Interim Results
FOR IMMEDIATE RELEASE 27 June 2006
CHEMRING GROUP PLC
Interim Results for the Six Months to 30 April 2006
Chemring Group PLC today announces its interim results:
* Profit before tax on continuing operations up 64% to £11.8 million (2005*:
£7.2 million)
* Strong cash inflow generated from operations of £13.4 million (2005*: £2.0
million outflow)
* Basic earnings per share up 81% at 26.02p (2005*: 14.38p)
* Adjusted earnings per share** up 90% at 27.74p (2005*: 14.62p)
* Interim dividend per ordinary share up 50% at 4.80p (2005*: 3.20p)
Divisional Highlights
* Countermeasures
* Current order book of £121 million (2005: £106 million)
* Record growth in turnover and profit at Alloy Surfaces
* Strong first half at Kilgore, meeting all our expectations
* Energetics
* New acquisitions performing well and exceeding management targets
* Current order book of £65 million (2005: £9 million)
* Marine
* McMurdo lights business divested for £2.85 million
* Divestment plans for remaining businesses ongoing
Results for the Half Year to 30 April 2006
2006 2005* % increase
£m £m
Continuing operations:
Revenue 82.6 48.0 72
Operating profit 14.4 8.5 69
Finance expense (2.6) (1.3)
Profit before tax 11.8 7.2 64
Basic earnings per share 26.02p 14.38p 81
Adjusted earnings per share** 27.74p 14.62p 90
Ken Scobie, Chemring Group Chairman, commented:
"In recent reports I have predicted buoyant prospects for the Group, which the
executive management have successfully delivered. The Group's Countermeasures
division still commands more than 50% of the world market for expendable
countermeasures and has continued to see a considerable increase in profits.
This, combined with the solid start to the year seen in the Energetics
division, has helped deliver very strong and encouraging operational and
financial performances in the first half. I anticipate that the full year
results will demonstrate further the Group's potential, our growing presence in
the defence industry worldwide, and our ability to generate value for our
shareholders."
* See Note 1 below
** See Note 3 below
Notes:
1. All comparisons are for the half year to 30 April 2005 as restated for
IFRS.
2. The interim dividend of 4.80p per ordinary share will be paid on 15 August
2006 to holders on the register at 28 July 2006. The ex-dividend date will
be 26 July 2006.
3. Adjusted earnings per share is reconciled to basic earnings per share in
note 5 of the interim statement.
For further information:
David Price Chief Executive, Chemring Group PLC 0207 930 0777
Paul Rayner Finance Director, Chemring Group PLC 0207 930 0777
Rupert Pittman Cardew Group 0207 930 0777
STATEMENT BY THE CHAIRMAN
Results for the Half Year to 30 April 2006
2006 2005*
£m £m
Continuing operations:
Revenue 82.6 48.0
Operating profit 14.4 8.5
Finance expense (2.6) (1.3)
Profit before tax 11.8 7.2
Basic earnings per share 26.02p 14.38p
Adjusted earnings per share** 27.74p 14.62p
I am pleased to report that the Group has had an outstanding first half. On
continuing operations, operating profit increased by 69% to £14.4 million (2005
*: £8.5 million) and profit before tax increased by 64% to £11.8 million (2005
*: £7.2 million).
Basic earnings per share increased by 81% to 26.02p (2005*: 14.38p). Adjusted
earnings per share, which has been calculated to exclude the impact of non-cash
settled share-based payments and amortisation on acquired intangibles,
increased by 90% to 27.74p (2005*: 14.62p).
The Group generated positive operating cash flow from operations of £13.4
million, compared to an outflow of £2.0 million in the first half of 2005. The
acquisitions in the period were partially funded by approximately £29.5 million
of new debt, and hence net debt at the end of the first half increased to £75.4
million (2005*: £39.7 million).
Four acquisitions were completed during the period - Comet in Germany,
Technical Ordnance in the US, and Leafield Engineering and Leafield Marine in
the UK. They contributed £9.7 million of revenue and £1.2 million of operating
profit to the Group in the first half. The integration of these businesses
within our Energetics division, together with Nobel Energetics acquired in
September 2005, is now well under way.
The conditional sale of the non-core McMurdo marine lights business for £2.85
million cash was announced on 30 May 2006. The sale should be completed on 30
June 2006.
The Board wishes to continue with its progressive dividend policy, whilst
balancing the Group's debt/equity ratio and managing cash requirements to fund
expansion, including small acquisitions. Accordingly, the directors have
recommended an interim dividend of 4.80p per ordinary share (2005*: 3.20p), an
increase of 50%. The interim dividend will be paid on 15 August 2006 to
shareholders on the register at 28 July 2006.
Forward exchange currency contracts have been entered into to reduce the
Group's exposure to depreciation of the US dollar against sterling.
As I reported in my last statement, the mediation with our former insurance
broker, Willis, was unsuccessful. We therefore continue to prepare for
full-scale litigation to recover the significant sums which we believe are due
to us.
Countermeasures
The Group's Countermeasures division, which still commands more than 50% of the
world market for expendable countermeasures, has continued its remarkable
profit growth, with Kilgore quadrupling its profits, Alloy Surfaces up 51%, and
Chemring Countermeasures up 32% over the first half of last year.
Demand for Alloy Surfaces' special material decoys is unabated, and sales
volumes have increased by 72% compared with 2005. The extension to Alloy
Surfaces' second facility was completed in early June 2006, and the completion
of the new third facility is on target to enable production to commence in
November 2006. Our production build-up has, to date, met all of the US Army
production milestones.
For the first time since it was acquired by the Group in 2001, Kilgore
generated a strong first half performance on the back of consistent volume
manufacture. Production performance on its high volume decoys has improved
significantly, and production rates of over 8,000 units a day are being
achieved. A new large flare facility to supply additional flares to the US Air
Force is being built, and production will commence in the second half of the
year.
In the UK, Chemring Countermeasures had a solid performance, with a substantial
increase in demand from the UK Ministry of Defence to support peacekeeping
operations in Afghanistan. The company has also been successful in capturing
several important NATO contracts for naval countermeasures.
The Department of Homeland Security (DHS) in the US, to which I have referred
in previous reports, is now searching for alternative solutions to the laser
systems initially selected as their preferred method of protecting commercial
aircraft. Alloy Surfaces' special material decoys have been selected by several
systems providers as an integral part of the alternative solutions which are
now being presented to the DHS.
Energetics
This division had a solid start to its first full year of operation, with each
of the businesses in the division trading profitably. The majority of
businesses met expectations, and any shortfalls which arose were purely
attributable to timing issues, which are common with defence contracts, and
will be recovered in the second half of the year.
PW Defence had an excellent start to 2006, with sales volumes up 41% compared
with the first half of 2005, principally driven by the peacekeeping
requirements of several countries, including the UK. Several large NATO
contracts for battlefield simulation products were secured, and the start-up of
low-cost manufacturing in Estonia was successfully completed.
