Interim Results
Chemring Group PLC
27 June 2002
FOR IMMEDIATE RELEASE
27 June 2002
CHEMRING GROUP PLC
Interim Results for the Six Months to 30 April 2002
• Operating profit increased by 18% to £6.13 million (2001: £5.19
million)
• Group profit before tax (excluding profit on disposal) increased
by 18% to £4.63 million (2001: £3.93 million)
• Earnings per ordinary share increased by 6% to 12.01p (2001:
11.33p, excluding profit on disposal)
• Interim dividend unchanged at 2.45p
• Strong orders backlog of £83 million, including £45 million in
our US defence subsidiaries, to support full year sales
• First half performance held back by commissioning of rebuilt
Kilgore decoy manufacturing plant which will be a strong
contributor to the second half
• Countermeasures
- Leading market position worldwide, particularly with the US
Department of Defense which is increasing its budgets
- Increasing infra red decoy sales due to escalating customer
budgets and introduction of innovative new products
• Marine Safety
- Increasing sales of electronic products assisted by new
legislation and introduction of new products
- Significant US Coast Guard order for electronic personal
locating beacons won in face of strong US competition
Ken Scobie, Chemring Group Chairman, commented:
'I remain very confident about the prospects for your Group. It is to be hoped
that before I report to you again, we will have resolved our negotiations with
Royal & Sun Alliance. Kilgore should return to profitability in the second half
of the year, and all our other businesses are indicating a strong second half.
I anticipate reporting a very satisfactory full year performance.'
Notes:
1. All comparisons are for the half year to 30 April 2001.
2. The interim dividend of 2.45p per ordinary share will be paid on 29
August 2002 to holders on the register at 23 August 2002. The ex-dividend date
will be 21 August 2002.
For further information:
Ken Scobie Chairman, Chemring Group PLC 0207 930 0777
David Evans Chief Executive, Chemring Group PLC 0207 930 0777
Paul Rayner Finance Director, Chemring Group PLC 0207 930 0777
Jonathan Rooper Cardew & Co. 0207 930 0777
STATEMENT BY THE CHAIRMAN
I am pleased to report that profit before tax (excluding profit on disposal)
improved in the first six months by 18% to £4.63 million.
All companies in the Group, with the exception of Kilgore, met or exceeded our
trading expectations.
The plant at US-based Kilgore became operational in May. Kilgore operated at a
loss in the first half of the year, which we believe is covered under our
insurance arrangements.
As announced recently, we have filed a claim against Kilgore's insurers, Royal &
Sun Alliance (RSA), in the Chancery Court of Hardeman County, Tennessee for an
additional US$16.9 million over and above the US$4.5 million received to date,
plus damages. In parallel, discussions are continuing with RSA with a view to
reaching a negotiated settlement. In preparing the half year results the Board
has considered the current status of negotiations with RSA and has been
conservative in recognising the level of compensation for insured business
interruption. In view of the sensitive nature of our discussions with RSA, the
Board does not believe that it would be in shareholders' interests to indicate
the exact amount of revenue recognised in our half year results.
Excellent growth was achieved at Alloy Surfaces, our proprietary infra red decoy
business in the US. We anticipate continued substantial growth from this
operation over the next three years. A disappointing but predicted lower level
of sales at Chemring Countermeasures, compared to the first half of last year
when the business benefited from significant naval orders, partially offset the
encouraging profits at Alloy Surfaces.
The Marine Safety business performed well in the first half, and our investment
strategy in new electronics products is paying off, following receipt of a five
year order for electronic personal locating beacons from the US Coast Guard.
These electronic safety beacons will become standard equipment for every US
Coast Guard boat crewmember. Increased focus on 'homeland' defence,
particularly in the US, should increase opportunities for our Automatic
Identification Systems (AIS) products.
In May, the BBC Radio 4 Today programme broadcast false and highly damaging
allegations regarding the Group's subsidiary, PW Defence, in spite of receiving
a categorical denial from the Company prior to the first broadcast. The
broadcast made serious allegations that PW Defence operated a 'thriving business
in illegal anti-personnel landmines', and that 'these landmines were marketed
and sold across the World's war zones from an official British Government arms
fair sponsored by the Ministry of Defence'.
