Final Results

FOR IMMEDIATE RELEASE 8 FEBRUARY 2005 CHEMRING GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2004 Results Profit before tax from continuing operations Â£14.0m (2003*: Â£11.5m), up 22% Exceptional loss on disposal Â£0.7m (2003*: Â£1.3m profit) Profit before tax Â£13.3m (2003*: Â£11.8m), up 13% Basic earnings per ordinary share from continuing operations 35.02p (2003*: 29.51p), up 19% Basic earnings per ordinary share 33.32p (2003*: 30.48p), up 9% Net debt Â£30.0m (2003*: Â£38.7m), down 22% Gearing reduced significantly to 47% from 74% Dividend per ordinary share 9.00p (2003*: 7.40p), up 22% Highlights Record year for the Group's Countermeasures businesses, with a 23% increase in combined turnover US defence turnover $106 million, up 43% Kilgore's post-tax earnings doubled US businesses' closing order book 28% up on last year Strong operational cash flow Kilgore insurance claim settled with Royal and Sun Alliance Group Board strengthened with appointment of two new independent non-executive directors Commenting on the results, Ken Scobie, Chemring Group Chairman, said: 'It was a very good year for most of the Group. Each of the Group's countermeasures businesses performed at a record level, with a 23% increase in combined turnover to Â£78.7 million. Unfortunately, the issues affecting the marine division, to which I referred in my interim statement, resulted in an unacceptable performance by that business. Alloy Surfaces had another record year. Since the opening of its production plant for special material decoys in 1999, the business has increased its post-tax earnings ten-fold. With the opening of a second facility this month and an opening order book double that of last year, Alloy Surfaces is well placed to continue its impressive growth. Kilgore had an excellent year, demonstrating its singular ability as the volume producer of the industry. In the last two years Kilgore has delivered three and a half million flares to the US military and to export customers. In the year under review, the business doubled post-tax earnings, fully justifying the Group's acquisition and subsequent investment in this operation. The combined marine pyrotechnics and lights businesses performed well in the year, with the slightly weaker pyrotechnics performance offset by strong sales of lights. The marine electronics business had a bad year, and three significant issues combined to create an overall loss in the marine division. Major changes have now taken place in the marine division, including management restructuring, and a thorough review of its profitability and investment is underway, to enable the Board to decide on the most profitable future strategy for the business. Our defence businesses have entered 2005 with strong order books and great confidence forming the base for another year of excellent results. Resolution of the issues affecting our marine electronics business will result in these products contributing to Group profitability. I have every confidence in the outcome for next year.' Note: *All comparisons are for the full year to 31 October 2003 as restated following the adoption of FRS5 Application Note G and UITF Abstract 38. For further information: Ken Scobie Chairman 0207 930 0777 David Evans Chief Executive 0207 930 0777 Paul Rayner Finance Director 0207 930 0777 Jonathan Rooper Cardew Group 0207 930 0777 CHEMRING GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2004 Results Turnover from continuing operations was Â£125.6 million (2003*: Â£110.2 million), an increase of 14%. A significant proportion of the Group's turnover is now generated in the US and, at constant rates of exchange, the reported Group turnover would have been approximately Â£7.0m higher, a 20% increase on last year's reported turnover. Net operating margins from continuing operations were 13.5% (2003*: 12.7%). Net operating profits from continuing operations were Â£16.9 million (2003*: Â£14.0 million), an increase of 21%. Profit before tax from continuing operations was Â£14.0 million (2003*: Â£11.5 million), an increase of 22%. The exceptional loss on disposals during the year was Â£0.7 million (2003*: Â£1.3 million profit). Profit before tax was Â£13.3 million (2003*: Â£11.8 million), an increase of 13%. Basic earnings per ordinary share from continuing operations were 35.02p (2003 *: 29.51p), an increase of 19%. Basic earnings per ordinary share were 33.32p (2003*: 30.48p), an increase of 9%. The dividend per ordinary share of 9.00p (2003*: 