* H1 underlying pretax profit falls 35 pct
* Cuts interim dividend to 3.5 pence a share from 5.3 pence
* Says to incur 15 mln stg in restructuring costs
* Says restructuring to reduce head office headcount by 40
(Adds number of jobs to be cut; updates share price)
By Abhishek Takle
June 18 British military equipment maker
Chemring Group Plc said results for the year would
likely be at the lower end of its expectations as it
restructures its business to cope with the uncertainty around
defence budget cuts in the United States.
Chemring had in January said it expected difficult market
conditions to persist in 2013.
About $85 billion in across-the-board government cuts to
both civilian and defence programmes, known as sequestration,
kicked in in March after President Barack Obama and Congress
failed to agree on a plan to bring down the United States'
The budget reductions have weighed on military equipment
makers such as Chemring and have made it difficult for them to
predict exactly how much of an impact the cuts would have on
Chemring supplies equipment such as flares and pyrotechnics
for ejection seats in aircraft, and minefield breaching systems
to the U.S. military.
Europe's largest defence contractor, BAE Systems,
last month left its outlook for the year unchanged, saying its
2013 forecast does not reflect the impact of U.S. defence
spending cuts because it does not have sufficient detail.
"The U.S. market dominates the global defence industry, and
the ongoing lack of clarity caused by sequestration makes
forecasting increasingly difficult," Chemring said in a
Apart from having to cope with the defence spending cuts,
Chemring is also trying to overcome a torrid 2012 that was
marred by profit warnings and failed takeover talks.
The company has embarked on a restructuring under Chief
Executive Mark Papworth, who took over last November and was
assigned to turn around the business.
Chemring said it would operate its businesses under four
units. The company also decided to close its administrative
offices at Pall Mall and Derby in the UK and in Washington and
Philadelphia in the United States.
The restructuring, expected to reduce head office headcount
by 40 percent, or 20 jobs, would cost Chemring 15 million pounds
and is expected to help the company save about 10 million pounds
a year, mostly from 2014.
"My judgement was that for what is going to be a pretty lean
next few years that we really did need to simplify and minimize
the overhead or the burden that we were placing on what are in
the main very good operating companies," Papworth told Reuters.
The company has also revised its financial covenants with
lenders and cut its interim dividend to 3.4 pence per share from
5.3 pence last year.
"The positives are the fact that they've successfully
renegotiated their banking covenants and that they've got this
cost-cutting programme... the reduction in dividend is quite
sensible," said Paul Mumford, senior investment manager at
Cavendish Asset Management, which owns 917,210 Chemring shares.
Shares in Chemring closed up 0.34 percent at 266.6 pence on
Tuesday on the London Stock Exchange.
(Reporting by Abhishek Takle in Bangalore; Editing by Supriya