Well, well, well. If you thought defence spending was cooling off, Chemring’s latest numbers just dropped a rather large countermeasure on that idea. Fresh from the RNS mill, this specialist in sensors, countermeasures, and energetics is reporting a record order book of £1.3 billion – up a chunky 25% year-on-year. First-half revenue ticked up 5% to £234.3m, and underlying operating profit climbed 8% to £27.1m. The interim dividend? A tidy 4% bump to 2.7p per share. Clearly, geopolitical instability is proving rather good for business.
Breaking Down the Battlefield: Key Performance Metrics
Let’s cut through the noise and focus on what matters:
- Record Order Intake & Book: £488m in new orders (up 42%) pushed the order book to £1,304m. That’s the highest in Chemring’s history. Crucially, 85% of expected FY2025 revenue is already delivered or in the order book.
- Profitability Growth: Underlying EBITDA rose 12% to £39.8m. The underlying operating profit margin improved to 11.6% (H1 2024: 11.2%), showing operational efficiency gains.
- Investment Mode: Capex hit £46.1m as they plough cash into expanding capacity, especially in energetics. Net debt rose to £93.3m (H1 2024: £75.3m), but remains very manageable at 0.95x underlying EBITDA.
- Shareholder Returns: Interim dividend up 4% to 2.7p. £3.3m deployed so far into the £40m share buyback programme announced in February.
Why the Surge? Riding the Defence Spending Wave
CEO Michael Ord didn’t mince words: “Growing geopolitical uncertainty resulting in increased defence expenditure, particularly across NATO” is the rocket fuel here. The numbers scream it:
- The war in Ukraine (entering its 4th year) and Middle East tensions are forcing European nations to re-arm rapidly.
- The UK’s new Strategic Defence Review (SDR) commits to boosting defence spending to 2.5% of GDP by 2027, building new munitions factories, and investing heavily in next-gen tech like AI and electronic warfare – areas where Chemring plays.
- The EU’s Readiness 2030 initiative aims to mobilise up to €800 billion for defence.
- The US remains the world’s largest defence market, with a $1.01 trillion budget request for FY26 focused on countering threats like China’s missile capabilities.
Chemring isn’t just a spectator; it’s a critical supplier embedded in these national security priorities.
Sector Deep Dive: Countermeasures & Energetics (The Powerhouse)
This segment is absolutely firing:
- Revenue: £141.7m (+20%)
- Underlying Operating Profit: £20.4m (Margin: 14.4% vs 10.0% H1 2024)
- Order Intake: £418m (+68%) – driven by massive contracts for specialist energetic materials.
Standout Wins:
- A 12-year framework agreement with Diehl Defence (Germany) for MCX energetic material, including an initial €231m order.
- A £36m, 3-year HMX supply deal with SAAB Switzerland.
- A £23m order for critical NLAW (Next Generation Light Anti-Tank Weapon) components in the UK.
- A $106m order from a major US missile programme.
The £200m investment programme (partly funded by a £90m Norwegian grant) to expand energetic materials capacity is on track, aiming to add £100m annual revenue and £30m operating profit from 2028. Feasibility studies for *further* plants in Norway and Scotland are underway. The order book here is a fortress: £1,222m, covering 96% of expected 2025 revenue, 86% of 2026, and 64% of 2027.
Sector Deep Dive: Sensors & Information (Temporary Pause, Big Future)
Performance was softer, but largely expected and strategic:
- Revenue: £92.6m (-12%)
- Underlying Operating Profit: £16.1m (Margin: 17.4% vs 20.4% H1 2024)
- Order Intake: £70m (H1 2024: £96m)
Why the dip? Primarily delays in the UK’s SDR publication slowed new order placement at Roke (Chemring’s tech hub). Management proactively restructured, integrating the Futures unit and reducing headcount by ~50 (cost: £1.5m non-underlying).
Bright Spots & Future Gunsights:
- STORM Contract: Secured a massive £251m, 6-year framework to lead a UK industry consortium on missile defence with the UK Missile Defence Centre (UK MDC). A huge strategic win.
- US Defence: Progress on key biological detection programmes (EMBD, JBTDS).
- New Tech: Launched EM-Vis Deceive (portable EW system) and signed a partnership with Kagai Corp for the Japanese market.
With the SDR now published, H2 demand is expected to rebound. Roke is central to UK priorities like the £1bn “digital targeting web” and the new Cyber and Electromagnetic Activities (CEMA) Command. The ambition remains organic growth to >£250m revenue by 2028.
Financial Fortress & Strategic Ambition
Chemring isn’t just weathering the storm; it’s building battleships:
- Refinanced: Secured a £180m revolving credit facility until 2028 (with extensions), plus existing facilities, totalling £275m available liquidity. Covenant headroom is strong (leverage: 0.97x; interest cover: 13.94x).
- Pension: The buy-in process for the legacy UK scheme continues towards eventual buy-out.
- 2030 Vision: The goal of reaching £1bn annual revenue by 2030 remains firmly on track. This assumes market growth, successful capacity expansion, and selective bolt-on M&A (particularly in cyber, information advantage, and US space/missile sub-systems).
The Bottom Line: Defence Pays
Chemring’s H1 paints a picture of a business perfectly positioned in a sector with powerful, long-term tailwinds. The record order book provides exceptional near-term visibility, while strategic investments in capacity (especially in energetics) lay the groundwork for sustained growth beyond 2027. The slight pause in Sensors & Information looks temporary, overshadowed by the colossal STORM win and Roke’s alignment with critical UK defence tech priorities.
With disciplined capital allocation (dividend growth, buybacks, targeted capex), a robust balance sheet, and a clear path to £1bn revenue, Chemring offers investors a compelling way to gain exposure to the structural growth in global defence and security spending. As CEO Ord succinctly put it, the Group is “well positioned, with a strong and sustainable platform” for the future. In today’s uncertain world, that platform looks increasingly valuable.
