Chemring Group PLC |Annual Report and Accounts 2012

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14 Business review Munitions Ammunition sales for land forces grew by 55% in the year, in both Europe and the Middle East. Highlights in 2012 • New generation miniature radio-frequency proximity fuze for 40mm gun ammunition developed, offering improved reliability and easier manufacturing • Mecar maintained its strong position in the Middle East, with major deliveries to strategic customers including, for the first time, the UAE • Chemring’s lead azide production process approved for US Department of Defense use by the US Energetic Materials Qualification Board • 40mm ammunition sold into South America for the first time Key information Orders received £146.1m Revenue £227.9m Underlying operating profit £24.3m Underlying operating margin 11% Strategy Our principal strategy is to develop our position as a niche manufacturer of specialist ammunition products for European and non-NATO markets. We will build on our world leading position in naval ammunition, our growing strength in ammunition for light armoured vehicles (LAVs), and our broad range of mortar and 40mm grenade products. We will focus on new product development, and investment in facilities that will allow us to expand our presence in a growing international market. We intend to establish our position as a key strategic supplier of energetic material components and sub-systems to the key prime contractors for ammunition and missiles in Europe and the US. This will be achieved by developing and qualifying components for next generation weapon systems, and displacing poorly performing incumbents on legacy products. Financial performance In 2012, our Munitions revenues were £227.9 million, a 4% reduction from 2011. Ammunition sales for land forces grew by 55% in the year, in both Europe and the Middle East, and naval ammunition and component sales remained steady during the year. This was offset by the delayed delivery of mortar systems, due to extended delays in the granting of export licences for a limited number of critical components. These licences have recently been issued, and deliveries should commence in the 2014 financial year, when a customer-funded contract modification has been finalised. The profitability of the segment fell significantly as a result of the different product mix in the year. The closing order book for the Munitions segment was £227.6 million, a reduction of 39% on the previous year, notably due to delays to the placing of significant munitions contracts both at Simmel and Mecar. Delays in the granting of export licences were also a significant factor. About 75% of the order book is from non-NATO customers. Activities during the year Naval The naval ammunition market is stable, and our deliveries of naval ammunition were at similar levels to 2011. The two largest customers were NATO countries but sales continue around the world. A key development in the year was a new generation miniature radio-frequency proximity fuze for 40mm gun ammunition, which offers improved reliability whilst also being easier to manufacture, requiring a reduced level of manual assembly, test and adjustment. Land Although deliveries of mortar systems were substantially delayed during the year, sales of land forces’ ammunition grew. Mecar maintained its strong position in the Middle East, with major deliveries to strategic customers including, for the first time, the United Arab Emirates. In addition, Mecar continues to expand its presence in the Far East, delivering components and ammunition to Indonesia and Thailand, and completing its first contract in Malaysia. Mecar also completed the development of a new family of low cost fuzing for its range of recoilless rifle ammunition. In 40mm grenades, we successfully completed the development and internal qualification of a new dual purpose low velocity round, which meets NATO insensitive munition standards and has a self-destruct fuze, which substantially reduces the hazard from unexploded ordnance left behind on the battlefield. Initial performance tests have been very encouraging, and we look forward to qualifying the round with a NATO customer in the near future. We have also succeeded in selling 40mm ammunition into South America for the first time, with the US Department of State strongly supporting the sale process. Components and sub-systems Our components business grew slightly in the year, with sustained demand for a very wide range of products, from high explosive materials to mechanical and electronic subsystems. In August 2012, the Chemring Group PLC Report and Accounts 2012
15 US Energetic Materials Qualification Board approved Chemring’s lead azide production process for US Department of Defense use. As a result, Chemring Energetic Devices is now the only US based producer of this important primary explosive, which is used in a wide variety of US and NATO fuze and detonator assemblies. Outlook Chemring operates in the global market for naval ammunition, and mainly in the non-NATO market for land forces’ ammunition. The naval market has suffered budget constraints, with NATO countries struggling to fund their land operations in Afghanistan, but demand is expected to remain steady. Defence budgets in the Middle East and Far East are growing but local volatility and export licence risks mean that the market for land forces’ ammunition will remain a challenge. Our business units and companies Chemring Energetics UK Ltd A leading supplier of detonators, actuators, rocket motors, high explosive filling and pyromechanical sub-assemblies. Chemring Energetic Devices, Inc. (USA) Manufactures a range of materials, components and sub-systems for leading missile and ammunition prime contractors. Chemring Military Products, Inc. (USA) Provides load, assemble, pack and procurement services to the US Government and prime contractors. Chemring Nobel AS (Norway) Manufactures niche energetic materials with insensitive munitions (IM) characteristics for munition and oil‐field applications. Land ammunition SAS soldier firing a grenade Our products Naval ammunition • Medium and large calibre ammunition Land forces ammunition • Medium and large calibre ammunition • 40mm grenades • Mortar ammunition Components • Propellants and rocket motors • Fuze and safe/arm units • Pyromechanisms and actuators • Energetic materials Business review Corporate governance Financial statements Other information Chemring Ordnance, Inc. (USA) Niche supplier of 40mm grenade ammunition. Hi-Shear Technology Corporation (USA) Develops advanced sub-systems for ballistic missile defence and tactical weapons. Mecar S.A. (Belgium) A niche supplier of medium and large calibre ammunition for light armoured vehicles. Simmel Difesa S.p.A. (Italy) A leading supplier of naval ammunition, advanced fuzing technology and missile components. Chemring Group PLC Report and Accounts 2012
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Page 7 and 8: 5 Balance sheet, cash flow and debt
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Page 31 and 32: 29 The Rt Hon Lord Freeman*~ Non-Ex
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Page 35 and 36: 33 Directors’ remuneration report
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105 12. Staff costs 2012 Number 201
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Notes 107 Business review Corporate
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Business review Corporate governanc
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Chemring Group PLC |Annual Report and Accounts 2012

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