Preliminary Results
FOR IMMEDIATE RELEASE 22 January 2008
CHEMRING GROUP PLC
PRELIMINARY RESULTS
FOR THE YEAR ENDED 31 OCTOBER 2007
* Revenue from continuing operations up 36% to £254.7 million (2006: £187.7
million)
* Underlying profit before tax from continuing operations* up 64% to £53.2
million (2006: £32.5 million)
* Profit before tax from continuing operations up 57% to £49.8 million (2006:
£31.8 million)
* Record current order book of £401 million, up 35% since the end of October
2007; year end order book up 39% at £297 million (2006: £214 million)
* Operating cash flow up 33% to £60.6 million (2006: £45.6 million),
representing 99% conversion from underlying operating profit* of £61.2
million (2006: £38.5 million)
* Underlying earnings per share from continuing operations* up 56% at 112p
(2006: 72p)
* Basic earnings per share from continuing operations up 50% at 105p (2006:
70p)
* Dividend per ordinary share up 56% at 25.0p (2006: 16.0p)
Divisional Highlights
Both Countermeasures and Energetics performed strongly and achieved record
years.
* Countermeasures
* Record levels of revenue and volumes of decoys produced
* Chemring Countermeasures increased revenue 40% to a record £31 million
* Alloy Surfaces opened a third facility and revenue grew over 14%
* Energetics
* Revenue of £128 million, 85% up on 2006
* Revenue ahead of Countermeasures for the first time
* Order book at all time high of £177 million
* All recent acquisitions contributing well in profit and cash terms
* Simmel Difesa exceeded all budget targets
* Excludes intangible amortisation from business combinationsof £3.4 million
(2006: £0.7 million)
Ken Scobie, Chemring Group Chairman, commented:
"The Board remains committed to delivering total shareholder value, through the
generation of strong after tax profits and a progressive dividend policy. Our
strategy has already proved very successful, with over 50% earnings and
dividend growth in both of the last two years. The Board believes it can
continue with this strategy and produce further above average growth. Next year
we expect to see continuing growth in our Countermeasures business, and the
ongoing development of Energetics, as this division starts to realise its full
potential. We believe the Group is ideally placed to participate in the
consolidation of this fragmented energetics industry. We look forward to the
2008 financial year and are confident that it will be another year of strong
performance."
For further information:
Ken Scobie Chairman, Chemring Group PLC 0207 930 0777
Dr 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
Results
Total revenue was £254.7 million (2006: £187.7 million), an increase of 36%.
Total underlying operating profit* was £61.2 million (2006: £38.5 million), an
increase of 59%.
Revenue from continuing operations, excluding acquisitions, increased 25% to £
234.3 million (2006: £187.7 million). Underlying operating profit*, excluding
acquisitions, from continuing operations increased 49% to £57.2 million (2006:
£38.5 million). Net underlying operating margins* from continuing operations
were 24% (2006: 21%).
Revenue from acquired businesses was £20.4 million and £4.0 million of
underlying operating profit* was generated at a margin of 20%.
An analysis of total revenue and operating profit by business segment is set
out below:
2007 2006
Segment Revenue Operating Margin Revenue Operating Margin
profit profit
£m £m
£m £m
Countermeasures 126.5 38.6 30% 118.4 33.9 29%
Energetics 128.2 27.9 22% 69.3 10.4 15%
Share-based - (2.4) - (2.2)
payments
Unallocated head - (2.9) - (3.6)
office costs
254.7 61.2 24% 187.7 38.5 21%
Amortisation of - (3.4) - (0.7)
acquired
intangibles
Total 254.7 57.8 23% 187.7 37.8 20%
The revenue of the Countermeasures division grew 7% and the operating profit
grew 14%. The revenue of the Energetics division grew 85%, and the operating
profit grew 168%.
The interest charge for the year was £8.1 million (2006: £6.1 million).
