Chemring order surge driven by Ukraine war and Asia-Pacific tensions

Chemring reported a surge in orders in the first half of the year as the British defence specialist benefited from a ramp-up in government spending in the wake of the war in Ukraine and heightened geopolitical tensions in Asia-Pacific. 

Mick Ord, chief executive, said the FTSE 250 company had seen a “fundamental change in the security landscape” over the past 18 months. Chemring saw its order book increase to a record £750mn, spurred by higher spending on munitions and missile systems. 

The company’s countermeasures & energetics business supplies materials and components for a range of missile systems including the Javelin anti-tank missile built by Lockheed Martin. The UK group also supplies explosives and propellants to a range of larger defence contractors. Order intake at the division was £238mn, up 113 per cent over the six-month period. 

Ord said the Ukraine conflict, as well as the Biden administration’s policy pivot from “counterinsurgency to re-equipping the military for potential threats in the Asia-Pacific region” had been the two main drivers for the bumper orders. 

America’s focus on the Asia-Pacific region is “very much changing their posture associated with platforms and the utilisation of missile systems”, added Ord. 

Chemring, along with other defence companies, has seen demand for its equipment surge in the wake of Russia’s invasion of Ukraine. At the same time, the Biden administration has been stepping up security initiatives to boost deterrence and better prepare for potential conflict over Taiwan. 

The White House in March unveiled a 9.8 per cent increase in military funding to $773bn as part of a sweeping $5.8tn budget plan. The proposal included measures to boost the Pentagon’s response to Russia’s invasion of Ukraine as well as bolstering US “deterrence” in the Indo-Pacific region.

Ord said the current benign operating environment was part of a longer-term fundamental shift as governments replenished and reassessed the levels of their weapon stockpiles, including ammunition. 

“Governments, he said, are looking for industry to have far greater resilience in supply chains and that is both a function of inherent capacity and then the ability for supply chains to surge above that steady-state capacity.”

Shares in the company rallied 8 per cent on Tuesday to 291p on the strong order numbers and despite a fall in profits due to contract delays. In the six months to April 30, underlying pre-tax profit fell 23 per cent to £25.6mn, with revenue down 4 per cent to £212.1mn.