FINAL RESULTS

RNS Number : 9076L

Chemring Group PLC

20 January 2009

 



FOR IMMEDIATE RELEASE

20 January 2009

CHEMRING GROUP PLC

PRELIMINARY RESULTS

FOR THE YEAR ENDED 31 OCTOBER 2008

·                 Revenue from continuing operations up 39% to £354.2 million (2007: £254.7 million)

·                 Record current order book of £585 million, up 43% since the end of October 2008; year end order book up 38% at £409 million (2007: £297 million)

·                 Record operating cash flow up 38% to £83.7 million (2007: £60.6 million), representing 99% conversion from underlying operating profit* of £84.9 million (2007: £61.2 million)

·                 Underlying profit before tax from continuing operations* up 39% to £74.2 million (2007: £53.2 million)

·                 Profit before tax from continuing operations up 16% to £57.7 million (2007: £49.8 million)

·                 Underlying earnings per share from continuing operations* up 43% at 160p (2007: 112p)

·                 Basic earnings per share from continuing operations up 17% at 123p (2007: 105p)

·                 Dividend per ordinary share up 40% at 35p (2007: 25p)

Divisional Highlights

Both Energetics and Countermeasures performed strongly and achieved record years

Energetics

·                 Year end order book of £281 million, up 58% on 2007

·                 Revenue of £197 million, up 54% on 2007

·                 Simmel achieved an excellent second half performance with record sales and profits

·                 Strong contribution from acquisitions made in 2008

·                 Divisional operating profits of £46 million in line with those of Countermeasures

Countermeasures

·                 Revenue of £157 million, up 25% on 2007

·                 Chemring Countermeasures and Kilgore achieved record sales and profits

·                 Alloy Surfaces achieved record production volumes of decoys

·                 A$160 million contract for Chemring Australia

Ken Scobie, Chemring Group Chairman, commented:

'Once again I have the pleasure to announce another year of excellent performance, with a 39% increase in underlying profit before tax* to £74.2 million and a 43% increase in underlying earnings per share* to 160p.

We enter 2009 with an excellent order book, an Energetics division growing rapidly but still in its youth, and several newly-acquired businesses determined to show the Group what they can achieve. The Countermeasures division will continue to produce solid earnings and cash flow.

As a leading defence business, the issues associated with the current military operations around the world make many judgments difficult but looking to the future of the Group, these international tensions do not make the world look a safer place. In rapidly changing economic circumstances there are many imponderables which could affect the outcome for the next year. However, once again I believe we will experience another year of above average growth, with all-round solid financial performance.' 

* Before goodwill adjustment arising from recognition of tax losses, intangible amortisation arising from business combinations and loss on fair value movements on derivatives of £16.5 million (2007: £3.4 million)

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 £354.2 million (2007: £254.7 million), an increase of 39%. Total underlying operating profit* was £84.9 million (2007: £61.2 million), an increase of 39%.

Revenue, excluding acquisitions, increased 31% to £334.6 million (2007: £254.7 million). Underlying operating profit*, excluding acquisitions, increased 30% to £79.6 million (2007: £61.2 million). Net underlying operating margins*, excluding acquisitions, were 24% (2007: 24%).

Revenue from businesses acquired in the year was £19.6 million and £5.3 million of underlying operating profit* was generated at a margin of 27%.

An analysis of total revenue and underlying operating profit* by business segment is set out below:

Segment	2008			2007
	Revenue £m	Underlying operating profit* £m	Margin	Revenue £m	Underlying operating profit* £m	Margin
Energetics	196.7	45.7	23%	128.2	27.9	22%
Countermeasures	157.5	45.5	29%	126.5	38.6	30%
Share-based payments	-	(1.7)		-	(2.4)
Unallocated head office costs	-	(4.6)		-	(2.9)
Total	354.2	84.9	24%	254.7	61.2	24%

The revenue of the Energetics division grew 54%, and the operating profit grew 64%. The revenue of the Countermeasures division grew 25% and the operating profit grew 18%. 

Interest income in the year was £1.8 million (2007: £0.6 million). The interest charge for the year was £12.6 million (2007: £8.7 million). Included within interest is £0.7 million (2007: £0.6 million) for retirement benefit obligations. Net interest was covered 7.9 times (2007: 7.6 times) by underlying operating profit*. 

Underlying profit before tax* was £74.2 million (2007: £53.2 million), an increase of 39%.

Tax on the underlying profit before tax* was £20.7 million (2007: £17.1 million), representing a rate of 28% (2007: 32%).

