Preliminary Results

FOR IMMEDIATE RELEASE 23 JANUARY 2007 CHEMRING GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2006 Results - Revenue from continuing operations Â£187.7 million (2005: Â£121.0 million), up 55% - Profit before tax from continuing operations Â£31.8 million (2005: Â£19.2 million), up 66% - Basic earnings per ordinary share from continuing operations 70.33p (2005: 46.63p), up 51% - Dividend per ordinary share 16.00p (2005: 10.50p), up 52% - Basic earnings per ordinary share 44.33p (2005: 30.16p), up 47% Highlights - Excellent performance from all three Countermeasures businesses - total profits up 37% and record levels of production achieved - Strong performance by acquired Energetics companies - revenue more than doubled to Â£69.3 million - Increase in total Group operating margins to 20% - second half Energetics margin also up to 20% - Year end order book up 75% - current order book at record high of Â£246.0 million - Strong operational cash flow of Â£45.6 million (2005: Â£21.1 million) - Divestment of Marine division substantially complete Commenting on the results, Ken Scobie, Chemring Group Chairman, said: "2006 has been a year of dynamic progress and outstanding performance, as anticipated in my closing comments in last year's annual report. Operating profit and profit before tax both increased by over 65% to Â£37.8 million (2005: Â£22.9 million) and Â£31.8 million (2005: Â£19.2 million) respectively, with basic earnings per share (on continuing operations) on the enlarged share capital following the vendor placing in March 2006 rising by 51% to 70.33p (2005: 46.63p). In view of the excellent performance of the Group this year, the Board is recommending a final dividend of 11.20p per ordinary share, a 53% increase on the final dividend for 2005. Both the Countermeasures and Energetics divisions contributed strongly in the year, and there was a welcome improvement in Energetics' margins which increased to 15% (2005: 8%). Our acquisitions completed in the latter part of 2005 and during 2006 - Nobel Energetics in Scotland, Comet in Germany, Technical Ordnance in the US and Leafield Engineering in England - all contributed as anticipated. In 2007 we will enjoy a full year's profits from the businesses acquired in 2006. In last year's annual report I outlined the Board's strategy of concentrating on our two divisions of Countermeasures and Energetics. This strategy remains unchanged. In Countermeasures we are capitalising on our industry strengths, developing new decoys and new military uses for our specialised pyrophoric material, and investing in plant, equipment and new production processes to reduce manufacturing costs and improve quality. In Energetics we continue our search for suitable acquisitions to make us a consolidating force in a fragmented industry. In the year under review basic earnings per share from the continuing operations increased by 51% to 70.33p, the share price reached over Â£16 from Â£ 6.60, and the Group was admitted to the FTSE 250 Index. Whilst it would be unrealistic to believe that such outstanding performance could be repeated continuously in the longer term, the Board believes that with the current record order book, a full twelve months' earnings from each of the companies now in the Group, and the opportunities for our product range at a time of political and military uncertainty, not just in the Middle East, further significant growth is achievable in 2007." For further information: Ken Scobie Chairman 0207 930 0777 Dr David Price Chief Executive 0207 930 0777 Paul Rayner Finance Director 0207 930 0777 Rupert Pittman Cardew Group 0207 930 0777 CHEMRING GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2006 Results Revenue from continuing operations increased 33% to Â£160.4 million (2005: Â£ 121.0 million). Net operating profits from continuing operations increased 46% to Â£33.4 million (2005: Â£22.9 million). Net operating margins from continuing operations were 21% (2005: 19%). Revenue from acquired businesses was Â£27.3 million and Â£4.3 million of operating profit was generated at a margin of 16%. Total revenue was Â£187.7 million (2005: Â£121.0 million), an increase of 55%. Total operating profit was Â£37.8 million (2005: Â£22.9 million), an increase of 65%. An analysis of total revenue and operating profit by business segment is set out below: Operating Operating profit profit Revenue 2006 Revenue 2005 Segment Â£m Â£m Margin Â£m Â£m Margin Countermeasures 118.4 33.9 29% 90.8 24.8 27% Energetics 69.3 10.4 15% 30.2 2.3 8% Amortisation of acquired intangibles - (0.8) - (0.1) Share-based payments - (2.2) - (0.9) Unallocated head office costs - (3.5) - (3.2) Total 187.7 37.8 20% 121.0 22.9 19% The revenue of the Countermeasures division grew 30% and the operating profit grew 37%. The revenue of the Energetics division grew 129% and the operating profit grew nearly five times. The interest charge for the year was Â£6.1 million (2005: Â£3.8 million). Interest was covered 6.2 times (2005: 6.0 times) by operating profits. Profit before tax was Â£31.8 million (2005: Â£19.2 million), an increase of 66%. The tax charge of Â£9.9 million (2005: Â£5.7 million) represents a rate of 31% (2005: 29%) on profits. Profit after tax was Â£21.9 million (2005: Â£13.6 million), an increase of 61%. Operations Countermeasures - Orders: Â£173.7 million â†COPIED up 87% - Revenue:3.7 18.lion (200 â†D up nd - ting profit and :.4 mi.lion (200 â†D up The - Operating margin: 90( 29%) ) The global expor an 20crmeasures divi market continued to grow 06. I and now stands at about 9 mi5 million,ncrease of 6 over ear was of nearly 12. The turnover e Countermeasures division grew 30% by nd year-on-year, increasing our market share to over Tota However, our order intake during ear was increased significantly more (up 87%) during ear was , with sales limited by the speed with which increased production capacity ew prod products be repe safely introduced. The strong demand ur prod s and has continued to be driven principally by the threat from shoulder-launched missiles to the helicopters and transport aircraft used in peacekeeping operations by the US, UK and other coalition forces in Iraq and Afghanistan. Alloy Surrines had another excellent year, generating $114.lion (200 of sales, with strong demand ur its special material s and , particularly for the protection of US Army helicopters. The ramp-up oduction achi capacity, by extending plant two by 18,000 ft2 and building a third production facility of 40,000 ft2, was delivered to schedule. The monthly production target of 60,000 M211 s and was achieved in September, in line with the customer's requirements. With a total of $108 on (200 of orders for the M211 s and from S and Army alone, order cover is already in place for production at this rate throughout 2007 and 2008. Kilgore performed exceptionally well 06. I, achieving consistent high volume production with daily production rates regularly 100% above that achieved in the previous year. Record volumes of nearly illion (200 M206 and MJU-7A/B s and flares were produced and delivered to S and Air Force customer. A strong focus was also placed ocesses to improvements during ear was and this provided a considerable vement in Ener the margin achieved.ntehg GroupCrmeasures divi, our UK business, also had an excellent year, with strong demand ur its latest airborne s and products to support UK operations in Afghanistan. A series of orders for aerody prog and dual ivelyral flares have been placed by the UK Ministry of Defence over ear last e months' ear. Production start-up od the aerody prog flares was achieved rapidly and consistent volume production continues to take place. Development and qualification of the ivelyral flare took place during ear first half of the was and production ramp-up towards 20,000 units per month is underway. A new ivelyral flare production facility is nearing completion, to provide the additional production capacity needed to meet the rapid growth in volumes demanded by the customer. The market outlook ur prod ermeasures businesses - to continues to be positive. Over the next three years, we ve that such the global market will expand by around 12% each year. The short term h is achi driven quir number of major factors. The peacekeeping activities in Afghanistan have grown in importance over ear last e months' ear and senior UK and US military have consistently indicated onger te term nature of the deployment. the Coun d Leaf the UK are considering further increases in the number of troops deployed. The UK has recently increased the number of helicopters used in operations and its demand for s and has continued to grow strongly. getics - Orders:9 mi5.lion), an â†D up 222% - Revenue:.3 million - â†D up and - ting profit and : .7 0.lion (200 â†D up 352% - Operating margin: 2005: 8%). O During I, roup was successfully acquired four new companies in the etics divi sector. All of these companies have made a positive start and, together with Nobel etics divi, red in 2006 September 2005, contributed excellent profits and flow of Â. The profitability of the enlarged etics division grew 129% to .7 0.lion (200, a very satisfying result, which sents a rate 200 ting margins fro he year was . However, the d half Ener of the year, bolstered by the presence of the new higher margin acquisitions, generated an impressive ting margins fro 05 an%, and provided a better insight into the future profitability expected from this division. PW Defence had a strong was and continued to develop its ct range at a to meet urrent reco market conditions. A multi-ivelyral hand thrown screening smoke for use in urban environments was developed during ear was , and a substantial order for the product was received acquir NATO country. A novel composition for IR n (uy Ret2005:& blacks -& ) was also developed, and this is now being used by another NATO country. The business also had a major international success by securing a substantial prime contract acquir Middle Eastern country to supply an extensive range of third party military products over ear next three years. Record sales levels were achieved at Nobel etics divi, driven qu strong demand for metron ing ators, detonators, p/llants, tracers and horitcal Or payloads. The combined capabilities of wo divi acquired businesses, Nobel etics divi and eld Engineering in E, have significantly enhanced our capabilities in this area, and rod planned product investment will extend our at a of products and provide opportunities to penetrate the market further. In addition, the combined capabilities of ical Ordnance in t and Kilgore have given cons similar capability e US and Leaf tremendous