Comet also had a very good start, with orders from the US Army for battlefield
simulation products and from the French Army for its PEMBS minefield clearance
system. There is considerable interest in this system from other nations
involved in peacekeeping operations for dealing with either deployed mines or
Improvised Explosive Devices.
Two key development programmes completed major milestones in the last few
months. Nobel Energetics completed the final development of the rocket motors
for the NLAW anti-armour missile. Kilgore also completed the update of its
marine location marker, with successful qualification trials from both F/A-18
and helicopter platforms, and full scale production will get underway in the
second half of the year.
Marine Electronics
In line with our stated strategy to divest the marine division, we announced
the conditional sale of the McMurdo marine lights business for £2.85 million in
May. I hope that, when I report to you next, I will be able to confirm that we
have disposed of the residual marine electronics business at a satisfactory
valuation.
Board of Directors
In May, the Board was delighted to welcome the Rt Hon Lord Freeman as a
non-executive director, completing, for the moment, the restructuring of the
Board. Lord Freeman has a wealth of experience in Government, the defence
industry, business and finance, and we consider ourselves fortunate to have
secured his services. He will assume the Chairmanship of the Audit Committee in
July.
International Financial Reporting Standards
We have adopted International Financial Reporting Standards ("IFRS") in the
first half of 2006 and have consequently restated the prior period accounts.
Full details of the restatements upon adoption of IFRS have been published in
notes 8 and 9 with my statement today.
Pensions
In earlier reports, I have referred to the work being done by the Group to
provide satisfactory, modern pension arrangements for its UK employees, and to
eliminate any actual or theoretical gap which might exist between the asset and
liability valuations of our defined benefit schemes. I repeat my previous
assertions that any assessment of a deficit in the funding positions of these
schemes, taking into consideration the additional contributions being made by
the Group every year, would be minimal and not material in the context of the
Group. The strength of the Group's covenant is recognised by virtue of the fact
that we have been assessed at the lowest risk level by the Pension Protections
Fund in collecting its levy this year.
The Board has however been considering all aspects of the current pensions
debate, including possible corporate governance implications, where we have
concerns at the apparent contradictions which now exist between the various
parties' responsibilities for pension schemes. The Board has a responsibility
to ensure that the defined benefit schemes are properly funded, and following
the adoption of IFRS, to manage the liability representing the deficit on the
Group's balance sheet. We are in discussions with all interested parties to
develop a satisfactory solution to this issue.
Prospects
Your directors are very conscious of the current political-military scenario,
not only in Iraq and Afghanistan but also in other disturbed areas of the
world, and its potential impact on the growth of the Group. To the extent that
anyone can predict world events, the Board takes soundings in the appropriate
quarters on its judgment for future strategy and the anticipated rate of
expansion of the Group. In our predominant niche of countermeasures, the Board
is confident that our expansion will continue for several years, both in
conventional magnesium- based decoys and in Alloy Surfaces' special material
decoys. The commissioning of the extension to Alloy Surfaces' second facility
earlier this month, and the opening of the third facility in November 2006,
will provide the additional capacity to meet the current strong order book.
In our Energetics activities, we are convinced that there are significant
opportunities for expansion, consolidation and rationalisation, with the
resultant improvements in efficiency and global marketing capabilities. The
second half will benefit from a full six months' contribution from Comet,
Technical Ordnance and Leafield.
In recent reports I have predicted buoyant prospects for the Group, which the
executive management have successfully delivered. I anticipate that the full
year results will demonstrate further the Group's potential, our growing
presence in the defence industry worldwide, and our ability to generate value
for our shareholders.
K C SCOBIE - Chairman
27 June 2006
*All comparisons are for the half year to 30 April 2005 restated for IFRS.
** See note 5 of interim statement.
UNAUDITED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2006
Unaudited Unaudited Unaudited
Half year Half year Year to
to 30 April to 30 April 31 Oct
2006 2005 2005
As As
restated restated
Note £000 £000 £000
Continuing operations
Revenue 2 82,584 47,977 120,963
Operating profit 2 14,351 8,522 22,050
Share of results of associate - - 197
Finance expense (2,587) (1,329) (2,964)
Profit before taxation 4 11,764 7,193 19,283
Tax (3,830) (2,295) (5,724)
Profit after taxation for the
period/year
from continuing operations 2 7,934 4,898 13,559
Discontinued operations
Loss after taxation for the
period/year
from discontinued operations 2 (129) (720) (4,790)
Profit after taxation for the 7,805 4,178 8,769
period/year
Attributable to:
Equity shareholders 7,803 4,172 8,756
Minority interests 2 6 13
Basic earnings per ordinary 5 26.02p 14.38p 29.88p
share
Diluted earnings per ordinary 5 25.81p 14.33p 29.75p
share
Dividend per ordinary share 4.80p 3.20p 10.50p
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the half year to 30 April 2006
Unaudited Unaudited Unaudited
Half year Half year Year to
to to
30 April 30 April 31 October
2006 2005 2005
As As
restated restated
£000 £000 £000
Foreign currency translation (2,529) (2,708) 67
differences on net investments
Actuarial gain/(loss) on retirement 4,420 (1,887) (4,074)
benefit scheme assets
Hedging reserve 619 - -
Tax on items taken directly to equity (1,512) 572 1,348
998 (4,023) (2,659)
Profit after taxation for the period/ 7,803 4,172 8,756
year attributable to equity
shareholders
Total recognised income and expense 8,801 149 6,097
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30 April 2006
Unaudited Unaudited Unaudited
As at As at As at
30 April 30 April 31 Oct
2006 2005 2005
As As
restated restated
Note £000 £000 £000
Non-current assets 8,366 - 2,929
Intangible assets 676 2,575 541
Development costs 69,305 27,984 34,680
Goodwill 56,632 42,236 50,698
Property, plant and equipment 1,065 1,073 1,068
Investment in associate 6,432 6,674 7,440
Deferred tax asset 142,476 80,542 97,356
Current assets
Inventories 37,518 31,123 27,821
Trade and other receivables 35,013 29,927 27,168
Derivative financial instruments 470 - -
Cash and cash equivalents 10,023 327 7,774
Assets classified as held for sale 15,154 - 14,646
98,178 61,377 77,409
Current liabilities
Loans (6,396) (4,388) (1,957)
Obligations under finance leases (874) (915) (925)
Bank overdrafts (7,456) (12,477) (10,744)
Trade and other payables (35,570) (25,155) (25,248)
Corporation tax (1,363) (1,932) (1,150)
Liabilities classified as held for (1,813) - (1,776)
sale
(53,472) (44,867) (41,800)
Non-current liabilities
