Chemring’s profits hit by shutdown in Washington

The grenade and bomb detector maker Chemring has warned that the US political shutdown is likely to hit its profitability this year.

The defence group said the deadlock – as well as production problems at its decoy-making plant in Tennessee – were likely to lower its operating profits by £8m. The news sent shares in the company tumbling by 64.4p – nearly 23 per cent – to 220p despite it also winning a “significant” contract in the Middle East.

“The full impact of the US government shutdown is not yet known, but it will impact the October order intake and deliveries to the US Department of Defense in the remaining few weeks of the financial year,” Chemring said yesterday.

“While the majority of the department’s civilian staff have now returned to work, other Government departments are still closed and this continues to affect Chemring’s North American business.

“Early indications, given the continuing difficult market conditions, are that full-year 2014 performance is likely to be less than the anticipated current year out-turn.”

The US accounted for about 47 per cent of Chemring’s £740m revenues last year. Analysts had expected the group to post operating profits of £76.6m this year.

Other UK contractors, including the defence giant BAE and outsourcers Serco and G4S have also been affected by Washington’s closure.

The news is the latest setback for Chemring, which slipped into the red in June following the US military withdrawal from Afghanistan. At the time, investors were hit by a six-month loss of £8.8m against a pre-tax profit of £19.7m in the first half of 2012. Turnover was down almost 10 per cent.

Its chief executive, Mark Papworth, had already warned the outlook was “towards the lower end of expectations” for the remainder of 2013 with the US defence budget expected to be slashed heavily.

As a result, Chemring plans to shut administrative offices in London, Derby, Washington and Philadelphia. The closures are expected to reduce the corporate headcount by 40 per cent.