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Chemring profit to fall after fatal factory blast; shares slide 24 percent

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By Muvija M

(Reuters) – Shares of Chemring Group Plc <CHG.L> slumped by almost a quarter on Monday after the defence contractor said an explosion at one of its UK factories would lower full-year profit by as much as 20 million pounds.

The company said it expected underlying operating profit to be between 10 million and 20 million pounds lower than expected this year, and there would also be an impact on operating cash flow and net debt.

The exact impact on 2018 and 2019 performance would depend on insurance recoveries, the length of the investigation and how it takes for the site to re-open, it added.

Chemring, founded 112 years ago, had reported an underlying operating profit of 55.4 million pounds for the fiscal year ended Oct. 31, 2017.

The explosion at the Chemring Countermeasures (CCM) factory near Salisbury in Wiltshire, which makes products to protect military ships and aircraft from missiles, killed one person and injured another on Friday evening.

The Countermeasures unit made up nearly one-third of the company’s operating profit last year.

Chemring’s shares fell 24 percent in early trade and were last down 16 percent at 198 pence at 0737 GMT, making them the worst performers on the FTSE small cap index <.FTSC> and eroding much of the 28 percent gain seen since the start of 2018.

Investec analysts, who cut their operating profit estimate for the year by 20 million pounds, said there is likely to be some impact in 2019 even if the site is handed back to Chemring relatively quickly as the brokerage expects production to be restarted in phases.

The blast caused damage to parts of the factory’s manufacturing operations and production is currently suspended, Chemring added on Monday.

Chemring said the facility’s deliveries to customers in the last quarter of the current year had been expected to total 25 million pounds and to contribute 15 million pounds to total underlying operating earnings.

The company, which also makes sensors to detect explosives, chemical and other threats, did not provide additional details about future deliveries from the factory.

(Reporting by Muvija M in Bengaluru; Editing by Bernard Orr and Kirsten Donovan)

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