7.40p) is covered 3.5 times (2003*: 4.1 times). Turnover by Business Area 2004 2003* Â£m Â£m Countermeasures 78.7 64.3 Military pyrotechnics 19.8 19.5 Marine safety and security 27.1 26.4 Continuing operations 125.6 110.2 Discontinued operations - 8.2 Total 125.6 118.4 Countermeasures Countermeasures turnover increased to Â£78.7 million, up Â£14.4 million Continuing growth in the countermeasures business reflects the Group's position as the worldwide market leader in providing expendable decoys to protect valuable military platforms, particularly to the US Department of Defense (US DoD). This is now by far the largest customer, representing in excess of 60% of our total countermeasures turnover, and growing. The turnover of the US businesses was $106 million (2003*: $74 million), contributing 47% to the total Group turnover. The US performance is evidence of our prominent position in the US countermeasures market. All three of our countermeasures operations increased turnover in 2004. There is continuing strong demand, particularly in the US, for our products to protect military aircraft from missile attack. Our decoys are in use in the Iraq and Afghanistan campaigns, where there are threats to both helicopters and fixed wing transport aircraft. Alloy Surfaces' second plant and new technology centre is now complete, and its current order book, deliverable in 2005, is double that of last year. Further investment in equipment and facilities will ensure that Alloy Surfaces satisfies the increasing demand for its decoys. Alloy Surfaces' exports in the year included sales to Canada, Australia and Japan, and six other countries are now trialling its decoys. In November 2004, the UK Ministry of Defence (UK MoD) awarded Alloy Surfaces a contract for BOL-IR decoys valued at $5.9 million, with further options valued at $6.4 million, which could be exercised in 2005. Kilgore was successful in winning $18.4 million of decoy orders from the US Air Force in November 2004. The contract also provides the US DoD with options to place further orders over a four year period from 2005 to 2008, which, if taken up, could bring the total value of the contract to over $104 million. Kilgore is in production on the new F22 decoy, and is developing decoys for the Joint Strike Fighter and the B52 bomber. New naval IR decoy manufacturing facilities were completed in the year to enable Kilgore to deliver its first naval decoy export order in 2005. Kilgore is also supporting the US Navy on future ship expendable decoys. Our UK-based business, Chemring Countermeasures, had another excellent year with turnover growth of 24%. Export sales were two-thirds of the total, demonstrating the prominent position of the business in the worldwide market. Demand is increasing throughout the world for Chemring Countermeasures' IR and RF aircraft decoys, including variants to protect the Typhoon and other new fighter aircraft. During the year, the UK MoD awarded Chemring Countermeasures a Â£12 million contract for the design and supply of an improved shipborne RF countermeasure, for deployment in Royal Navy frigates, destroyers and larger ships. Following an initial design certification phase, deliveries under the contract are anticipated to commence in 2008. As a result of our policy to invest in research and development, as well as production facilities, our countermeasures businesses have grown significantly over the last four years, and have the order book to support future growth. This investment policy will continue, to ensure the protection of the Group's prominent position as the international market leader in countermeasures, and to enable us to pursue the many opportunities available to us by offering our customers the most comprehensive RF and IR countermeasures solutions. Military Pyrotechnics Military Pyrotechnics turnover increased to Â£19.8 million, up Â£0.3 million Our military pyrotechnics business is a leading supplier of specialist military pyrotechnic products used in illumination, screening, signalling and training. Overseas sales were 75% of total military pyrotechnics turnover. At our UK operation, PW Defence, demand from the UK MoD was lower because of deployment of armed forces overseas, reducing UK training. In 2003, the UK business also benefited from a significant order for military vehicle protection grenades into the US, which was not repeated at the same level this year. However, this was partially offset with increased sales to the Middle East and the Far