Interest was covered 7.6 times (2006: 6.3 times) by underlying operating profit
*. Included with interest is £0.6 million (2006: £0.8 million) for retirement
benefit obligations.
Underlying profit before tax* was £53.2 million (2006: £32.5 million), an
increase of 64%.
Tax on the underlying profit before tax* was £17.1 million (2006: £10.1
million), representing a rate of 32% (2006: 31%).
Underlying profit after tax* on continuing operations was £36.1 million (2006:
£22.4 million), an increase of 61%.
Underlying basic earnings per ordinary share* from continuing operations were
112p (2006: 72p), an increase of 56%. Basic earnings per share from continuing
operations were 105p (2006: 70p), an increase of 50%. Total basic earnings per
ordinary share for continuing and discontinued operations were 99p (2006: 44p),
an increase of 125%.
Shareholders' funds at the year end were £124.0 million (2006: £94.1 million).
Countermeasures
• Orders: £123.0 million
• Revenue: £126.5 million
• Operating profit: £38.6 million
• Operating margin: 30%
The global expendable countermeasures market continued to grow in 2007 and is
now estimated at £237 million, an increase over the previous year of just over
10%, in spite of the adverse impact of the dollar depreciation against sterling
of approximately 10%. Revenue from our Countermeasures division, however, grew
by only 7% year-on-year, reflecting the slightly lower than expected sales
volumes achieved by Kilgore in the second half of the year. The record demand
for our decoys continues to be driven principally by the threat from
shoulder-launched missiles to the helicopters and transport aircraft used by
the US, UK and other coalition forces in Iraq and Afghanistan.
Chemring Countermeasures, our UK business, had another excellent year,
generating £31.1 million of revenue, which was 40% higher than the previous
year. This growth was driven by the successful qualification and production of
our new spectral flare for use by the UK and coalition partners. Construction
and qualification of a new special purpose facility was achieved over a five
month period, and full production output of in excess of 20,000 spectral flares
per month was consistently delivered throughout the second half of the year - a
tremendous achievement. During the year, further spectral flare variants were
developed and flight-tested for combat and transport aircraft applications. We
expect production of a number of these new flares to begin shortly.
Production of conventional flare types also reached record levels. The first
batches of flares for Typhoon were delivered to all of the participating
nations and a number of significant export contracts are expected shortly. We
also continued to deliver chaff and flares to India as part of a multi-year
contract for protecting the Indian Air Force Mirage 2000 aircraft. This
contract follows on from our previous programme to supply the Indian Air Force
with flares for its Mig-29 combat aircraft.
During the year, there was increased interest shown in naval countermeasures,
particularly from NATO countries looking to operate in littoral waters. Chaff
rounds were delivered to Spain and Australia, and advanced CHIMERA rounds were
supplied to Norway. Furthermore, four new contracts for Spain, Norway, Romania
and Chile were won against fierce competition. These successes have broadened
our customer base and reflect our increasing market position for 130mm naval
munitions.
Alloy Surfaces also had an excellent year, generating record levels of
production and $132.1 million of revenue, which was over 14% higher than in the
previous year. Production of the M211 decoy for the US Army continued at a high
rate and over 800,000 units were delivered to schedule throughout the year.
Alloy Surfaces also secured a $20 million contract from the UK Ministry of
Defence for the supply of BOL/IR special material decoys for use on Harrier and
Tornado aircraft, with a further $20 million option to cover any surge
requirement. Negotiations with the US Air Force, US Navy and US Army on
multi-year contracts, covering seven of the eight most important special
material decoys, have all started. The US Navy awarded an initial two year
contract for the supply of MJU-49 decoys and has continued discussions to
create a five year contract for all of its major products. The US Air Force and
US Army negotiations for five year contracts have progressed but have been
delayed by the protracted discussions on budgets that have taken place between
the Department of Defense and Congress. These new contracts are all expected to
be finalised during 2008.
Kilgore had a rather frustrating year, even though it generated a record level
of revenue at $67.4 million. This was 1% higher than last year but about $15
million lower than expected.