opportunity for the cross-transfer of products and technology. Strategy The Group egy remains unch focused r two divi core sectors of operations,termeasures nergetics. This The core strategy for the ermeasures businesses - is to maintain mprove qual our market share, and carefully exploit ontinuing oper market growth over ear next few years. We intend to increase our investment in rod products and to build r two leadership in both special material and ivelyral d and . We also intend to invest in rod automated production facilities, to drive further manufacturing efficiencies and to maintain wo lead role in the development of rod products for the next generation of fixed wing and ritary aircraft. We intend to continue the expansion of wo etics division grew, with new acquisitions in both S and Leaf Europe. We will focus on becoming a key supplier of energetic materials to the major prime contractors for munitions. We intend to build r two expertise in explosive ordnin t disposal (EOD) and develop the capability to become a specialist prime contractor. We also plan to invest in rod products to expand rod horitcal Or business and develop clear leadership in both the detonator and cartridge activated device markets. The Board of Directors and Senior Executive Management During ear was we were delighted to welcome The Rt Hon Lord Freeman to the Board. Roger Freeman has a wealth of experience, having enjoyed senior roles in the financial and defence industry sectors, and was formerly a Government minister in the Ministry of Defence. He has assumed the position of Chairman e exce Audit Committee. We also appointed two senior executives to strengthen our operational management during ear was . Mike Helme joined roup was in January 2006 as Managing Director e Energetics division grew, outside of the US, and Dan McKenrick, a US national, joined us 06 September 2006 as President of wo US operations. Acquisitions During ear was roup was acquired the following businesses:For f Date Consideration red (including costs) Â Â£m M ntiet GmbH 30 Nov 2005 7.milli Lld Engineering in E Ltd 31 Jan 5.l lli ical Ordnance in t, Inc. 13 Mar 42.6 lli B.D.L. Systems Ltd 30 Sep 10.l lli Total consideration 65.l l Of the total consideration,.4 m9.lion), an was funded by the draw down of medium term debt, with the balance of Â£26.lion), an funded by a r placing in M. A summary of the fair value of assets acquired and the goodwill arising on acquisition is as follows:For f Â Intangible assets milli Fixed assets 5.3 lli Working capital ill lli Tax (1.3) lli Cash ill lli Fair value of assets acquired 24.l lli Consideration (including costs) 65.l l i Goodwill arising 40.9 Research and Development Research and development expenditure totalled Â£5.lion - (2005:3 mi.2 on), an incr sis of tota which t out elow: 2006 Segme Â Â£m Customer funded research and development 2.1 2.me est wnally funded research and development 2.m 1.4 Clising oed development 0. , t Total research and development expenditure 5.3 i.2 The Group's policy is to write-off capitalised development over a three year period. isation of acqu development was Â£0.lion (2005: Â£22 Â£0.2 on), an . Pensions The Group's pension deficit before associated tax credits, as defined by IAS19 Accounting for pension costs, was .4 m.lion - (2005: Â£20.lion) resp a decrease of 19%. The two UK final salary schemes are currently undergoing their triennial actuarial valuations, with results expected to be finalised in the first half of 2007. Cash Flow Operating flow of Â was 6 million (2005: Â£21.1 million) - , which sents a rate conversion of 31% ting profit by b to operating cash of 121%5: Â£21 92%). Working capital balances were well controlled in the was and were kept below increases in Group revenues. Group fixed asset expenditure was .7 1.lion (2005: Â£13 Â£8.lion). Net The principal expenditure was in support of Alloy Surrines' second and third facilities, and a large flare facility at Kilgore Flares. A summary of Group flow of Â t out elow: Â Operating flow mill Capital expenditure ( 1.l) Tax (10.6) Free flow of Â 23.1 Interest (5.3) Dividends (ill) Net cash inflow before acquisitions and disposals 14.1 Net Debt Net debt movements are summarised : Â Â Opening net debt (52.8) Net cash inflow before acquisitions and disposals 14.1 Acquisitions and disposals (net of share ng in Ms) (34.1) Foreign exchange movements Closing net debt (70.6) Gearing at the year end was cur( Â£21 93%). Dividends The Board commending a fina dividend of 11.20p per ordinary share, a 53% incr ase on the final divi end for 2005. B This, together with the interim end of 11.2 4.80p paid in August 2006, gives a total end for 2005 the year of p (200, a 52%ease of 6 over B The end for is over four times covered on net profits of the nuing operations incr. The shares will be marked & ;ex dividend& ; on 28 March 2007 and the end for is payable on 20 April 2007 to shareholders on the register at the close of business on 30 March 2007. Discontinued Operations The results of the discontinued operations represent those of the Marine division. In June 2006 the Lights business of McMurdo was sold, and in December I, a conditional agreement was entered into to sell McMurdo's Electronics business to Signature Industries Limited. The agreement provides for an earn out of up to .7 .5 million, if certain sales targets are achieved. The earn out proceeds will be cash accounted for as the proceeds are received. ICS Electronics remained unsold at the year end, and a decision was taken to fully ve air the goodwill associated with this company, leaving net assets of approximately Â£0.lion) - . A summary of the results of the discontinued operations follows:For f Segme Â Â£mÂ£m ue 20 11. 