Loans (70,271) (21,519) (46,320)
Obligations under finance leases (458) (733) (602)
Other payables (209) (81) (163)
Deferred tax liabilities (9,846) (5,288) (8,958)
Long-term provisions - (170) (170)
Preference shares (62) (62) (62)
Retirement benefit obligations (16,762) (18,051) (20,189)
(97,608) (45,904) (76,464)
Net assets 89,574 51,148 56,501
Equity
Share capital 1,611 1,455 1,459
Share premium account 53,524 26,940 27,274
Special capital reserve 12,939 12,939 12,939
Hedging reserve 433 - -
Revaluation reserve 1,640 1,669 1,640
Retained earnings 19,148 7,875 12,912
Equity attributable to equity holders 89,295 50,878 56,224
of the parent
Minority interest 279 270 277
Total equity 6 89,574 51,148 56,501
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2006
Unaudited Unaudited Unaudited
Half year Half year Year to
to to
30 April 30 April 31 October
2006 2005 2005
As As
restated restated
Note £000 £000 £000
Cash flows from operating activities
Cash generated from/(used in) operations 13,397 (1,956) 21,134
Tax paid (3,626) (2,856) (7,612)
Net cash from operating activities 9,771 (4,812) 13,522
Cash flows from investing activities
Dividends received from associate 107 - 108
Purchase of property, plant and (4,882) (3,353) (6,898)
equipment
Purchases of intangible assets (922) (320) (1,063)
Proceeds on disposal of investment in - 242 242
subsidiary
Sales of property, plant and equipment - - 8
Acquisition of subsidiaries (net of cash 7 (51,650) (503) (22,009)
acquired)
Net cash outflow from investing (57,347) (3,934) (29,612)
activities
Cash flows from financing activities
Dividends paid - - (2,726)
Interest paid (2,372) (1,321) (3,239)
Repayments of obligations under finance (354) (538) (965)
leases
Proceeds on issue of shares 26,402 236 572
New bank loans raised 29,549 5,878 26,931
Net cash inflow from financing 53,225 4,255 20,573
activities
Increase/(decrease) in cash and cash 5,649 (4,491) 4,483
equivalents during the period/year
Cash and cash equivalents at start of (2,970) (7,530) (7,530)
period/year
Effect of foreign exchange rate changes (112) (129) 77
Cash and cash equivalents at end of 2,567 (12,150) (2,970)
period/year
Reconciliation of operating profit to
net cash flow
generated from/(used in) operating
activities
Operating profit from continuing 14,351 8,522 22,050
operations
Operating loss from discontinued (177) (1,028) (5,557)
operations
Adjustment for:
Depreciation of property, plant and 3,006 1,939 4,103
equipment
Amortisation of intangible assets 659 625 4,678
Loss on disposal of property, plant and 50 47 8
equipment
Decrease in provisions (170) (456) (456)
Operating cash flows before movements in 17,719 9,649 24,826
working capital
Increase in inventories (2,860) (6,033) (5,696)
Increase in trade and other receivables (2,469) (3,627) (1,073)
Increase/(decrease) in trade and other 1,007 (1,945) 3,077
payables
Cash generated from/(used in) operations 13,397 (1,956) 21,134
Unaudited Unaudited Unaudited
Half year Half year Year to
to to
30 April 30 April 31 Oct
2006 2005 2005
As As
restated restated
£000 £000 £000
Reconciliation of net cash flow to
movement in net debt
Increase/(decrease) in cash 5,649 (4,491) 4,483
Cash inflow from the increase in debt (29,195) (5,340) (25,967)
and lease financing
Change in net debt resulting from cash (23,546) (9,831) (21,484)
flows
New finance leases (202) - (103)
Translation difference 1,117 219 (1,109)
Amortisation of debt finance costs (27) (85) (70)
Movement in net debt in the period/year (22,658) (9,697) (22,766)
Net debt at start of period/year (52,774) (30,008) (30,008)
Net debt at end of period/year (75,432) (39,705) (52,774)
Analysis of net debt
As at Cash Non-cash Exchange As at
flow changes movement
1 Nov 30 April
2005 2006
£000 £000 £000 £000 £000
Cash at bank and in hand 7,774 2,361 - (112) 10,023
Overdrafts (10,744) 3,288 - - (7,456)
(2,970) 5,649 - (112) 2,567
Debt due within one year (1,957) 2,538 (6,977) - (6,396)
Debt due after one year (46,320) (32,087) 6,950 1,186 (70,271)
Finance leases (1,527) 354 (202) 43 (1,332)
(52,774) (23,546) (229) 1,117 (75,432)
INDEPENDENT REVIEW REPORT TO CHEMRING GROUP PLC
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 April 2006 which comprises the consolidated income
statement, the consolidated statement of recognised income and expense, the
consolidated balance sheet, the consolidated cash flow statement and associated
notes, and the related notes 1 to 10. 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 are consistent with
those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
International Financial Reporting Standards
As disclosed in note 1, the next annual financial statements of the Group will
be prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted for use in the EU. Accordingly, the interim report has been
prepared in accordance with the recognition and measurement criteria of IFRS
and the disclosure requirements of the Listing Rules. The accounting policies
are consistent with those that the directors intend to use in the annual
financial statements.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board for use in the United Kingdom. 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 International Standards on Auditing (UK and
Ireland) and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
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 2006.
Emphasis of matter - insurance claim
In arriving at our review conclusion, we have considered the adequacy of the
disclosure made in note 3 concerning the amounts recognised under a claim
against the Group's former insurance brokers concerning the insurance for
Kilgore Flares Company LLC and their subsequent handling of an insurance claim.
The future settlement of the claim against the brokers could result in a
shortfall, or a surplus, when compared with the recorded debtor at 30 April
2006. It is not possible to quantify the effect, if any, of this uncertainty.
Details of the circumstances relating to this uncertainty and the amount of the
related debtor recorded at 30 April 2006 are disclosed in note 3.
DELOITTE & TOUCHE LLP, Chartered Accountants, 27 June 2006
Southampton
NOTES TO THE INTERIM STATEMENT
1. ACCOUNTING POLICIES
Basis of preparation
Prior to 2006 the Group prepared its annual financial statements in accordance
with UK Generally Accepted Accounting Practices (UK GAAP). For the interim
accounts to 30 April 2006 and continuing, the Group is required to prepare its
consolidated financial statements in accordance with International Financial
Reporting Standards (IFRS). Accordingly these financial statements have been
prepared in accordance with IFRS adopted for use in the European Union. These
will be those IAS, IFRS and related Interpretations (Standing Interpretations
Committee (SIC)/International Financial Reporting Interpretations Committee
(IFRIC) interpretations), subsequent amendments to those standards and related
interpretations, future standards and related interpretations issued or adopted
by the International Accounting Standards Board (IASB) that have been endorsed
by the European Commission (collectively referred to as IFRS). These are
subject to ongoing review and endorsement by the European Commission or
possible amendment by interpretive guidance from the IASB and the IFRIC and are
therefore still subject to change. The restated information in this report will
be updated for any changes which arise before 31 October 2006.
