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UPDATE 1-Revenue drop and plant shutdown hit Chemring's shares
February 27, 2014 / 12:40 PM / 4 years ago

UPDATE 1-Revenue drop and plant shutdown hit Chemring's shares

By Tasim Zahid

Feb 27 (Reuters) - British defence contractor Chemring Group Plc reported a 13 percent drop in revenue for the November-January quarter and said production at a plant in Tennessee had been suspended after a fatal accident, sending its shares down as much as 5 percent.

Chemring said an accident last week at its Kilgore plant, which manufactures decoy flares used to counter heat-seeking missiles, killed an employee and caused damage to manufacturing operations.

“They don’t quite know what the impact or how much it will cost for the plant to be operational again ... that is what has given shares the pullback,” Espirito Santo analyst Edward Stacey told Reuters.

Chemring said it expected the plant to resume operations in the first week of March.

“We assume a 500,000-pound EBITA impact from the Kilgore incident, although the company is unable to guide at this early stage,” Investec analyst Chris Dyett said in a note to clients.

The company, which makes ejector seats for fighter jets, said first-quarter revenue fell as it continued to experience tough market conditions across operations, combined with the effect of adverse foreign exchange rates.

“Since Chemring reported its full-year results in January, foreign exchange has become an even greater headwind to translated profits (both U.S. dollar and euro against sterling),” Dyett said.

U.S. budget reductions have hurt defence suppliers and are expected to cut deeper after the Pentagon said earlier this week that it would reduce its Army to pre-World War Two levels.

Chemring reported a 25 percent drop in 2013 profit as the U.S. government shutdown in October delayed product acceptance and shipments.

The company has been selling off its non-core businesses to reduce dependence on U.S. and European markets, which contribute about three-fourth to revenue, and has renewed its push in non-NATO markets.

The munitions maker said on Thursday that increasing penetration in non-NATO markets had helped raise order intake by 2.1 percent, but negative currency rates had offset any gains.

Chemring shares were down about 3 percent at 261 pence at 1230 GMT. The London-listed company’s stock has fallen 65 percent since it hit a peak of 736.5 pence in May 2011.

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