"We'll blow up anything," says David Price, the chief executive of Chemring. "If you want a lock blown out, or a bridge brought down, or a Scud missile exploded, we provide the kit to do it."
Chemring doesn't only blow things up. The defence group also makes munitions, flares and the countermeasures sprayed out by aircraft to draw off incoming fire. It is a business proving remarkably resilient in an increasingly tricky defence market, maintaining the FTSE 250-listed group's double-digit growth in the face of sharp defence cuts.
One part of Chemring's secret is to produce "consumables". Another is to be making a host of military products ever more in demand as warfare shifts from massive, state-on-state battles, to on-going skirmishing with guerrilla forces embedded in civilian populations. "Terrorists are very innovative, constantly changing the mechanisms they use to attack us," Dr Price explains. "But we can do very rapid developments – it took us only four months to develop a particular flare for Afghanistan, for example."
The numbers speak for themselves. Chemring's revenues grew by 18 per cent last year, its earnings-per-share by 14 per cent. By March, six months into the new financial year, the group's order book was a sturdy £944m, 60 per cent higher than in 2010. For most companies this might be an extraordinary growth spurt. For Chemring, which has seen both revenues and profits soar by 40 per cent every year for the last 10, it is business as usual.
When quietly flamboyant Dr Price joined the group in 2005, Chemring made countermeasures and consumer marine electronics, and had a market cap of £130m. Now it employs 4,000 people, sells to 80 countries, and is worth nearly £1.3bn. And while it is still the world's biggest countermeasures producer – with roughly half of the global market – it now also does everything from anti- improvised explosive device (IED) systems, to "black light" pyrotechnics to light up enemy movements, to satellite launchers.
"The type of products we make are a bit like making Mars bars – only using chemical energetic materials of one sort and another," Dr Price says. "You get a bunch of chemicals and mix them together, make a shape, coat it, wrap it in metal or plastic."
Using a common process, Chemring manufactures huge volumes at its string of factories across Europe, Australia and the US, sometimes up to a million units per month. "The only difference with a Mars bar is that if we make a mistake it blows up," Dr Price says.
In the six years since Dr Price took the helm, Chemring has sold off its dawdling marine electronics business and gone on an extended spending spree, snapping up 17 companies and spending £450m in the process. At first glance, such stellar growth might look unsustainable – even more so since the US held its military spending flat and the UK Government slashed 8 per cent off the defence budget, with more to come. But the cuts are focusing on the massive cost of "platforms" such as ships and tanks. And while military strategists wrestle with how major hardware is best used in "asymmetric warfare" – where armed forces face threats from amorphous insurgent groups – Chemring's business is well-suited to the challenge.
The counter-measures unit, for example, has huge growth potential. The technology is surprisingly new – as recently as the Bosnian conflict, Apache helicopters sat on the runway because Nato knew the Serbs had shoulder-launchers and could shoot them down, according to Dr Price. Even now, only between a fifth and a quarter of aircraft are equipped to protect against incoming attack and the market is growing at 10 per cent per year.
Counter-IED technology is also rising ever higher up military agendas. With the proliferation of road-side bombs, the whole structure of military forces has also changed and road clearance regiments are now a permanent part of the US army. Chemring's counter-IED operation – which makes everything from ground-penetrating radar and to Hurt Locker-style robot detonation systems – is racing to keep up with demand.
"We've probably saved thousands of coalition lives in Afghanistan," Dr Price says. "But it is not just Afghanistan. Anywhere where you deploy you have to be able to maintain supply routes against terrorism."
The common thread is speed. Chemring is designed around a quick turnaround, with a six to 12-month development cycle and the majority of orders less than a year long. Last year the company's R&D spend shot up by 80 per cent, most of it customer-funded and focusing on next-generation road-clearance technology, handheld detection systems and systems for the anti-IED robots. "Because we are short cycle we can change where we invest the money," Dr Price says.
In the short term, the UK defence cuts have had some unexpected benefits for Chemring. Although it will lose out from the cancellation of the Harrier programme, for example, the missions will be replaced by Tornadoes, which use more expensive Chemring flares. But the general climate of uncertainty remains a major issue.
"The UK is the most difficult market at the moment, not because of the cuts but because of the uncertainty," Dr Price says. "Everything has ground to a halt."
Over the longer term, the implications are more profound. The geography of Chemring's business is already changing. In 2009, 12 per cent of sales were non-Nato, in 2010 it was 20 per cent and in 2011 it will be 35 per cent. And the expectation is that the UK will slip from around 20 per cent of Chemring's business to below 10 per cent, overtaken by rapid growth from elsewhere, India, Malaysia, Australia and Brazil. "We are following the money," Dr Price explains.
There is a clear issue of military capability, highlighted by recent events in the Middle East. "If our politicians want to participate in global situations, like that in Libya, then we will simply need to spend a higher proportion of our GDP on defence," Dr Price says.
But there are also industrial and economic implications. The UK defence industry employs 300,000 people, has a turnover of around £35bn, and accounts for a fifth of the global export market. The danger is that, as the UK becomes a less attractive market in itself, the exports become equally difficult to sustain.
No matter to Chemring. With an eye firmly on fast-growing international markets, the company is set to continue its rapid expansion, looking specifically for bolt-on buys in the region of £50m to £100m, most likely for its counter-IED and pyrotechnics sectors. But Dr Price is unsentimental in his assessment of the future shape of the industry.
"The UK Government is being very supportive of exports, to help keep the industry going," he says. "But if you're a company choosing where to put your investment, why would you put it here if you can get better returns elsewhere, even if you are a UK company?"
CV: David Price
* David Price took over as chief executive of Chemring in 2005 after 25 years in the defence industry.
* Before joining Chemring, Dr Price was the managing director of Rolls-Royce's naval marine business, and before that he worked for Thomson, first as chief executive of the group's missile electronics business and then as managing director of Thomson UK Holdings.
* Dr Price was awarded a CBE for services to the defence industry in last year's New Year Honours list.
* He has two horses and a penchant for endurance riding.
* Dr Price is also a keen opera fan. He is a friend of the Royal Opera House and his favourite is Mozart's Don Giovanni.
* He is married with two grown-up daughters.Reuse content