Final Results - Year Ended 31 October 1999
Chemring Group PLC
11 January 2000
CHEMRING GROUP PLC
PRELIMINARY RESULTS
FOR THE YEAR ENDED
31 OCTOBER 1999
* Group profit before tax increased to £4.3 million from £1.25 million
* Turnover on continuing operations increased to £62.1 million from £57.6
million
* Basic earnings per ordinary share increased to 14.49p from 3.52p
* Diluted earnings per ordinary share on continuing operations increased to
19.02p from 11.64p
* Recommended final dividend per ordinary share 3.50p, making a total
dividend of 5.50p for the year, up 10% (previous period : 5.00p)
* Order book at a record level of £59 million
Ken Scobie, Chemring Group Chairman, commented:
'I am pleased to report that the Group has made a strong recovery following
completion of the restructuring in 1998. We have had considerable success in
strategically positioning our continuing operations in their market places.
Since the year end, significant new orders of £29 million have increased the
order book to a record level of £59 million. Against this background, I
believe the Group can look forward to a strong period of growth and a
substantial improvement in shareholder value.'
Note
All comparisons are for the thirteen month period ended 31 October 1998.
For further information:
Ken Scobie Chairman 0171 930 0777
David Evans Chief Executive 0171 930 0777
Paul Rayner Finance Director 0171 930 0777
Peter Gaze Cardew & Co. 0171 930 0777
STATEMENT BY THE CHAIRMAN
Introduction
I am pleased to report that the Group has made a strong recovery following
completion of the restructuring in 1998. Against a background of a successful
year for Countermeasures and Marine Safety, a strong order book and exciting
new opportunities for each of the businesses, the Group is set for a period of
sustained growth.
Results
Group profit before taxation was £4,306,000 compared with £1,251,000 in the
thirteen month period to 31 October 1998, and earnings per ordinary share
increased to 14.49p compared with 3.52p in 1998.
For continuing operations, operating profit, after absorbing £295,000 of
aborted bid costs, increased by 14% to £7,766,000 (previous period :
£6,814,000) on turnover of £62,082,000, up 8%. Diluted earnings per ordinary
share on continuing operations increased by 63% to 19.02p compared with 11.64p
in 1998.
Net debt reduced by £1,891,000 to £20,681,000 and Group interest and finance
costs reduced by 23% to £1,979,000.
We continue to invest significant resources in research and development and we
are confident that this level of expenditure will support growth across the
Group particularly in Countermeasures and Marine Safety.
Business Activities
Countermeasures is one of the world leaders in air and naval decoys, with the
exciting growth in both the UK and the US continuing. The US operation
increased its turnover by 77% in the year, as development programmes
transitioned into production.
Military Pyrotechnics and Explosives disappointed in 1999 as orders were
delayed by other UK priorities in support of the Kosovo conflict. These
belated orders are now flowing through and, supported by export business, the
current order book is strong. We are continually reviewing the business cost
base and, consequently in November 1999, we decided to relocate the Military
business to our Derby site. The savings arising from this will be seen in
2000 and more than outweigh the one-off costs of the relocation.
Marine Safety successfully launched several new products in 1999, including an
award winning Emergency Positioning Indicating Radio Beacon (EPIRB) and an
innovative Hydrostatic Release Unit (HRU), and this contributed to a doubling
in its electronics business. Future growth in electronic products is expected
as a result of increased commercial and leisure legislation.
Kembrey Wiring Systems secured an important five year contract with BAE
Systems in support of its military aircraft production that will provide
significant growth in 2000 and subsequent years. The infrastructure and
organisation has been strengthened in support of this anticipated growth,
although this necessary investment has increased overheads and constrained
profits in 1999.
As referred to in my Interim Report, I felt that Chemring Plating Systems
would benefit from being part of a specialist group supplying the printed
circuit board industry and consequently this business was sold on 26 October
1999; its results are included under discontinued operations.
