Chemring posts wider loss, warns on full year

Shares in Chemring tumbled on Tuesday after the defence company reported a wider loss for the first half and said it expects its full-year 2016 results to “slightly below” market expectations amid higher costs and a delayed contract.

Chemring’s compiled consensus of analysts’ forecasts was for FY16 underlying operating profit of £48.7m.

In the six months to 30 April, the loss before tax widened to £16.8m from £15.1m in the first half of 2015 while the underlying loss before tax came in at £4m from £1.3m. This was despite a jump in revenue to £180.1m from £161.7m.

The company, whose shares slumped back in March when it said trading in the first quarter had been below management’s expectations, said the results were hit by a lower margin sales mix, phasing of revenue within full-year 2016 and contract-specific issues resolved in the half.

Chief executive Michael Flowers said: “This performance contrasts with a growing sense of momentum across the business as operational improvement initiatives are accelerated following the deleveraging resulting from the rights issue.

“We continue to expect our full year FY16 result to be heavily weighted to the second half, due to substantially higher 40mm contract revenues and greater consistency in production. Whilst it is encouraging that approximately 90% of expected H2 revenue is in the order book, the board's current assessment is that the FY16 out-turn is likely to be slightly below market expectations.”

Underlying operating profit for the first half fell to £3.8m from £5.5m and the board did not propose an interim dividend, as previously announced.

The order book increased to £591.3m from £569.6m at the end of October last year, with deliveries of over £240m scheduled in the second half representing around 90% of expected H2 revenue.

Investec, which rates the stock at ‘buy’, said profits were below its expectations and downgraded its EPS estimate for FY2016 by around 13% to 9.9p.

“The company continues to suffer short term headwinds, while the longer term outlook remains brighter given a range of opportunities across the businesses,” it said.

At 0948 BST, Chemring shares were down 22% to 109.40p.