Revenue growth was impacted as a result of two factors: Kilgore's high volume
conventional flare programs encountered several minor manufacturing problems
that took time to resolve, and the production of three new products encountered
a number of technical problems associated with the start of volume
manufacturing, including the lack of timely availability of test aircraft to
complete the flight qualification.
In spite of these set backs Kilgore managed to capture a record $98 million of
orders, of which $72 million related to its countermeasures business and $26
million to its energetics business. This resulted in a year end order book of
$99 million, 44% higher than in 2006. This will provide a solid foundation for
improvement in 2008. Kilgore was also hugely successful in securing, against
fierce competition, a contract from the US Navy, for the manufacture of 100% of
the advanced flares for the F-18 aircraft. A review of the design and technical
data has now been completed and first article testing is scheduled during the
first half of 2008.
Kilgore also successfully completed the first article test activities on the
flares for the F-22 aircraft, as a direct contractor to the US Air Force. The
first production deliveries have commenced on schedule, and construction of a
high volume production facility is well underway, which should be completed by
the end of the first half of 2008. A contract worth $12 million for the second
year of production was awarded in September 2007.
Energetics
• Orders: £172.0 million
• Revenue: £128.2 million
• Operating profit: £27.9 million
• Operating margin: 22%
During the year, the operational management of PW Defence in the UK, Comet in
Germany and Pirotécnia Oroquieta in Spain was combined to create a pan-European
pyrotechnic business, Chemring Defence, with a coherent sales network and new
centres-of-excellence for manufacturing that are delivering benefits of scale
on distinct families of products.
Chemring Defence UK had an excellent year, with record levels of production and
revenue of £23.9 million, almost 100% higher than in 2006. Strong export growth
was achieved in the Middle East with sales to Saudi Arabia, Kuwait, Bahrain and
Qatar. The successful management of our first prime contract was a notable
milestone during the year and has resulted in the placement of follow-on
contracts. A major success was also achieved in the US towards the end of the
year, when a five year IDIQ (indefinite delivery/indefinite quantity) contract,
worth up to $78 million, was placed by the US Army for 66mm non-lethal
Vehicle-launched Discharge Grenades.
Chemring Defence Germany (formerly Comet) secured major contracts for both its
ordnance-clearance and battlefield training products. The UK, Australia and
several Eastern European countries all placed contracts for substantial numbers
of the PEMBS ordnance-clearance system, which has now established itself as the
leading portable ordnance-clearance system in the world. Our MECS (multiple
effect cartridge system) battlefield simulation ammunition is now in-service
with the US, UK, and a number of other countries. Our performance under the US
Army contract is delighting the customer and deliveries are now running at
about 700,000 units per year. Furthermore, the US Army has ordered 1,400 more
launchers to increase training, and has recently qualified black and yellow
smoke variants to broaden their weapon effects options. We have also recently
completed development of an IED-simulator kit and a number of systems have been
bought by the US Army for qualification purposes. This simulator is intended to
be used at squad, platoon and company level for realistic training in urban
operations, such as check point and convoy training.
The operational management of Nobel Energetics and Leafield Engineering were
also combined during the year to form a new business, Chemring Energetics,
which becomes the UK centre-of-excellence for demolition stores, ceremonial
ammunition, detonators, actuators and pyro-mechanisms. The new business
generated record revenue of £22.7 million, 22% higher than in 2006. Sales of
metron actuators increased 36% and sales of demolition stores 35%, whilst sales
of NLAW flight and launch motors increased 65% as full production was finally
started. A rocket motor grain for 70mm air-launched rockets was also developed
and is expected to complete qualification by April 2008.
