22 Oct 2002

The Board of Chemring Group PLC (“Chemring” or “the Group”) announces that the Group’s businesses, with the exception of US-based Kilgore Flares Company LLC (“Kilgore”), have traded in line with expectations during the current financial year. However, the results of Kilgore are likely to be affected by two specific, one-off factors this year.

As previously reported, Kilgore has filed a claim against its insurers, Royal & Sun Alliance (“RSA”), in a Tennessee Court for an additional US$16.9 million plus damages, over and above the US$4.5 million previously received from RSA, in respect of the insurance claim following the incident at Kilgore in April 2001. As reported in our interim results, the full extent of this claim has not been recognised to date. Since the claim was filed there have been several developments regarding policy coverage, which give the Board confidence that the value of the claim will be increased. Although negotiations with RSA are continuing alongside the legal process, the Board considers that it is unlikely that these will be concluded satisfactorily before the announcement of Chemring’s preliminary results in January 2003, and the reported results will therefore be heavily dependent on the Board’s judgment on the appropriate accounting treatment of the insurance claim. If Kilgore recognised its existing claim for US$16.9 million, then the Group would anticipate meeting market expectations for the current financial year.

The incident at Kilgore, which is the largest manufacturer of infra red (“IR”) decoys in the US, necessitated the suspension of operations on site and the construction of an innovative, state-of-the-art facility to minimise risk areas in the manufacturing process and provide a safer working environment. The manufacture of IR decoys at Kilgore comprises two separate processes - the manufacture of pressed flares, which constitutes approximately 70% of sales, and the manufacture of extruded flares, which represents the balance. The pressed flare process is now fully operational and is meeting anticipated production rates, as a result of which substantial new orders have been received. However, the extruded flare process is more complex and has only recently started to manufacture completed products.

As a consequence of the distorting impact of the recovery on the insurance claim, and the delays in resuming full production at Kilgore which have affected the current year’s turnover, the Group’s results for the year ending 31 October 2002 are unlikely to provide any clear comparison with performance in prior years, nor will they be indicative of future expectations.

Notwithstanding these complications, Chemring remains confident of meeting future growth expectations. On a conservative basis, Kilgore anticipates that turnover will double in the new financial year following recommencement of full production, and the business has a full order book to support this. In the US, Chemring is the leading provider of expendable IR decoys to the US Department of Defense, and demand for the products manufactured by Kilgore and Alloy Surfaces Company, Inc., Chemring’s other US subsidiary, is increasing significantly.

In addition, the Group is in the early stages of discussions with a leading international defence group regarding closer collaboration in certain product areas. The Board will report further if these discussions develop.

For further information:

David Evans Chief Executive, Chemring Group PLC
Paul Rayner Finance Director, Chemring Group PLC
01489 881880

Jonathan Rooper Cardew & Co 0207 930 0777