Preliminary Results

Chemring Group PLC 22 January 2002 FOR IMMEDIATE RELEASE 22 JANUARY 2002 CHEMRING GROUP PLC PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2001 * Group profit before tax increased to £9.4 million from £7.1 million * Turnover increased to £95.2 million from £67.2 million including turnover from acquired operations of £15.3 million * Basic earnings per ordinary share increased to 27.96p from 22.04p * Recommended final dividend of 4.25p per ordinary share, making a total dividend of 6.70p for the year, up 6.3% (2000: 6.30p) Ken Scobie, Chemring Group Chairman, commented: 'In the year the Group generated excellent profit and earnings growth. The current prospects for all our businesses indicate a continuation of this growth pattern. The Board remains confident that the Group, particularly with the exciting opportunities in the US, will deliver significant increases in shareholder value.' Note All comparisons are for the year ended 31 October 2000. 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 & Co. 0207 930 0777 STATEMENT BY THE CHAIRMAN In previous reports I have stated my confidence for the future growth of your Group. Despite a challenging year, considerable improvement in profitability was achieved, with profit before tax rising to £9.4 million and earnings per share rising to 27.96p, increases of 32% and 27% respectively on the previous year. The Group acquired Kilgore in February 2001 and the business made a significant contribution to the results before the very unfortunate incident in April, which I referred to in my statement at the half year. Clearly, without this incident, growth would have been even better. Significant investment has been made in the reconstruction of facilities at Kilgore but full production will not resume until March of this year. The full implications of this are discussed later. Results 2001 2000 % £000 £000 increase Operating profit 11,971 8,806 36 Profit before tax 9,399 7,127 32 Profit after tax 7,057 5,261 34 Earnings per share 27.96p 22.04p 27 The Group invested significant resources in research and development in the year, particularly in the areas of countermeasures and marine safety. Expenditure increased from £2.6 million to £5 million. Business Activities Our international, market leading countermeasures business, consisting of Chemring Countermeasures, Alloy Surfaces and Kilgore, continued its exciting growth, with turnover increasing by 80% despite the incident at Kilgore. Had the incident at Kilgore not occurred, it is estimated that turnover would have increased further by approximately £7.5 million. Countermeasures now makes up more than 50% of the Group's activities, and the business has established a leading position in the US defence market. The incident at Kilgore necessitated the suspension of operations at the facility. Production on non-decoy products recommenced in June and limited decoy manufacture recommenced in August. The reconstruction of facilities to enable full production of decoys is progressing well, with full facility completion expected in March of this year. Our evaluation of the impact of the incident showed a requirement for major new investment to rebuild the manufacturing plant in order to remove operators from the more sensitive areas of the operations, and to satisfy both the health and safety authorities and ourselves that we had minimised any risk areas in the manufacturing process. The Group was obviously covered by insurance, both for damage to the facilities and for the loss of profits arising through business interruption. Initially our insurers indicated a wish to have all issues resolved and the claim settled by the end of September. Since 11 September, however, a significant change has taken place in the attitude of our insurers, and unfortunately negotiations to resolve our claim have not made the progress we initially anticipated. In preparing these financial statements, the Board has been conservative in recognising the level of compensation the Group is entitled to recover under its business interruption policy. The full claim for insurance is higher than that recognised in the accounts to date and the Board, with the support of its professional advisers, will pursue this actively, having resort if necessary to its legal options. Shareholders will recognise that, in such a delicate situation, I would not wish to comment further on the details of our claim at this stage. Kilgore is an enormous opportunity for your Group. The Board has been very impressed with the manner in which our new US management has tackled its problems and retained the support of its customer base. With the consolidation of the Martin Electronics flare business which was acquired during the year, Kilgore now has an order book of $47 million with sales, profits and opportunities significantly in excess of our initial projections twelve months ago. Alloy Surfaces had an excellent year and has fully recovered from