Technical Ordnance also performed well in the first full year of ownership,
with record revenue of $45.6 million compared with the $34 million generated in
the twelve months prior to acquisition. Good progress was made in the
development of strategic partnering with the three US ammunition prime
contractors, ATK, General Dynamics and L3. ATK, in particular, has
significantly increased the volume of explosive pellet and fuze components
ordered from Technical Ordnance. During the year, Technical Ordnance was
awarded production contracts, from two prime contractors, for the supply of M55
detonators for use in 40mm rifle-launched grenades used by the US Army. Three
new production stations are currently being qualified and are expected to
achieve 900,000 units per month by the end of April 2008.
Kilgore increased its sales of pyrotechnics and munitions by 68% compared with
2006. During the year, Kilgore successfully completed factory acceptance test
activities on the MK4 practice bomb cartridge, and produced and delivered over
450,000 units. Kilgore was also awarded a $30 million, five year IDIQ contract
for both the MK58 and the MK25 marine location markers directly from the US
Navy.
BDL Systems also had a good year, completing its fourth contract to supply a
Far Eastern customer with equipment and facilities for handling unexploded
ordnance and roadside bombs. BDL Systems also completed development of its next
generation initiation system (BREACH), which is primarily designed for the
"explosive means-of-entry" market and makes use of the latest securely coded
data transmission techniques. The system has attracted great interest in the US
and NATO countries, and is expected to generate significant sales over the next
few years.
Chemring Marine completed the consolidation of the manufacturing of marine
distress signals in Germany during 2007. The increased volumes and the use of
automated manufacturing has significantly improved efficiency and substantially
improved the profitability of the business. During the year, two major
worldwide agreements were signed with the major liferaft suppliers, Viking and
RFD Beaufort, for the supply of our commercial distress signals.
In March, we announced the acquisition of Simmel Difesa, based in Colleferro,
Italy. Simmel is a key supplier of energetics sub-systems, such as fuzes,
safety and arming systems, warheads and modular charge systems, for major
ammunition prime contractors around the world. The company is also a specialist
manufacturer of medium and large calibre ammunition, rockets and illumination
mortar rounds for a substantial number of NATO and non-NATO armed forces. It
also has a second site in Anagni, Italy, where it has a specialist facility for
the disposal of ordnance at the end of its operational life.
In spite of the accident in October, Simmel Difesa achieved all of its 2007
objectives and delivered all of the 81mm white light and black light
illuminating mortar rounds required for use in Afghanistan. Production of the
illumination canister will restart by the end of February 2008. A new
multi-year contract for the continued supply of both types of illuminating
ammunition is currently under negotiation. Simmel Difesa has also recently
secured a major contract, worth €26 million, to supply high explosive anti-tank
ammunition to a NATO country.
Group Strategy
Our Group strategy remains unchanged. We will continue to concentrate on our
two divisions - Countermeasures, where we are the world leader, and Energetics,
where, in a sector with many fragmented businesses, we are becoming a major
force. It is possible that, as this latter division expands, one of the
individual product categories within it might justify its establishment as a
separate third division.
Our intentions are to continue to grow organically and, where possible, by
acquisition. We are committed to expansion in both divisions, and are currently
planning to establish additional manufacturing facilities in certain chosen
countries, including India and the Far East. I expect this latter development
to take three to five years to achieve.
Acquisitions
During the year the Group acquired the following businesses:
Date % of share Consideration
capital
acquired acquired (including
costs)
£m
Simmel Difesa S.p.A. 30 March 2007 100 53.3
Chemring Nobel AS - business and 29 June 2007 3.4
assets
Pirotécnia Oroquieta S.L. 20 July 2007 49 0.3
Total consideration 57.0
The Group now owns 100% of Pirotécnia Oroquieta S.L.
Of the total consideration, £50.2 million was funded by the draw down of medium
term local currency loans, and the balance of £6.8 million by the issue of
373,551 5p ordinary shares to the vendor of Simmel Difesa S.p.A.
