business would be treated as a discontinued operation in 2023, with a non-cash impairment of £31m.

Additionally, a non-cash impairment of £18m for previously-capitalised AVCAD development costs and associated assets was recorded as a non-underlying item.

The firm said it would reshape its US Sensors business to enhance its competitiveness in targeted markets.

Chemring said it would release its results for the 2023 financial year on 12 December.

At 0822 GMT, shares in Chemring were down 0.13% at 297.12p.

Reporting by Josh White for Sharecast.com.