Chemring slumps on rights issue, dividend cut

Chemring was under pressure after the defence company announced a discounted rights issue, a cut to its dividend and a wider pre-tax loss for the year.

The group announced a four-for-nine rights issue at 94p a share, to raise gross proceeds of around £80m as it looks to tackle its debt.

The issue price represents a discount of around 47.2% to the closing price of 178p per share on Wednesday.

Chief executive Michael Flowers said: "The recent progress of the group has been impeded by its high levels of debt and associated interest costs. Significant time and effort has been spent managing this debt at the expense of further operational improvement.

“The proposed rights issue gives us a solid foundation to address these high levels of debt and provides a competitive capital structure for the future.”

In a separate statement, Chemring said its pre-tax loss for the year ended 31 October widened to £9.1m from £5.2m in 2014 while revenue from continuing operations fell to £377.3m from £403.1m.

The ammunitions-maker Energetic Systems segment was hit heavily in the final quarter of the year by a contract termination and delays to the start of fulfillment of a major ammunition order.

Chemring’s full-year expectations for 2016 were unchanged, but in light of the rights issue, the board did not recommend a final dividend for 2015.

As a result, the total dividend stood at 2.4p per share compared with 4.1p in 2014.

In addition, the company said said it does not plan to propose an interim dividend for the six-month period ending 30 April 2016.

Flowers said: “We expect the wider market backdrop for global defence expenditure to be one of slow recovery in 2016. The situation for US defence spending is more stable than it has been for some time, and ongoing geopolitical tensions in the Middle East and elsewhere emphasise the need for robust defence and security measures.

“The timing of Middle East order placement and contract activity remains difficult to predict, in part due to the impact that recent falls in the oil price are having on government spending in the region. Nevertheless, our continued customer focus means the group is well positioned to benefit from any sustained increase in demand in its markets."

At 1235 GMT, Chemring shares were down 9% to 162p.