East. PW Defence is currently supporting the UK MoD on an operational requirement for a pyrotechnic product to create a distraction in crowd threatening scenarios. Products have been successfully tested and initial orders are anticipated this year. Given the Iraq experience, urban battlefield training is attracting increased focus, particularly in the US, and this presents an opportunity for our military pyrotechnic expertise. Kilgore's military pyrotechnics sales increased by $3.0 million during the year, and should increase further this year following the award of a development and initial production contract for improved air-deployed flares, which enhance a pilot's ability to see targets whilst using night vision goggles. Annual requirements could be in the region of $7 million to $9 million. Kilgore is the main supplier to the US Navy of Mk58 pyrotechnic marine location markers, and is involved in supporting future military vehicle protection in the high profile US Army Future Combat Systems programme. Marine Safety and Security Marine Safety and Security turnover increased to Â£27.1 million, up Â£0.7 million The Group is a leading supplier of legislated marine electronic and safety equipment worldwide for commercial and leisure markets. The marine safety and security business is made up of three product groups - electronics, marine safety lights and pyrotechnics. Growth in 2004 was disappointing, particularly after three years of good growth where electronics had been the main driver. Further growth in electronics turnover in 2004 had been expected to come from increased sales of personal locating beacons (PLBs) with global positioning system (GPS) capability, and automatic identification system (AIS) transponders. Unfortunately however, the GPS PLB and GPS EPIRB were impacted by external trials of the products in the US. The trials highlighted that, despite our products meeting technical specification, enhancements to the GPS performance would be beneficial. A decision was therefore taken to make some minor design modifications, and offer upgrades to the units currently in service.Despite this, the publicity generated by the prÃ©cis of the trials report adversely affected sales volumes and resulted in additional costs being incurred, which impacted profitability in the year. In September 2004, the upgraded PLB was by far the best performing beacon in tests carried out by the state of Vermont in conjunction with Air Force Rescue Coordination Centre (AFRCC), with a GPS fix being acquired in less than two minutes. McMurdo's GPS EPIRB has also been credited with several successful rescues in 2004, the most notable being the four British rowers rescued off the Isles of Scilly. Delays in completing the development of a lower cost Mk2 AIS transponder also impacted turnover and profitability in the year, as the business continued to sell the lower margin Mk1 variant. The product is heavily software dependent and issues arose during the complex independent approval testing, which necessitated frequent software modifications and delayed final approval. European approval was secured in December 2004, and the product is now competitively placed to support future marine profitability. US Coast Guard approval is in place and FCC approval is pending; these approvals will enable us to pursue the heavily-policed US market. Demand for lights products was high in the year, particularly for military customers. However, increased competition in international pyrotechnics markets resulted in a small loss of market share, which we aim to recover. The Group has invested significantly in the development of new electronics products over the last three years to improve the product range and reduce manufacturing costs. This investment is written-off over three years. Demand for 406MHz EPIRBs and PLBs will increase due to a combination of the phasing-out of 121.5MHz beacons, and increasing use of 406MHz PLBs for marine, land, government, utilities and aviation use. Demand will also increase for AIS technology as its place in increased policing of the maritime arena is recognised. Dividends It was indicated last year that, following resolution of the Kilgore insurance claim, the Board would review its dividend policy. Accordingly, this year the Board is recommending a final dividend of 6.20p per ordinary share, a 28% increase on the final dividend for last year. This, together with the interim dividend of 2.80p paid in September 2004, gives a total dividend for the year