Dividends
An interim dividend for the year ended 31 October 1999 of 2.00p per ordinary
share was paid on 27 August 1999. The directors recommend a final dividend of
3.50p per ordinary share, to be paid on 10 April 2000, making a total for the
year of 5.50p per ordinary share, up 10% (previous period : 5.00p).
Board
Paul Rayner was appointed Finance Director on 20 August 1999, following the
departure of Ray Gibbs. Paul's operational background is providing strong
financial management to the Group in the next phase of its development.
Employees
The year has seen the Group make a strong recovery and I would like to thank
all our employees for their support and hard work.
Current trading and prospects
We have had considerable success in strategically positioning our continuing
operations in their market places. Since the year end, significant new orders
of £29 million have increased the order book to a record level of £59 million.
Against this background, I believe the Group can look forward to a strong
period of growth and a substantial improvement in shareholder value.
K C Scobie
Chairman
11 January 2000
REVIEW BY THE CHIEF EXECUTIVE
The Group's activities are covered under the following headings:
Defence
Countermeasures: Chemring Countermeasures, Alloy
Surfaces, Pains Wessex Australia
Military Pyrotechnics and Explosives: Pains Wessex, Pains Wessex
Australia, Haley & Weller
Non-Defence
Marine Safety: Pains Wessex Safety Systems,
McMurdo Marine, Nova Marine
Wiring Harnesses: Kembrey Wiring Systems
Chemical Coatings: Alloy Surfaces
Defence Businesses
The dynamic growth in Countermeasures continues, with overall turnover in
defence activities of £35.8 million, up £4.3 million (14%) on the previous
period's performance. The year ended with a healthy order book of £26
million, up £6 million on 1998; this has further increased to £48 million
since the year end.
Military Pyrotechnics and Explosives turnover was down by £1.9 million (16%)
on the previous period due to known requirements from the UK MoD being delayed
due to other MoD priorities in support of the Kosovo conflict; these orders
have now been received.
Countermeasures
The Group is recognised as an international market leader in the development
and manufacture of expendable countermeasures to protect valuable military
platforms, and continues to develop new products and new markets to maintain
its leading position.
The Countermeasures business continues to strengthen its global position in
this expanding market, with innovative new concepts moving from development
into production, where we are providing world leading solutions.
A buoyant order book has supported the turnover increase of 33% to £25.2
million for the year. The order book increased by 16% over the year to £15.4
million and in the first two months of the new financial year this has further
increased to £33 million.
For aircraft countermeasures, the Group is prime contractor to the UK MoD for
its current range of infra red flares, and in the US, sole source supplier of
two out of the family of four flares in the Advanced Strategic and Tactical
Expendables (ASTE) programme. ASTE is a joint Air Force (USAF)/Navy (USN)
effort to develop advanced infra red (IR) expendable solutions for use against
evolving infra red threats for a variety of USAF/USN platforms.
Development of a new proprietary lower cost 55mm flare for Tornado aircraft is
now complete and first production deliveries will be made in 2000. Tornado
aircraft users include the UK, Germany, Italy and Saudi Arabia. The Group is
also the developer of the chaff and flare decoys for the European Fighter
Aircraft 2000 (Typhoon).
In the US, the investment made in 1998 in Alloy Surfaces' new facility in New
Chester, Pennsylvania supported a 77% increase in turnover. Alloy Surfaces'
unique infra red material features in all of the advanced infra red expendable
countermeasure programmes in the US, which will ensure continued growth.
Several new products have completed their development phase and transitioned
into production this year, in particular the proprietary BOL IR decoy, for
which a contract was received from the UK MoD during the year, and for which
we expect USN orders in 2000.
Alloy Surfaces currently provides a special materials decoy for USN
helicopters and has also developed a product for US Army helicopters, which
will commence series production in 2001, when the Advanced Threat IR
Countermeasures (ATIRCM), which combine missile warning with directable infra
red countermeasures in a single package, enter service.