Since the Landmines Act 1998 came into force, PW Defence has not at any time
manufactured, sold or exhibited products for use as anti-personnel landmines.
All of the Group's businesses, including PW Defence, are cognisant of the strict
legal requirements under which they operate, and comply fully with all relevant
laws and UK Government rules and regulations, particularly in relation to export
licensing approvals for defence products. The Group's lawyers have written to
the BBC demanding a full retraction of the allegations and a response is
awaited.
RESULTS FOR THE HALF YEAR TO 30 APRIL 2002
2002 2001
£000 £000
Turnover 43,468 45,370
Operating profit 6,134 5,185
Profit before tax (excluding profit on disposal) 4,631 3,931
Profit after tax 3,237 3,134
Earnings per share (excluding profit on disposal) 12.01p 11.33p
No profit on disposal was made in the half year (2001: £369,000).
Interest costs increased to £1,503,000 (2001: £1,254,000). Interest was covered
by operating profit 4 times (2001: 4 times).
The tax rate is estimated at 30% (2001: 27%).
BALANCE SHEET AND CASH FLOW
The Group's net debt at the end of April 2002 stood at £52 million, an increase
of £11 million since the year end due principally to the funding of the Kilgore
rebuild at a cost of £7 million.
Over this period, ongoing trials relating to naval countermeasures contracts
delayed further cash receipts. However, I am pleased to report that we have now
received £2 million in relation to these contracts and expect to receive the
balance of £3.6 million by the year end.
The Board is conscious that the Group's debt is too high but anticipates
reductions in the second half as Kilgore returns to profitability and positive
cash flow. Resolution of the outstanding insurance claim will also improve the
Group's net debt.
DIVIDEND
The directors have declared an interim dividend of 2.45p per ordinary share
(2001: 2.45p), payable on 29 August 2002 to holders on the register at 23 August
2002.
BUSINESS PERFORMANCE
Defence Businesses
Turnover at our defence businesses of £27.8 million was constrained by the
Kilgore restart. If Kilgore had been operating normally from the start of the
year, an additional £10 million of sales would have been achieved from existing
orders.
• Countermeasures
Turnover at £21.5 million was impacted by the Kilgore restart and lower naval
decoy sales. Kilgore should provide a significant contribution to Group
turnover growth in the second half, supported by its current order book.
Countermeasures make up more than 50% of the Group's activities. With two
operations in the US and one in the UK, the Group is the largest supplier of IR
and chaff decoys worldwide. The combined US operations are the leading suppliers
of IR decoys to the US DoD, where budget allocation for aircraft IR decoys has
increased.
The Countermeasures businesses are well positioned to provide the variety of
decoys required to defeat both legacy and emerging threats. Tactical airborne
trials held this year, both in NATO and the US, have demonstrated that the
Group's range of decoys is well proven in terms of effectiveness against all
types of IR missile threats. Kilgore has been awarded a US Army study contract
for expendable decoy countermeasures for light armoured vehicles, which Alloy
Surfaces is supporting.
Kilgore is the leading provider of magnesium based flares to the US DoD, and
currently has an order book of £35 million. A chaff capability is being
established to compete with the current single source supplier, and naval decoy
technology has been transferred from the UK in support of US Navy interest.
Demand for Alloy Surfaces' proprietary special material IR decoys continues to
increase, especially for area IR coverage in pre-emptive operational mode.
Alloy Surfaces' special material decoys feature in every US advanced decoy
program.
Chemring Countermeasures (CCM), our UK operation, provides decoys worldwide for
most aircraft and helicopter platforms. CCM is the design authority to the UK
MoD for in-service magnesium IR and chaff aircraft decoys, and is also the
developer of these decoys for the European Fighter Aircraft 2000 (Typhoon) where
production orders are expected in 2003. A new spectral flare has completed
testing and qualification, and has been adopted by a number of overseas
customers to combat advanced seeker heads.