Moreover, under IFRS, only a complete set of financial statements comprising a
balance sheet, income statement, statement of changes in equity, cash flow
statement, together with comparative financial information and explanatory
notes can provide a fair presentation of the Group's financial position,
results of operations and cash flow. Accordingly, the financial information in
this report cannot be described as compliant with IFRS but has been prepared in
accordance with the policies expected to be in place at 31 October 2006.
Comparative data for 2005 has been restated to conform to the new accounting
policies and where appropriate these new policies reflect the exemptions from
restating certain financial information as permitted under IFRS1 First Time
Adoption of International Financial Reporting Standards. Note 8 "Explanation of
Transition to IFRS" details the exemptions taken by the Group.
The unaudited consolidated income statement for each of the six month periods
and the unaudited consolidated balance sheet as at 30 April 2006 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 27 June 2006.
The unaudited comparative figures for the twelve months to 31 October 2005 have
been prepared under IFRS. They do not constitute statutory accounts within the
meaning of section 240 of the Companies Act 1985. The unqualified audited
accounts for the twelve months ended 31 October 2005, under previous UK GAAP,
have been filed with the Registrar of Companies and did not contain statements
under section 237(2) or (3) of the Companies Act 1985.
Basis of accounting
The interim statement has been prepared in accordance with IFRS for the first
time. The disclosures required by IFRS1 concerning the transition from
previously reported UK GAAP to IFRS are given in notes 8 and 9.
Accounting convention
The financial statements are prepared under the historical cost convention,
except for the revaluation of certain properties and financial instruments.
Basis of consolidation
The Group financial statements consolidate those of the Company and all of its
subsidiaries. A subsidiary is an entity over which the Group has the power to
govern the financial and operating policies of an entity so as to obtain
benefits from its activities. The results of subsidiaries acquired are
consolidated from the date on which control passes to the Group and the results
of disposed subsidiaries are consolidated up to the date on which control
passes from the Group.
All companies within the Group make up their financial statements to the same
date. All intra group transactions, balances, income and expenses are
eliminated on consolidation.
Operating profit
Operating profit is stated before the share of results of the associate and
before investment income and finance expense. Operating profit excludes the
results of discontinued operations.
Revenue recognition
Sales comprise the fair value of the consideration received or receivable for
deliveries made, work completed or services rendered during the year, net of
discounts, VAT and other sales related taxes. Sales are recognised when title
passes, or when the right to consideration, in exchange for performance, has
been completed. For bill and hold arrangements revenue is recognised when the
risks and rewards are transferred to the customer, typically on formal
acceptance. An appropriate proportion of total long term contract value, based
on the fair value of work performed, is included in revenue and an appropriate
level of profit is taken based on the percentage completion method when the
final outcome can be reliably assessed. Provision is made in full for
foreseeable losses as soon as they are identified.
Acquisitions
On acquisition of a subsidiary the cost is measured as the fair value of the
consideration given plus any directly attributable costs. The assets,
liabilities and contingent liabilities of a subsidiary that meet the IFRS3
Business Combinations recognition criteria are measured at the fair value at
the date of acquisition. Where cost exceeds fair value of the net assets
acquired the difference is recorded as goodwill.
Where the fair value of the net assets exceeds the cost, the difference is
recorded directly in the income statement. The accounting policies of
subsidiaries are changed where necessary to be consistent with those of the
Group.
Intangible assets
The purchased goodwill of the Group is regarded as having an indefinite useful
economic life and, in accordance with IAS36 Impairment of Assets, is not
amortised but is subject to annual tests for impairment. In reviewing the
carrying value of goodwill of the various businesses, the Board has considered
the separate plans and cash flows of these businesses consistent with the
requirements of IAS36, and is satisfied that these demonstrate that no
impairment has occurred. Goodwill arising on acquisition before the date of
transition to IFRS has been retained at the previous UK GAAP amounts subject to
being tested for impairment at that date.
Expenditure on research activities is recognised as an expense in the period in
which it is incurred. Costs incurred in development where the related
expenditure is separately identifiable, measurable and management are satisfied
as to the ultimate technical and commercial viability of the project, and that
it is probable that the asset will generate future economic benefits, are
recognised as an intangible asset and amortised on a straight line basis over
typically three years from the date that commercial production commences.
Development costs not meeting the criteria for capitalisation are expensed as
incurred.
Patent and trademarks are measured initially at purchase cost and are amortised
on a straight-line basis over their estimated useful lives.
For acquisitions after 1 November 2004 the Group recognises separately from
goodwill intangible assets that are separable or arise from contractual or
other legal rights and whose fair value can be measured reliably. These
intangible assets have finite lives and are amortised on a straight-line basis
over those lives, typically seven years.
Property, plant and equipment
Other than revalued land and buildings, property, plant and equipment are held
at cost less accumulated depreciation and any recognised impairment loss. No
depreciation is provided on freehold land. On other assets depreciation is
provided at rates calculated to write down their cost or valuation to their
estimated residual values by equal instalments over their estimated useful
economic lives, which are considered to be:
Freehold buildings - up to 50 years
Leasehold buildings - the period of the lease
Plant and equipment - up to 10 years
Impairment of non-current assets
Assets that have indefinite lives are tested for impairment annually. Assets
that are subject to depreciation or amortisation are reviewed for impairment
whenever changes in circumstances indicate that the carrying value may not be
recoverable. To the extent that the carrying value exceeds the recoverable
amount an impairment loss is recorded for the difference as an expense in the
income statement. The recoverable amount used for impairment testing is the
higher of the value in use and its fair value less costs of disposal. For the
purpose of impairment testing assets are grouped at the lowest levels for which
there are separately identifiable cash flows.
Non-current assets held for sale
Non-current assets and disposal groups classified as held for sale are measured
at the lower of carrying amount and fair value less costs to sell. These items
are so classified if their carrying amount will be recovered through a sale
transaction rather than through continuing use.
Inventories
Inventories are recorded at the lower of cost and net realisable value. Cost
represents materials, direct labour, other direct costs and related production
overheads and is determined using the first-in first-out (FIFO) method. Net
realisable value is based on estimated selling price, less further costs
expected to be incurred to completion and disposal.
Provision is made for slow moving, obsolete and defective items where
appropriate.
Taxation
Current tax, including UK corporation tax and foreign tax, is provided for at
amounts expected to be paid (or recovered) using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
Deferred tax is accounted for using the balance sheet liability method in
respect of temporary differences arising between the tax bases of assets and
liabilities and their carrying values in the financial statements. In principle
deferred tax liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised.
Deferred tax is calculated at the tax rates that are expected to apply to the
period in which the asset is realised or the liability settled. Deferred tax is
charged or credited to the income statement except where it relates to items
charged or credited direct to equity, in which case the deferred tax is also
credited or charged to equity.
