Interim Results

FOR IMMEDIATE RELEASE 26 June 2003 CHEMRING GROUP PLC Interim Results for the Six Months to 30 April 2003 * Turnover increased by 16% to Â£50.4 million (2002: Â£43.5 million) * Operating profit Â£6.0 million (2002: Â£1.3 million excluding insurance claim credit of Â£4.8 million) * Group profit before tax Â£4.3 million (2002: Â£4.6 million) * Earnings per ordinary share 11.14p (2002: 12.01p) * Interim dividend up 4% to 2.55p per ordinary share (2002: 2.45p) * Record defence order book of Â£97 million (2002: Â£68 million) * Countermeasures * 24% increase in turnover * Kilgore facilities and restart activity complete * US Department of Defense order book of Â£63 million * Continuing high demand for products * Marine Safety and Security * 20% increase in turnover * Significant new electronics product development * Military Pyrotechnics * 16% increase in turnover * UK Ministry of Defence partnering agreement signed in June 2003 Ken Scobie, Chemring Group Chairman, commented: 'The record defence order book, the anticipated substantial growth in profitability at Kilgore, and the sale of new products in the Marine business should produce strong growth in the second half. The prospects for your Group remain excellent.' Notes: 1. All comparisons are for the half year to 30 April 2002. 2. The interim dividend of 2.55p per ordinary share will be paid on 26 September 2003 to holders on the register at 12 September 2003. The ex-dividend date will be 10 September 2003. 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 CardewChancery 0207 930 0777 Statement by the Chairman The Group has performed well in the six months to 30 April 2003, with turnover increasing by 16% to Â£50.4 million providing operating profit of Â£6.0 million. Profit before tax was Â£4.3 million, after interest of Â£1.7 million. Tax is estimated at 30%. Earnings per share were 11.14p. Kilgore made a small operating profit in the period, compared to an operating loss of Â£3.2 million for the first half of last year. Operating profits for the rest of the Group have grown encouragingly by 30% to Â£5.9 million. We expect to see at least this level of growth in the second half, compared to the second half of last year. Results for the Half Year to 30 April 2003 2003 2002 Â£000 Â£000 Turnover 50,359 43,468 Operating profit - Group excluding Kilgore 5,930 4,570 - Kilgore 52 (3,233) Credit to operating profit relating to insurance - 4,797 claim Total operating profit 5,982 6,134 Profit before tax 4,306 4,631 Profit after tax 3,034 3,237 Earnings per share 11.14p 12.01p The defence order book stands at a record Â£97 million, an increase of Â£19 million since the start of the year. This includes a Â£63 million order book for the US Government, which has grown from Â£55 million over the period. In last year's financial statements we accounted for an element of insurance proceeds receivable from Royal & Sun Alliance (RSA). No further amounts have been added to our accrual. We received a further Â£2.5 million interim payment in January 2003, reducing the debtor to Â£7.1 million at the end of April 2003. The Group continues to litigate the matter in the US courts as well as continuing to negotiate with RSA, supported by our brokers, Willis, and we remain confident of receiving a sum in excess of our accrual. Balance Sheet and Cash Flow Reduction of debt remains a priority. The Group's net debt at the end of April 2003 stood at Â£47.7 million (2002: Â£52.0 million). Operational cash flow, the disposal of non-core businesses and ultimately the receipt of insurance claim proceeds will further reduce debt. Capital expenditure was Â£3.3 million, compared to Â£8.8 million in the first half of 2002. Pensions The Board continues to discuss options for the future provision of pensions to the Group's employees, recognising its obligations to them. Dividend The directors have declared an interim dividend of 2.55p per ordinary share (2002: 2.45p), payable on 26 September 2003 to holders on the register at 12 September 2003. Operations Defence Businesses Turnover for our defence businesses grew by 22% to Â£34 million, of which 41% was sales to the US Government. Our defence businesses have record order books of Â£97 million, underpinning future growth. The overall defence order book is up 24% since the last year end, and up 43% on April 2002. Kilgore has reached the targets we set it for the first half and, having now received final customer approval for all of its decoy production processes, is capable of meeting the required capacity for the second half. * Countermeasures Countermeasures' turnover increased to Â£26.6 million, a 24% increase on the first half of 2002. The Group is the largest supplier of infra red (IR) and radio frequency (RF) passive expendable decoys worldwide. Aircraft IR decoys make up 80% of Countermeasures' turnover. With two operations in the US, we are the leading supplier to the US Government. The