the production problems that it experienced towards the end of the last financial year. Planned manufacturing improvements impacted on its sales in the first half but the strong second half performance contributed to an annual sales increase of 19%. Throughout the year Alloy has concentrated on planning and expanding its capacity to meet its increasing order book and further opportunities for its specialised products. Chemring Countermeasures, the UK business, had a disappointing year, with profits reduced from last year due to increased costs in meeting customer requirements on naval decoy business manufactured for certain NATO forces. The naval contracts were part of Chemring Countermeasures' drive to become an equivalent force in naval countermeasures to that which it exerts in the arena of airborne protection. With the research and development undertaken on these contracts the business now feels well positioned to secure further orders for NATO and other navies, and to assist Kilgore to break into the US naval market. Chemring Countermeasures' air decoy business is performing well with several new products entering service. The unfortunate events of 11 September and the military action that followed inevitably give rise to assumptions that such actions would be 'good' for our countermeasures business. To date, limited additional business has resulted, although there are increasing signs that a reappraisal of military requirements following 11 September, particularly in the United States, will be beneficial to our future prospects. PW Defence, the Group's military pyrotechnics business, had an excellent year, with profits substantially up on the previous year. The consolidation of activities in Derby has had an enormously beneficial impact. PW Defence continues to work with other international manufacturers in a consolidating industry, and is actively supporting the UK MoD on SMART procurement initiatives. The marine safety business had a tough year, with intense competition, particularly on pricing, in our pyrotechnics business. Although the electronics business grew by 9%, it was below our growth expectations. Your Board is convinced that marine electronics will provide future growth, supported by research and development programmes bringing several new products to the market with one, our EPIRB GPS, having won the prestigious Marine Product of the Year Award for 2001. Although progress was made during 2001, the business is still searching for a more effective route to market in the US, particularly to service the leisure industry. Our acquisition of Pirotecnia Oroquieta during the year will assist in recovering market share in pyrotechnics and will provide the benefits of lower cost manufacturing. The Group's marine safety business is now by far the largest in the legislated marine pyrotechnics market. Kembrey Wiring Systems returned to profitability during the year, principally because of satisfactory commercial relationships being established for all our efforts on behalf of the Nimrod programme. The business has a sound order book and should progress further this year. Balance Sheet and Cash flow At the year end the Group's indebtedness was higher than either anticipated or desirable. The acquisition of Kilgore for $23 million, satisfied by the issue of 1.2 million ordinary shares at a value of $5.2 million and $17.8 million cash, obviously increased significantly our level of debt, but not beyond that deemed prudent and easily serviceable from our expanding earnings. However, during the year the interruption to business at Kilgore and the need to fund its rebuild programme, combined with the delayed receipts on naval countermeasures contracts, stretched our cash resources. In October following increasing institutional demand for our equity and in anticipation of improving liquidity in our shares, the Company issued 1,196,080 ordinary shares, raising £3,962,000 cash net of expenses. During the year the Group ended its joint banking relationship with the Royal Bank of Scotland and Bank of Scotland, and now banks primarily with the Bank of Scotland. The Board is pleased with the partnership and understanding that the Bank of Scotland is now providing. The Board is very conscious that our borrowing is too high to be a permanent feature of the Group's total funding requirements, particularly when contemplating our growth projections. Resolution of the Kilgore insurance claim and collection of receipts on the naval countermeasures contracts would greatly assist in reducing debt. Insurance The Group experienced unprecedented increases in premiums on the annual renewal of its insurance covers at the end of October 2001. The increases are directly attributable to the severe hardening of the insurance market over the last year, particularly following the events of 11 September, and many businesses are facing similar increases. In order to contain costs as much as possible, the Group's captive insurance