Chemring Begins Disposal Process as Recovery at Midpoint

Chemring Group Plc, a U.K. supplier of defense systems for combat jets, said it’s working on a series of disposals this year as the company seeks to pare debt and prepare to boost investment in some units.

Chemring announced the sale of its Energetic Devices unit for $10 million today to U.S.-based AMTEC Corp., and additional deals of similar size and some larger disposals are being explored, Chief Executive Officer Mark Papworth said.

“We are not selling businesses because we need to do something from a debt perspective, we are selling businesses because the portfolio is not something we can add the greatest value to,” Papworth said in a telephone interview. “We can then look at the financial structure of the business and make some decision on what we want to do.”

Papworth put in place an overhaul of Chemring operations after replacing David Price in November 2012 following a series of missed targets. The company last year again cut its operating profit forecast for the fiscal year by 8 million pounds on “quality and production issues” and unfavorable exchange rate development.

Chemring will use proceeds from the sale to invest in its existing products and help grow into adjacent and new markets, Papworth said. Small acquisitions may be part of that effort, he said.

Efforts to make the company more efficient by combining some activities and streamlining operations helped limit Chemring’s decline in the 2013 underlying operating margin to 11.5 percent from 11.9 percent a year earlier, even as sales dropped 15.6 percent to 624.9 million pounds ($1 billion).

Underlying operating profit last year was 72.1 million pounds. Four analysts surveyed by Bloomberg estimated new profit would fall to 68.8 million pounds.

Chemring has put in place additional steps to reduce costs as continued weak defense spending environment in U.S. and European markets as the 24-month recovery program enters a second year, Papworth said.

“Last year was really tactical in terms of action,” Papworth said, adding that “2014 is much more strategic in terms of driving the business forward and positioning it for future growth.”

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