order book for the US Government comprises orders for both Kilgore's point source magnesium decoys and Alloy Surfaces' proprietary special material area decoys. Alloy Surfaces continues to perform well and generated operating profits ahead of last year. Demand for Alloy Surfaces' special material and IR decoys has increased substantially as the US Air Force increases the number of aircraft types carrying the products. Alloy Surfaces delivered a follow-on BOL-IR order to the UK MoD in the first half, and received its first Australian order. Opportunities are increasing for Alloy Surfaces' proprietary material IR area decoys (non-spot source) in pre-emptive mode where the material is dispensed to decoy the missile before it acquires the aircraft, thus eliminating reaction time and the requirement for missile warning. The Comet programme, in conjunction with Raytheon, is a good example, and has been successfully demonstrated on the A-10 ground-attack plane and the C130 transport aircraft. We are also in discussions regarding using this material to protect commercial aircraft. Kilgore has a healthy order book, and has commenced production of the new F/ A-22 advanced expendable countermeasure decoy which it helped to develop. Kilgore has also been advised that it has won its first ship IR decoy order supported by technology transferred from our UK business, Chemring Countermeasures (CCM). CCM had an excellent six months, and the business has received significant export and UK MoD orders. CCM is the leading supplier of naval and aircraft IR and RF expendable decoys to the UK MoD, and is the design authority for all in-service magnesium IR and chaff RF decoys. CCM is providing spot spectral flares for UK MoD evaluation and is leading special material pre-emptive development activity. * Military Pyrotechnics Turnover increased by 16% to Â£7.4 million in the period, and PW Defence has a strong order book in support of its full year. New production and storage facilities were completed at the end of the first half, which will benefit the business by increasing production capability in the second half. The political tensions around the world, and in particular the recent Middle East conflict, have increased awareness of the need for training, and this has resulted in additional enquiries for PW Defence's products, which has benefited the business. On 5 June 2003, the UK MoD signed a 'Partnering Agreement' with PW Defence covering the procurement and through-life management of a range of pyrotechnic products. This agreement is also the vehicle for taking forward a raft of initiatives including improvements in the supply chain, packaging, commercial solutions, and smarter manufacturing and marketing. Non-Defence Businesses * Marine Safety and Security Marine Safety and Security turnover of Â£12.1 million showed a 20% increase on the first half of last year, contributing to total non-defence sales of Â£16.4 million (2002: Â£15.6 million). Profitability, whilst ahead of last year, has been held back by the amortisation of previously capitalised development expenditure on new products. The Group is a global market leader in providing products to aid location and safety on both sea and land, and monitoring of shipping. The combination of new electronic products which are being introduced and significant market opportunities offers our Marine business continuing growth prospects over the coming years. ICS Electronics, acquired last year, has been integrated fully into our Marine operations, and its products, which complement our existing range, supported good growth on our electronics products in the first half. Demand for our 406MHz products remains high, with the EPIRB with integral Global Positioning System (GPS) selling well, particularly in the US. The US Coast Guard is very satisfied with our service on the 406MHz Personal Locating Beacon (PLB) which is now standard equipment for every US Coast Guard boat crewmember. This product has been instrumental in saving the lives of four US Coast Guard crewmembers, and we are now receiving orders from other US Government authorities, such as the National Oceanographic and Aeronautical Administration (NOAA). A new market for McMurdo's PLB in land-based personal location and safety has recently opened up with the US Federal Communications Commission permitting the nationwide use of PLBs from 1 July 2003. This landmark decision means that hikers and other outdoor adventurers will be able to take advantage of the same lifesaving technology that mariners and aviators have been able to enjoy for years - a satellite-aided search and rescue system that aims to reduce the time required to alert rescue authorities whenever a distress situation occurs. It is hoped that other countries will follow the US lead. The business is also expanding in to the Marine Security market, with its newly developed Automatic Identification System (AIS) transponder, which