10 11.me Pre-tax loss (8. (ill) Tax 24. Post-tax loss (8. (4.8) The pre-tax loss includes Â£1.lion), an of trading losses : Â£21.1 m.lion (200), and Â£7.lion (200 of impairment and loss on disposal charges : Â£3.8 mi.0 on), an . The net carrying value of the discontinued operations is Â£4.lion), an ( Â£ 121.0 m.lion), an i which t disclosed under assets for sale. Approximately Â£2.8 million is collec acqu when the sale to Signature Industries Limited completes, ipated in my c Spring 2007, with the balance receivable from collection of working capital balances. Prospects he year under review basic earnings per share from the nuing operations incr ased by 51% to 70.33p, the share price reached over Â£16 from Â£ 6 Â£6.nd the roup was dmitted to the FTSE 250 Index. Whilst it would be unre listic to beli ve that such outstanding performance could be repeated cont nuously in the long r term, the Board believes that with the current reco d order book, a full twel e months' earnings from each of the companies now n the Group, and the oppo tunities for our product range at a time of poli ical and military unce tainty, not just in the Middle East, further sign ficant growth is achi vable in 2007." CHEMRING GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2006 SUMMARY FINANCIAL INFORMATION Continuing Operations IFRS IFRS UK GAAP FOR T 2005 2004 FOR T Â£000 Â£000 Â£000 FOR T ue 2005 ermeasures busi total 118,384 90,768 78,724 etics -continuing 42,058 30,195 31,360 operations -red 27,291 - - etics total 69,349 30,195 31,360 revenue was Â 187,733 120,963 110,084 ting profit and p -continuing operations 33,433 22,908 16,927 -red 4,346 - - operating profit was Â 37,779 22,908 16,927 t before tax was Â 31,760 19,216 13,315 end per ordinary share 16.00 p (2005 p), up 9.2005 earnings per ordinary share 44.33 p (2005 p). In 33.32p Diluted ngs per ordinary share 44.33 69.8705 p).39n 33.14p Net debt (Â£000) 70,554 52,774 30,008 Shareholders' funds (Â£000) 94,104 56,850 63,559 CONSOLIDATED INCOME STATEMENT 005 the year ended 31 October Resu 2005 Note Â£000 Â£000 Continuing operations ue 2005 -continuing 160,442 120,963 -red 27,291 - revenue was Â 187,733 120,963 ting profit and p -continuing 33,433 22,908 -red 4,346 - operating profit was Â 37,779 22,908 Share of post-tax results of associate 84 130 Finance expense (6,103) (3,822) t before tax from 005 the year from 31,760 19,216 nuing operations incre Tax (9,873) (5,657) t befo tax was 005 the year from 21,887 13,559 nuing operations incre Discontinued tions incre e Loss tax was from discontinued (8,090) (4,790) operations e t befo tax was 005 the year 13,797 8,769 e e Attributable to: Equity holders of 13,795 8,756 the parent Minority interests 2 13 Earnings rdinary share 16.00 From nuing operations incr: Basic 2 p (2005 p). In Diluted 2 69.8705 p).39n From nuing oper and discontinued tions incr: Basic 2 44.2005 30.16n Diluted 2 44.0405 29.99n CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 005 the year ended 31 October Resu u 2005 Â£000 Â£000 Gains on flow of Â hedges 340 - Movement on deferred tax relating to flow (98) - of Â hedges Exchange differences on translation of (5,230) 67 foreign operations Actuarial gains/(losses) on defined benefit 4,685 (4,074) pension schemes Movement on deferred tax relating to pension (1,406) 1,222 schemes Tax on items taken directly to equity 1,868 119 Net income/(expense) recognised directly Â£m 159 (2,666) equity t befo tax was 005 the year 13,797 8,769 Total recognised income and expense for the 13,956 6,103 year Attributable to: Equity holders of the parent 13,954 6,090 Minority interests 2 13 CONSOLIDATED BALANCE SHEET as at 31 October Resu u 2005 Â£000 Â£000 Â£000 Â£000 Non-current assets Goodwill 72,664 34,680 Other intangible assets 11,863 3,470 Property, plant and 57,681 50,698 equipment Investments 1,033 1,068 Deferred as Â 9,649 7,440 152,890 97,356 Current assets Inventories 36,252 27,821 Trade and other receivables 39,015 27,168 Cash and flow equivalents 13,411 7,774 Derivative financial instruments 178 - 88,856 62,763 Assets held for sale 6,516 14,646 Total assets 248,262 174,765 Current liabilities Bank loans and Â£16drafts (11,523) (12,701) Obligations under finance (435) (925) leases Trade and other payables (39,538) (24,899) Provisions (286) (170) Current tax liabilities (1,928) (1,150) Liabilities held for sale (2,338) (1,776) (56,048) (41,621) Non-current liabilities Bank loans (71,698) (46,320) Obligations under finance (309) (602) leases Other payables (210) (163) Deferred as Â (9,486) (8,958) Preference shares (62) (62) Retirement benefit (16,345) (20,189) obligations (98,110) (76,294) Total liabilities (154,158) (117,915) Net assets 94,104 56,850 Equity Share capital 1,612 1,459 Share premium account 53,540 27,274 Special capital reserve 12,939 12,939 Hedging reserve 230 - Revaluation reserve 1,604 1,640 Retained earnings 23,900 13,261 Equity attributable to 93,825 56,573 equity holders of the parent Minority interest 