Special capital reserve
The special capital reserve was created as part of a capital reduction scheme
involving the cancellation of the share premium account which was approved by
the Court in 1986 and is in accordance with the requirements of the Companies
Act 1985.
Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each Group company are expressed in
pounds sterling, which is the functional currency of the Company, and the
presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual companies, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at the rates of exchange prevailing on the dates of the
transactions. At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated at the rates prevailing
on the balance sheet date. Non-monetary items carried at fair value that are
denominated in foreign currencies are translated at the rates prevailing at the
date when the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the
retranslation of monetary items, are included in profit or loss for the period.
In order to hedge its exposure to certain foreign exchange risks, the Group
enters into forward contracts and options which are accounted for as derivative
financial instruments (see below for details of the Group's accounting policies
in respect of such derivative financial instruments).
For the purpose of presenting consolidated financial statements, the assets and
liabilities of the Group's foreign operations are translated at exchange rates
prevailing on the balance sheet date. Income and expense items are translated
at the average exchange rates for the period.
Derivative financial instruments
The Group's activities expose it primarily to the financial risks of interest
rate and foreign currency transactions, and it uses derivative financial
instruments to hedge its exposure to these transactional risks. The Group uses
interest rate swap contracts and foreign exchange forward contracts to reduce
these exposures and does not use derivative financial instruments for
speculative purposes.
As IAS32 and IAS39 are only applied from 1 November 2005, as permitted, the
comparative information to 31 October 2005 for derivative financial instruments
is presented under UK GAAP FRS13. Under UK GAAP, changes in the fair value of
forward foreign exchange contracts were recognised through the income
statement. However the difference between fair value and book value of the
Group's interest rate swaps was not recognised.
From 1 November 2005, under IFRS derivative financial instruments are
recognised at fair value at the date the derivative contract is entered into
and are revalued at fair value at each balance sheet date. The method by which
any gain or loss is recognised depends on whether the instrument is designated
a hedging instrument or not. To be designated as a hedging instrument the
instrument must be documented as such at inception and must be assessed at
inception and on an ongoing basis to be highly effective in offsetting changes
in fair values or cash flows of hedged items.
Hedge accounting principles are used for interest rate swaps and net investment
hedges where movements in fair value are held in equity until such time as the
underlying amounts of the contract mature. At maturity the amounts held in
equity will be recycled to the income statement. Changes in fair value of any
ineffective portion of net investment hedges and interest rate swaps are
recognised in the income statement immediately.
Where derivatives do not meet the criteria for hedge accounting the changes in
fair value are immediately recognised in the income statement. The Group does
not apply hedge accounting to the foreign currency forward contracts to
mitigate against currency fluctuations. Accordingly gains and losses arising
from measuring the contracts at fair value are recognised immediately in the
income statement.
Embedded derivatives that are not closely related to the host contract are
treated as separate derivatives with unrealised gains and losses reported in
the income statement.
Retirement benefit costs
Payments to defined contribution retirement benefit schemes are charged as an
expense as they fall due. For defined benefit schemes, the cost of providing
benefits is determined using the Projected Unit Credit Method, with actuarial
valuations being carried out at each balance sheet date. Actuarial gains and
losses are recognised in full in the period in which they occur. They are
recognised outside profit or loss and presented in the statement of recognised
income and expense (SORIE).
Past service cost is recognised immediately to the extent that the benefits are
already vested, and otherwise is amortised on a straight-line basis over the
average period until the benefits become vested.
The retirement benefit obligation recognised in the balance sheet represents
the present value of the defined benefit obligation as adjusted for
unrecognised past service cost, and as reduced by the fair value of scheme
assets. Any asset resulting from this calculation is limited to past service
cost, plus the present value of available refunds and reductions in future
contributions to the scheme.
Leased assets
Where the Group enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the balance sheet as property, plant and
equipment and is depreciated over the shorter of the estimated useful economic
life and the lease term. Future instalments under such leases, net of finance
charges, are included in creditors. The finance element of the instalments is
charged to the income statement at a constant rate of charge on the remaining
balance of the obligation.
All other leases are operating leases and the rental charges are taken to the
income statement on a straight line basis over the life of the lease.
Share-based compensation
The Group operates equity settled and cash settled share-based compensation
schemes.
For grants made under the Group's share-based compensation schemes the
liability is remeasured at each balance sheet date with changes in the fair
value recognised in the income statement on a straight line basis over the
vesting period, based on the Group's estimate of shares that will eventually
vest. The valuation of the options utilises a methodology based on the
Black-Scholes model.
For equity settled share-based grants the total amount recognised is based on
the fair value of the equity instrument measured at the date the award is made.
At each balance sheet date the impact of any revision to vesting estimates is
recognised in the income statement over the vesting period. Proceeds received,
net of any directly attributable transaction costs, are credited to share
capital and share premium.
For cash settled share-based grants the total amount recognised is based on the
fair value of the liability incurred. The fair value of the liability is
remeasured at each balance sheet date with changes in the fair value recognised
in the income statement for the period.
2. SEGMENTAL ANALYSIS
A segmental analysis of revenue and profit is set out below:
Continuing operations:
Unaudited Unaudited Unaudited
Half year Half year Year
to to to
30 April 30 April 31 Oct
2006 2005 2005
As As
restated restated
£000 £000 £000
Revenue
Countermeasures 55,588 34,050 90,768
Energetics 26,996 13,927 30,195
Total 82,584 47,977 120,963
Operating profit
Countermeasures 15,610 9,608 24,508
Energetics 2,337 163 2,031
Non-cash settled share-based (433) (101) (477)
payments
Amortisation of acquired intangibles (332) - (71)
Unallocated head office costs (2,831) (1,148) (3,941)
Total 14,351 8,522 22,050
Share of results of associate - - 197
Finance expense (2,587) (1,329) (2,964)
Profit before tax 11,764 7,193 19,283
Tax (3,830) (2,295) (5,724)
Profit after tax 7,934 4,898 13,559
Discontinued operations:
Unaudited Unaudited Unaudited
Half year Half year Year to
to to
31 Oct
30 April 30 April 2005 As
2006 2005 As restated
restated
£000 £000 £000
Revenue 5,104 6,344 11,495
Operating loss before impairment of (177) (1,028) (2,557)
goodwill
Impairment of goodwill - - (3,000)
Loss before tax (177) (1,028) (5,557)
Tax 48 308 767
Loss after tax (129) (720) (4,790)
The Marine Lights and Electronics business became a discontinued business on 31
October 2005. The results for the year ended 31 October 2005 include an
impairment charge of £3,000,000 to write down the value of the business to its
recoverable amount. The net amount included on the balance sheet as assets held
for sale at 30 April 2006 is £13,341,000 (31 October 2005: £12,870,000).
