The end of the Iraq and Afghanistan wars pushed this defense company to the brink

US Marine Corps assaultman Kirk Dalrymple watching a statue of Iraqi President Saddam Hussein fall in central Baghdad on April 9, 2003.
REUTERS/Goran Tomasevic

Chemring is in seriously bad shape.

The defense company put out an unscheduled profit warning on Tuesday saying operating profit for the year was set to be a third below forecasts, blaming delays to an ammunition contract. That’s $24.5 million (£16 million) of profit being wiped out.

It’s the second stroke of bad luck for the company in two months. In September, Chemring announced that the US government was canceling a significant ammunition contract.

Chemring says discussions are being held with its lenders to waive default clauses on loans and the company plans to go cap in hand to investors in the first quarter of next year to raise up to $138.1 million (£90 million).

It’s as close to a corporate bloodbath as you can get, and shares are tanking. Chemring is down 35% on Tuesday morning.


The company faces “high levels of debt and associated interest costs,” according to CEO Michael Flowers.

Chemring bought 11 businesses from 2007 to 2012, borrowing to fund the buying spree. The company’s share price was rising at the time, and it expected business to continue growing.

But the end of the wars in Iraq and Afghanistan and austerity-era budget cuts have led to fewer contracts, which makes the debt harder to bear.

Net debt at the end of the year is expected to be $237.9 million to $253.2 million (£155 million to £165 million), with interest payments of $23 million (£15 million). Chemring’s market capitalization is just $434.4 million (£283 million) in comparison.

Flowers says the $138.1 million capital raise will be used to “fundamentally address the high levels of debt and to provide a competitive capital structure.”