company, CHG Insurance Limited, is currently being utilised to self-insure an element of the Group's cover. If the market improves we will place this cover with external insurers. The Group will obviously be discussing the impact of the increased insurance costs with its major customers. Dividends An interim dividend of 2.45p (2000: 2.30p) was paid during the year. The directors recommend a final dividend of 4.25p (2000: 4.00p), an increase of 6% over the previous year. The directors, in making this recommendation, have taken account of the Group's current indebtedness and funding requirements. Employees As promised in my last report, the Group has strengthened its management with the appointment on 1 November 2001 of Tim Hayter as a main Board director and Chief Operating Officer. His principal responsibilities will be the delivery of the Group's operating profit and cashflow. Elsewhere in the Group we have strengthened management, either to provide the strength required to match our ambitions, or to close perceived gaps. This is a continuing process. As always, I would like to thank all our employees for their hard work during the year. This year I would like to convey particular thanks to our employees at Kilgore. The response by all those in that business to the issues that faced them this year has been commendable. Prospects In the year the Group generated excellent profit and earnings growth. The current prospects for all our businesses indicate a continuation of this growth pattern. The Board remains confident that the Group, particularly with the exciting opportunities in the US, will deliver significant increases in shareholder value. K C Scobie Chairman 22 January 2002 REVIEW BY THE CHIEF EXECUTIVE The Group's activities are covered under the following headings: Defence Countermeasures: Chemring Countermeasures, Alloy Surfaces, Kilgore, Pains Wessex Australia Military Pyrotechnics: PW Defence, Pains Wessex Australia Non-defence Marine Safety: McMurdo Marine, Pains Wessex Safety Systems, Oroquieta Wiring Harnesses: Kembrey Wiring Systems Chemical Coatings: Alloy Surfaces Turnover by Business Area for the year ended 31 October 2001 Countermeasures - 54% Marine Safety - 20% Military Pyrotechnics - 14% Wiring Harnesses - 10% Chemicals - 2% Defence Businesses It was a further year of good growth for our defence businesses, with turnover increasing by 62% to £64.3 million, representing 68% of total Group turnover. Turnover in the defence businesses has doubled over the last three years. The year ended with a healthy order book of £71 million, up £33 million (87%) on 2000. Our strategy of increasing our presence in the important US market along with continuing investment in new products, has further strengthened our global market leading position in our niche markets for expendable countermeasures and military pyrotechnics. Countermeasures Turnover increased by 80% to £51.4 million for the year, and the order book more than doubled over the year to £53 million. The Group is recognised as an international market leader in the development and manufacture of expendable countermeasures to protect valuable military platforms, with production facilities in the US, the UK and Australia. Against the background of increasing use of military aircraft in supporting anti-terrorist activity, IR decoy flares play an important part in providing self-protection against IR man-portable air defence systems. We continue to develop new products to combat the emerging threats and explore new markets to maintain our leading position. During the year the US acquisitions of Kilgore and the Martin Electronics flare business significantly enhanced the Group's position as the leading supplier of IR expendable decoys in the US, which is the largest single market for these products. 85% of the Group's countermeasures are now sold outside of the UK. However, the UK MoD remains an important customer, particularly as it is increasing its global peace keeping role. Both US companies - Kilgore based in Toone, Tennessee and Alloy Surfaces based in Chester Township, near Philadelphia, Pennsylvania - are well placed to benefit from recent increases in US DoD budgets. They have strong order books and their combined turnover is projected to account for almost 60% of the Group's total defence turnover in 2002. Kilgore is the largest producer of magnesium based flares in the world and manufactures a wide range of flare products for current aircraft platforms. Kilgore supports the development of IR decoys for future aircraft such as the F22. The incident at Kilgore in April 2001 resulted in a review of all safety aspects on site. Investment in replacement production facilities of $8m is being made to automate flare production to provide a safe working environment in support of future growth plans. Commissioning of the fully automated facilities is expected to be completed in March 2002, following which Kilgore will be, without doubt, the