On 30 May 2006, the Group announced the conditional sale of its McMurdo marine
lights business (which forms part of the above discontinued business) to
Daniamant Limited for a cash consideration of £2,850,000. The sale should be
completed on 30 June 2006.
3. INSURANCE CLAIM
The Group is pursuing a claim against its former insurance brokers, concerning
the insurance cover for Kilgore Flares Company LLC and the broker's subsequent
handling of a claim, following a manufacturing incident at Kilgore Flares
Company LLC on 18 April 2001.
At 31 October 2005 a balance of £2,796,000 was recognised within other debtors.
This outstanding balance has been reduced by £84,000, to £2,712,000 at 30 April
2006, as a result of exchange rate movement against the US dollar. All further
legal and professional costs incurred in the half year to 30 April 2006 have
been recognised in the income statement.
4. TAXATION
The estimated tax rate for the Group for the year ending 31 October 2006 is 33%
(2005: 32%).
5. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in issue of
29,990,590 (2005: 29,013,854) and profit on ordinary activities after taxation
and minority interests of £7,803,000 (2005: £4,172,000). Diluted earnings per
share has been calculated using a diluted average number of shares in issue of
30,233,031 (2005: 29,119,379) and profit on ordinary activities after taxation
and minority interests of £7,803,000 (2005: £4,172,000).
The earnings and shares used in the calculations are as follows:
2006 2005
Ordinary Ordinary
Shares Shares
Earnings Number EPS Earnings Number EPS
£000 000s Pence £000 000s Pence
Basic 7,803 29,991 26.02 4,172 29,014 14.38
Additional shares
issuable other
than at
fair value in - 242 (0.21) - 105 (0.05)
respect of options
outstanding
Diluted 7,803 30,233 25.81 4,172 29,119 14.33
Reconciliation from basic earnings per share to adjusted earnings per share:
Adjusted earnings has been defined as earnings before amortisation of
intangible assets arising on acquisition and the impact of non-cash settled
share-based payments. The directors consider this measure of earnings allows a
more meaningful comparison of earnings trends.
2006 2005
Ordinary Ordinary
Shares Shares
Earnings Number EPS Earnings Number EPS
£000 000s Pence £000 000s Pence
Basic 7,803 29,991 26.02 4,172 29,014 14.38
Amortisation of 224 - 0.75 - - -
acquired
intangibles (after
tax)
IFRS 2 - non-cash 292 - 0.97 69 - 0.24
settled
share-based
payments (after
tax)
Adjusted 8,319 29,991 27.74 4,241 29,014 14.62
6. RECONCILIATION OF CHANGES IN EQUITY
7.
Unaudited Unaudited Unaudited
Half year Half year Year
to to to
30 April 30 April 31 Oct
2006 2005 2005
As As
restated restated
£000 £000 £000
Profit on ordinary activities 7,805 4,178 8,769
after taxation for the period/
year
Equity minority interest (2) (6) (13)
Dividends (2,130) (1,797) (2,730)
Retained profit for the period/ 5,673 2,375 6,026
year
Other recognised gains/(losses) 998 (4,023) (2,659)
Ordinary share issued 152 6 10
Share premium arising 26,250 230 564
Net addition to/(reduction from) 33,073 (1,412) 3,941
shareholders' funds
Opening shareholders' funds 56,501 52,560 52,560
Closing shareholders' funds 89,574 51,148 56,501
7. ACQUISITIONS
On 30 November 2005 the Group acquired the entire share capital of Comet GmbH
for a cash consideration of £6,600,000, subject to a working capital
adjustment.
On 1 February 2006 the Group acquired the entire share capital of Leafield
Engineering Limited and Leafield Marine Limited for a combined cash
consideration of £4,370,000, subject to a working capital adjustment and the
assumption of £570,000 of bank overdrafts.
On 13 March 2006 the Group completed the acquisition of the entire capital
stock of Technical Ordnance Inc. for a cash consideration of $70,000,000
(approximately £40,500,000), subject to a working capital adjustment.
A summary of the assets acquired and consideration paid in respect of these
four acquisitions is set out below:
£000
Intangible assets 6,071
Property, plant and equipment 4,892
Working capital 7,049
Cash 1,363
Deferred tax (710)
18,665
Goodwill 36,283
54,948
Consideration:
Cash 53,013
Cash payable in future 1,935
periods
54,948
Cash payable in future periods relates to working capital adjustments and is
payable within twelve months.
At 30 April 2006 the estimated fair value of assets and liabilities are
provisional and will be updated as necessary within the twelve month period
following the acquisitions.
Summary of cash flows:
£000
Cash paid (53,013)
Cash acquired 1,363
Net cash outflow (51,650)
The above acquisitions were funded by additional medium term loans and by the
issue of 2,900,000 new ordinary shares
8. EXPLANATION OF TRANSITION TO IFRS
IFRS1 - First Time Adoption of International Financial Reporting Standards
The Group has applied IFRS1 First Time Adoption of International Financial
Reporting Standards as a starting point for reporting under IFRS. The Group's
date of transition to IFRS is 1 November 2004 and comparative information has
been restated to reflect the Group's adoption of IFRS except where otherwise
required or permitted by IFRS1.
IFRS1 requires an entity to comply with each IFRS and IAS effective at the
reporting date for its first financial statements prepared under IFRS. As a
general rule IFRS1 requires such standards to be applied retrospectively to
determine the IFRS opening balance sheet at the date of transition, 1 November
2004. IFRS1 provides a number of optional exemptions to this general principle.
The most significant of these are set out below, together with a description,
in each case, of the exemption adopted by the Group.
IFRS3 - Business Combinations
As permitted the Group has elected not to restate business combinations
occurring before the date of transition on 1 November 2004.
IFRS2 - Share-Based Payments
The Group has elected to take advantage of the exemptions allowed in IFRS1
regarding IFRS2 Share-Based Payments for share-based payments granted on or
before 7 November 2002. This means that only equity instruments granted after 7
November 2002 that vest after the effective date of IFRS2 on 1 January 2005
have been valued.
IAS19 - Employee Benefits
Under IAS19 accounting for defined benefit plans retrospectively is expected to
be particularly onerous or impractical. The Group has therefore elected to
utilise the optional exemption under IFRS1 allowing non-retrospective
application of the actuarial gains and losses approach to valuation of the
defined benefit plans. The initial recognition of the defined benefit schemes'
deficits is recorded on the face of the Group balance sheet as at 1 November
2004 (date of transition).
IAS21 - The Effects of Changes in Foreign Exchange Rates
The Group has elected to take advantage of the exemption in IFRS1 regarding
translation differences. Accordingly the Group has not separately disclosed the
amount of cumulative translation differences for its overseas operations
included within retained earnings at 1 November 2004.