CCM received substantial orders for the RF Modular Expendable Block (MEB) from
the UK MoD, Belgium and Denmark. Its IR MEB was adopted by a NATO customer in
support of the Afghan conflict, giving acceptance to the IR MEB as the advanced
helicopter solution.
Naval decoy sales in the first half were down compared to last year. Technical
issues arising last year have been successfully resolved; the rounds are now are
in production and deliveries to the customer have commenced. Demand for CCM's
range of MK36 decoys is expected to pick up again in 2003 against known
requirements for MK216 chaff rounds and US Foreign Military Sales (FMS) via
Kilgore.
• Military Pyrotechnics
PW Defence is an international market leader for its range of specialist
military pyrotechnic and explosive products used in illumination, signaling,
screening and training, and in the case of explosives, for linear cutting and
demolition. All exports are subject to UK Government export licensing approval.
Turnover increased by 7% over the first half of last year to £6.4 million, and a
healthy order book has been maintained, equivalent to one full year's turnover.
PW Defence continues to maintain its international market share, and
collaborations with major international primes on providing pyrotechnic products
as part of a larger order are a factor in turnover growth.
Non-defence Businesses
Turnover of our non-defence businesses increased by 17% to £15.6 million.
• Marine Safety
The Group is a global market leader in providing marine safety products to aid
location and rescue, including electronic location beacons, portable VHF radios,
AIS products, fixed VHF radios incorporating Digital Selective Calling (DSC),
location lights and distress signals.
The first half produced an excellent result, with turnover increasing by 19% to
£10.1 million. Electronic sales again provided the growth, supporting our
strategy to expand the electronics product range to meet known legislative
requirements.
New product sales for fixed VHF radios with DSC, EPIRBs with integral GPS and
personal locating beacons are going well, particularly in the US and Canada
despite domestic competition.
A significant event for McMurdo, our Marine Safety subsidiary, was the award of
a five year contract, in competition, from the US Coast Guard to supply all
personnel with hand held satellite location personal EPIRB devices. This product
will become standard equipment for every US Coast Guard boat crewmember. This
award demonstrates that McMurdo is leading the market in producing and
developing satellite rescue devices.
AIS product development is progressing well with a view to satisfying initial
peak demand anticipated in 2003 from new legislation. AIS provides the identity
of a ship and its position, together with other information such as its course,
speed and destination. It is used to automate reporting systems along coastlines
and will support the US Coastguard in its key role in ensuring maritime homeland
security.
• Wiring Harnesses
Kembrey Wiring Systems is the largest UK manufacturer of electrical
interconnection systems for the aerospace and defence industries, and has an
excellent reputation for supplying quality wiring harnesses to manufacturers of
airframe and aircraft engines.
Turnover increased by 4% to £4.4 million, supported by an increase in military
aircraft work, offsetting the downturn in civil engine business.
Kembrey has now completed the first three wiring harness sets for BAE Systems'
Nimrod MR4A program. A further four sets are required this year and the
requisite engineering work to meet this is under way. Delivery of Tornado RB199
engine refit harnesses to Rolls-Royce began earlier this year, and work for GKN
Aerospace is increasing.
OUTLOOK
I remain very confident about the prospects for your Group. It is to be hoped
that before I report to you again, we will have resolved our negotiations with
Royal & Sun Alliance. Kilgore should return to profitability in the second half
of the year, and all our other businesses are indicating a strong second half.
I anticipate reporting a very satisfactory full year performance.