Underlying profit after tax* on continuing operations was £53.5 million (2007: £36.1 million), an increase of 48%.

Energetics

·                     Orders: £249.2 million

·                     Revenue: £196.7 million

·                     Operating profit: £45.7 million

·                     Operating margin: 23%

Pyrotechnics and Explosive Ordnance Disposal (EOD)

The pyrotechnics and EOD business continues to grow strongly, with revenue up 45% year-on-year to £110.8 million. Simmel Difesa was a great success during its first full year of ownership, generating £25.8 million of pyrotechnic business. Demand for its pyrotechnic illumination mortar rounds continued to be strong, driven by continued high levels of operational use during peacekeeping operations by the UK Army. Over 60,000 rounds were delivered this year and the award of a multi-year contract for the supply of another 140,000 white-light and 50,000 black-light illumination rounds will maintain volume production throughout 2009 and 2010.

Chemring Defence also performed well, with encouraging growth in the sales of both pyrotechnic and demolition stores products. Production of smoke products, for signaling or screening, grew by 26% to record levels with over 800,000 units delivered to the UK Ministry of Defence and other NATO countries. Qualification of the L96/L97 vehicle discharge grenades for the US Army was completed to schedule and volume production continues in line with the multi-year requirements. Sales of demolition stores grew by 20% year-on-year, with a significant expansion of the customer base in Europe and the Middle East. In particular, the portable mine-breaching system, PEMBS, continued to be in demand, with new orders from Australia, Spain, Poland and Slovenia.

Battlefield training products have also continued to be in strong demand. The customer base for the MECS (multiple effects cartridge system) battlefield simulation ammunition continued to expand, with France and Saudi Arabia becoming important new customers. Record production levels were achieved for thunderflash products, with deliveries of in excess of 1 million units to European and Far Eastern customers. US Army usage continued to be strong and production reached 1.5 million units during the year. The US Army believes that realistic training conditions are a vital component of future training, and plans to significantly expand the capabilities of its training ranges. Towards the end of the year, Chemring Defence received a $5 million contract from Unitech in the US for the delivery of the new Improvised Explosive Devices (IED) simulator launchers for installation at various US Army training ranges. Further opportunities for the system and the associated MECS ammunition are expected to emerge over the next twelve months as a large number of countries involved in peacekeeping activities evaluate what type of training is needed prior to the deployment of troops.  

All of the new acquisitions performed strongly during 2008. Richmond Electronics was acquired at the start of the financial year and has made an encouraging start, with a record level of sales and the successful capture of major orders from the UK, Italy, Bangladesh and Kuwaiti governments. Titan Dynamics, in Texas, has also made great progress since its acquisition, with a further 400 BES (battlefield effects systems) launchers installed at US Army ranges to take the installed base to more than 1,500. The production of BES cartridges has also been increased to 65,000 per month using the automated manufacturing expertise at Technical Ordnance. Further increases to 100,000 per month are planned to occur in 2009.

Scot also performed well, delivering strong sales and operating margins during the latter part of 2008. It secured new contracts for the supply of BBU-63 impulse cartridges for use on the B-2 stealth bomber and a substantial contract from Lockheed Martin for the aft and forward thrusters used on the Atlas V heavy lift launch vehicle. The business also won some important contracts (canard actuator, separation nuts) on the Orion Crew Expeditionary Vehicle, which is the NASA successor to the Space Shuttle.

Munitions 

The munitions business also grew strongly, with revenue up 66% year-on-year to £85.9 million. The full year of trading from Simmel Difesa was an important component of this growth, generating £26 million of revenue. Naval ammunition continued to be the most important aspect of the business, with deliveries of 40mm ammunition to a number of Italian and Middle Eastern customers. Production of 76mm naval ammunition remained steady during the year with deliveries to several Far Eastern and South American countries. Simmel was also awarded its first contract from the French Navy for the qualification of a range of 76mm ammunition for the French Horizon and FREMM frigates.  

Simmel had further success in its other niche markets. It delivered the first batch of 120mm tank ammunition to a NATO customer to schedule, and received a significant award for the supply of 125mm tank ammunition to a Middle East customer. A qualification programme for the dual-mode warhead of the ASTER air defence missile was also successfully completed during the year and volume production has now started.  