Development has been completed on the MEBs (Modular Expendable Blocks), which
incorporate both flare and chaff materials to increase operational
effectiveness on both fixed wing aircraft and helicopters. As well as
significantly improving operational capabilities, the MEB also confers
significant savings in logistic costs to the user.
In naval countermeasures, we have made significant strides and there are
exciting growth prospects. Development of the UK MoD MK36 130mm naval IR
round is almost complete and production deliveries will commence in 2000. We
have recently received a significant order from Denmark for our innovative
combined MK36 compatible 130mm RF/IR round, with deliveries commencing in
2000. This will be the first of its kind and underlines the confidence which
government organisations place on our innovative design, development and
production capabilities. The MK36 decoy launcher is standard in most NATO
navies and these two new products add to our portfolio of MK 36 compatible
products.
This has been a good year for our Countermeasures business with both orders
and sales reaching record highs, with significant opportunities for further
increases. Investment will continue in both facilities and R&D to ensure the
Group maintains its market position and capitalises on the increasing need to
protect valuable military platforms.
Military Pyrotechnics and Explosives
The Group is a leading supplier to the UK MoD and an international market
leader for its range of specialist pyrotechnic and explosive products used in
training and other non-offensive activities.
Turnover in the year was down by £1.9 million (16%). At the year end the
order book had increased by 70% to £10.6 million, and has further increased to
£15.3 million in the first two months of the new financial year.
There is good visibility of UK MoD requirements over the next three years and
the Group is well placed to maintain its market position. The relocation of
the business to Derby and consolidation on one site will result in significant
cost savings and will allow expansion in UK Countermeasures to take place at
our Salisbury site.
Pains Wessex Australia's military turnover was at a similar level to last
year's high, in support of the Australian government strategy to encourage
in-country industrial capability.
We are increasing our international collaboration initiatives and in Europe,
exploring closer working relationships with our competitors, to position us
for possible European-led defence procurement programmes.
Non-Defence Businesses
Marine Safety
The Group is a market leader in providing legislated marine safety products to
aid location and rescue, including pyrotechnics, electronic location beacons,
location lights and VHF radio. Electronics sales more than doubled in the year
to assist in increasing Marine Safety turnover to £16.8 million.
The business is primarily driven by global legislation set by the
International Maritime Organisation (IMO) under its Safety of Life at Sea
(SOLAS) convention. This mandates the carrying of pyrotechnic products and
marine safety lights - all manufactured by the Group. Electronic products in
support of the legislated Global Maritime Distress and Safety System (GMDSS)
include 406 EPIRBs, SARTs and portable VHF radios.
New products, which have contributed to the growth this year, are 'all round'
lights, VHF radios, a pyrotechnic HRU for electronic beacons and life rafts,
and an award winning lower cost EPIRB, all of which provide a more competitive
range of products. The emphasis has been on innovative low cost products,
which have helped to generate sales and improve margins for the business and
resulted in increased market share in 1999.
Forthcoming legislation, both internationally from the IMO and within the
European Union, will further expand our market opportunities. This includes
new fishing vessel safety requirements within the EU and additional safety
measures, such as voyage data recorders and automatic identification systems.
Development in 406 EPIRB technology and the integration of Global Positioning
Systems (GPS) presents new market areas for our technology, including Personal
Locating Beacons (PLB) for land use and Emergency Location Transmitters (ELT)
for aviation use, as legislation is introduced in these areas.
Wiring Harnesses
Kembrey Wiring Systems is one of the largest UK manufacturers of high
specification cable harnesses for the aerospace industry. It has an excellent
reputation for supplying quality wiring systems to manufacturers of aircraft
and aircraft engines. Major customers include Rolls-Royce, BMW and BAE
Systems.
Of significance was the contract award received from BAE Systems to supply
wiring harnesses for all its military aircraft. The contract is for an
initial five year period. Significant investment in equipment, people and
training was necessary in the year in support of gaining this important
strategic partnership. This included the latest laser marking technology,
computer aided design and improvements to the facilities. This investment is
now complete and deliveries to BAE Systems have commenced.
