Whilst this has been of little concern in the past, today’s defence landscape is changing. The big powers have an increasing desire to grow spheres of influence, and concerns about the reliability of the transatlantic relationship are growing. Young, entrepreneurial companies are pushing to enter the defence space, and advanced equipment is required to counteract the high technology being deployed across the globe. 

Chemring Group is a UK listed business made up of two divisions: A traditional defence division, providing flares, explosives, decoys, and single use energetics, and a technology arm, developing advanced sensors and electronic warfare capabilities. Founded in 1905 as a chemical and insulating company, Chemring pivoted to pyrotechnics during WW1 when they began selling explosives to the British military. In 2022, Chemring acquired Roke Manor Research for £235m, accelerating their development into a specialist cyber, AI, and defence technology business.  

Chemring Nobel is Chemring’s largest and fastest growing revenue line. Based in Norway, the business is Europe’s pre-eminent manufacturer of high-performance military explosives which are used inside missiles, shells and other munitions. Explosives are a highly regulated industry, making it difficult for new players to emerge. Recent concerns about cheap Ukrainian products flooding the market should remain at bay; currently 60-80% of Ukrainian defence supply chain components are manufactured in China and would not pass European or American regulations. 

Chemring’s recognition as a strategically critical component of European defence has secured backing from the Norwegian government and contracts with blue chip businesses such as BAE Systems, Saab and Kongsberg. A recent 12-year contract with Deihl Defence gives good revenue visibility, taking their order book beyond 2030. 

Last week the UK Government’s Defence Investment Plan (DIP) was published, announcing a £15bn increase in defence spending. This amount is £1.5bn higher than the sum which led John Healey to resign as Defence Secretary earlier in the month, taking annual defence spending from £54bn up to £79bn by 2029. Despite leaving a disputed £13bn funding gap, the DIP highlighted numerous areas of opportunity for Chemring and has reduced uncertainty around spending in the sector. The government has re-established its commitment to building 6+ new munitions and energetics factories by 2030 and placed a greater focus on technology warfare.  

Today’s defence landscape requires businesses to be innovative and agile. To be budget efficient, they need to keep up with the fast pace of technology rather than producing too much of the same thing. Production needs to be scalable and flexible, something the traditional defence industry is not used to. As a result, we are seeing a rerating of niche, mission-critical players such as Chemring over their heavy machinery-based competitors. 

Structural tensions between major global players (e.g. Beijing and Washington) are not going anywhere. Rather than navigating through these changes in the global equilibrium in the hope they come to a halt, the focus should be on adaptation and preparation for change. Chemring is a prime example of the type of business capable of carrying us into this new landscape. 
 

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