279 277 Total equity 94,104 56,850 CONSOLIDATED CASH FLOW STATEMENT 005 the year ended 31 October Resu 2005 Â£000 Â£000 Note Cash flows from operating activities Cash generated from operations A 45,629 21,141 Tax paid (10,588) (7,612) Net cash inflow from operating activities 35,041 13,529 Cash flows from investing activities Dividends received from associate 107 108 Purchases of property, plant and equipment (10,148) (6,898) Purchases of intangible assets (1,798) (1,063) Proceeds on disposal of subsidiary 2,570 242 undertaking/division Proceeds on disposal of property, plant 98 8 and equipment Acquisition of subsidiaries (net of flow (62,808) (22,009) acquired) Net cash outflow from investing activities (71,979) (29,612) Cash flows from financing activities Dividends paid (3,695) (2,736) Interest paid (5,261) (3,237) Proceeds on issue of shares 26,419 572 New borrowings 38,112 30,097 Repayment of borrowings (5,983) (4,130) Net cash inflow from financing activities 49,552 20,566 Increase in cash and flow equivalents 12,654 4,483 during ear was Cash and flow equivalents at start of the (2,970) (7,530) was Effect of foreign exchange rate changes (689) 77 Cash and flow equivalents at end of the was 8,995 (2,970) NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 005 the year ended 31 October Resu 2005 A. Cash generated from operations Â£000 Â£000 ting profit and the nuing operations incr 33,433 22,908 ting profit and the acquired operations 4,346 - Operating loss from discontinued operations (646) (2,557) Loss on disposal/impairment of discontinued (7,970) (3,000) operations Adjustment for: Depreciation of property, plant and equipment 5,776 4,103 Asation of acqu intangible assets 2,044 1,678 Impairment of goodwill 4,890 3,000 Impairment of intangible assets 782 - Difference between pension contributions paid and amount recognised in income statement (939) (875) Profit on disposal of property, plant and - 8 equipment Decrease in provisions (170) (456) Operating flow flows before movements Â£m working capital 41,546 24,809 Increase in inventories (1,362) (5,696) Increase in trade and other receivables (693) (1,073) Increase in trade and other payables 6,138 3,101 Cash generated from operations 45,629 21,141 Reconciliation of net flow of Â to movement Â£m net debt Increase in cash and flow equivalents during 12,654 4,483 ear was Cash inflow from increase in debt and lease (32,129) (25,967) financing Change in net debt resulting from flow flows (19,475) (21,484) New finance leases (247) (103) Translation difference 2,252 (1,109) Asation of acqu debt finance costs (310) (70) Movement in net debt in the was (17,780) (22,766) Net debt at start of the was (52,774) (30,008) Net debt at end of the was (70,554) (52,774) Analysis of net debt As at Cash Non-flow Exchange As at 1 Nov flow changes movement 31 Oct 2005 2006 Â£000 Â£000 Â£000 Â£000 Â£000 Cash at bank and 7,774 6,119 - (482) 13,411 in hand O£16drafts (10,744) 6,535 - (207) (4,416) (2,970) 12,654 - (689) 8,995 Debt due within(1,957) 5,104 (10,469) 215 (7,107) one was Debt due after(46,320) (38,112) 10,159 2,575 (71,698) one was Finance leases (1,527) 879 (247) 151 (744) (52,774) (19,475) (557) 2,252 (70,554) Notes 1. Accounts and Auditors' Report The financial information set out above does not constitute the Company's statutory accounts 005 the year ended 31 October Re or 31 October 2005 but is derived from those accounts. Statutory accounts 005 2005 have been delivered to the Registrar of Companies, and those for 2006 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 005 the year ended 31 October 2006. t it w 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 2007 (see Note 4 below). 2. Earnings rdi Ordinary Share The earnings and shares used in the calculations are as follows: From nuing oper and discontinued operations 2005 Ordinary Ordinary shares shares Earnings Number EPS Earnings Number EPS Â£000 000s Pence Â£000 000s Pence Basic EPS 21,887 31,119 p (20 13,559 29,075 p). I from continuing operations Basic EPS (8,090) - (26.00) (4,790) - (16.47) from discontinued operations Basic EPS 13,797 31,119 44.20 8,769 29,075 30.16 Diluted EPS 21,887 31,323 69.87 13,559 29,200 p).39 from continuing operations Diluted EPS (8,090) - (25.83) (4,790) - (16.40) from discontinued operations Diluted EPS 13,797 31,323 44.04 8,769 29,200 29.99 Ordinary shares are calculated by reference to the weighted average number of shares in issue in the was . 3. Dividend The final dividend of 11.20p rdinary share 16.0 will be paid on 20 April 2007 to all shareholders registered at the close of business on 30 March 2007. The ex-dividend date will be 28 March 2007. The total dividend 005 the year will be 16.00p (2005: 10.50p). 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 005 the year ended 31 October Re. 4. 