A summary of the fair value of assets acquired and the goodwill arising on the
acquisition of Simmel Difesa S.p.A. is as follows:
2007
£m
Intangible assets 16.1
Fixed assets 3.9
Working capital 2.7
Tax and provisions (6.7)
Cash (net of finance leases) 3.2
Fair value of assets acquired 19.2
Consideration (including costs) 53.3
Goodwill arising 34.1
Research and Development
Research and development expenditure totalled £6.7 million (2006: £5.3
million), an analysis of which is set out below:
2007 2006
£m £m
Customer funded research and development 1.3 2.1
Internally funded research and development 4.1 2.5
Capitalised development costs 1.3 0.7
Total research and development expenditure 6.7 5.3
The Group's policy is to write-off capitalised development costs over a three
year period. Amortisation of development costs was £0.6 million (2006: £0.4
million).
Pensions
The Group's pension deficit before associated tax credits, as defined by IAS19
Accounting for pension costs, was £13.3 million (2006: £16.3 million), a
decrease of 18%.
The triennial valuation of the Executive Pension Scheme as at 5 April 2006 has
been agreed with the trustees of the scheme.
The triennial valuation of the Staff Pension Scheme as at 5 April 2006 is in
the process of being finalised.
Cash Flow
Operating cash flow was £60.6 million (2006: £45.6 million), which represents a
conversion rate of underlying operating profit* to operating cash of 99% (2006:
118%). Working capital balances were well controlled in the year and were kept
below increases in Group revenues.
Group fixed asset expenditure was £16.0 million (2006: £12.0 million). The
principal expenditure was in support of Alloy Surfaces' third facility, a large
flare facility at Kilgore, and the purchase of freehold land and buildings at
Technical Ordnance for £2.6 million.
Free cash flow was £32.6 million (2006: £23.0 million), which represents a
conversion rate of underlying operating profit* to free cash of 53% (2006:
60%).
A summary of Group cash flow is set out below:
2007 2006
£m £m
Operating cash flow 60.6 45.6
Capital expenditure (16.0) (12.0)
Tax (12.0) (10.6)
Free cash flow 32.6 23.0
Interest (7.4) (5.2)
Dividends (6.0) (3.7)
Net cash inflow before acquisitions and 19.2 14.1
disposals
Net Debt
Net debt at the year end was £99.6 million (2006: £70.6 million), an increase
of 41%. Gearing at the year end was 80% (2006: 75%).
Discontinued Operations
The results of the discontinued operations represent those of the Marine
division. In April 2007, the McMurdo Electronics business was sold to Signature
Industries Limited for a consideration of £2.8 million. Further deferred
contingent consideration of £1 million has been agreed, payable by the end of
February 2008.
In December 2006, Leafield Marine Limited was sold to its management for £0.4
million. In May 2007, ICS Electronics Limited was sold to its management for £
1.
A summary of discontinued results is set out below:
2007 2006
£m £m
Revenue 3.8 11.3
Pre-tax loss (1.7) (9.0)
Tax (0.2) 0.9
Post-tax loss (1.9) (8.1)
The pre-tax loss includes £0.2 million of trading losses (2006: £1.0 million),
and £1.5 million of impairment and loss on disposal charges (2006: £8.0
million).
Dividends
The Board is recommending a final dividend of 17.8p per ordinary share, a 59%
increase on the final dividend for 2006. This, together with the interim
dividend of 7.2p paid in July 2007, gives a total dividend for the year of
25.0p, a 56% increase over 2006. The dividend is over four times covered on net
profits of the continuing operations. The shares will be marked "ex dividend"
on 26 March 2008 and the dividend is payable on 18 April 2008 to shareholders
on the register at the close of business on 28 March 2008.
Prospects
The Board remains committed to delivering total shareholder value, through the
generation of strong after tax profits and a progressive dividend policy. The
strategy has already proved very successful, with over 50% earnings and
dividend growth in both of the last two years. The Board believes it can
continue with this strategy and produce further above average growth. Next year
we expect to see continuing growth in our Countermeasures business, and the
ongoing development of Energetics, as this division starts to realise its full
potential. We believe the Group is ideally placed to participate in the
consolidation of this fragmented energetics industry.
