It’s almost a year since chief executive Mark Papworth took command at Chemring (CHG) after a series of profit warnings forced out David Price. But while the new boss has made some big changes, the underlying business continues to struggle and has flushed out the first profit warning of Mr Papworth’s reign.
Orders from the US are being held up while politicians haggle over the Federal budget, and Chemring has suffered further quality and production issues, particularly at countermeasures business Kilgore. A strong dollar is shrinking the value of US profits when converted into sterling, too. In all, management reckon this trio of events will wipe £8m off operating profit this year, and they expect next year to be even worse. Liberum Capital slashed underlying EPS estimates for this year by 16 per cent to 20.2p and by 24 per cent for 2014 to 19.9p. And with little covenant headroom on its loan notes, the broker thinks further dividend cuts are possible. Thankfully, the Middle East countermeasures contract did arrive in time, and details of a new business plan will be made public alongside a trading statement next month.
