Interim Results
FOR IMMEDIATE RELEASE 6 July 2004
CHEMRING GROUP PLC
Interim Results for the Six Months to 30 April 2004
Chemring Group PLC, leader in Expendable Countermeasures, Military Pyrotechnics
and Marine Safety and Security, today announces another set of encouraging
interim results:
* Underlying operating profit up 32% at £7.5 million (2003*: £5.7 million)
* Underlying earnings per share up 45% at 15.12p (2003*: 10.43p)
* Basic earnings per share up 14% at 12.63p (2003*: 11.05p)
* Interim dividend per ordinary share up 10% at 2.80p (2003*: 2.55p)
* Profit before tax and loss on disposal up 35% at £5.8 million (2003*: £4.3
million)
* Profit before tax up 19% at £5.1 million (2003*: £4.3 million)
* Defence Businesses
* 34% increase in turnover
* Increased US Department of Defense sales - 51% of total
* Record order intake for Alloy Surfaces' proprietary decoy products which
are a contender for the US Department of Homeland Security commercial
aircraft protection programme
* New Alloy Surfaces facility in late 2004 to provide additional production
capacity
* £12 million UK Ministry of Defence naval countermeasures order
* Marine Safety and Security
* 8% increase in turnover
* 28% increase in marine electronics sales
Ken Scobie, Chemring Group Chairman, commented:
'The strength of the Group's defence order book and the increasing worldwide
recognition of the part decoys play in protecting expensive military platforms,
gives considerable confidence for the future performance of our defence
businesses, not just in the next six months but also in the longer term. This,
together with the anticipated improvement in the Marine business in the second
half, should ensure another year of satisfactory performance for the Group.'
*See Note 1.
Notes:
1. All comparisons are for the half year to 30 April 2003 as restated
following the adoption of FRS5 Application Note G and UITF Abstract 38.
2. Underlying operating profit is shown as operating profit from continuing
operations in the profit and loss account. Underlying earnings per share
excludes the loss on disposal and discontinued operations, as shown in the
profit and loss account.
3. The interim dividend of 2.80p per ordinary share will be paid on 24
September 2004 to holders on the register at 10 September 2004. The
ex-dividend date will be 8 September 2004.
For further information:
Ken Scobie Chairman, Chemring Group PLC 0207 930 0777
David Evans Chief Executive, Chemring Group 0207 930 0777
PLC
Paul Rayner Finance Director, Chemring Group 0207 930 0777
PLC
Jonathan Rooper CardewChancery 0207 930 0777
STATEMENT BY THE CHAIRMAN
I am pleased to report another set of encouraging results for the six months to
30 April 2004. Turnover of continuing operations increased by 27% to £57.4
million (2003*: £45.1 million), operating profit of continuing operations
increased by 32% to £7.5 million (2003*: £5.7 million), and earnings per share
of continuing operations increased by 45% to 15.12p (2003*: 10.43p).
The directors have recommended an interim dividend of 2.80p per ordinary share
(2003*: 2.55p), an increase of 10%. The interim dividend will be paid on 24
September 2004 to shareholders on the register at 10 September 2004.
RESULTS FOR THE HALF YEAR TO 30 APRIL 2004 - HIGHLIGHTS
2004 2003*
£000 £000
Turnover
Continuing operations 57,441 45,133
Discontinued operations - 4,336
Operating profit
Continuing operations 7,463 5,701
Discontinued operations - 244
Profit before tax and loss on 5,803 4,269
disposal
Loss on disposal (690) -
Profit before tax 5,113 4,269
Basic earnings per share 15.12p 10.43p
- continuing operations
Basic earnings per share 12.63p 11.05p
The depreciation of the US dollar against sterling, from $1.60 (the average
rate during the first half of 2003) to $1.80, has reduced sales on conversion
by approximately £3 million. The adverse impact of this exchange rate movement
has been partially hedged and this will continue to provide some benefit to the
Company in the second half.