The munitions part of Chemring Energetics grew strongly in 2008, with good progress made on the development of our rocket motor business. The qualification of the NLAW rocket motors was completed in the early part of the year and production increased to its steady-state requirement. A new rocket motor for an 84mm anti-tank weapon was developed in the year and the first batch delivered to the European customer. In addition, good progress continues to be made to extend the partnership with BAE Systems for the supply of detonators, primers and energetic components for a wide range of their ammunition products. Chemring Energetics is also working with BAE Systems and other prime contractors on the development of new explosive materials, particularly those that are insensitive to fire or high velocity impacts. During the year, a substantial contract was received from Nexter for insensitive explosive material for use in the new French 155mm ammunition.

Technical Ordnance also expanded its component supply business with the principal US ammunition prime contractors, ATK and General Dynamics. Production of explosive detonators, pellets and tracers increased by 24% year-on-year and the business continues to explore the opportunity for more sub-system contracts, such as complete fuzes.  

The newly acquired Martin Electronics performed well during the last few months of the year, increasing production and capturing a number of important new orders. Production of the M228 training grenade fuze continued strongly at 300,000 units per month in its semi-automated facility. Full automation of the assembly, inspection and packaging was introduced during 2008 and has successfully completed all qualification testing. Contract options in excess of $22 million were also awarded.

Martin Electronics also successfully manufactured 40mm illumination rounds for the two US system prime contractors. Two further pyrotechnic rounds passed their factory acceptance testing and will begin production shortly. $17 million of new orders were also received, giving Martin a strong order book with which to start the new financial year.

Countermeasures

·                     Orders: £155.2 million

·                     Revenue: £157.5 million

·                     Operating profit: £45.5 million

·                     Operating margin: 29%

The Countermeasures division showed strong growth during the year, with revenue up 25% year-on-year to £157.5 million. However, some of this growth can be attributed to the strength of the dollar during the last quarter and the growth on a constant exchange rate is much closer to 20%, broadly in line with the growth in the global market.

Chemring Countermeasures, the UK business, had another excellent year, generating £42.4 million of revenue, which was 37% higher than the previous year. This growth was driven by a record production of 240,000 spectral flares for use by the UK and coalition partners in peacekeeping operations to protect helicopters, transport aircraft and combat aircraft. Production of conventional flare types also continued at record levels, with growing interest being shown for our range of 26mm and 50mm flares for use on Russian made helicopters and aircraft. A substantial number of flares for Typhoon were delivered to the participating nations and good progress was made on the development of some advanced flares for future qualification on that platform. 

Revenue from 130mm naval countermeasures grew by over 170% year-on-year with major deliveries to Denmark, Norway, Spain and Chile. Interest in both IR and chaff rounds continues to grow, particularly for countries looking to operate in crowded littoral operational theatres. Historically, the operating margins from the naval countermeasures business have been considerably lower than that usually associated with aircraft countermeasures. The strong growth in this area has, therefore, contributed to the small decrease in operating margins compared with 2007. However, company-funded programmes to develop alternative options to the existing bought-in rocket motors and electronics sub-systems are underway and should lead to higher margins over the next few years.  

Kilgore also delivered a strong performance, with sales up 48% year-on-year to a record level of $76.8 million. Production of the three high volume, conventional MTV flares ran extremely well throughout, with total production exceeding 1.6 million flares. This performance would have been even stronger but for the fact that production volumes had to be reduced during the latter part of the year, as a consequence of administrative delays in the award of follow-on options. 

Three new flares were scheduled to enter production in 2008. A flare for C-17 transport aircraft successfully passed flight qualification and factory acceptance testing (FAT) during the year; full production started at the end of the year and will continue throughout the current financial year. A set of advanced flares for the B-52 also successfully passed its flight test and factory acceptance testing but the US Air Force customer requested that a new high altitude test be completed before volume production commenced. Since this flight test could only be scheduled at the very end of the financial year, the start of production was delayed into 2009. Similarly, problems with the technical data package on the advanced flare for the F-18 aircraft have taken a considerable length of time to resolve and production has been delayed until 2009.  

Considerable progress has, however, been made on the advanced flares for the F-22 and   F-35 aircraft. Production of the flare set for F-22 increased steadily to 700 units per month, although a problem with the US Government test facility delayed delivery of several batches of flares in the last six weeks of the year. The construction of the new advanced material facility at Kilgore, with its highly efficient fully automated production process, was completed and fully commissioned during the year. All F-22 production has now been transferred to this new facility. Successful validation testing of the flares for the Joint Strike Fighter (JSF) has been completed and the test results exceed expectations. The transition to low rate initial production is now expected to occur in 2009.  

