Chemring under fire after US government shutdown

The FTSE 250 company, which makes flares and devices to detect roadside bombs, slumped 23 per cent, down 64½p to 220p, wiping £126million off its stock market value.

It warned its operational profit this year would be hit by £8million and that 2014 figures could be even worse.

The company said the US government shutdown, which began on October 1, would hit this year’s figures by delaying defence deal awards and completion of orders following the closure of a large number of departments including the Defense Contract Management Agency.

Chemring, led by chief executive Mark Papworth, said its order intake and deliveries to the US Department of Defense had been hit during October and would likely continue to suffer in the next few weeks as the DCMA dealt with a backlog of work. Chemring, which gets 47 per cent of its annual revenues from the US, warned the “full impact of the shutdown is not yet known”.

Fellow defence group BAE Systems said earlier this week that it expected to take a financial hit from the shutdown as it told 1,200 staff to stay at home. Security groups G4S and Serco are also understood to have told hundreds of employees not to turn up to work.

Chemring said profits would also take a hit as a result of “quality and production issues” at its decoy making plant at Kilgore, Tennessee, and adverse movements in the dollar exchange rate. It also highlighted shipping difficulties in the Middle East as political tensions rise in the region.

A spokesperson said 2014 profits were likely to come in even lower following dips in global defence spending. Analysts had expected Chemring to report an operating profit of £76.6million this year and £83million in 2014.

There was some good news for the firm as it revealed it had been awarded a significant countermeasures contract from a Middle Eastern customer.

Analysts at Investec said the update was a “disappointment but more widely reflects the extremely difficult conditions in the US market”.