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 £50.4 million (2002: £43.5 million)
* Operating profit £6.0 million (2002: £1.3 million excluding insurance claim
credit of £4.8 million)
* Group profit before tax £4.3 million (2002: £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 £97 million (2002: £68 million)
* Countermeasures
* 24% increase in turnover
* Kilgore facilities and restart activity complete
* US Department of Defense order book of £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 £50.4 million providing operating profit of £6.0 million.
Profit before tax was £4.3 million, after interest of £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 £3.2 million for the first half of last year. Operating profits for the
rest of the Group have grown encouragingly by 30% to £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
£000 £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 £97 million, an increase of £19
million since the start of the year. This includes a £63 million order book for
the US Government, which has grown from £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 £2.5 million interim payment
in January 2003, reducing the debtor to £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 £47.7 million (2002: £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 £3.3 million, compared to £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 £34 million, of which 41%
was sales to the US Government.
Our defence businesses have record order books of £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 £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 £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 £12.1 million showed a 20% increase on
the first half of last year, contributing to total non-defence sales of £16.4
million (2002: £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 £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 £3.6 million (2002: £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 £000
£000 £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 £000
£000 £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 £000
£000 £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
£000
£000 £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 £000
£000 £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
£000 £000 £000
£000 £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 £000
£000 £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 £5,700,000 has been received from the insurers.
At 31 October 2002 a balance of £9,633,000 was recognised within other debtors.
This outstanding balance has been reduced to £7,133,000 since the year end,
following receipt of a further payment of £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 £3,058,000 (2002: £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 £3,058,000 (2002: £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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