IAS16 - Property, Plant and Equipment
A first time adopter may elect to measure individual items of property, plant
and equipment at fair value or a revalued amount as deemed cost at the date of
transition to IFRS. No adjustments have been made in this respect for the
purposes of transition. Tangible assets have continued to be reported on the
basis of depreciated historical cost, as under UK GAAP.
IAS32 - Financial Instruments: Disclosure and Presentation and IAS39 -
Financial Instruments: Recognition and Measurement
As permitted by IFRS1, the Group adopted IAS32 Financial Instruments:
Disclosure and Presentation and IAS39 Financial Instruments: Recognition and
Measurement, prospectively from 1 November 2005. Therefore until 31 October
2005, the Group continued to account for financial instruments in accordance
with UK GAAP, and hence the comparative financial statements exclude the impact
of these standards.
9. DETAIL ON IFRS CHANGES IMPACTING PUBLISHED RESULTS
Significant changes to previously reported UK GAAP figures have been made in
the following areas to comply with IFRS:
A. IFRS3 - Business Combinations
Under IFRS3 there is a specific requirement to recognise separately
indentifiable intangible assets that meet the IFRS3 criteria including acquired
order back log, customer relationships and technology assets at fair value on
acquisition and to amortise these over an appropriate period. This reduces the
amount of residual goodwill recognised.
As stated above, under IFRS1 business combinations prior to the date of
transition are not required to be restated. The adjustment is therefore limited
to the five acquisitions completed since 1 November 2004. Specific intangible
assets with a fair value of £8,769,000 were identified out of a total UK GAAP
goodwill addition of £56,371,000. As at 31 October 2005 specific intangibles,
net of amortisation, of £2,929,000 were identified from acquisitions at that
date. A further £5,437,000, net of amortisation, was added in the six months to
30 April 2006.
Total amortisation of £403,000 has been charged since the date of transition,
of which £71,000 was in the period to 31 October 2005 and £332,000 in the
period to 30 April 2006.
B. IFRS2 - Share-Based Payments
Under IFRS2 charges are required for all share based remuneration schemes.
These charges reflect the fair value of the shares at the date of the grant.
The operating profit charge for the year to 31 October 2005 for all relevant
schemes under this standard was £477,000, with an additional operating profit
charge for the six months to 30 April 2006 of £433,000. The opening IFRS
balance sheet net assets are reduced by £76,000. Net assets at 31 October 2005
are reduced by £328,000 and by a further £357,000 to 30 April 2006.
C. IAS19 - Employee Benefits and Retirement Benefit Schemes
Under IAS19 there is a requirement to recognise the monetary value of employee
benefits accruing to employees but not yet settled; typically holiday pay.
There is a requirement to present the value of the liability for employee
benefits to be paid in the future for services provided up to the reporting
date. A review of employee benefits across the Group identified an opening
balance sheet adjustment of £518,000. A charge of £256,000 arose in the period
ended 30 April 2006 (April 2005: £222,000).
Under UK GAAP the Group accounted for defined benefit pension schemes in
accordance with SSAP24, with disclosure as required under FRS17. Under IAS19
there is a requirement to value defined benefit scheme assets at bid price
rather than mid market price, and to disclose the retirement benefit asset/
obligation on the face of the balance sheet, with movement in the valuation of
actuarial gains and losses through the statement of recognised income and
expenditure (SORIE). At the date of transition, 1 November 2004, the initial
increase in non-current liabilities is £16,115,000, with a corresponding
deferred tax asset of £4,835,000 reported in non-current assets. In addition,
the previous SSAP24 prepayment of £252,000 has been reversed. The impact at 30
April 2006 is to show an increase in non-current liabilities, due to retirement
benefit obligations of £16,762,000 (April 2005: £18,051,000). The charge to the
income statement under IAS19 for retirement benefits includes three components,
a service cost, the expected return on pension scheme assets and the unwinding
cost of interest on the pension scheme liabilities.
D. IAS10 - Events after the Balance Sheet Date
There is a requirement under IFRS to only recognise the liability for dividends
that have been proposed and approved at the balance sheet date.
E. IAS21 - The Effects of Changes in Foreign Exchange Rates
Under IAS21 all foreign currency transactions and balances must be converted to
the reporting entity currency at the rate applicable on the last day of the
reporting period, i.e. at the spot rate. UK GAAP permitted the use of an
applicable forward currency contract rate instead of the spot rate.
F. IAS12 - Income Tax
Under UK GAAP deferred tax liabilities were discounted; under IFRS discounting
is not permitted. The impact as at 1 November 2004 was to increase deferred tax
liabilities by £824,000. The tax in the income statement for the year ended 31
October 2005 is £61,000 higher than it would have been under UK GAAP.
Under UK GAAP deferred tax liabilities on revaluation reserves were not
provided for unless the Group entered into a binding contract to sell the
revalued assets. Under IAS12 deferred tax must be provided for. The impact is
to increase deferred tax liabilities as at 1 November 2004 by £1,081,000. The
Group has available capital losses to offset against any potential gain arising
on these assets. The impact as at 1 November 2004 is to recognise a deferred
tax asset of £1,081,000. Netting-off of assets and liabilities is not permitted
under IAS12.
The reconciliation of equity at 1 November 2004 (date of transition to IFRS)
and at 31 October 2005 (date of last UK GAAP financial statements) and the
reconciliation of profit for the year ended 31 October 2005, as required by
IFRS1, are given below.
The reconciliation of equity at 30 April 2005 and the reconciliation of profit
for the six months ended 30 April 2005 have also been included below to enable
a comparison of the 2006 interim figures with the corresponding period of the
previous financial year.
References to UK GAAP for the periods ended 30 April 2005 and 31 October 2005
are to the Group's policies as applied in its financial statements for the year
ended 31 October 2005.