The loss on disposal of £0.69 million arose on the sale of Kembrey Wiring
Systems Limited in November 2003.
In March the Company raised approximately £5.6 million (net of expenses) by way
of a placing of ordinary shares, to ensure adequate funding for the
Countermeasures business' capital expenditure programme and to fund increased
working capital requirements, whilst maintaining debt at a prudent level. This
capital raising would have been unnecessary had the long running dispute over
the Kilgore insurance claim been settled. Considerable further work in relation
to the claim, using external experts, has taken place in the last six months
and we are hopeful that a settlement with Royal & Sun Alliance may soon be
achieved.
DEFENCE BUSINESSES
Strong demand for our defence products supported significant turnover growth of
34% to £44.4 million, 51% of which comprised sales into the US Department of
Defense. Approximately 85% of the Group's defence sales are made overseas, to
more than sixty countries worldwide.
Our three Countermeasures businesses, Alloy Surfaces (Alloy) and Kilgore Flares
(Kilgore) in the US, and Chemring Countermeasures (CCM) in the UK, enjoyed an
outstanding first half, with sales increasing by 34% to £34.3 million. The
Group is the largest supplier of expendable IR and RF decoys worldwide.
Alloy and Kilgore are the leading suppliers of decoys to the US Government and
have recently received substantial orders to support activities in Iraq. In
particular, Alloy received its largest individual order ever for $25 million of
special material decoys (SMDs) to protect US Army helicopters and Air Force
transport aircraft. The increasing demand for Alloy's SMDs has led to the
requirement for Alloy to increase manufacturing output by commissioning a
second plant, which should be in production by the end of 2004. In addition to
providing additional production capacity, this new plant, which has the full
support of the US Department of Defense, will also become Alloy's technology
centre.
CCM, after an excellent first half, received further encouragement with the
award by the UK Ministry of Defence of a £12 million contract for the design
and supply of improved ship-borne countermeasures for the Royal Navy.
Military Pyrotechnics turnover increased by 36% to £10.1 million during the
period. The business has benefited from our strategy to increase our activity
in this area at Kilgore. In the UK, PW Defence also performed well, as did our
Australian operation. PW Defence is the main supplier of military pyrotechnics
to the UK Ministry of Defence, and is now one year in to a five year partnering
agreement as part of a new procurement initiative.
I referred in my Statement in February to our participation in one of the three
consortia, chosen by the US Department of Homeland Security, to produce a
system for commercial aircraft protection against missile threats. The
selection of parties to proceed to the next phase of this programme is expected
to be announced in August. We are hopeful that our decoy-based system will be
one of those selected for the next phase.
MARINE SAFETY AND SECURITY BUSINESS
In the period under review the Marine business disappointed, achieving only a
breakeven result despite good performance from lights and a satisfactory
outcome for pyrotechnic products. During the first half, sales of electronic
products increased by 23% but profits were adversely affected by external
trials of our personal locating beacon, the results of which suggested that a
product improvement was necessary to meet the demanding operational
specification (which no other manufacturer has achieved). This has now been
implemented. Although much improved performance is anticipated in the second
half, the outcome for the year is still likely to be unsatisfactory. The
executive directors are reviewing how the increased turnover in our Marine
electronics business can be translated into increased profitability, given the
structure of the industry, the size of the market and our heavy research and
development costs with their rapid amortisation.
BOARD OF DIRECTORS
In May, I was delighted to welcome Sir Peter Norriss as an additional
non-executive director of the Company. His experience in the defence industry
is already bringing considerable benefit to the Group.
PROSPECTS
The strength of the Group's defence order book and the increasing worldwide
recognition of the part decoys play in protecting expensive military platforms,
gives considerable confidence for the future performance of our defence
businesses, not just in the next six months but also in the longer term. This,
together with the anticipated improvement in the Marine business in the second
half, should ensure another year of satisfactory performance for the Group.