Another major success for Kilgore in 2008 was the capture of the multi-year award to supply the M212 flare, which is a component of the current flare suite used by the US Army and the US Air Force to protect helicopters from infra-red guided missiles. This contract, with a maximum value of $382.9 million, is the largest framework contract ever placed with the Group by the US Government. The first delivery order was for just over 200,000 flares, production of which is expected to begin in the latter part of 2009.  

Finally, Alloy Surfaces had another satisfactory year, generating $128.5 million of revenue, which was similar to last year. Decoy production rose to a record level of over 1.7 million flares but a change of product mix affected total revenue. The US Army awarded Alloy a multi-year contract to supply the M211 flare, which is another component of the current flare suite used by the US Army for the protection of helicopters. This contract, with a maximum value of $347.9 million, provides the framework for continued production of this product over the next five years. However, the US Air Force recently selected a modified design, called the MJU64, for its future airlift protection requirements and has placed an initial contract on Alloy for $22.9 million. This change in requirement and the reduced demand from operations in Iraq, following the apparent success of the US and Iraqi forces 'surge' initiative, resulted in a gradual decrease in the monthly production rate throughout 2008. Production of the MJU64 is now 10,000 units per month and is likely to stay at this rate for the foreseeable future.  

In May 2008, the US Air Force awarded Alloy a $30 million contract for the continued supply of MJU-50 decoys for protection of its transport aircraft. Production has been ramped up to 33,000 units per month and negotiations for a follow-on contract at higher rate production in 2009 have now started. The UK Ministry of Defence has placed additional contracts for the BOL/IR special material decoys and production has been increased to 40,000 units per month; this level of production should continue throughout 2009.  

Group Strategy

The Group strategy remains unchanged. It will continue to concentrate on its two segments of Energetics and Countermeasures, combining organic growth with acquisitions which fit the Group's designated market sectors and product offering.  

With the continuing development of the Group around the world, the Board has identified the need to strengthen the senior executive team with the appointment of a third divisional managing director. This individual will head up the Group's international business outside of the UK, Europe and the US; in particular, in Australia, India, Korea, Japan and the Middle East.

The Group already has customers in India, Korea and Japan but it is believed that permanent production facilities in each of these countries will be required in the future in order to maintain and increase the Group's presence in both Countermeasures and Energetics. It is recognised that in these countries some form of joint venture is likely to be the required structure. 

Acquisitions

During the year the Group acquired 100% of the issued share or stock capital of the following businesses:

	Date acquired	Consideration (including costs) £m
Richmond Electronics & Engineering Limited	2 November 2007	12.5
Titan Dynamics Systems, Inc.	17 March 2008	2.6
Scot, Inc.	2 July 2008	20.8
Martin Electronics, Inc.	1 August 2008	37.1
Total consideration		73.0

A summary of the fair value of assets acquired and the goodwill arising on acquisitions is as follows:

		2008 £m
Intangible assets		37.6
Fixed assets		8.1
Cash		3.8
Working capital		6.2
Tax		(0.2)
Provisions		(5.2)
Fair value of assets acquired		50.3
Consideration (including costs)		73.0
Goodwill arising		22.7

Research and Development

Research and development expenditure totalled £9.3 million (2007: £6.7 million), an increase of 39%. An analysis of expenditure is set out below:

	2008 £m	2007 £m
Customer funded research and development	3.4	1.3
Internally funded research and development	3.3	4.1
Capitalised development costs	2.6	1.3
Total research and development expenditure	9.3	6.7

The Group's policy is to write-off capitalised development costs over a three year period. Amortisation of development costs was £0.8 million (2007: £0.6 million).

Pensions 

The deficit on the Group's defined benefit pension schemes before associated tax credits, as defined by IAS19 Accounting for pension costs, was £13.6 million (2007: £13.3 million), a slight increase of 2%.  

During the year, the April 2006 actuarial valuation for the UK Staff Pension Scheme was agreed with the scheme trustees, together with a funding plan to address the deficit on the scheme over the period to June 2014. The Group's ongoing contributions to the scheme were reduced under the funding plan. However, the Group agreed to provide a £6 million bank guarantee to the scheme, which can be called upon in certain events of default by the Company. In addition, £5 million has been placed in an escrow account, to provide additional security to the scheme in the event of a default.

The next triennial valuations of the UK Executive Pension Scheme and the Staff Pension Scheme will be carried out as at 6 April 2009.

The Executive Pension Scheme is closed to new entrants. The Staff Pension Scheme remains open for future accrual for current members but is only open to new employees at the discretion of the Board.