of 9.00p, a 22% increase on last year. The dividend is over 3.5 times covered. The Board During the year the Group has continued to plan the future structure of the Board and senior management. Two new independent non-executive directors have been appointed. Air Marshal Sir Peter Norriss, whose experience of the military, not least its procurement practices, is proving very valuable, as is Ian Much with his years of relevant experience as a chief executive of public companies. Recently it was announced that Dr David Price will join us in April 2005 as Chief Executive, with David Evans becoming Non-Executive Deputy Chairman after thirteen years as Managing Director and Chief Executive of the Group. The Board conveys its thanks to David Evans for his major contribution to the success of the Group. David Price joins us from a senior position in Rolls-Royce, with years of previous experience in defence electronics, and we believe he will be of great benefit in assisting the Board to deliver its future strategy. General Sir John Stibbon will retire as a non-executive director at the Annual General Meeting after eleven years of diligent service, through both the bad and good times. The Board will miss his pertinent questioning of difficult issues and we wish him well in retirement. Kilgore Insurance Claim After a vast amount of effort and substantial cost, the Kilgore insurance claim against Royal and Sun Alliance was finally settled for a sum which the Board believed was acceptable when taking all issues into account. This leaves certain amounts outstanding, for which we are now pursuing a claim against our former insurance brokers, Willis, concerning their placement of the insurance cover for Kilgore and their subsequent handling of the claim. Discussions are in progress and, in anticipation of an acceptable resolution to these discussions, the Group has carried forward in its balance sheet a reasonable estimate of the final recovery. Research and Development Research and development expenditure totalled Â£6.0 million (2003*: Â£4.7 million), an analysis of which is set out below: 2004 2003* Â£m Â£m Customer funded research and development 2.4 1.9 Non-funded research and development 2.2 1.6 Capitalised development costs 1.4 1.2 Total research and development expenditure 6.0 4.7 The Group's policy is to write-off capitalised development costs over a three year period. Amortisation of development costs was Â£1.6 million (2003*: Â£1.2 million) Exceptional (Loss)/Profit on Disposal On 8 November 2003, the entire issued share capital of Kembrey Wiring Systems Limited was sold for a net asset value of Â£1.9 million before costs, generating a loss on disposal of Â£0.7 million. Â£1.2 million was received on completion of the sale, with Â£0.4 million received during the 2004 calendar year, and a further Â£0.3 million receivable in November 2005. In July 2003, a profit of Â£0.7 million was made on the disposal of the Chemical Coatings division of Alloy Surfaces. In 2003, Â£0.6 million was accounted for as a net profit on disposal of assets which were destroyed in the April 2001 incident at Kilgore. Interest The interest charge for the year was Â£3.1 million (2003*: Â£3.4 million). Interest was covered 5.5 times (2003*: 4.1 times) by operating profits from continuing operations. Taxation The tax charge of Â£3.8 million (2003*: Â£3.5 million) represents a rate of 29% (2003*: 30%). Despite significant profits arising in the US, where there is a higher tax regime, the Group has benefited from tax credits on research and development expenditure and these, together with the release of surplus provisions relating to prior years, have reduced the tax rate. Change of Accounting Policies As reported at the half year, the Group has changed its revenue recognition criteria to comply with FRS5 Application Note G. Sales to US Government agencies are now recognised when formally accepted by the US Government. The change reduced previously reported profits for the financial year ended 31 October 2003 by Â£152,000, and resulted in a prior year adjustment of Â£771,000 to reduce shareholders' funds at 31 October 2002. In addition, UITF Abstract 38 relating to the treatment of ESOP shares has been adopted. As a result, a prior year adjustment of Â£174,000 to reduce shareholders' funds at 31 October 2002 was required. Pensions In accordance with FRS17 Accounting for pension costs, the Group has disclosed the additional information required in Note 9 of the financial statements. Under