Hampshire-based defence company Chemring (CHG) issued decent full year to 31 October 2017 results on Thursday.

But underlying issues have kept the share price progress in check, not least the revelation of a impending investigation by the Serious Fraud Office (SFO).

So while the share price at one stage was up almost 5.5%, it ended the day's trading barely in positive territory, up 1.5% at 180.8p.


In a statement the SFO ‘confirms it has opened a criminal investigation into bribery, corruption and money laundering'.

This relates to historical issues at Chemring and CTS (Chemring Technology Solutions), a business bought by Chemring in 2006.

Chemring Group  CHG    Share Price   Shares Magazine

Interestingly, Chemring bought these issues to the attention of the SFO itself. Equally interesting, is that the company didn't feel the need to issue a separate stock market release highlighting the investigation.

But pointedly, Chemring says that neither issue 'are considered material to the group’. Investors will have to wait for the outcome to decide if that view holds water.


The results seem to have taken something of a backseat in light of the SFO's probe. For the record, they show an underlying 30% increase in pre-tax profits, to £44.1m, although that's excluding a host of exceptionals.

At a statutory level, pre-tax profits slumped by a half, from £8m in 2016 to £4m last year.

The question is whether these one-offs are truly that.

Broker Linberum says it ‘would expect a lower level of exceptionals going forward,’ which sounds promising.

Added together, around £40m of one-off charges have been taken for last year. These include an array of acquisition and disposal costs, business restructuring. and the write-down of acquired intangible assets.


Chemring is makes around half of its £547.5m revenue from sales to the US Defence Department, versus a meagre 5% of income earned in the UK. That's encouraging given the $54bn increase in  defence spending announced by the Trump administration in March last year.

Chemring chief executive Michael Flowers says his company is focused on driving profit margins by moving into more technical products, on top of the predictable revenue expansion he's chasing.

That basically means more countermeasures, sensors and high-end products, and less low margin munitions - bullets and grenades, for example.

There was limited success here in 2017, with operating profit margins staying largely flat at 10.1%.

Investment bank Liberum forecasts 11.5p of earnings per share this year to 31 October 2018. That is versus the underlying and diluted 12.6p reported by the company for 2017.

Issue Date: 18 Jan 2018