Overall, the future outlook remains encouraging and many opportunities exist
for growth. The Group has a strong order book, which today stands at a record
level of £401 million, up 35% since the year end and up 63% since January 2007.
The Board remains confident that the prospects for the Group in 2008 continue
to be excellent.
SUMMARY FINANCIAL INFORMATION
Continuing operations
2007 2006 2005
Revenue £m £m £m
Countermeasures total 126.5 118.4 90.8
Energetics - continuing operations 107.8 69.3 30.2
- acquired 20.4 - -
Energetics total 128.2 69.3 30.2
Total revenue 254.7 187.7 121.0
Underlying operating profit*
- continuing operations 57.2 38.5 22.9
- acquired 4.0 - -
Total underlying operating profit* 61.2 38.5 22.9
Underlying profit before tax* 53.2 32.5 19.2
Operating profit 57.8 37.8 22.9
Profit before tax 49.8 31.8 19.2
Underlying basic earnings per ordinary share* 112p 72p 47p
Basic earnings per ordinary share 105p 70p 47p
Diluted earnings per ordinary share 104p 70p 46p
Dividend per ordinary share 25.0p 16.0p 10.5p
Net debt (£m) 99.6 70.6 52.9
Shareholders' funds (£m) 124.0 94.1 56.9
* Before intangible amortisation arising from business combinations of £3.4
million (2006: £0.7 million)
CONSOLIDATED INCOME STATEMENT
for the year ended 31 October 2007
2007 2006
Note £m £m
Continuing operations
Revenue - continuing 234.3 187.7
- acquired 20.4 -
254.7 187.7
Cost of sales (162.4) (122.6)
Gross profit 92.3 65.1
Distribution costs (3.8) (3.1)
Administrative expenses (30.7) (24.2)
Operating profit - continuing 55.2 37.8
- acquired 2.6 -
Total operating profit 57.8 37.8
Operating profit is analysed as:
Underlying operating profit before
intangible amortisation arising from
business combinations 61.2 38.5
Intangible amortisation arising from (3.4) (0.7)
business combinations
57.8 37.8
Share of post-tax results of associate 0.1 0.1
Finance expense (8.1) (6.1)
Profit before tax for the year from 49.8 31.8
continuing operations
Tax (15.9) (9.9)
Profit after tax for the year from continuing 33.9 21.9
operations
Discontinued operations
Loss after tax from discontinued operations (1.9) (8.1)
Profit after tax for the year 32.0 13.8
Attributable to: Equity holders of the 32.1 13.8
parent
Minority interests (0.1) -
Earnings per ordinary share
From continuing operations: 2 112p 72p
Underlying*
Basic 105p 70p
Diluted 104p 70p
From continuing and discontinued operations: 2
Basic 99p 44p
Diluted 98p 44p
* Before intangible amortisation arising from
business combinations
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
for the year ended 31 October 2007
2007 2006
£m £m
Profit after tax for the year 32.0 13.8
Other recognised income and expense
Gains on cash flow hedges 0.2 0.3
Movement on deferred tax relating to cash flow (0.1) (0.1)
hedges
Exchange differences on translation of foreign (7.0) (5.2)
operations
Actuarial gains on defined benefit pension 4.4 4.7
schemes
Movement on deferred tax relating to pension (1.5) (1.4)
schemes
Current tax on items taken directly to equity 2.0 1.3
Deferred tax on items taken directly to equity 1.1 0.6
Total recognised income and expense for the 31.1 14.0
year
Attributable to:
Equity holders of the parent 31.2 14.0
Minority interest (0.1) -
CONSOLIDATED BALANCE SHEET
as at 31 October 2007
2007 2006
As
restated
*
£m £m £m £m
Non-current assets
Goodwill 94.8 59.7
Other intangible assets 35.4 23.8
Development costs 1.7 1.1
Property, plant and equipment 69.8 57.7
Interest in associate 1.0 1.0
Deferred tax 9.1 9.6
211.8 152.9
Current assets
Inventories 51.2 36.3
Trade and other receivables 61.9 39.0
Cash and cash equivalents 38.7 13.4
Derivative financial instruments 0.9 0.2
152.7 88.9
