UK Markets closed

Afghan War Supplier Issues Major Warning

(c) Sky News 2012

The British firm that supplies Nato forces with safety devices has revealed major woes ahead of an Afghanistan troop drawdown.

Chemring issued a trading warning, saying its year-end order book forecast was £760m, down from £878.3m last year.

"The group's performance during 2012 was extremely disappointing," the trading statement said.

"Chemring's operational performance has been weak, and management of investors' expectations over the past year has also been poor."

The Hampshire-based firm makes aviation decoys, known as countermeasures, that are fired by military aircraft to thwart missile attacks.

It also makes munitions, counter-improvised explosive device (IED) equipment and pyrotechnic flares, which have been widely used by UK, US and Nato forces against the Taliban.

Dozens of other countries around the world use its products. The firm commands around a 60% share of the £360m global market in countermeasures.

But both US and UK military budgets are under tight pressure ahead of a complete withdrawal from Afghanistan.

The US is expected to cut nearly $500bn (£310bn) from defence expenditure over the next decade and Britain's Ministry of Defence has ordered a review of its procurement process.

Chemring admitted it has been hit by slow adaptation to changing tempos after more than a decade of US and UK military combat in Iraq and Afghanistan.

"In part, this resulted from a failure to anticipate the likely impact of the changing market dynamics on the group's businesses, but also reflected failures in performance at several of our businesses," it said.

Technical faults with a countermeasure product have seen it rejected by a customer recently.

It has also failed to get export licences for a major vehicle-based mortar system for a Middle East customer.

And it hinted that the so-called Arab Spring - with uncertainty over ruling regimes - made export licences "more difficult to achieve in some markets".

The company, which is saddled with net debt of £250m, has recently seen the departure of its chief executive and a decision by private equity firm the Carlyle Group to pull out of takeover talks.

"The wider market backdrop is likely to remain challenging," the company said.

"Chemring needs to adapt and better equip itself in order to meet these challenges."