most advanced IR decoy manufacturing plant in the world. Kilgore enters the new financial year with planned sales almost fully covered by orders. Demand continues to grow for Alloy Surfaces' proprietary special material decoys, particularly in a pre-emptive operational mode. Alloy's unique IR material features in several advanced IR expendable countermeasure programmes in the US. These include the Advanced Strategic and Tactical Expendables (ASTE) programme, where Alloy provides more than 50 of the flare variants. The US Army Advanced Infrared Countermeasure Munition (AIRCMM) programme's XM211 has achieved considerable test success protecting helicopter and C130 transports, and will be fielded on several new platforms in the coming years. Alloy's innovative BOL IR decoy is in service with the US Navy and the BOL dispenser has now been qualified on the F15. The US Air Force Air Combat Command completed an operational utility evaluation of the Raytheon/Alloy Surfaces COMET dispenser and countermeasure in 2001 for application on the A10 'tank busters' to demonstrate extended duration pre-emptive protection. A force development evaluation is planned for 2002 on the A10 and the C130, which if successful could lead to initial production orders in 2003. Chemring Countermeasures ('CCM'), the UK business based in Salisbury, provides decoys worldwide for most aircraft and helicopter platforms and their defensive aids systems. CCM is also the developer of the chaff and flare decoys for the European Fighter Aircraft 2000 (Typhoon). The number of platforms utilising CCM's proprietary MEB (Modular Expendable Block) is increasing and the UK MoD has placed its first production orders. The MEB incorporates both flare and chaff materials to increase operational effectiveness on both fixed wing aircraft and helicopters. As well as significantly improving operational capabilities, the MEB also confers significant savings in logistic costs to the user. A version of the IR MEB has been purchased for the Swiss Cougar programme and for operational use on the Italian Navy EH101 and SH3D helicopters. The RF MEB version has already entered service in numerous NATO and non-NATO countries on C130, F16 and various helicopters, including GKN Westland's WH64 Apache. Over the last two years CCM has invested in developing a comprehensive range of MK36 naval decoys. The MK36 decoy launcher is standard in most NATO navies. CCM is the only company worldwide that can offer the full range of passive IR and RF decoys for the MK36 system. Deliveries on the first contract for the proprietary combined IR/RF Chimera decoy were completed in the year and the rounds performed well in recent customer naval exercises. The UK MoD TALOS IR round has met the required customer design performance and final deliveries will be made following UK MoD in-service safety clearance. During the year difficulties were experienced with one naval decoy production contract, where there were problems with a safety and arming sub-assembly ('S&A '). The round is a US DoD design for the Seagnat Steering Group comprising the UK, Denmark and the US. The S&A was manufactured to the data pack but failed to function reliably. A modification has been proposed to the customer to enable final delivery of the contract in 2002. This has been yet another good year for the Group's countermeasures business with both orders and sales reaching record highs. There are significant opportunities for further increases, particularly in the US. We have established a countermeasures marketing and technology group to oversee continuing investment across our countermeasures activities worldwide, and to ensure the Group is best placed to maintain its market position and capitalise on the increasing need to protect valuable military platforms. Military Pyrotechnics PW Defence is an international market leader for its range of specialist pyrotechnic and explosive products used in training and other non-offensive activities, and is a leading supplier to the UK MoD. Turnover in the year increased by 16% to £13 million, of which 73% was exported. At the year end the order book had increased by 36% to £17.6 million, which provided a good opening start to 2002. In the domestic market the UK MoD continues to be an important customer. PW Defence is supporting the MoD with SMART procurement initiatives, which is assisting the MoD with its aim of reducing logistics costs and providing PW Defence with better visibility on long term requirements to assist future manufacturing strategy. PW Defence has maintained its international market share and we continue to explore collaboration particularly in Europe, exploring closer working relationships with our industry participants, to position us for possible European-led defence procurement programmes. One such collaboration in 2001 involved Buck, (a Germany company, part of Rheinmetal), where co-operation between PW Defence and Buck on 66mm vehicle discharge grenades