Chemical Coatings
Turnover for the year was £2.3 million compared with £2.7 million in 1998.
Alloy Surfaces has a niche market in supplying special chemicals in the
aerospace sector for use in diffusion coating of engine components and demand
is expected to continue at current levels.
D R Evans
Chief Executive
11 January 2000
REVIEW BY THE FINANCE DIRECTOR
Operating results
A summary of the operating results for the year ended 31 October 1999 appears
in the Chairman's Statement. Continuing operations' gross profit grew by 11%
to £17,097,000 on a turnover increase of 8%. This is the result of greater
efficiencies and the introduction of new products. Gross margins increased to
27% (previous period : 26%).
Overheads in the continuing operations have been well controlled in the year
with distribution costs being 4.3% of turnover (previous period : 5.1%) and
administration expenses being 10.8% of turnover (previous period : 9.7%).
Administration expenses in the year are stated after charging £295,000
relating to the aborted bid costs; discounting these costs, administration
expenses would have been 10.3%. £2,801,000 was expended on research and
development activities during the year.
Operating margins of the continuing operations improved to 12.5% from 11.8%.
The operating loss on discontinued operations relates primarily to Chemring
Plating Systems, which was sold in October 1999.
There were no exceptional items during the year (previous period :
£2,261,000).
Interest
The interest charge for the year was £1,979,000 (previous period :
£2,582,000). Interest cover on profit generated by continuing operations is
3.9 times (previous period : 2.6 times).
Taxation
The tax charge of £871,000 is an effective rate of 20%, which represents tax
arising on overseas operations and a reduced charge on the UK operations, due
the utilisation of brought forward tax losses in the UK. In future, it is
anticipated that the tax rate will increase as losses are used up.
Shareholder returns
Basic earnings per ordinary share increased to 14.49p (previous period :
3.52p).
Diluted earnings per ordinary share on continuing operations increased to
19.02p (previous period : 11.64p) up 63%.
Dividend per ordinary share of 5.50p (previous period : 5.00p) is covered 2.63
times (previous period : 0.7 times).
Post tax return on capital employed was 11.9%, a significant improvement on
3.1% for the previous period.
Goodwill
Goodwill of £18.3 million arose as acquisitions were made in the
Countermeasures, Marine Safety and Military businesses. The Board has carried
out an annual impairment test that has demonstrated no amortisation is
necessary on the constituent parts of the goodwill balance.
Cash flow and gearing
Operating cash flow before capital expenditure was £5,834,000 (previous period
: £7,297,000). Cash flow in relation to discontinued operations was poor and
this impacted on the full year cash flows. Capital expenditure on tangible
assets of £2,700,000 in support of continued growth was financed through cash
flow and leasing during the year.
Growth in the Countermeasures and Marine Safety businesses increased the level
of debtors at the year end. Post year end cash flow has exceeded expectations
and further reductions in net debt are anticipated.
Proceeds from disposals have been used to reduce net debt which stood at
£20,681,000 (previous period : £22,572,000) a reduction of 8%. Gearing is now
72% (previous period : 84%).
Funding and going concern
Total facilities of £22.8 million have been agreed with National Westminster
Plc for all UK companies. In addition credit lines of £2 million have been
agreed with various lenders to cater for plant and machinery purchases for the
UK companies.
Facilities of US$8.2 million are in place with Wilmington Trust and the
Pennsylvania Industrial Development Authority, to provide funding for Alloy
Surfaces.
Facilities of A$1.4 million exist to provide funding for Pains Wessex
Australia.
The Board has reviewed the latest guidance on going concern and considers the
above facilities enable the Group to compile the financial statements on the
going concern basis and enable it to continue in operational existence for the
foreseeable future.
New accounting developments
The following accounting standards have been adopted in the year and the
financial information amended as appropriate:
FRS12 Provisions, contingent liabilities and contingent assets.
FRS13 Derivatives and other financial instruments - disclosure.
FRS14 Earnings per share.
Year 2000
The Group has not experienced any Year 2000 related issues and compliance
costs have not added significantly to overheads.
