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Shares in British defence specialist Chemring fell sharply as problems at a US factory knocked its margins and overshadowed a record high order book and forecasts of a decade of growth from increased defence spending.
Michael Ord, chief executive of the FTSE 250 company that supplies materials and components for missile systems as well as explosives, said the outlook for the global defence industry was “increasingly robust”. He predicted “strong growth” over the next 10 years amid the war in Ukraine and heightened geopolitical tensions in the Asia-Pacific region.
“A lot of commentators will say the age of globalisation is over and we are now in an age of great power competition, certainly in our conversations with our customers that feels the case,” Ord said.
In its results for the year ending in October, released on Tuesday, Chemring reported a record order book of £1.04bn, and reported rises in revenue and underlying profits.
But it also said its operating margin had fallen to 13.9 per cent, down from 14.6 per cent a year earlier.
The company said this was in part caused by the impact of “operational challenges” in a Tennessee factory that builds infrared devices to counter enemy attacks.
Production at the factory was disrupted “due to adverse weather conditions”, while there were “delays in the ramp-up of its automated facility”, it said.
Margins were also affected by a “legacy” US government contract for the supply of countermeasures from 2016, which was extended into 2025, Chemring added.
Shares fell 10 per cent in morning trading to 310p, their lowest level in 12 months.
Still, analysts at Investec said the longer-term prospects for the company remained “strong”.
“Customers were last week called by the Nato [secretary-general] to spend more and shift to a wartime mindset,” Investec said in a note.
European Nato members are holding talks about increasing the alliance’s target for defence spending to 3 per cent of GDP, in response to Russia’s war against Ukraine.
The rise in military spending has strained the industry’s supply chain, which has suffered from decades of under-investment since the end of the cold war.
Ord said it was therefore “critical” that Chemring had delivered “all of our commitments and our promises to our customers” in the financial year.
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