Shares in military equipment manufacturer Chemring plunged after it predicted a tough year for defence spending in 2012.

The firm, which mainly produces countermeasures, reported revenues up 25 per cent year-on-year to £743.2 million for the full year ending 31 October 2011.

Underlying pre-tax profit rose 6 per cent to £125.6 million, with underlying earnings per share growth of 5 per cent to 52.1p allowing the firm to raise its dividend per share 25 per cent to 14.8p.

Despite the solid results, shares in Chemring dropped over a cautious outlook from chairman Peter Hickson, currently down 10.58 per cent at 401.5p at 10.15am.

Hickson explained, ‘During the last year, many governments have struggled with increasing deficits and lower economic growth. This has affected defence procurement, leading to volume reductions and delays.

‘The continuing problems of the Eurozone and the impact of possible sequestration in the US indicate that our traditional markets will not be any easier this year.’

To mitigate the reductions from the US and Europe, Chemring is spreading to other markets, with sales to countries outside of the North Atlantic Treaty Organisation (NATO) up 81 per cent to 29 per cent of Chemring’s revenue.

Non-NATO countries also account for 44 per cent of Chemring’s order book, which currently stands at £980 million, up 9 per cent on January 2011.

Hickson commented, ‘We see further good growth prospects in these Non-NATO markets and will pursue the opportunities they offer.

‘I am confident that we have the products, the management and technological skills to achieve our objectives and provide the foundation for steady growth.’