A new defined contribution pension scheme was introduced in the UK during the year. This scheme is now the main source of pension provision for the Group's UK employees. The majority of our overseas pension arrangements are defined contribution, save in those European countries where some element of defined benefit retirement payments are required.

Foreign Exchange

The results of overseas subsidiary undertakings are translated into sterling at weighted average exchange rates.

Currency denominated net assets are translated at year end rates.

Effective translation rates were as follows:

	2008	2007	% change
Average rates
US dollar	1.87	1.99	6
Euro	1.26	1.44	12
Year end rates
US dollar	1.63	2.08	22
Euro	1.27	1.44	12

Underlying profit before tax* was improved in 2008 by approximately £3.7 million, primarily as a result of US dollar and Euro appreciation against sterling.

Cash Flow

Operating cash flow was £83.7 million (2007: £60.6 million), which represents a conversion rate of underlying operating profit* to operating cash of 99% (2007: 99%). Working capital balances were well controlled in the year and were kept below increases in Group revenues.

Fixed asset expenditure across the Group was £34.2 million (2007: £16.0 million). 

Cash flow from operating activities was £36.1 million (2007: £32.6 million), which represents a conversion rate of underlying operating profit* to cash flow of 43% (2007: 53%).

A summary of Group cash flow is set out below:

	2008 £m	2007 £m
Operating cash flow	83.7	60.6
Capital expenditure	(34.2)	(16.0)
Tax	(13.4)	(12.0)
Cash flow from operating activities	36.1	32.6
Interest	(8.2)	(7.4)
Dividends	(9.3)	(6.0)
Net cash inflow before acquisitions and disposals	18.6	19.2

Net Debt, Facilities and Going Concern

Net debt at the year end was £116.7 million (2007: £99.6 million), an increase of 17%.

Gearing at the year end was 51% (2007: 80%). A summary of debt is set out below:

	2008 £m
Cash	69.6
Term loans	(96.9)
US loan notes	(89.4)
	(116.7)

A summary of the Group's main committed bank facilities and repayment dates is set out below:

Facility type	Total facility £m	Repayment dates	Required repayments £m	Renewal dates
Working capital	50.0			2012
Term loans	96.9	2009	19.7
		2010	21.2
		2011	34.9
		2012	21.1
			96.9
US loan notes	89.4	2017	89.4

At the end of October 2008 the working capital facility was unutilised, due to the availability of net cash balances. Terms loans and the US loan notes were fully drawn.

On 14 November 2007, the Group completed a $150 million private placement of ten year fixed interest loans in the US with a number of institutional investors. The loan notes, which mature in 2017, carry an interest rate of approximately 6.30%. The proceeds were used to repay existing US dollar debt and provide additional working capital facilities for the Group.

The directors have acknowledged the latest guidance on going concern. Whilst the current volatility in financial markets has created general uncertainty, the Group has significant working capital headroom, strong covenant compliance and a record order book. 

Accordingly, the directors have a reasonable expectation that adequate financial resources will continue to be available for the foreseeable future.  

Post Balance Sheet Events

Acquisition of NIITEK (Non Intrusive Inspection Technology, Inc.)

On 12 December 2008, the Group purchased the entire stock capital of NIITEK for an initial consideration of $30 million. Further deferred contingent consideration of up to $10 million is payable upon achievement of certain financial targets.

The initial consideration was funded from existing bank facilities.

Dividends

The Board is recommending a final dividend of 25p per ordinary share, a 40% increase on the final dividend for 2007. This, together with the interim dividend of 10p paid in August 2008, gives a total dividend for the year of 35p, a 40% increase over 2007. The dividend is over 4.6 times covered on underlying profits after tax of the continuing operations. The shares will be marked 'ex dividend' on 25 March 2009 and the dividend is payable on 17 April 2009 to shareholders on the register at the close of business on 27 March 2009.  

Prospects

Our ongoing commitment to delivering total shareholder return has inevitably been restricted by the performance of the Company's shares, although we believe that shareholders will recognise that the external influences of the economic and financial dramas were outside of our control. In the circumstances, we believe our share price has held up relatively well compared to the stock market as a whole.  

The Board has examined thoroughly not only the plans for the current year but also the next five years, and whilst recognising that we cannot remain completely immune to economic recession, we are convinced that our growth strategy, consistent with that articulated in previous years, is still soundly based. Furthermore, as mentioned earlier in this statement, we believe that the Group has adequate financial resources to deliver this strategy.

We enter 2009 with an excellent order book, an Energetics division growing rapidly but still in its youth, and several newly-acquired businesses determined to show the Group what they can achieve. The Countermeasures division will continue to produce solid earnings and cash flow.