K C SCOBIE - Chairman
6 July 2004
*All comparisons are for the half year to 30 April 2003 as restated following
the adoption of FRS5 Application Note G and UITF Abstract 38.
UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT
for the half year to 30 April 2004
Unaudited Unaudited Audited
Half year Half year Year to
to to
31 Oct 2003
30 April 30 April
2004 2003 As
restated1
£000 As
restated1 £000
£000
Turnover
Continuing operations 57,441 45,133 110,170
Discontinued operations - 4,336 8,240
57,441 49,469 118,410
Operating profit/(loss)
Continuing operations 7,463 5,701 14,026
Discontinued operations - 244 (216)
(Loss)/profit on disposal: 7,463 5,945 13,810
-insurance claim - - 565
-sale of subsidiary undertaking/ (690) - 724
division
Associated undertaking - - 178
Profit on ordinary activities before 6,773 5,945 15,277
interest
Interest payable (1,660) (1,676) (3,433)
Profit on ordinary activities before 5,113 4,269 11,844
taxation
Tax on profit on ordinary activities (1,616) (1,260) (3,500)
Profit on ordinary activities after 3,497 3,009 8,344
taxation
Equity minority interest 13 24 23
Dividends (811) (702) (2,034)
Retained profit 2,699 2,331 6,333
Basic earnings per ordinary share - 15.12p 10.43p 29.51p
continuing operations
Basic earnings per ordinary share 12.63p 11.05p 30.48p
Diluted earnings per ordinary share 12.56p 10.93p 30.05p
Dividend per ordinary share 2.80p 2.55p 7.40p
1 See Note 4
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited Audited
Half year Half year Year to
to to
31 Oct 2003
30 April 30 April
2004 2003 As
restated1
£000 As
restated1 £000
£000
Profit on ordinary activities after 3,497 3,009 8,344
taxation
Currency translation differences on (696) 60 (1,636)
foreign currency net investments
2,801 3,069 6,708
Prior year adjustment 1 (1,097) - -
1,704 3,069 6,708
1 See Note 4
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
Half year Half year Year to
to to
31 Oct 2003
30 April 30 April
2004 2003 As
restated1
£000 As
restated1 £000
£000
Profit on ordinary activities after 3,497 3,009 8,344
taxation
Equity minority interest 13 24 23
Dividends (811) (702) (2,034)
2,699 2,331 6,333
Ordinary shares issued 73 - -
Share premium 5,752 - -
Other recognised (losses)/profits (696) 60 (1,636)
Net addition to shareholders' funds 7,828 2,391 4,697
Opening shareholders' funds 52,423 47,726 47,726
Closing shareholders' funds 60,251 50,117 52,423
1 See Note 4
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30 April 2004
Unaudited Unaudited Audited
As at As at As at
30 April 30 April 31 Oct 2003
2004 2003
As
£000 As restated1
restated1
£000
£000
Fixed assets
Development costs 2,384 2,881 2,996
Goodwill 28,442 28,343 28,442
Tangible assets 41,525 43,229 42,879
Investments 1,063 972 1,063
73,414 75,425 75,380
Current assets
Stock 24,456 23,172 24,962
Debtors 31,498 32,142 30,059
Cash at bank and in hand 4,093 1,812 5,821
60,047 57,126 60,842
Creditors due within one year
Bank loans and overdrafts 24,021 22,130 22,986
Loan stock 40 40 40
Other 21,893 29,922 34,173
45,954 52,092 57,199
Net current assets 14,093 5,034 3,643
Total assets less current liabilities 87,507 80,459 79,023
Creditors due after more than one year (21,638) (28,421) (21,489)
Provisions for liabilities and charges (5,352) (1,644) (4,832)
Equity minority interest (266) (277) (279)
60,251 50,117 52,423
Capital and reserves
Called-up share capital 1,507 1,434 1,434
Reserves 58,744 48,683 50,989
Shareholders' funds 60,251 50,117 52,423
1 See Note 4
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2004
Unaudited Unaudited Audited
Half year Half year Year to
to to
31 Oct 2003
30 April 30 April
2004 2003 As
restated1
£000 As
restated1 £000
£000
Net cash (ouflow)/inflow from operating (5,715) 5,001 18,084
activities