The Euro
The Group has traded in the new currency, particularly benefiting the Marine
Safety business from the price transparencies that now exist within Europe.
P A Rayner
Finance Director
11 January 2000
SUMMARY FINANCIAL INFORMATION
For the year ended 31 October 1999
Audited Unaudited Audited
Year 6 month 13 month
ended period ended period ended
31 Oct 1999 1 May 1999 31 Oct 1998
£000 £000 £000
Turnover : Continuing
operations
Defence
Countermeasures 25,180 11,248 18,929
Military pyrotechnics
and explosives 10,616 5,341 12,600
35,796 16,589 31,529
Non-defence
Marine safety 16,765 8,264 15,622
Wiring harnesses 7,197 3,153 7,772
Chemical coatings 2,324 1,291 2,741
26,286 12,708 26,135
62,082 29,297 57,664
Turnover: Discontinued
operations 3,316 2,762 17,082
65,398 32,059 74,746
Operating profit/(loss)
Continuing operations 7,766 2,858 6,814
Discontinued
operations (1,551) (769) (790)
Profit before taxation 4,306 1,095 1,251
Dividend per ordinary
share 5.50p 2.00p 5.00p
Basic earnings per
ordinary share 14.49p 3.74p 3.52p
Diluted earnings per
ordinary share on
continuing operations 19.02p 6.40p 11.64p
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 October 1999
Year ended
31 Oct 1999
Continuing Discontinued Total
operations operations operations
£000 £000 £000
Turnover 62,082 3,316 65,398
Cost of sales (44,985) (2,064) (47,049)
Gross profit 17,097 1,252 18,349
Distribution
costs (2,648) (149) (2,797)
Administrative
expenses (6,683) (2,654) (9,337)
Operating
profit/(loss) 7,766 (1,551) 6,215
Associated
undertaking 70
Exceptional
items
Loss on
disposal of
discontinued
operations -
Profit on
ordinary
activities
before interest 6,285
Interest
payable (1,979)
Profit on
ordinary
activities
before taxation 4,306
Tax on profit
on ordinary
activities (871)
Profit on
ordinary
activities
after taxation 3,435
Dividends (1,308)
Retained
profit/(loss)
for the
year/period 2,127
Basic earnings
per ordinary
share 14.49p
Diluted
earnings per
ordinary share 13.98p
Diluted
earnings per
ordinary share
on continuing
operations 19.02p
CONSOLIDATED PROFIT AND LOSS ACCOUNT
13 month
period
ended
31 Oct 1998
Continuing Discontinued Total
operations operations operations
£000 £000 £000
Turnover 57,664 17,082 74,746
Cost of sales (42,313) (11,635) (53,948)
Gross profit 15,351 5,447 20,798
Distribution
costs (2,953) (2,417) (5,370)
Administrative
expenses (5,584) (3,820) (9,404)
Operating
profit/(loss) 6,814 (790) 6,024
Associated
undertaking 70
Exceptional
items
Loss on
disposal of
discontinued
operations (2,261)
Profit on
ordinary
activities
before interest 3,833
Interest
payable (2,582)
Profit on
ordinary
activities
before taxation 1,251
Tax on profit
on ordinary
activities (413)
Profit on
ordinary
activities
after taxation 838
Dividends (1,189)
Retained
profit/(loss)
for the
year/period (351)
Basic earnings
per ordinary
share 3.52p
Diluted
earnings per
ordinary share 3.37p
Diluted
earnings per
ordinary share
on continuing
operations 11.64p
ADDITIONAL FINANCIAL PERFORMANCE STATEMENTS
For the year ended 31 October 1999
Year ended 13 month
31 Oct 1999 period ended
£000 31 Oct 1998
£000
Statement of total recognised gains
and losses
Profit on ordinary activities after
taxation 3,435 838
Currency translation differences on
foreign currency net investments (118) (1,009)
Decrease in revaluation reserve - (209)
Total recognised gains and losses for
the year/period 3,317 (380)
Reconciliation of movements in
shareholders' funds
Profit on ordinary activities after
taxation 3,435 838
Dividends (1,308) (1,189)
Retained profit/(loss) for the
year/period 2,127 (351)
