Belfast Telegraph

Saturday 20 December 2014

Defence firm warns on debt fallout

The shutdown in the US has led to a warning from a British defence firm
The shutdown in the US has led to a warning from a British defence firm

A maker of heavy munitions and bomb detectors today became the latest British defence firm to warn over the fallout from America's debt crisis.

Fareham-based Chemring said orders from the US military have been been hurt by the government shutdown, following a warning from defence giant BAE Systems yesterday. Chemring's shares slumped by almost a quarter today while BAE was down 2%.

Wrangling over raising the country's debt ceiling has closed many parts of the US government, with thousands of workers locked out.

Chemring said orders and deliveries to the US Department of Defence this month have been hurt by the temporary closure, after government inspectors were sent home.

Its warning over paralysis in the US government follows jet and submarine-maker BAE Systems yesterday saying that a prolonged shutdown will hurt its business.

BAE said about 1,200 of its US staff, who are typically embedded in the government, have been told not to work since the shutdown started on October 1. Its shares were almost 3% lower today.

Chemring also admitted to a revenue blow from "quality and production" problems in a US-based subsidiary which makes decoy flares used by fighter jets and helicopters, while the weakness of the US dollar has also hurt earnings.

Together, these problems will wipe £8 million from profits in the latest financial year, ending this month.

Cash will also be squeezed by turmoil in the Middle East, delaying shipments of munitions to the region. And Chemring said "continuing difficult market conditions" mean 2014 performance "is likely to be less than the anticipated current year out-turn".

Shares in the company plunged 22%, wiping about £120 million from its market value.

Analysts at JP Morgan Cazenove slashed their pre-tax profits forecast for this year by 13% and next year's by 25%.

They said: "There is clearly significant work for the new management team to do in order to restore investor confidence."

The group started out in 1905 as the British Foreign & Colonial Automatic Light Controlling Company, and evolved into a major military supplier.

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