Returns on investments and servicing of (1,276) (2,060) (3,420)
finance
Taxation (748) (414) (686)
Net capital expenditure (2,323) (2,696) (5,497)
Acquisitions 645 - 1,475
Equity dividends paid - - (1,866)
Cash (outflow)/inflow before use of (9,417) (169) 8,090
liquid resources and financing
Financing -issue of shares 5,825 - -
-decrease in debt (1,688) (2,196) (5,645)
(Decrease)/increase in cash (5,280) (2,365) 2,445
Reconciliation of operating profit to
net cash flow from operating activities
Operating profit 7,463 5,945 13,810
Amortisation charge 1,044 589 1,210
Depreciation charge 1,891 1,860 3,295
Increase in stock (535) (2,568) (4,757)
Increase in debtors (3,347) (2,880) (1,606)
(Decrease)/increase in creditors (12,231 2,055 6,132
Net cash (outflow)/inflow from (5,715) 5,001 18,084
operating activities
Reconciliation of net cash flow to
movement in net debt
(Decrease)/increase in cash (5,280) (2,365) 2,445
Cash outflow from the decrease in debt 1,688 2,196 5,645
and lease financing
Change in net debt resulting from cash (3,592) (169) 8,090
flows
New finance leases (231) (650) (1,153)
Translation difference 808 442 1,964
Amortisation of debt finance costs (48) (55) (305)
(3,063) (432) 8,596
1 See Note 4
Analysis of net debt
As at Cash Non cash Exchange As at
1 Nov flow changes movement 30 April
2003 2004
£000 £000 £000
£000 £000
Cash at bank and in hand 5,821 (1,576) - (152) 4,093
Overdrafts (16,766) (3,704) - 156 (20,314)
(10,945) (5,280) - 4 (16,221)
Debt due within one year (6,260) 7 2,507 - (3,746)
Debt due after one year (18,065) 1,023 (2,555) 722 (18,875)
Finance leases (3,411) 658 (231) 82 (2,902)
(38,681) (3,592) (279) 808 (41,744)
INDEPENDENT REVIEW REPORT BY THE AUDITORS
To Chemring Group PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 April 2004 which comprises the consolidated profit and
loss account, statement of total recognised gains and losses, reconciliation of
movements in shareholders' funds, consolidated balance sheet, consolidated cash
flow statement and associated notes, and the related notes 1 to 8. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
This report is made solely to the Company in accordance with Bulletin 1999/4
issued by the Auditing Practices Board. Our work has been undertaken so that we
might state to the Company those matters we are required to state to them in an
independent review report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our review work, for this report, or for the conclusions
we have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board. A review consists principally of
making enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review excludes audit
procedures such as tests of controls and verification of assets, liabilities
and transactions. It is substantially less in scope than an audit performed in
accordance with United Kingdom Auditing Standards and therefore provides a
lower level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.
Uncertainty relating to insurance claim
In arriving at our review conclusion, we have considered the adequacy of
disclosures made in note 3 concerning the possible outcome in respect of
amounts recoverable under an insurance claim relating to an incident at Kilgore
Flares, a subsidiary undertaking of the Company, in April 2001. The future
settlement of this claim could result in a shortfall, or a surplus, when
compared with the recorded debtor at 30 April 2004. It is not possible to
quantify the effect, if any, of this uncertainty. Details of the circumstances
relating to this uncertainty, profit and loss account treatment and the amount
of the related debtor recorded at 30 April 2004 are disclosed in note 3.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 April 2004.