will automatically transmit ship information for interrogation by a third party. Sales of AIS will commence in July 2003 to meet new legislation being implemented by the IMO. The US Maritime Transportation Security Act of 2002 increases the number of vessels to be fitted with AIS when operating in the navigable waters of the US. This represents a significant opportunity for the Group's Marine business with an estimated overall market opportunity of Â£100 million over the next two years, of which we are targeting to achieve an appreciable market share. Demand for Marine distress pyrotechnics and lights increased in the first half, although future demand is not expected to increase significantly in these markets. * Wiring Harnesses Turnover of Â£3.6 million (2002: Â£4.4 million) is down on last year, due to the well publicised problems on the Nimrod programme. Kembrey Wiring Systems has recently been awarded a seven year contract to support BAE Systems on the Harrier GR9 upgrade programme. Sales arising out of a new five year contract with Rolls-Royce, secured last year, will commence in the second half. Prospects The record defence order book, the anticipated substantial growth in profitability at Kilgore, and the sale of new products in the Marine business should produce strong growth in the second half. The current weakness of the US dollar may slightly reduce US earnings in the second half when converted into sterling. However, despite this, the prospects for your Group remain excellent. K C SCOBIE - Chairman 26 June 2003 UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT for the half year to 30 April 2003 Unaudited Unaudited Audited Half year Half year Year to to to 31 Oct 2002 30 April 30 April 2003 2002 Â£000 Â£000 Â£000 Turnover - continuing operations 50,359 43,468 96,327 Operating profit - continuing 5,982 6,134 7,690 operations Profit on disposal - - 1,123 Associated undertaking - - 89 Profit on ordinary activities before 5,982 6,134 8,902 interest Analysis of profit on ordinary activities before interest: Group excluding Kilgore 5,930 4,570 7,071 Kilgore - normal operations 52 (3,233) (4,851) - insurance claim - 4,797 6,682 52 1,564 1,831 Profit on ordinary activities before 5,982 6,134 8,902 interest Interest payable (1,676) (1,503) (3,486) Profit on ordinary activities before 4,306 4,631 5,416 taxation Tax on profit on ordinary activities (1,272) (1,394) (1,605) Profit on ordinary activities after 3,034 3,237 3,811 taxation Equity minority interest 24 (3) 29 Dividends (702) (660) (1,843) Retained profit 2,356 2,574 1,997 Basic earnings per ordinary share 11.14p 12.01p 14.16p Diluted earnings per ordinary share 11.02p 11.87p 14.11p Dividend per ordinary share 2.55p 2.45p 6.70p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Unaudited Unaudited Audited Half year Half year Year to to to 31 Oct 2002 30 April 30 April 2003 2002 Â£000 Â£000 Â£000 Profit on ordinary activities after 3,034 3,237 3,811 taxation Currency translation differences on 60 53 (756) foreign currency net investments Prior year adjustment 3,094 3,290 3,055 - (389) (389) 3,094 2,901 2,666 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Unaudited Unaudited Audited Half year Half year Year to to to 31 Oct 2002 30 April 30 April 2003 2002 Â£000 Â£000 Â£000 Profit on ordinary activities after 3,034 3,237 3,811 taxation Equity minority interest 24 (3) 29 Dividends (702) (660) (1,843) 2,356 2,574 1,997 Ordinary shares issued - 1 25 Share premium - 41 1,391 Other recognised profits/(losses) 60 53 (756) Net addition to shareholders' funds 2,416 2,669 2,657 Opening shareholders' funds 48,671 46,014 46,014 Closing shareholders' funds 51,087 48,683 48,671 UNAUDITED CONSOLIDATED BALANCE SHEET as at 30 April 2003 Unaudited Unaudited Audited As at As at As at 30 April 30 April 31 Oct 2002 2003 2002 Â£000 Â£000 Â£000 Fixed assets Development costs 2,881 3,065 3,002 Goodwill 28,343 24,789 28,343 Tangible assets 43,229 40,716 42,746 Investments 972 924 972 75,425 69,494 75,063 Current assets Stock 19,522 19,759 17,807 Debtors 37,172 37,231 32,636 Cash at bank and in hand 1,812 2,790 3,774 58,506 59,780 54,217 Creditors due within one year Bank loans and overdrafts 22,130 24,295 22,708 Loan stock 40 40 40 Other 30,332 24,666 26,540 52,502 49,001 49,288 Net current assets 6,004 10,779 4,929 Total assets less current liabilities 81,429 80,273 79,992 Creditors due after more than one year (28,421) (30,161) (29,375) Provisions for liabilities and charges (1,644) (1,095) (1,644) Equity minority interest (277) (334) (302) 51,087 48,683 48,671 Capital and reserves Called-up share capital 1,434 1,410 1,434 Reserves 49,653 47,273 47,237 Shareholders' funds 51,087 48,683 48,671 UNAUDITED CONSOLIDATED CASH FLOW STATEMENT for the half year to 30 April 2003 Unaudited Unaudited Audited Half year Half year Year to to to 31 Oct 2002 30 April 30 April 2003 2002 Â£000 Â£000 Â£000 Net cash inflow/(outflow) from 5,001 (74) 10,056 operating activities Returns on investments and servicing of (2,060) (1,240) (2,899) finance Taxation (414) 200 671 Net capital expenditure (2,696) (8,272) (10,622) Acquisitions - - (145) Equity dividends paid - (1,145) (1,818) Cash outflow before use of liquid (169) (10,531) (4,757) resources and financing Financing - issue of shares - 42 54 - decrease in debt (2,196) (1,047) (2,111) Decrease in cash (2,365) (11,536) (6,814) Reconciliation of operating profit to net cash flow from operating activities Operating profit 5,982 6,134 7,690 Amortisation charge 589 289 702 Depreciation charge 1,860 1,256 2,929 Loss on disposal of fixed assets - - 27 (Increase)/decrease in stock (1,715) (1,528) 514 Increase in debtors (3,770) (6,737) (838) Increase/(decrease) in creditors 2,055 512 (968) Net cash inflow/(outflow) from 5,001 (74) 10,056 operating activities Reconciliation of net cash flow to movement in net debt Decrease in cash (2,365) (11,536) (6,814) Cash outflow from the decrease in debt 2,196 1,047 2,111 and lease financing Change in net debt resulting from cash (169) (10,489) (4,703) flows New finance leases (650) (560) (3,479) Translation difference 442 3 1,212 New finance costs applied to loans - - 737 Amortisation of debt finance costs (55) - (102) (432) (11,046) (6,335) Analysis of net debt As at Cash Non cash Exchange As at 1 Nov flow changes movement 30 April 2002 2003 Â£000 Â£000 Â£000 Â£000 Â£000 Cash at bank and in hand 3,774 (1,932) - (30) 1,812 Overdrafts (17,345) (433) - 96 (17,682) (13,571) (2,365) - 66 (15,870) Debt due within one year (5,403) 3,680 (2,765) - (4,488) Debt due after one year (24,851) (1,934) 2,710 312 (23,763) Finance leases (3,452) 450 (650) 64 (3,588) (47,277) (169) (705) 442 (47,709) 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 six months ended 30 April 2003 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. This report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. 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 United Kingdom 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 adequacy of disclosures made in note 3 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 claim could result in a shortfall, or a surplus, when compared with the recorded debtor at 30 April 2003. It is not possible to quantify the effect, if any, of this uncertainty. Details of the circumstances relating to this uncertainty and the amount of the related debtor recorded at 30 April 2003 are disclosed 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 six months ended 30 April 2003. DELOITTE & TOUCHE, Chartered Accountants, 26 June 2003 Southampton NOTES TO THE INTERIM STATEMENT 1. BASIS OF PREPARATION The interim accounts to 30 April 2003 have been prepared on the basis of the accounting policies set out in the full year accounts to 31 October 2002. 2. SEGMENTAL ANALYSIS OF TURNOVER Unaudited Unaudited Audited Half year Half year Year to to to 31 Oct 2002 30 April 30 April 2003 2002 Â£000 Â£000 Â£000 Defence Countermeasures 26,568 21,459 45,725 Military pyrotechnics 7,410 6,387 17,942 33,978 27,846 63,667 Non-defence Marine safety and security 12,116 10,113 21,345 Wiring harnesses 3,565 4,405 9,305 Chemical coatings 700 1,104 2,010 16,381 15,622 32,660 Total 50,359 43,468 96,327 3. INSURANCE CLAIM As reported in the financial statements for the year ended 31 October 2002 the Group has lodged a claim with its insurers in respect of property damage and business interruption arising out of an incident at Kilgore in April 2001. To date Â£5,700,000 has been received from the insurers. At 31 October 2002 a balance of Â£9,633,000 was recognised within other debtors. This outstanding balance has been reduced to Â£7,133,000 since the year end, following receipt of a further payment of Â£2,500,000 in January 2003. The opinion of the Board with regards to the total amount recoverable from the insurers has not changed since the year end. As such, there has been no change to the total amount recognised within the financial statements in the interim period. 4. 2002 RESULTS The figures for the year to 31 October 2002 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 2003 is 30% (2002: 30%). The tax rate reflects the upward pressure from a greater proportion of profits being earned overseas, offset by various reliefs and credits anticipated to be available in the year. 6. EARNINGS PER SHARE Earnings per share are based on the average number of shares in issue of 27,435,972 (2002: 26,939,579) and profit on ordinary activities after taxation and minority interests of Â£3,058,000 (2002: Â£3,234,000). Diluted earnings per share has been calculated using a diluted average number of shares in issue of 27,726,796 (2002: 27,245,486) and profit on ordinary activities after taxation and minority interests of Â£3,058,000 (2002: Â£3,233,000). 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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