As a leading defence business, the issues associated with the current military operations around the world make many judgments difficult but looking to the future of the Group, these international tensions do not make the world look a safer place. In rapidly changing economic circumstances there are many imponderables which could affect the outcome for the next year. However, once again we believe we will experience another year of above average growth, with all-round solid financial performance.              

* Before goodwill adjustment arising from recognition of tax losses, intangible amortisation arising from business combinations and loss on fair value movements on derivatives of £16.5 million (2007: £3.4 million) - see Note 2 below

  SUMMARY FINANCIAL INFORMATION

Continuing operations

Revenue		2008 £m	2007 £m	2006 £m
Energetics	- continuing operations	177.1	128.2	69.3
	- acquired	19.6	-	-
Energetics total		196.7	128.2	69.3
Countermeasures		157.5	126.5	118.4
Total revenue		354.2	254.7	187.7
Underlying operating profit*
	- continuing operations	79.6	61.2	38.5
	- acquired	5.3	-	-
Total underlying operating profit*		84.9	61.2	38.5
Underlying profit before tax*		74.2	53.2	32.5
Operating profit		68.4	57.8	37.8
Profit before tax		57.7	49.8	31.8
Underlying basic earnings per ordinary share*		160p	112p	72p
Basic earnings per ordinary share		123p	105p	70p
Diluted earnings per ordinary share		123p	104p	70p
Dividend per ordinary share		35p	25p	16p
Net debt (£m)		116.7	99.6	70.6
Shareholders' funds (£m)		230.6	124.0	94.1

* Before goodwill adjustment arising from recognition of tax losses, intangible amortisation arising from business combinations and loss on fair value movements on derivatives of £16.5 million (2007: £3.4 million)

  CONSOLIDATED INCOME STATEMENT

for the year ended 31 October 2008

			Note	2008 £m	2007 £m
Continuing operations
Revenue		- continuing		334.6	254.7
		- acquired		19.6	-
Total revenue				354.2	254.7
Operating profit		- continuing		65.2	57.8
		- acquired		3.2	-
Total operating profit			2	68.4	57.8
Operating profit is analysed as:
Underlying operating profit*				84.9	61.2
Goodwill adjustment arising from recognition of tax losses				(1.8)	-
Intangible amortisation arising from business combinations				(6.0)	(3.4)
Loss on fair value movements on derivatives				(8.7)	-
				68.4	57.8
Share of post-tax results of associate				0.1	0.1
Finance income				1.8	0.6
Finance expense				(12.6)	(8.7)
Profit before tax for the year from continuing operations			2	57.7	49.8
Profit before tax is analysed as:
Underlying profit before tax*				74.2	53.2
Goodwill adjustment arising from recognition of tax losses				(1.8)	-
Intangible amortisation arising from business combinations				(6.0)	(3.4)
Loss on fair value movements on derivatives				(8.7)	-
				57.7	49.8
Tax				(16.5)	(15.9)
Profit after tax for the year from continuing operations				41.2	33.9
Discontinued operations
Loss after tax from discontinued operations				-	(1.9)
Profit after tax for the year				41.2	32.0
Attributable to:	Equity holders of the parent			41.2	32.1
	Minority interests			-	(0.1)
Earnings per ordinary share			3
From continuing operations:
Underlying*				160p	112p
Basic				123p	105p
Diluted				123p	104p
From continuing and discounted operations:
Basic				123p	99p
Diluted				123p	98p

* Before goodwill adjustment arising from recognition of tax losses, intangible amortisation arising from business combinations and loss on fair value movements on derivatives.

  CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

for the year ended 31 October 2008

		2008 £m	2007 £m
Profit after tax for the year		41.2	32.0
Other recognised income and expense
(Losses)/gains on derivatives		(3.8)	0.2
Movement on deferred tax relating to cash flow hedges		0.8	(0.1)
Exchange differences on translation of foreign operations		24.8	(7.0)
Actuarial (losses)/gains on defined benefit pension schemes		(0.1)	4.4
Movement on deferred tax relating to pension schemes		-	(1.5)
Current tax on items taken directly to equity		(0.6)	2.0
Deferred tax on items taken directly to equity		(4.2)	1.1
Total recognised income and expense for the year		58.1	31.1
Attributable to:
Equity holders of the parent		58.1	31.2
Minority interest		-	(0.1)