2006 Financial Statements The financial statements 005 the year ended 31 October 2006 will be posted to shareholders on 20 February 2007 and will also be available from that date at the registered office, Chemring House, 1500 Parkway, t iteley, Fareham, Hampshire PO15 7AF. END llants, tracers and horitcal Or payloads. The combined capabilities of wo divi acquired businesses, Nobel etics divi and eld Engineering in E, have significantly enhanced our capabilities in this area, and rod planned product investment will extend our at a of products and provide opportunities to penetrate the market further. In addition, the combined capabilities of ical Ordnance in t and Kilgore have given cons similar capability e US and Leaf tremendous opportunity for the cross-transfer of products and technology. Strategy The Group egy remains unch focused r two divi core sectors of operations,termeasures nergetics. This The core strategy for the ermeasures businesses - is to maintain mprove qual our market share, and carefully exploit ontinuing oper market growth over ear next few years. We intend to increase our investment in rod products and to build r two leadership in both special material and ivelyral d and . We also intend to invest in rod automated production facilities, to drive further manufacturing efficiencies and to maintain wo lead role in the development of rod products for the next generation of fixed wing and ritary aircraft. We intend to continue the expansion of wo etics division grew, with new acquisitions in both S and Leaf Europe. We will focus on becoming a key supplier of energetic materials to the major prime contractors for munitions. We intend to build r two expertise in explosive ordnin t disposal (EOD) and develop the capability to become a specialist prime contractor. We also plan to invest in rod products to expand rod horitcal Or business and develop clear leadership in both the detonator and cartridge activated device markets. The Board of Directors and Senior Executive Management During ear was we were delighted to welcome The Rt Hon Lord Freeman to the Board. Roger Freeman has a wealth of experience, having enjoyed senior roles in the financial and defence industry sectors, and was formerly a Government minister in the Ministry of Defence. He has assumed the position of Chairman e exce Audit Committee. We also appointed two senior executives to strengthen our operational management during ear was . Mike Helme joined roup was in January 2006 as Managing Director e Energetics division grew, outside of the US, and Dan McKenrick, a US national, joined us 06 September 2006 as President of wo US operations. Acquisitions During ear was roup was acquired the following businesses:For f Date Consideration red (including costs) Â Â£m M ntiet GmbH 30 Nov 2005 7.milli Lld Engineering in E Ltd 31 Jan 5.l lli ical Ordnance in t, Inc. 13 Mar 42.6 lli B.D.L. Systems Ltd 30 Sep 10.l lli Total consideration 65.l l Of the total consideration,.4 m9.lion), an was funded by the draw down of medium term debt, with the balance of Â£26.lion), an funded by a r placing in M. A summary of the fair value of assets acquired and the goodwill arising on acquisition is as follows:For f Â Intangible assets milli Fixed assets 5.3 lli Working capital ill lli Tax (1.3) lli Cash ill lli Fair value of assets acquired 24.l lli Consideration (including costs) 65.l l i Goodwill arising 40.9 Research and Development Research and development expenditure totalled Â£5.lion - (2005:3 mi.2 on), an incr sis of tota which t out elow: 2006 Segme Â Â£m Customer funded research and development 2.1 2.me est wnally funded research and development 2.m 1.4 Clising oed development 0. , t Total research and development expenditure 5.3 i.2 The Group's policy is to write-off capitalised development over a three year period. isation of acqu development was Â£0.lion (2005: Â£22 Â£0.2 on), an . Pensions The Group's pension deficit before associated tax credits, as defined by IAS19 Accounting for pension costs, was .4 m.lion - (2005: Â£20.lion) resp a decrease of 19%. The two UK final salary schemes are currently undergoing their triennial actuarial valuations, with results expected to be finalised in the first half of 2007. Cash Flow Operating flow of Â was 6 million (2005: Â£21.1 million) - , which sents a rate conversion of 31% ting profit by b to operating cash of 121%5: Â£21 92%). Working capital balances were well controlled in the was and were kept below increases in Group revenues. Group fixed asset expenditure was .7 1.lion (2005: Â£13 Â£8.lion). Net The principal expenditure was in support of Alloy Surrines' second and third facilities, and a large flare facility at Kilgore Flares. A summary of Group flow of Â t out elow: Â Operating flow mill Capital expenditure ( 1.l) Tax (10.6) Free flow of Â 23.1 Interest (5.3) Dividends (ill) Net cash inflow before acquisitions and disposals 14.1 Net Debt Net debt movements are summarised : Â Â Opening net debt (52.8) Net cash inflow before acquisitions and disposals 14.1 Acquisitions and disposals (net of share ng in Ms) (34.1) Foreign exchange movements Closing net debt (70.6) Gearing at the year end was cur( Â£21 93%). Dividends The Board commending a fina dividend of 11.20p per ordinary share, a 53% incr ase on the final divi end for 2005. B This, together with the interim end of 11.2 4.80p paid in August 2006, gives a total end for 2005 the year of p (200, a 52%ease of 6 over B The end for is over four times covered on net profits of the nuing operations incr. The shares will be marked & ;ex dividend& ; on 28 March 2007 and the end for is payable on 20 April 2007 to shareholders on the register at the close of business on 30 March 2007. Discontinued Operations The results of the discontinued operations represent those of the Marine division. In June 2006 the Lights business of McMurdo was sold, and in December I, a conditional agreement was entered into to sell McMurdo's Electronics business to Signature Industries Limited. The agreement provides for an earn out of up to .7 .5 million, if certain sales targets are achieved. The earn out proceeds will be cash accounted for as the proceeds are received. ICS Electronics remained unsold at the year end, and a decision was taken to fully ve air the goodwill associated with this company, leaving net assets of approximately Â£0.lion) - . A summary of the results of the discontinued operations follows:For f Segme Â Â£mÂ£m ue 20 11. 