Assets held for sale - 6.5
Total assets 364.5 248.3
Current liabilities
Bank loans and overdrafts (22.5) (11.5)
Obligations under finance leases (0.7) (0.4)
Trade and other payables (71.4) (39.6)
Provisions (0.4) (0.3)
Current tax liabilities (3.3) (1.9)
Liabilities held for sale - (2.4)
(98.3) (56.1)
Non-current liabilities
Bank loans (113.5) (71.7)
Obligations under finance leases (1.5) (0.3)
Trade and other payables (0.4) (0.2)
Long term provisions (1.3) -
Deferred tax (12.1) (9.5)
Preference shares (0.1) (0.1)
Retirement benefit obligations (13.3) (16.3)
(142.2) (98.1)
Total liabilities (240.5) (154.2)
Net assets 124.0 94.1
Equity
Share capital 1.6 1.6
Share premium account 60.5 53.6
Special capital reserve 12.9 12.9
Hedging reserve 0.4 0.2
Revaluation reserve 1.6 1.6
Own shares (2.8) -
Retained earnings 49.8 23.9
Equity attributable to equity 124.0 93.8
holders of the parent
Minority interest - 0.3
Total equity 124.0 94.1
* See Note 5
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2007
2007 2006
Note £m £m
Cash flows from operating activities
Cash generated from operations A 60.6 45.6
Tax paid (12.0) (10.6)
Net cash inflow from operating activities 48.6 35.0
Cash flows from investing activities
Dividends received from associate 0.1 0.1
Purchases of property, plant and equipment (14.6) (10.2)
Purchases of intangible assets (1.4) (1.8)
Proceeds on disposal of subsidiary 3.2 2.6
undertaking/division
Proceeds on disposal of property, plant and 0.2 0.1
equipment
Acquisition of subsidiary undertakings (net (46.9) (62.8)
of cash acquired)
Net cash outflow from investing activities (59.4) (72.0)
Cash flows from financing activities
Dividends paid (6.0) (3.7)
Interest paid (7.4) (5.2)
Proceeds on issue of shares 0.1 26.4
New borrowings 50.7 38.1
Repayments of borrowings (6.4) (5.1)
Repayments of obligations under finance (0.7) (0.9)
leases
Purchase of own shares (2.8) -
Net cash inflow from financing activities 27.5 49.6
Increase in cash and cash equivalents 16.7 12.6
during the year
Cash and cash equivalents at start of the 9.0 (2.9)
year
Effect of foreign exchange rate changes (0.3) (0.7)
Cash and cash equivalents at end of the 25.4 9.0
year
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2007
A. Cash generated from operations 2007 2006
£m £m
Operating profit from continuing operations 55.2 37.8
Operating profit from acquired operations 2.6 -
Operating loss from discontinued operations (0.4) (0.6)
Loss on disposal/impairment of discontinued (1.5) (8.0)
operations
Adjustment for:
Depreciation of property, plant and equipment 6.8 5.8
Amortisation of intangible assets 4.0 2.0
Impairment of goodwill - 4.9
Impairment of intangible assets - 0.8
Negative goodwill included in operating profit (0.4) -
Difference between pension contributions paid (0.6) (0.9)
and amount recognised in income statement
Decrease in provisions (0.5) (0.2)
Operating cash flows before movements in 65.2 41.6
working capital
Increase in inventories (4.6) (1.4)
Increase in trade and other receivables (9.0) (0.7)
Increase in trade and other payables 9.0 6.1
Cash generated from operations 60.6 45.6
Reconciliation of net cash flow to movement in
net debt
Increase in cash and cash equivalents during 16.7 12.6
the year
Cash inflow from increase in debt and lease (43.6) (32.1)
financing
Change in net debt resulting from cash flows (26.9) (19.5)
New finance leases (2.1) (0.3)
Translation difference 0.4 2.4
Amortisation of debt finance costs (0.4) (0.3)
Movement in net debt in the year (29.0) (17.7)
Net debt at start of the year (70.6) (52.9)
Net debt at end of the year (99.6) (70.6)
Analysis of net debt
As at Cash Non-cash Exchange As at