DELOITTE & TOUCHE LLP, Chartered Accountants, 6 July 2004
Southampton
NOTES TO THE INTERIM STATEMENT
1. BASIS OF PREPARATION
The interim accounts to 30 April 2004 have been prepared on the basis of the
accounting policies set out in the audited full year accounts to 31 October
2003, except for the adoption of FRS5 Application Note G Revenue recognition
and the adoption of UITF Abstract 38 Accounting for ESOP trusts. See Note 4.
The unaudited consolidated profit and loss account for each of the six month
periods and the unaudited consolidated balance sheet as at 30 April 2004 do not
amount to full accounts within the meaning of section 240 of the Companies Act
1985 and have not been delivered to the Registrar of Companies. The interim
report was approved by the Board of Directors on 6 July 2004.
2. SEGMENTAL ANALYSIS OF TURNOVER
Unaudited Unaudited Audited
Half year Half year Year to
to to
31 Oct 2003
30 April 30 April
2004 2003 As
restated1
£000 As
restated1 £000
£000
Countermeasures 34,303 25,678 64,264
Military pyrotechnics 10,113 7,410 19,540
Marine safety and security 13,025 12,116 26,366
Continuing operations 57,441 45,204 110,170
Discontinued operations - 4,265 8,240
Total 57,441 49,469 118,410
1 See Note 4
3. INSURANCE CLAIM
As reported in the financial statements for the year ended 31 October 2003 the
Group has lodged a claim with its insurers in respect of property damage and
business interruption arising out of an incident at Kilgore in April 2001. To
date £5,700,000 has been received from the insurers.
At 31 October 2003 a balance of £7,486,000 (2002: £9,633,000) was recognised
within other debtors. This outstanding balance has been reduced by £340,000
since the year end, as a result of exchange rate movements against the US
dollar. At 30 April 2004 the Board increased its estimate of the additional
proceeds receivable to £7,717,000, an increase of £571,000. There is no net
impact on operating profit as legal costs of a similar amount were incurred.
4. PRIOR YEAR ADJUSTMENT
As explained in Note 1, FRS5 Application Note G has been adopted in the period.
As a result a prior year adjustment of £771,000 to reduce shareholders' funds
at 31 October 2002 is required. Prior to adoption, the Group recognised a sale,
under bill and hold arrangements, when production of goods had been completed
but external testing and acceptance of products by US Government agencies was
awaited. Following the adoption of FRS5 Application Note G, sales are now
recognised upon acceptance by US Government agencies.
The adoption of FRS5 Application Note G also resulted in a reduction to the
previously reported profits for the financial year ended 31 October 2003 by £
152,000, a reduction to the previously reported profits for the half year to 30
April 2003 by £25,000 and an increase in profits for the current half year by £
296,000.
In addition, as stated in Note 1, UITF Abstract 38 has been adopted in the
period. As a result a prior year adjustment of £174,000 to reduce shareholders'
funds at 31 October 2002 is required.
5. 2003 RESULTS
The figures for the year to 31 October 2003 are abridged from the Group's full
Financial Statements for that period which carry an unqualified Auditors'
Report and have been filed with the Registrar of Companies.
6. TAXATION
The estimated tax rate for the Group for the year ending 31 October 2004 is 32%
(2003: 30%).
7. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in issue of
27,765,886 (2003: 27,435,972) and profit on ordinary activities after taxation,
minority interests and preference dividends of £3,508,000 (2003: £3,031,000).
Diluted earnings per share has been calculated using a diluted average number
of shares in issue of 27,922,564 (2003: 27,726,796) and profit on ordinary
activities after taxation, minority interests and preference dividends of £
3,508,000 (2003; £3,031,000). Earnings per share - continuing operations of
15.12p is based on the average number of shares in issue of 27,765,886 (2003:
27,435,972) and represents a basic earnings per share of 12.63p and an increase
of 2.49p per share for discontinued operations.
8. CORPORATE WEBSITE
Further information on the Group and its activities can be found on the
corporate website at www.chemring.co.uk.
10
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