K C SCOBIE - Chairman
27 June 2002
UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT
for the half year to 30 April 2002
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2002 30 April 2001 31 Oct 2001
£000 £000 £000
Turnover - continuing operations 43,468 45,370 95,245
Operating profit - continuing operations 6,134 5,185 11,971
Profit on disposal - 369 369
Associated undertaking - - 43
Profit on ordinary activities before
interest 6,134 5,554 12,383
Interest payable (1,503) (1,254) (2,984)
Profit on ordinary activities before
taxation 4,631 4,300 9,399
Tax on profit on ordinary activities (1,394) (1,166) (2,342)
Profit on ordinary activities after
taxation 3,237 3,134 7,057
Equity minority interest (3) - (25)
Dividends (660) (629) (1,831)
Retained profit 2,574 2,505 5,201
Basic earnings per ordinary share 12.01p 12.77p 27.96p
Earnings per ordinary share before profit
on disposal 12.01p 11.33p 26.49p
Diluted earnings per ordinary share 11.87p 12.57p 27.85p
Dividend per ordinary share 2.45p 2.45p 6.70p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2002 30 April 2001 31 Oct 2001
£000 £000 £000
Profit on ordinary activities
after taxation 3,237 3,134 7,057
Currency translation differences
on foreign currency net investments 53 311 (469)
3,290 3,445 6,588
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2002 30 April 2001 31 Oct 2001
£000 £000 £000
Profit on ordinary activities after
taxation 3,237 3,134 7,057
Equity minority interest (3) - (25)
Dividends (660) (629) (1,831)
2,574 2,505 5,201
Ordinary shares issued 1 88 151
Share premium arising 41 4,225 8,216
Other recognised profits/(losses) 53 311 (469)
Net addition to shareholders' funds 2,669 7,129 13,099
Opening shareholders' funds 46,403 33,304 33,304
Closing shareholders' funds 49,072 40,433 46,403
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30 April 2002
Unaudited Unaudited Audited
As at As at As at
30 April 2002 30 April 2001 31 Oct 2001
£000 £000 £000
Fixed assets
Intangible assets 27,854 25,384 27,479
Tangible assets 40,716 29,107 33,901
Investments 924 893 924
69,494 55,384 62,304
Current assets
Stock 19,759 17,826 18,231
Debtors 37,231 25,954 30,494
Cash at bank and in hand 2,790 1,768 2,418
59,780 45,548 51,143
Creditors due within one year
Bank loans and overdraft 24,295 7,014 9,138
Loan stock 40 40 40
Other 24,666 19,805 24,732
49,001 26,859 33,910
Net current assets 10,779 18,689 17,233
Total assets less current liabilities 80,273 74,073 79,537
Creditors due after more than one year (30,161) (33,372) (32,097)
Provisions for liabilities and charges (706) (268) (706)
Equity minority interest (334) - (331)
49,072 40,433 46,403
Capital and reserves
Called up share capital 1,410 1,346 1,409
Reserves 47,662 39,087 44,994
Shareholders' funds 49,072 40,433 46,403
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2002
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2002 30 April 2001 31 Oct 2001
£000 £000 £000
Net cash (outflow)/inflow from operating activities (74) (784) 4,134
Returns on investments and servicing of finance (1,240) (1,054) (3,077)
Taxation 200 (343) (1,522)
Net capital expenditure (8,272) (1,679) (8,058)
Acquisitions - (14,063) (15,401)
Equity dividends paid (1,145) (1,007) (1,640)
Cash outflow before use of liquid resources and financing (10,531) (18,930) (25,564)
Financing - issue of shares 42 775 4,833
- (decrease)/increase in debt (1,047) 19,157 16,896
(Decrease)/increase in cash (11,536) 1,002 (3,835)
Reconciliation of operating profit to net cash flow from operating
activities
Operating profit 6,134 5,185 11,971
Amortisation charge 289 198 550
Depreciation charge 1,256 1,044 2,286
(Increase)/decrease in stocks (1,528) 909 929
Increase in debtors (6,737) (2,872) (6,906)
Increase/(decrease) in creditors 512 (5,248) (4,696)
Net cash (outflow)/inflow from operating activities (74) (784) 4,134
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT - continued
for the half year to 30 April 2002
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2002 30 April 2001 31 Oct 2001
£000 £000 £000
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash (11,536) 1,002 (3,835)
Cash and lease financing outflow/(inflow) from the 1,047 (19,157) (16,896)
(decrease)/increase in debt
Change in net debt resulting from cash flows (10,489) (18,155) (20,731)
New finance leases (560) - (115)
Translation difference 3 (385) 22
(11,046) (18,540) (20,824)
Analysis of net debt
As at Cash Non cash Exchange As at
1 Nov 2001 flow changes movement 30 April 2002
£000 £000 £000 £000 £000
Cash at bank and in hand 2,418 371 - 1 2,790
Overdrafts (9,138) (11,907) - - (21,045)
(6,720) (11,536) - 1 (18,255)
Debt due within one year (2,040) 1,000 (2,250) (3,290)
Debt due after one year (31,782) (164) 2,250 2 (29,694)
Finance leases (400) 211 (560) - (749)
(40,942) (10,489) (560) 3 (51,988)
INDEPENDENT REVIEW REPORT BY THE AUDITORS
To Chemring Group PLC
Introduction
We have been instructed by the Company to review the financial information for
the 6 months ended 30 April 2002 which comprises the consolidated profit and
loss account, statement of total recognised gains and losses, reconciliation of
movements in shareholders' funds, consolidated balance sheet, consolidated cash
flow statement and associated notes, and the related notes 1 to 7. We have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed
We conducted our review in accordance with the guidance contained in Bulletin
1999/4 issued by the Auditing Practices Board. A review consists principally of
making enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly, we do not express an audit opinion on the financial information.