10 11.me Pre-tax loss (8. (ill) Tax 24. Post-tax loss (8. (4.8) The pre-tax loss includes Â£1.lion), an of trading losses : Â£21.1 m.lion (200), and Â£7.lion (200 of impairment and loss on disposal charges : Â£3.8 mi.0 on), an . The net carrying value of the discontinued operations is Â£4.lion), an ( Â£ 121.0 m.lion), an i which t disclosed under assets for sale. Approximately Â£2.8 million is collec acqu when the sale to Signature Industries Limited completes, ipated in my c Spring 2007, with the balance receivable from collection of working capital balances. Prospects he year under review basic earnings per share from the nuing operations incr ased by 51% to 70.33p, the share price reached over Â£16 from Â£ 6 Â£6.nd the roup was dmitted to the FTSE 250 Index. Whilst it would be unre listic to beli ve that such outstanding performance could be repeated cont nuously in the long r term, the Board believes that with the current reco d order book, a full twel e months' earnings from each of the companies now n the Group, and the oppo tunities for our product range at a time of poli ical and military unce tainty, not just in the Middle East, further sign ficant growth is achi vable in 2007." CHEMRING GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2006 SUMMARY FINANCIAL INFORMATION Continuing Operations IFRS IFRS UK GAAP FOR T 2005 2004 FOR T Â£000 Â£000 Â£000 FOR T ue 2005 ermeasures busi total 118,384 90,768 78,724 etics -continuing 42,058 30,195 31,360 operations -red 27,291 - - etics total 69,349 30,195 31,360 revenue was Â 187,733 120,963 110,084 ting profit and p -continuing operations 33,433 22,908 16,927 -red 4,346 - - operating profit was Â 37,779 22,908 16,927 t before tax was Â 31,760 19,216 13,315 end per ordinary share 16.00 p (2005 p), up 9.2005 earnings per ordinary share 44.33 p (2005 p). In 33.32p Diluted ngs per ordinary share 44.33 69.8705 p).39n 33.14p Net debt (Â£000) 70,554 52,774 30,008 Shareholders' funds (Â£000) 94,104 56,850 63,559 CONSOLIDATED INCOME STATEMENT 005 the year ended 31 October Resu 2005 Note Â£000 Â£000 Continuing operations ue 2005 -continuing 160,442 120,963 -red 27,291 - revenue was Â 187,733 120,963 ting profit and p -continuing 33,433 22,908 -red 4,346 - operating profit was Â 37,779 22,908 Share of post-tax results of associate 84 130 Finance expense (6,103) (3,822) t before tax from 005 the year from 31,760 19,216 nuing operations incre Tax (9,873) (5,657) t befo tax was 005 the year from 21,887 13,559 nuing operations incre Discontinued tions incre e Loss tax was from discontinued (8,090) (4,790) operations e t befo tax was 005 the year 13,797 8,769 e e Attributable to: Equity holders of 13,795 8,756 the parent Minority interests 2 13 Earnings rdinary share 16.00 From nuing operations incr: Basic 2 p (2005 p). In Diluted 2 69.8705 p).39n From nuing oper and discontinued tions incr: Basic 2 44.2005 30.16n Diluted 2 44.0405 29.99n CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 005 the year ended 31 October Resu u 2005 Â£000 Â£000 Gains on flow of Â hedges 340 - Movement on deferred tax relating to flow (98) - of Â hedges Exchange differences on translation of (5,230) 67 foreign operations Actuarial gains/(losses) on defined benefit 4,685 (4,074) pension schemes Movement on deferred tax relating to pension (1,406) 1,222 schemes Tax on items taken directly to equity 1,868 119 Net income/(expense) recognised directly Â£m 159 (2,666) equity t befo tax was 005 the year 13,797 8,769 Total recognised income and expense for the 13,956 6,103 year Attributable to: Equity holders of the parent 13,954 6,090 Minority interests 2 13 CONSOLIDATED BALANCE SHEET as at 31 October Resu u 2005 Â£000 Â£000 Â£000 Â£000 Non-current assets Goodwill 72,664 34,680 Other intangible assets 11,863 3,470 Property, plant and 57,681 50,698 equipment Investments 1,033 1,068 Deferred as Â 9,649 7,440 152,890 97,356 Current assets Inventories 36,252 27,821 Trade and other receivables 39,015 27,168 Cash and flow equivalents 13,411 7,774 Derivative financial instruments 178 - 88,856 62,763 Assets held for sale 6,516 14,646 Total assets 248,262 174,765 Current liabilities Bank loans and Â£16drafts (11,523) (12,701) Obligations under finance (435) (925) leases Trade and other payables (39,538) (24,899) Provisions (286) (170) Current tax liabilities (1,928) (1,150) Liabilities held for sale (2,338) (1,776) (56,048) (41,621) Non-current liabilities Bank loans (71,698) (46,320) Obligations under finance (309) (602) leases Other payables (210) (163) Deferred as Â (9,486) (8,958) Preference shares (62) (62) Retirement benefit (16,345) (20,189) obligations (98,110) (76,294) Total liabilities (154,158) (117,915) Net assets 94,104 56,850 Equity Share capital 1,612 1,459 Share premium account 53,540 