Chemring soar as the defence group unveils plans to divest units


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The Independent Online

The bomb-detector maker Chemring has drawn up plans to sell off non-core units in a move the company hopes will boost both its finances and its flagging share price.

The group, which also makes signal flares and parts for ejector seats, said it had already identified the businesses it hoped to offload, but did not name them yesterday. It outlined the overhaul alongside a trading update, which revealed that sales had fallen 24 per cent to £185m in the fourth quarter as its order book shrank 8 per cent to £702m.

The chief executive Mark Papworth said: “Although the defence environment remains undeniably challenging, we continue to take the necessary steps to give Chemring a stable platform and rebuild shareholder value.

“These steps will be driven by the results of our strategic planning process that has crystallised our long-term objectives for the business, determined our strategy for the next three years and enabled a re-alignment of our portfolio.”

Shares in the company rose 18.6p – or 9.6 per cent – to 213p on news of the planned sales.

Mr Papworth has stamped his mark on Chemring since joining towards the end of last year, when the private-equity group Carlyle walked away from a takeover of the company and investors branded the group a “mess”.

Shrinking public-spending budgets have also hit the  company and last month the group said the two-week US  government shutdown and production problems at its Tennessee decoy-making plant were likely to trim its operating profits by £8m this year. The US accounted for about 47 per cent of Chemring’s £740m revenues last year. Analysts had expected the group to post operating profits of £76.6m this year.

Richard Curr, the head of dealing at Prime Markets, said: “We said back in June that Chemring is in need of some effective fundamental countermeasures of its own, as the company continues to mount a desperate defence across all areas of the business.

“That Chemring are making efforts to turn the business around and offload non-core business units is not in doubt, but this process must also be accompanied by sufficient progress to restore investor faith.”

Meanwhile, the defence services firm Babcock International confirmed yesterday it is in talks to buy a stake in Avincis, the world’s largest helicopter operator.

Avincis owns Bond Aviation Group in Britain and derives a large chunk of its revenues from ferrying oil workers to and from North Sea rigs as well as running search and rescue services. It is co-owned by Investindustrial, the Italian group behind Aston Martin. A deal would help Babcock tap into the lucrative defence markets of Spain and Italy.

Babcock shares fell 41p to 1,284p yeterday as the market digested the news.

John Lawson, an analyst at Investec, said: “After the strong run up in the stock price and given some strategy uncertainty, we prefer to sit on the side lines until there is clarity.”