Chemring Group PLC |Annual Report and Accounts 2012

12
Business review
Pyrotechnics
Mecar’s sales of pyrotechnic rounds and products grew
in the year, as part of major ammunition contracts for
the Middle East.
Highlights in 2012
• The closing order book was
£178.2 million, up 24% on the
previous year
• Sale of the marine safety pyrotechnics
business to Drew Marine, for
£30.4 million
• Chemring Defence developed and
delivered a new vehicle discharge
grenade for a Middle Eastern customer
• Chemring Ordnance won a contract to
supply sixty weapons effect simulators
for the man-portable aircraft
survivability trainer (MAST)
Key information
Orders received
£130.6m
Revenue
£123.0m
Underlying operating profit
£12.3m
Underlying operating margin
10%
Strategy
Our strategy is on focused investment in
new products that deliver transformational
capabilities to users in changing operational
environments. We intend to expand our
activities in the space sector by developing
improved products for initiation, stage
separation, and satellite and sub-system
deployment for military and commercial
customers. This will address the US, European
and emerging international markets.
We intend to expand our safety systems
activities, both in military and civil aircraft.
Financial performance
In 2012, revenue from our continuing
operations in military and aerospace
pyrotechnics was £123.0 million, which is
4% higher on a like-for-like basis than in
2011. This increase resulted from growth in
sales of pyrotechnic products and rounds to
the Middle East, which offset the reduction
in deliveries of illumination mortar rounds
to the UK, which were affected by supply
chain issues in the first half of the year.
This also substantially reduced the
profitability of this segment. Sales of
training and simulation products were
down 50%, reflecting reduced demand
for training grenades in the US. Space and
safety systems’ revenues were broadly flat.
In addition to the impact of product mix on
the profitability of the segment, Chemring
Ordnance also indentified significant errors
in the data underpinning its resource
planning system. The issues that led to
this problem are now well understood and
corrective action has been taken such that
the problems will not reoccur.
The closing order book was £178.2 million, up
24% on the previous year, due to the receipt
of UK orders for illumination rounds, Middle
East demand for pyrotechnic rounds and
products, and orders for space components.
Activities during the year
In July, the Group completed the sale of
its marine safety pyrotechnics business to
Drew Marine, for £30.4 million. The focus
of this business on the commercial and
leisure market was no longer aligned with
the growth strategy of the Group, and it was
clear that Chemring Marine would benefit
from new owners, who would provide the
investment needed to expand its marine
safety business and to develop its global
maritime safety network.
Smoke and illumination
In January 2012, Simmel was awarded further
contracts to the value of €38 million for 81mm
pyrotechnic illumination mortar rounds, with
deliveries over the period from 2012 to 2014.
Mecar’s sales of pyrotechnic rounds and
products grew in the year, as part of major
ammunition contracts for the Middle East.
In addition, Mecar successfully completed
the development of two new pyrotechnic
products – a new rifle launched smoke
grenade and a new smoke filling for 120mm
mortar rounds, which offers an alternative
to white phosphorus. Chemring Ordnance
is also developing next generation smoke/
obscurant materials, including nonpyrotechnic
solutions in partnership with
Florida State University’s Department of
Chemistry. This joint research effort will
concentrate on synthesising new smoke
producing materials.
The US Navy awarded Chemring Ordnance
a contract to rapidly develop and produce
the 40mm MK325 Tri-color signal flare. This
cartridge was requested under an “urgent
need” from the US Special Forces operating
in Afghanistan.
Chemring Defence continued deliveries of
its new compact smoke grenade, and also
developed and delivered a new vehicle
discharge grenade (VDG) for a Middle
Eastern customer. This underpins a major
marketing thrust in the region to promote
Chemring’s range of 66mm and 76mm
VDGs for a range of platforms.
Alloy Surfaces submitted its covert
infra-red marker devices, based on special
material decoy technology, for test and
evaluation by the US Air National Guard.
The products – a covert position marker and
an individual marker device – passed, and
were recommended for full fielding for all
US Department of Defense services.
Chemring Australia successfully developed
two new products in its Ascend range of
military pyrotechnics. The A300D is a
drill trip flare, and initial production and
deliveries were completed in June. The
Chemring Group PLC Report and Accounts 2012