FRS17, the calculated deficit on the Group's two defined benefit pension schemes after tax was Â£12.3 million (2003*: Â£10.8 million). Actuarial valuations as at 6 April 2003 for the two defined benefit schemes - the Staff Pension Scheme and the Executive Pension Scheme - were completed during the year. Taking into account the results of these valuations, employers' contributions to the Staff Pension Scheme were increased to 16% from 11.5% with effect from January 2004, and it was also agreed that the Group would make additional contributions to the two schemes totalling Â£35,000 per month. The cash impact of the increase in contributions is in the region of Â£ 0.7 million per annum. Employee contributions have also been increased to 8% from 6% on both schemes. Cash Flow and Net Debt Operating cash flow was Â£14.5 million (2003*: Â£18.1 million), with Â£20.2 million of operating cash flow generated in the second half of the year, compared to an out flow in the first half of Â£5.7 million. Working capital balances reduced in the second half and this, together with the Â£5.1 million receipt from Royal and Sun Alliance, assisted with net debt reduction. Fixed asset expenditure in the year was Â£5.6 million (2003*: Â£5.5 million), Â£ 0.5 million of which related to the investment in a second facility for Alloy Surfaces. A further Â£1.4 million has been spent in the first quarter of the current financial year to complete this investment. Net debt was reduced by 22% to Â£30.0 million (2003*: Â£38.7 million). Gearing is 47% (2003*: 74%). During the year the repayment profile of Â£2.0 million of medium term debt was extended by two years to 31 October 2008, providing additional headroom in the Group's cash facilities. In January 2005, the Group converted $15.0 million of overdraft into term debt, repayable over five years. Foreign Exchange The Group's principal foreign exchange exposure is to the US dollar. During the year sterling appreciated by 9% against the dollar. At constant exchange rates, sales would have been approximately Â£7.0 million higher than reported. The impact on dollar earnings translated into sterling has been mitigated by partial hedging of sterling against the dollar. The net impact on operating profits, after this hedging, is approximately Â£0.5 million. Forward exchange currency contracts have been entered into for the next two financial years to reduce the Group's exposure to further depreciation of the US dollar against sterling. Prospects The defence businesses have entered 2005 with strong order books and great confidence forming the base for another year of excellent results. Resolution of the issues affecting the marine electronics business will result in these products contributing to Group profitability. The Board has every confidence in the outcome for next year. SUMMARY FINANCIAL INFORMATION 2004 2003 2002 As restated As restated * * Â£000 Â£000 Â£000 Turnover Countermeasures 78,724 64,264 47,023 Military pyrotechnics 19,788 19,540 17,942 Marine safety and security 27,068 26,366 21,345 Continuing operations 125,580 110,170 86,310 Discontinued operations - 8,240 11,315 125,580 118,410 97,625 Operating profit/(loss) -Continuing 16,927 14,026 7,431 -Discontinued - (216) 684 16,927 13,810 8,115 Profit/(loss) before -Continuing 14,005 11,463 5,299 taxation -Discontinued (690) 381 542 13,315 11,844 5,841 Dividend per ordinary share 9.00p 7.40p 6.70p Basic earnings per ordinary share - 35.02p 29.51p 13.78p continuing Basic earnings per ordinary share 33.32p 30.48p 15.19p Diluted earnings per ordinary share 33.14p 30.05p 15.03p Net debt (Â£000) 30,008 38,681 47,277 Shareholders' funds (Â£000) 63,357 52,423 47,726 * See Note 2 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 October 2004 2004 2003 Continuing Discontinued Total Continuing Discontinued Total operations operations operations operations operations operations As As restated* restated* Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Turnover 125,580 - 125,580 110,170 8,240 118,410 Operating 16,927 - 16,927 14,026 (216) 13,810 profit/ (loss) Associated 151 - 151 178 - 178 undertaking (Loss)/ profit on disposal: - insurance claim - - - 565 - 565 - sale of - (690) (690) - 724 724 subsidiary undertaking /division Profit / (loss) on ordinary 17,078 (690) 16,388 14,769 508 15,277 activities before interest Interest (3,073) - (3,073) (3,306) (127) (3,433) payable Profit/ (loss) on ordinary 14,005 (690) 13,315 11,463 381 11,844 activities before taxation Tax on (4,029) 207 (3,822) (3,387) (113) (3,500) profit/ (loss) on ordinary activities Profit/ (loss) on ordinary 9,976 (483) 9,493 8,076 268 8,344 activities after taxation Equity minority 15 23 interest Profit for 9,508 8,367 the financial year Dividends (2,690) (2,034) Retained 6,818 6,333 profit Basic earnings per 35.02p 29.51p ordinary share - continuing operations Basic 33.32p 30.48p earnings per ordinary share Diluted 33.14p 30.05p earnings per ordinary share Dividend 9.00p 7.40p per ordinary share * See Note 2 ADDITIONAL FINANCIAL PERFORMANCE STATEMENTS For the year ended 31 October 2004 2004 2003 As restated* Â£000 Â£000 Â£000 Â£000 Statement of total recognised gains and losses Profit on ordinary activities after taxation 9,508 8,367 Currency translation differences on foreign currency net investments (1,945) (1,636) Total recognised gains and losses relating 7,563 6,731 to the year Prior year adjustment (1,097) - Total recognised gains and losses since last annual report and financial statements 6,466 6,731 Reconciliation of movements in shareholders' funds Profit on ordinary activities after taxation 9,493 8,344 Equity minority interest 15 23 Dividends (2,690) (2,034) Retained profit 6,818 6,333 Other recognised losses (1,945) (1,636) Ordinary shares issued 77 - Share premium arising 5,984 - Net addition to shareholders' funds 10,934 4,697 Opening shareholders' funds as previously 53,520 48,671 stated Prior year adjustment (1,097) (945) Opening shareholders' funds as restated 52,423 47,726 Closing shareholders' funds 63,357 52,423 * See Note 2 CONSOLIDATED BALANCE SHEET As at 31 October 2004 2004 2003 As restated* Â£000 Â£000 Â£000 Â£000 Fixed assets Intangible assets: Development costs 2,841 2,996 Goodwill 27,984 28,442 30,825 31,438 Tangible assets 41,810 42,879 Investments 1,073 1,063 73,708 75,380 Current assets Stock 25,090 24,962 Debtors 27,036 30,059 Cash at bank and in hand 9,933 5,821 62,059 60,842 Creditors due within one year (49,915) (57,199) Net current assets 12,144 3,643 Total assets less current liabilities 85,852 79,023 Creditors due after more than one year (18,174) (21,489) Provisions for liabilities and charges (4,057) (4,832) Equity minority interest (264) (279) 63,357 52,423 Capital and reserves Called-up share capital 1,511 1,434 Reserves Share premium account 26,710 20,726 Special capital reserve 12,939 12,939 Revaluation reserve 2,410 2,446 Revenue reserves 19,787 14,878 61,846 50,989 Shareholders' funds 63,357 52,423 Attributable to equity shareholders 63,295 52,361 Attributable to non-equity shareholders 62 62 63,357 52,423 * See Note 2 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 October 2004 2004 2003 Â£000 Â£000 Â£000 Â£000 Net cash inflow from operating 14,462 18,084 activities Returns on investments and servicing (3,045) (3,420) of finance Taxation (2,291) (686) Capital expenditure (5,580) (5,497) Acquisitions and disposals 485 1,475 Equity dividends paid (2,219) (1,866) Cash inflow before use of liquid resources and financing 1,812 8,090 Financing - issue of shares 6,061 - - decrease in debt (4,478) (5,645) 1,583 (5,645) Increase in cash 3,395 2,445 Reconciliation of net cash flow to movement in net debt Increase in cash 3,395 2,445 Cash outflow from the decrease in 4,478 5,645 debt Change in net debt resulting from 7,873 8,090 cash flows New finance leases (354) (1,153) Translation difference 1,157 1,964 Amortisation of debt finance costs - (305) Cash disposed with subsidiary (3) - undertaking Movement in net debt 8,673 8,596 Opening net debt (38,681) (47,277) Closing net debt (30,008) (38,681) RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH FLOW FROM OPERATING ACTIVITIES 2004 2003 Continuing Discontinued Total Continuing Discontinued Total operations operations operations operations operations operations As As restated* restated* Â£000 Â£000 Â£000 Â£000 Â£000 Â£000 Operating 16,927 - 16,927 14,026 (216) 13,810 profit/ (loss) Amortisation 1,555 - 1,555 1,210 - 1,210 charge Depreciation 3,229 - 3,229 3,229 66 3,295 charge Loss on sale 128 - 128 - - - of tangible fixed assets (Increase)/ (1,169) - (1,169) (5,132) 375 (4,757) decrease in stock Decrease/ 1,116 - 1,116 (1,931) 325 (1,606) (increase) in debtors (Decrease)/ (7,324) - (7,324) 6,107 25 6,132 increase in creditors 14,462 - 14,462 17,509 575 18,084 * See Note 2 ANALYSIS OF NET DEBT Other At non-cash Exchange At 1 Nov Cash changes movements 31 Oct 2003 flow 2004 Â£000 Â£000 Â£000 Â£000 Â£000 Cash at bank and in hand 5,821 4,394 (3) (279) 9,933 Overdrafts (16,766) (999) - 302 (17,463) (10,945) 3,395 (3) 23 (7,530) Debt due within one year (6,260) 5,057 (2,000) 133 (3,070) Debt due after one year (18,065) (1,892) 2,000 902 (17,055) Finance (3,411) 1,313 (354) 99 (2,353) leases (38,681) 7,873 (357) 1,157 (30,008) Other non-cash changes represent the movement of debt due after one year to within one year and the disposal of cash balances with subsidiary undertakings. 