LONDON — Failure to secure US government approval for a deal to sell 40mm ammunition to the Middle East has triggered new financial problems for British-based defense contractor Chemring.

The company issued a statement saying that a deal worth in excess of £100 million (US$153.4 million) to supply 40mm ammunition to an unnamed Middle East customer had been slowed by the failure to date to obtain the necessary export clearances ahead of the company ending its financial year on Oct. 31.

Chemring said the delay would hit profits this year and could push the company beyond its debt covenant and into default.

The company said it plans to start talks with the banks over a default waiver. Subject to securing covenant waivers, Chemring is to undertake a £90 million rights issue to reduce debt, it said Oct. 27.

Last year, Chemring had revenues of £475 million producing countermeasures, electronics, sensors and other defense equipment.

"Despite every effort, we are still awaiting the receipt of necessary permits and export approvals associated with this [40mm] contract. Given the proximity of our year end, the board considers there is now a realistic prospect that the group does not receive these permits and approvals in time to recognize revenue under the contract in the current financial year," Michael Flowers, Chemring's CEO, said.

Chemring did not explain gave no explanation on why the export approvals were not obtained as expected. The company said that as a result of this and other issues, operating profit could be reduced by around £16 million to some £33 million.

Advance cash payments of £12 million on the ammunition deal had been expected this year but will now be pushed into 2016 along with much of the revenues associated with the deal.

The Middle East order was to have compensated for the loss earlier this year of a significant contract with the US government for supply of nonstandard ammunition. The deal was "terminated for convenience" by the US.

Chemring, which is based in the UK but has sizable operations in the US, is in the midst of a major restructuring effort after declining sales and production problems in recent years triggered several profit warnings.


Andrew Chuter is the United Kingdom correspondent for Defense News.

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