Uncertainty relating to litigation
In arriving at our review conclusion, we have considered the disclosures made in
the financial information concerning the possible outcome of litigation in
respect of amounts recoverable under an insurance claim relating to an incident
at Kilgore Flares, a subsidiary undertaking of the Company, in April 2001. The
future settlement of this litigation could result in a shortfall, or a surplus,
when compared with the recorded debtor at 30 April 2002. It is not possible to
quantify the effect, if any, of this uncertainty. Details of the circumstances
relating to this uncertainty and the reasons why the amount of the related
debtor recorded at 30 April 2002 has not been disclosed are described in note 3.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the 6 months ended
30 April 2002.
DELOITTE & TOUCHE, Chartered Accountants, 27 June 2002
Mountbatten House, 1 Grosvenor Square, Southampton, Hampshire SO15 2BZ
NOTES TO THE INTERIM STATEMENT
1. BASIS OF PREPARATION
The interim accounts to 30 April 2002 have been prepared on the
basis of the accounting policies set out in the full year accounts to 31 October
2001. The Group has adopted FRS19: Deferred tax, the impact of which is not
significant in either the current or comparative period.
2. SEGMENTAL ANALYSIS OF TURNOVER
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2002 30 April 2001 31 Oct 2001
£000 £000 £000
Defence
Countermeasures 21,459 26,067 51,352
Military pyrotechnics 6,387 5,971 12,991
27,846 32,038 64,343
Non-defence
Marine safety 10,113 8,478 19,356
Wiring harnesses 4,405 4,249 9,594
Chemical coatings 1,104 605 1,952
15,622 13,332 30,902
Total 43,468 45,370 95,245
3. INSURANCE CLAIM
As reported in the financial statements for the year ended 31
October 2001 the Group has lodged a claim with its insurers in respect of
property damage and business interruption arising out of the incident at Kilgore
in April 2001. To date US$4.5 million has been received from the insurers.
On 26 March 2002 legal proceedings were initiated to recover the
balance of the claim, amounting to US$16.9 million, from the Group's insurers.
The Group has accrued an amount in its financial statements which it believes to
be a conservative level of recovery, although not the total amount.
Readers of the accounts will appreciate that due to the
sensitive nature of the settlement that the exact amount of the accrual is not
disclosed.
4. 2001 RESULTS
The figures for the year to 31 October 2001 are abridged from the Group's full
Financial Statements for that period which carry an unqualified Auditors' Report
and have been filed with the Registrar of Companies.
5. TAXATION
The estimated tax rate for the Group for the year ending 31 October 2002 is 30%
(2001: 27%).
6. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in
issue of 26,939,579 (2001: 24,541,240) and profit on ordinary activities after
taxation and minority interests of £3,234,000 (2001: £3,134,000). Diluted
earnings per share has been calculated using a diluted average number of shares
in issue of 27,245,486 (2001: 24,932,064) and profit on ordinary activities
after taxation and minority interests of £3,233,000 (2001: £3,133,000).
7. CORPORATE WEBSITE
Further information on the Group and its activities can be found on the
corporate website at www.chemring.co.uk.
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