1 Nov 2006 flow changes movement 31 Oct
2007
£m £m £m £m £m
Cash at bank and in hand 13.4 25.6 - (0.3) 38.7
Overdrafts (4.4) (8.9) - - (13.3)
9.0 16.7 - (0.3) 25.4
Debt due within one year (7.1) 3.4 (5.7) 0.2 (9.2)
Debt due after one year (71.7) (47.7) 5.3 0.6 (113.5)
Finance leases (0.7) 0.7 (2.1) (0.1) (2.2)
Preference shares (0.1) - - - (0.1)
(70.6) (26.9) (2.5) 0.4 (99.6)
Notes
1. Accounts and Auditors' Report
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 October 2007 or 31 October 2006 but is
derived from those accounts. Statutory accounts for 2006 have been delivered to
the Registrar of Companies, and those for 2007 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under s237(2) or
s237(3) of the Companies Act 1985.
The preliminary announcement has been prepared on the basis of the accounting
policies as stated in the financial statements for the year ended 31 October
2007.
Whilst the financial information included in this preliminary announcement has
been computed in accordance with International Financial Reporting Standards
(IFRSs), this announcement does not itself contain sufficient information to
comply with IFRSs. The Company expects to publish full financial statements
that comply with IFRSs on 19 February 2008 (see Note 4 below).
2. Earnings per Ordinary Share
The earnings and shares used in the calculations are as follows:
2007 2006
Earnings Ordinary EPS Earnings Ordinary EPS
shares shares
Number Number
£m 000s Pence £m 000s Pence
Underlying EPS from 36.2 32,470 112 22.4 31,119 72
continuing operations*
Basic EPS from 34.0 32,470 105 21.9 31,119 70
continuing operations
Basic EPS from 32.1 32,470 99 13.8 31,119 44
continuing and
discontinued operations
Diluted EPS from 34.0 32,678 104 21.9 31,323 70
continuing operations
Diluted EPS from 32.1 32,678 98 13.8 31,323 44
continuing and
discontinued operations
Ordinary shares are calculated by reference to the weighted average number of
shares in issue in the year.
*Underlying EPS is calculated before intangible amortisation arising from
business combinations
3. Dividend
The final dividend of 17.8p per ordinary share will be paid on 18 April 2008 to
all shareholders registered at the close of business on 28 March 2008. The
ex-dividend date will be 26 March 2008. The total dividend for the year will be
25.0p (2006: 16.0p). The final dividend is subject to approval by the
shareholders at the Annual General Meeting, and accordingly, has not been
included as a liability in the financial statements for the year ended 31
October 2007.
4. 2007 Financial Statements
The financial statements for the year ended 31 October 2007 will be posted to
shareholders on 19 February 2008 and will also be available from that date at
the registered office, Chemring House, 1500 Parkway, Whiteley, Fareham,
Hampshire PO15 7AF.
5. PRIOR PERIOD BALANCE SHEET RESTATEMENT
During the prior year the Group acquired Technical Ordnance, Inc. The fair
value of intangible assets acquired of £6.7 million was recognised at 30 April
2006 based on provisional values. The fair values have been finalised since
April 2006 and in accordance with IFRS3 an increase in the fair value of
customer relationships of £13.0 million has been made retrospectively. An
adjustment to goodwill has also been made retrospectively to reflect the
adjustment in the fair value. Goodwill has been decreased by £13.0 million.
Amortisation charges on acquired intangible assets for the period to 30 April
2007 are such that the cumulative amortisation charged is appropriate for the
revised fair value of intangible assets. This is the only adjustment relating
to prior periods.
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