Chemring Interim 2006 - Chemring Group PLC

I N T E R I M R E P O R T 2 0 0 6The Board wishes to continue with itsprogressive dividend policy, whilstbalancing the Group’s debt/equity ratioand managing cash requirements to fundexpansion, including small acquisitions.Accordingly, the directors haverecommended an interim dividend of4.80p per ordinary share (2005*: 3.20p),an increase of 50%.The interim dividendwill be paid on 15 August 2006 toshareholders on the register at28 July 2006.Forward exchange currency contractshave been entered into to reduce theGroup’s exposure to depreciation of theUS dollar against sterling.As I reported in my last statement, themediation with our former insurancebroker,Willis, was unsuccessful.Wetherefore continue to prepare forfull-scale litigation to recover thesignificant sums which we believe aredue to us.COUNTERMEASURESThe Group’s Countermeasures division,which still commands more than 50% ofthe world market for expendablecountermeasures, has continued itsremarkable profit growth, with Kilgorequadrupling its profits, Alloy Surfaces up51%, and Chemring Countermeasuresup 32% over the first half of last year.Demand for Alloy Surfaces’ specialmaterial decoys is unabated, and salesvolumes have increased by 72%compared with 2005.The extension toAlloy Surfaces’ second facility wascompleted in early June 2006, and thecompletion of the new third facility ison target to enable production tocommence in November 2006.Our production build-up has, to date,met all of the US Army productionmilestones.For the first time since it was acquiredby the Group in 2001, Kilgoregenerated a strong first halfperformance on the back of consistentvolume manufacture. Productionperformance on its high volumedecoys has improved significantly, andproduction rates of over 8,000 units aday are being achieved. A new largeflare facility to supply additional flaresto the US Air Force is being built, andproduction will commence in thesecond half of the year.In the UK, Chemring Countermeasureshad a solid performance, with asubstantial increase in demand fromthe UK Ministry of Defence tosupport peacekeeping operations inAfghanistan.The company has alsobeen successful in capturing severalimportant NATO contracts for navalcountermeasures.The Department of HomelandSecurity (DHS) in the US, to which Ihave referred in previous reports, isnow searching for alternative solutionsto the laser systems initially selected astheir preferred method of protectingcommercial aircraft. Alloy Surfaces’special material decoys have beenselected by several systems providers asan integral part of the alternativesolutions which are now beingpresented to the DHS.ENERGETICSThis division had a solid start to itsfirst full year of operation, with each ofthe businesses in the division tradingprofitably.The majority of businessesmet expectations, and any shortfallswhich arose were purely attributable totiming issues, which are common withdefence contracts, and will berecovered in the second half of the year.PW Defence had an excellent start to2006, with sales volumes up 41%compared with the first half of 2005,principally driven by the peacekeepingrequirements of several countries,including the UK. Several large NATOcontracts for battlefield simulationproducts were secured, and the start-upof low-cost manufacturing in Estoniawas successfully completed.Comet also had a very good start, withorders from the US Army forbattlefield simulation products andfrom the French Army for its PEMBSP 3