  CONSOLIDATED BALANCE SHEET

as at 31 October 2008

		£m	2008 £m	£m	2007 £m
Non-current assets
Goodwill		128.8		94.8
Other intangible assets		85.0		37.1
Property, plant and equipment		110.4		69.8
Interest in associate		1.0		1.0
Deferred tax		9.7		9.1
			334.9		211.8
Current assets
Inventories		89.1		51.2
Trade and other receivables		87.8		61.9
Cash and cash equivalents		69.6		38.7
Derivative financial instruments		-		0.9
			246.5		152.7
Total assets			581.4		364.5
Current liabilities
Bank loans and overdrafts		(19.7)		(22.5)
Obligations under finance leases		(0.7)		(0.7)
Trade and other payables		(108.5)		(71.4)
Provisions		(1.5)		(0.4)
Current tax liabilities		(6.3)		(3.3)
Derivative financial instruments		(8.1)		-
			(144.8)		(98.3)
Non-current liabilities
Bank loans		(163.6)		(113.5)
Obligations under finance leases		(2.2)		(1.5)
Trade and other payables		(1.8)		(0.4)
Long term provisions		(4.4)		(1.3)
Deferred tax		(17.3)		(12.1)
Preference shares		(0.1)		(0.1)
Retirement benefit obligations		(13.6)		(13.3)
Derivative financial instruments		(3.0)		-
			(206.0)		(142.2)
Total liabilities			(350.8)		(240.5)
Net assets			230.6		124.0
Equity
Share capital			1.8		1.6
Share premium account			119.8		60.5
Special capital reserve			12.9		12.9
Hedging reserve			(2.6)		0.4
Revaluation reserve			1.5		1.6
Retained earnings			102.9		49.8
			236.3		126.8
Own shares			(5.7)		(2.8)
Equity attributable to equity holders of the parent			230.6		124.0
Total equity			230.6		124.0

  CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 October 2008

	Note	2008 £m	2007 £m
Cash flows from operating activities
Cash generated from operations	A	83.7	60.6
Tax paid		(13.4)	(12.0)
Net cash inflow from operating activities		70.3	48.6
Cash flows from investing activities
Dividends received from associate		0.1	0.1
Purchases of property, plant and equipment		(31.0)	(14.6)
Purchases of intangible assets		(3.2)	(1.4)
Proceeds on disposal of subsidiary undertaking/division		-	3.2
Proceeds on disposal of property, plant and equipment		-	0.2
Acquisition of subsidiary undertakings (net of cash acquired)		(68.2)	(46.9)
Net cash outflow from investing activities		(102.3)	(59.4)
Cash flows from financing activities
Dividends paid		(9.3)	(6.0)
Interest paid		(8.2)	(7.4)
Proceeds on issues of shares		58.6	0.1
New borrowings		72.7	50.7
Repayments of borrowings		(36.4)	(6.4)
Proceeds from/(repayments of obligations under) finance leases		0.4	(0.7)
Purchase of own shares		(2.9)	(2.8)
Net cash inflow from financing activities		74.9	27.5
Increase in cash and cash equivalents during the year		42.9	16.7
Cash and cash equivalents at start of the year		25.4	9.0
Effect of foreign exchange rate changes		1.3	(0.3)
Cash and cash equivalents at end of the year		69.6	25.4

NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

for the year ended 31 October 2008

	2008 £m	2007 £m
A. Cash generated from operations
Operating profit from continuing operations	65.2	57.8
Operating profit from acquired operations	3.2	-
Loss on discontinued operations	-	(1.9)
Adjustment for:
Depreciation of property, plant and equipment	9.7	6.8
Amortisation of intangible assets arising from business combinations	6.0	3.4
Amortisation of other intangibles	0.7	0.6
Loss on fair value movements on derivatives	8.7	-
Goodwill adjustment arising from recognition of tax losses	1.8	-
Share-based payment expense	1.7	2.4
Negative goodwill included in operating profit	-	(0.4)
Difference between pension contributions paid and amount   recognised in Income Statement	0.1	(0.6)
Decrease in provisions	(2.2)	(0.5)
Operating cash flows before movements in working capital	94.9	67.6
Increase in inventories	(18.8)	(4.6)
Increase in trade and other receivables	(14.1)	(9.0)
Increase in trade and other payables	21.7	6.6
Cash generated from operations	83.7	60.6
Reconciliation of net cash flow to movement in net debt
Increase in cash and cash equivalents during the year	42.9	16.7
Cash inflow from increase in debt and lease financing	(36.7)	(43.6)
Change in net debt resulting from cash flows	6.2	(26.9)
New finance leases	0.8	(2.1)
Translation difference relating to loans	(23.6)	0.4
Amortisation of debt finance costs	(0.5)	(0.4)
Movement in net debt in the year	(17.1)	(29.0)
Net debt at start of the year	(99.6)	(70.6)
Net debt at end of the year	(116.7)	(99.6)