Reconciliation of equity at 1 November 2004 (date of transition to IFRS)
UK GAAP Unaudited IFRS
Effect of
transition
to IFRS
Note £000 £000 £000
Non-current assets
Development costs 2,841 - 2,841
Goodwill 27,984 - 27,984
Tangible assets 41,810 - 41,810
Investment in associate 1,073 - 1,073
Deferred tax asset B,C,F - 6,004 6,004
Total non-current assets 73,708 6,004 79,712
Current assets
Inventories 25,090 - 25,090
Trade and other receivables C 27,036 (252) 26,784
Cash and cash equivalents 9,933 - 9,933
Total current assets 62,059 (252) 61,807
Current liabilities
Loans (3,070) - (3,070)
Obligations under finance (1,234) - (1,234)
leases
Bank overdrafts (17,463) - (17,463)
Trade and other payables B,C,D,E (25,208) 1,269 (23,939)
Corporation tax (2,940) - (2,940)
(49,915) 1,269 (48,646)
Non-current liabilities
Loans (17,055) - (17,055)
Obligations under finance (1,119) - (1,119)
leases
Other payables B - (68) (68)
Deferred tax liabilities C,E,F (3,431) (1,837) (5,268)
Long-term provisions (626) - (626)
Preference shares (62) - (62)
Retirement benefit C - (16,115) (16,115)
obligations
(22,293) (18,020) (40,313)
Net assets 63,559 (10,999) 52,560
Equity
Share capital 1,449 - 1,449
Share premium account 26,710 - 26,710
Special capital reserve 12,939 - 12,939
Revaluation reserve F 2,410 (723) 1,687
Retained earnings 19,787 (10,276) 9,511
Equity attributable to 63,295 (10,999) 52,296
equity holders of the parent
Equity attributable to 264 - 264
minority interests
Total equity 63,559 (10,999) 52,560
Reconciliation of equity at 31 October 2005 (date of last UK GAAP Financial
Statements)
UK GAAP Unaudited IFRS
Effect of
transition
to IFRS
Note £000 £000 £000
Non-current assets
Intangible assets A - 2,929 2,929
Development costs 541 - 541
Goodwill A 35,058 (378) 34,680
Tangible assets 50,698 - 50,698
Investment in associate 1,068 - 1,068
Deferred tax assets B,C,F - 7,440 7,440
Total non-current assets 87,365 9,991 97,356
Current assets
Inventories 27,821 - 27,821
Trade and other receivables C,E 27,450 (282) 27,168
Cash and cash equivalents 7,774 - 7,774
Assets classified as held 14,646 - 14,646
for sale
Total current assets 77,691 (282) 77,409
Current liabilities
Loans (1,957) - (1,957)
Obligations under finance (925) - (925)
leases
Overdrafts (10,744) - (10,744)
Trade and other payables B,C,D,E (26,474) 1,226 (25,248)
Corporation tax (1,150) - (1,150)
Liabilities classified as (1,776) - (1,776)
held for sale
(43,026) 1,226 (41,800)
Non-current liabilities
Loans (46,320) - (46,320)
Obligations under finance (602) - (602)
leases
Other payables B - (163) (163)
Deferred tax liabilities A,C,E,F (4,457) (4,501) (8,958)
Long-term provisions (170) - (170)
Preference shares (62) - (62)
Retirement benefit C - (20,189) (20,189)
obligations
(51,611) (24,853) (76,464)
Net assets 70,419 (13,918) 56,501
Equity
Share capital 1,459 - 1,459
Share premium account 27,274 - 27,274
Special capital reserve 12,939 - 12,939
Revaluation reserve F 2,374 (734) 1,640
Retained earnings 26,096 (13,184) 12,912
Equity attributable to 70,142 (13,918) 56,224
equity holders of the parent
Equity minority interest 277 - 277
Total equity 70,419 (13,918) 56,501
Reconciliation of profit for the year ended 31 October 2005
UK GAAP Unaudited IFRS
Effect of
transition
to IFRS
£000 £000 £000
Continuing operations:
Revenue 120,963 - 120,963
Operating profit 22,623 (573) 22,050
Share of results of associate 197 - 197
Finance expense (2,964) - (2,964)
Profit before taxation 19,856 (573) 19,283
Tax (5,778) 54 (5,724)
Profit for the year from 14,078 (519) 13,559
continuing operations
Discontinued operations
Loss for the year from (4,790) - (4,790)
discontinued operations
Profit for the year 9,288 (519) 8,769
Analysis of movement due to IFRS
Operating Profit Profit/
profit (loss)
before for the
tax period
Note £000 £000 £000
UK GAAP 22,623 19,856 14,078
Amortisation of acquired A (71) (71) (71)
intangible assets
Share-based payments B (477) (477) (382)
Retirement benefit scheme C 17 17 12
fair value adjustment
Translation of foreign E (48) (48) (34)
currency transactions
Accrued employee benefit C 6 6 6
adjustment
Income tax adjustment F - - (50)
(573) (573) (519)
IFRS 22,050 19,283 13,559
Reconciliation of equity at 30 April 2005 (six month comparative figures)
UK GAAP Unaudited IFRS
Effect of
transition
to IFRS
Note £000 £000 £000
Non-current assets
Development costs 2,575 - 2,575
Goodwill 27,984 - 27,984
Tangible assets 42,236 - 42,236
Investment in associate 1,073 - 1,073
Deferred tax assets B,C,F - 6,674 6,674
Total non-current assets 73,868 6,674 80,542
Current assets
Inventories 31,123 - 31,123
Trade and other receivables C,E 30,114 (187) 29,927
Cash and cash equivalents 327 - 327
Total current assets 61,564 (187) 61,377
Current liabilities
Loans (4,388) - (4,388)
Obligations under finance (915) - (915)
leases
Bank overdrafts (12,477) - (12,477)
Trade and other payables B,C,D,E (25,250) 95 (25,155)
Corporation tax (1,932) - (1,932)
(44,962) 95 (44,867)
Non-current liabilities
Loans (21,519) - (21,519)
Obligations under finance (733) - (733)
leases
Other payables B - (81) (81)
Deferred tax liabilities C,E,F (3,431) (1,857) (5,288)
Long-term provisions (170) - (170)
Preference shares (62) - (62)
Retirement benefit C - (18,051) (18,051)
obligations
(25,915) (19,989) (45,904)
Net assets 64,555 (13,407) 51,148
Equity
Share capital 1,455 - 1,455
Share premium account 26,940 - 26,940
Special capital reserve 12,939 - 12,939
Revaluation reserve F 2,392 (723) 1,669
Retained earnings 20,559 (12,684) 7,875
Equity attributable to 64,285 (13,407) 50,878
equity holders of the parent
Equity minority interest 270 - 270
Total equity 64,555 (13,407) 51,148
Reconciliation of profit for period ended 30 April 2005 (six month comparative
figures)
UK GAAP Unaudited IFRS
Effect of
transition
to IFRS
£000 £000 £000
Continuing operations
Revenue 47,977 - 47,977
Operating profit 8,829 (307) 8,522
Finance expense (1,329) - (1,329)
Profit before taxation 7,500 (307) 7,193
Tax (2,379) 84 (2,295)
Profit for the year from 5,121 (223) 4,898
continuing operations
Discontinued operations
Loss for the year from (720) - (720)
discontinued operations
Profit for the year 4,401 (223) 4,178
Analysis of movement due to IFRS
Operating Unaudited Profit/
profit (loss)
Profit for the
period
before
tax
Note £000 £000 £000
UK GAAP 8,829 7,500 4,401
Share-based payments B (101) (101) (79)
Retirement benefit scheme C (40) (40) (28)
fair value adjustment
Translation of foreign E 56 56 39
currency transactions
Accrued employee benefit C (222) (222) (155)
adjustment
(307) (307) (223)
IFRS 8,522 7,193 4,178
10. CORPORATE WEBSITE
Further information on the Group and its activities can be found on the
corporate website at www.chemring.co.uk.
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