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 2004 or 31 October 2003 but is derived from those accounts. Statutory accounts for 2003 have been delivered to the Registrar of Companies, and those for 2004 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 auditors reports in both years included an emphasis of matter paragraph drawing attention to a fundamental uncertainty in respect of amounts recoverable related to insurance matters. The financial information has been prepared on the basis of the accounting policies set out in the audited full year accounts to 31 October 2003, except for the adoption of FRS5 Application Note G Revenue recognition and the adoption of UITF Abstract 38 Accounting for ESOP trusts. 2. Comparative Figures All comparisons are for the full year to 31 October 2003 as restated following the adoption of FRS5 Application Note G and UITF Abstract 38. 3. Insurance Claim Following the manufacturing incident at Kilgore Flares Company LLC on 18 April 2001, resulting in material damage and suspension of operations, the Group lodged a claim with its insurers for property damage and business interruption. As previously reported, at 31 October 2003, payments totalling Â£ 5,700,000 had been received from the Group's insurers. On 3 August 2004, the Group received a further payment of Â£5,056,000 in settlement of the claim with the Group's insurers, bringing the total received to Â£10,756,000. The Group is now pursuing a claim against its former insurance brokers, concerning the insurance cover for Kilgore Flares Company LLC and the brokers' subsequent handling of the claim. At 31 October 2004 the Board has made an estimate of the additional proceeds which it believes the Group is entitled to receive from its insurance brokers, after taking advice from its professional advisers, of which Â£678,000 has been recognised in these financial statements. The balance of the claim that had not been recovered from the Group's insurance brokers at the year end was Â£2,689,000 (2003:Â£7,486,000), which has been included within other debtors. Foreign exchange movements of Â£419,000 have been recognised through the statement of total recognised gains and losses in these financial statements, due to the claim being denominated in US dollars. 4. Earnings per Ordinary Share The earnings and shares used in the calculations are as follows: 2004 2003 Ordinary Ordinary shares shares Earnings Number EPS Earnings Number EPS As restated* Â£000 000s Pence Â£000 000s Pence Basic 9,504 28,521 33.32 8,363 27,436 30.48 Additional shares issuable other than at fair value in respect of options outstanding - 160 (0.18) - 391 (0.43) Diluted 9,504 28,681 33.14 8,363 27,827 30.05 * See Note 2 Earnings comprise profit for the financial year after deducting preference dividends of Â£4,000 (2003: Â£4,000). Ordinary shares are calculated by reference to the average number of shares in issue in the year. Reconciliation from basic earnings per share to basic earnings per share - continuing: 2004 2003 Ordinary Ordinary shares shares Earnings Number EPS Earnings Number EPS As restated* Â£000 000s Pence Â£000 000s Pence Basic 9,504 28,521 33.32 8,363 27,436 30.48 Profit/(loss) on ordinary activities after taxation - discontinued operations 483 - 1.70 (268) - (0.97) Basic - continuing 9,987 28,521 35.02 8,095 27,436 29.51 * See Note 2 5. Dividend Subject to shareholder approval, the final dividend of 6.20p per ordinary share will be paid on 10 June 2005 to all shareholders registered at the close of business on 13 May 2005. The ex-dividend date will be 11 May 2005. 6. 2004 Financial Statements The financial statements for the year ended 31 October 2004 will be posted to shareholders on 22 February 2005 and will also be available from that date at the registered office, 1650 Parkway, Whiteley, Fareham, Hampshire PO15 7AH. 7. Annual General Meeting The Annual General Meeting will be held at 2.30pm on 24 March 2005 at The Solent Hotel, Rookery Avenue, Whiteley, Fareham, Hampshire PO15 7AJ.

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