27,274 Special capital reserve 12,939 12,939 Hedging reserve 230 - Revaluation reserve 1,604 1,640 Retained earnings 23,900 13,261 Equity attributable to 93,825 56,573 equity holders of the parent Minority interest 279 277 Total equity 94,104 56,850 CONSOLIDATED CASH FLOW STATEMENT 005 the year ended 31 October Resu 2005 Â£000 Â£000 Note Cash flows from operating activities Cash generated from operations A 45,629 21,141 Tax paid (10,588) (7,612) Net cash inflow from operating activities 35,041 13,529 Cash flows from investing activities Dividends received from associate 107 108 Purchases of property, plant and equipment (10,148) (6,898) Purchases of intangible assets (1,798) (1,063) Proceeds on disposal of subsidiary 2,570 242 undertaking/division Proceeds on disposal of property, plant 98 8 and equipment Acquisition of subsidiaries (net of flow (62,808) (22,009) acquired) Net cash outflow from investing activities (71,979) (29,612) Cash flows from financing activities Dividends paid (3,695) (2,736) Interest paid (5,261) (3,237) Proceeds on issue of shares 26,419 572 New borrowings 38,112 30,097 Repayment of borrowings (5,983) (4,130) Net cash inflow from financing activities 49,552 20,566 Increase in cash and flow equivalents 12,654 4,483 during ear was Cash and flow equivalents at start of the (2,970) (7,530) was Effect of foreign exchange rate changes (689) 77 Cash and flow equivalents at end of the was 8,995 (2,970) NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT 005 the year ended 31 October Resu 2005 A. Cash generated from operations Â£000 Â£000 ting profit and the nuing operations incr 33,433 22,908 ting profit and the acquired operations 4,346 - Operating loss from discontinued operations (646) (2,557) Loss on disposal/impairment of discontinued (7,970) (3,000) operations Adjustment for: Depreciation of property, plant and equipment 5,776 4,103 Asation of acqu intangible assets 2,044 1,678 Impairment of goodwill 4,890 3,000 Impairment of intangible assets 782 - Difference between pension contributions paid and amount recognised in income statement (939) (875) Profit on disposal of property, plant and - 8 equipment Decrease in provisions (170) (456) Operating flow flows before movements Â£m working capital 41,546 24,809 Increase in inventories (1,362) (5,696) Increase in trade and other receivables (693) (1,073) Increase in trade and other payables 6,138 3,101 Cash generated from operations 45,629 21,141 Reconciliation of net flow of Â to movement Â£m net debt Increase in cash and flow equivalents during 12,654 4,483 ear was Cash inflow from increase in debt and lease (32,129) (25,967) financing Change in net debt resulting from flow flows (19,475) (21,484) New finance leases (247) (103) Translation difference 2,252 (1,109) Asation of acqu debt finance costs (310) (70) Movement in net debt in the was (17,780) (22,766) Net debt at start of the was (52,774) (30,008) Net debt at end of the was (70,554) (52,774) Analysis of net debt As at Cash Non-flow Exchange As at 1 Nov flow changes movement 31 Oct 2005 2006 Â£000 Â£000 Â£000 Â£000 Â£000 Cash at bank and 7,774 6,119 - (482) 13,411 in hand O£16drafts (10,744) 6,535 - (207) (4,416) (2,970) 12,654 - (689) 8,995 Debt due within(1,957) 5,104 (10,469) 215 (7,107) one was Debt due after(46,320) (38,112) 10,159 2,575 (71,698) one was Finance leases (1,527) 879 (247) 151 (744) (52,774) (19,475) (557) 2,252 (70,554) Notes 1. Accounts and Auditors' Report The financial information set out above does not constitute the Company's statutory accounts 005 the year ended 31 October Re or 31 October 2005 but is derived from those accounts. Statutory accounts 005 2005 have been delivered to the Registrar of Companies, and those for 2006 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 005 the year ended 31 October 2006. t it w 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 2007 (see Note 4 below). 2. Earnings rdi Ordinary Share The earnings and shares used in the calculations are as follows: From nuing oper and discontinued operations 2005 Ordinary Ordinary shares shares Earnings Number EPS Earnings Number EPS Â£000 000s Pence Â£000 000s Pence Basic EPS 21,887 31,119 p (20 13,559 29,075 p). I from continuing operations Basic EPS (8,090) - (26.00) (4,790) - (16.47) from discontinued operations Basic EPS 13,797 31,119 44.20 8,769 29,075 30.16 Diluted EPS 21,887 31,323 69.87 13,559 29,200 p).39 from continuing operations Diluted EPS (8,090) - (25.83) (4,790) - (16.40) from discontinued operations Diluted EPS 13,797 31,323 44.04 8,769 29,200 29.99 Ordinary shares are calculated by reference to the weighted average number of shares in issue in the was . 3. Dividend The final dividend of 11.20p rdinary share 16.0 will be paid on 20 April 2007 to all shareholders registered at the close of business on 30 March 2007. The ex-dividend date will be 28 March 2007. The total dividend 005 the year will be 16.00p (2005: 10.50p). 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 005 the year ended 31 October Re. 4. 2006 Financial Statements The financial statements 005 the year ended 31 October 2006 will be posted to shareholders on 20 February 2007 and will also be available from that date at the registered office, Chemring House, 1500 Parkway, t iteley, Fareham, Hampshire PO15 7AF.

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