Other recognised losses (118) (1,218)
Ordinary shares issued 1 -
Share premium arising 24 18
Net addition/(reduction) to
shareholders' funds 2,034 (1,551)
Shareholders' funds at 1 November 1998 26,815 28,366
Shareholders' funds at 31 October 1999 28,849 26,815
CONSOLIDATED BALANCE SHEET
As at 31 October 1999
As at
31
Oct 1999
£000 £000
Fixed assets
Intangible assets
Development costs 549
Good-will 18,246
18,795
Tangible assets 17,219
Investments 880
36,894
Current assets
Stock 9,597
Debtors 17,928
Cash at bank and in hand 2,408
29,933
Creditors due within one year (20,449)
Net current assets 9,484
Total assets less current liabilities 46,378
Creditors due after more than one year (17,089)
Provisions for liabilities and charges (440)
28,849
Capital and reserves
Called-up share capital 1,247
Reserves
Share premium account 10,813
Special capital reserve 12,939
Revaluation reserve 2,590
Revenue reserves 1,260
27,602
Shareholders' funds 28,849
Attributable to equity shareholders 28,787
Attributable to non-equity
shareholders 62
28,849
CONSOLIDATED BALANCE SHEET
As at
31
Oct 1998
£000 £000
Fixed assets
Intangible assets
Development costs 608
Good-will 18,246
18,854
Tangible assets 18,549
Investments 863
38,266
Current assets
Stock 10,920
Debtors 14,487
Cash at bank and in hand 2,162
27,569
Creditors due within one year (21,556)
Net current assets 6,013
Total assets less current liabilities 44,279
Creditors due after more than one year (16,964)
Provisions for liabilities and charges (500)
26,815
Capital and reserves
Called-up share capital 1,246
Reserves
Share premium account 10,789
Special capital reserve 12,939
Revaluation reserve 2,626
Revenue reserves (785)
25,569
Shareholders' funds 26,815
Attributable to equity shareholders 26,753
Attributable to non-equity
shareholders 62
26,815
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 October 1999
Year 13 month
ended period ended
31 Oct 1999 31 Oct 1998
£000 £000 £000 £000
Net cash inflow from
operating activities 5,834 7,297
Fundamental
reorganisation of
operations (494) (1,788)
5,340 5,509
Returns on investments
and servicing of
finance (2,006) (2,312)
Taxation (495) (165)
Capital expenditure (2,842) (4,251)
Acquisitions and
disposals 2,813 401
Equity dividends paid (1,186) (712)
Cash inflow/(outflow)
before use of liquid
resources and
financing 1,624 (1,530)
Financing
- issue of shares 25 18
- increase in debt 318 2,846
343 2,864
Increase in cash in
the year/period
1,967 1,334
Reconciliation of
net cash flow to
movement in net
debt
Increase in cash
in the year/period 1,967 1,334
Cash inflow from
the increase in
debt and lease
financing (318) (2,846)
Change in net debt
resulting from
cash flows 1,649 (1,512)
Translation
difference 49 (69)
Disposals 193 8
Finance leases - (378)
1,891 (1,951)
Notes
1. The financial information set out above does not constitute the company's
statutory accounts for the year ended 31 October 1999 or the thirteen
month period ended 31 October 1998 but is derived from those accounts.
Statutory accounts for 1998 have been delivered to the Registrar of
Companies, and those for 1999 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
section 237(2) or (3) of the Companies Act 1985.
The financial information has been prepared in accordance with the
accounting policies adopted for the 1998 accounts.
2. The financial statements for the year ended 31 October 1999 will be
posted to shareholders on 26 January 2000 and will also be available from
that date at the registered office, 1645 Parkway, Whiteley, Fareham,
Hampshire PO15 7AH.
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