Analysis of net debt
	As at 1 Nov 2007 £m	Cash flow £m	Non-cash changes £m	Exchange movement £m	As at 31 Oct 2008 £m
Cash at bank and in hand	38.7	29.6	-	1.3	69.6
Overdrafts	(13.3)	13.3	-	-	-
	25.4	42.9	-	1.3	69.6
Debt due within one year	(9.2)	10.4	(18.0)	(2.9)	(19.7)
Debt due after one year	(113.5)	(46.8)	18.0	(21.3)	(163.6)
Finance leases	(2.2)	(0.3)	0.3	(0.7)	(2.9)
Preference shares	(0.1)	-	-	-	(0.1)
	(99.6)	6.2	0.3	(23.6)	(116.7)

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 2008 or 31 October 2007 but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies, and those for 2008 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 2008.

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 20 February 2009 (see Note 5 below).

2.	RECONCILIATION OF STATUTORY OPERATING PROFIT TO UNDERLYING OPERATING PROFIT

Underlying profit is used by the Board to measure and monitor the underlying performance of the Group. Set out below is a reconciliation of statutory operating profit and underlying operating profit.

	2008 £m	2007 £m
Statutory operating profit	68.4	57.8
Add back:
Goodwill adjustment arising from recognition of tax losses	1.8	-
Intangible amortisation arising from business combinations	6.0	3.4
Loss on fair value movements on derivatives	8.7	-
Underlying operating profit	84.9	61.2

Profit before tax and underlying profit before tax also vary by the above amounts.

3.	EARNINGS PER ORDINARY SHARE

Earnings per share are based on the average number of shares in issue of 33,339,754 (2007: 32,470,410) and profit on ordinary activities after tax and minority interests of £41.2 million (2007: £33.9 million). Diluted earnings per share has been calculated using a diluted average number of shares in issue of 33,514,169 (2007: 32,678,486) and profit on ordinary activities after tax and minority interests of £41.2 million (2007: £34.0 million).

The earnings and shares used in the calculations are as follows:

From continuing operations	2008			2007
	Earnings £m	Ordinary shares Number 000s	EPS Pence	Earnings £m	Ordinary shares Number 000s	EPS Pence
Basic	41.2	33,340	123	33.9	32,470	105
Additional shares issuable other than at fair value in respect of options outstanding	-	174	-	0.1	208	(1)
Diluted	41.2	33,514	123	34.0	32,678	104

Reconciliation from basic earnings per share to underlying earnings per share:

Underlying basic earnings has been defined as earnings before intangible amortisation arising from business combinations, goodwill adjustment arising from recognition of tax losses and loss on fair value movements on derivatives. The directors consider this measure of earnings allows a more meaningful comparison of earnings trends.

	2008			2007
	Earnings £m	Ordinary shares Number 000s	EPS Pence	Earnings £m	Ordinary shares Number 000s	EPS Pence
Basic	41.2	33,340	123	33.9	32,470	105
Intangible amortisation arising from business combinations, goodwill adjustment and loss on fair value movements on derivatives (after tax)	12.3	-	37	2.3	-	7
Underlying	53.5	33,340	160	36.2	32,470	112

From continuing and discontinued operations	2008			2007
	Earnings £m	Ordinary shares Number 000s	EPS Pence	Earnings £m	Ordinary shares Number 000s	EPS Pence
Basic	41.2	33,340	123	32.1	32,470	99
Additional shares issuable other than at fair value in respect of options outstanding	-	174	-	-	208	(1)
Diluted	41.2	33,514	123	32.1	32,678	98

4.

DIVIDEND

The final dividend of 25p per ordinary share will be paid on 17 April 2009 to all shareholders registered at the close of business on 27 March 2009. The ex-dividend date will be 25 March 2009. The total dividend for the year will be 35p (2007: 25p). 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 2008.

5.	2008 FINANCIAL STATEMENTS

The financial statements for the year ended 31 October 2008 will be posted to shareholders on 20 February 2009. They will also be available from that date at the registered office, Chemring House, 1500 Parkway, Whiteley, Fareham, Hampshire PO15 7AF and will be posted on the Company's website at www.chemring.co.uk the following morning.

 

END

 

 

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