led to a significant order from the UK MoD and potential future export orders. In 2001 manufacturing facilities at Draycott were updated to improve efficiency, and in 2002 research and development investment is planned to increase to enhance the company's product range. The acquisition of Kilgore provides an opportunity to market PW Defence products in the US and for PW Defence to market Kilgore's products overseas. This relationship has existed on an arms length basis for a number of years and the acquisition will enable the product range for both parties to grow. Non-defence Businesses Marine Safety The Group is a global market leader in providing legislated marine safety products to aid location and rescue, including pyrotechnics, electronic location beacons, location lights and VHF radios. Turnover increased by 9.6% to £19.4 million in the year, with electronic sales providing the growth, supporting our strategy to expand the electronics range against known legislation. The business is primarily driven by global legislation set by the International Maritime Organisation (IMO) under its Safety of Life at Sea (SOLAS) convention. This mandates the carrying of pyrotechnic products and marine safety lights. Electronic products in support of the legislated Global Maritime Distress and Safety System (GMDSS) include 406 EPIRBs, SARTs and portable VHF radios. New electronics products are driving the growth of our marine safety business. Continuing development of 406MHz technology has provided a full year of sales for the award winning EPIRB with integral Global Positioning Systems (GPS). A Personal Locating Beacon (PLB) based on the same technology has just entered the market, and received an honourable mention at METS exhibition awards in Amsterdam. Demand for the PLB arises in both the marine and non-marine markets to assist with locating individuals in distress. The PLB is the smallest, most technically advanced GPS based safety beacon in the world and makes use of combining two of the world's leading satellite systems to ensure that rescue services can be alerted with an accurate location, typically to within 30 metres in under three minutes. An electronic manoverboard product, worn as a watch, for use on oilrigs and for general leisure and workboat applications, was also successfully launched this year. Additional 406MHz technology products currently in development, such as Emergency Location Transmitters (ELTs) for aviation use, will provide access to further new market areas as legislation is introduced. Sales are expected to increase significantly in these areas following Cospas-Sarsat announcements that satellite processing on 121.5 MHz and 243 MHz is to cease. In support of new requirements for VHF radios incorporating Digital Selective Calling (DSC), an integrated radio was successfully launched at the recent London Boat show. Significant orders have already been received for this product, and sales are expected to increase sharply in the coming years as worldwide coastguard authorities cease their dedicated watch keeping services from 2005 onwards and switch over to DSC distress monitoring. We have entered into a collaboration with a systems company to produce a Universal Automatic Identification System (UAIS) in support of legislation, both internationally from the IMO and from within the European Union. The IMO has introduced mandatory requirements for UAIS commencing in the summer of 2002 and the first peak demand is expected in 2003. Sales of pyrotechnics into Europe continued to be affected by the weakness of the Euro in the first half. The acquisition in May 2001 of 51% of Pirotecnia Oroquieta, a lower cost producer of marine pyrotechnics based in Spain, assisted in the recovery of some market share in the second half. Further gains are anticipated in 2002. We are holding our market share on marine lights, although demand is not increasing. With substantial investment in new premises and increased awareness of our world leading brands, McMurdo and Pains Wessex, we are set to increase our penetration of the expanding marine electronics market place. Wiring Harnesses Kembrey Wiring Systems ('Kembrey') is the largest UK manufacturer of high specification cable harnesses for the aerospace industry. It has an excellent reputation for supplying quality wiring systems to manufacturers of airframe and aircraft engines. Turnover increased by 26% to £9.6 million in the year. The closing order book was up 53% to £13.6 million, providing good order cover for 2002 sales. Kembrey has established 'Strategic Partnership' status with its major customers, including Rolls-Royce, BAE Systems and Hurel Hispano. These relationships help secure the long term future of the business. In October Kembrey completed the first set of 1,100 harnesses to enable BAE Systems to meet its 'power on' date for the first Nimrod aircraft. Both the UK MoD and BAE Systems expressed their gratitude for Kembrey's efforts. A further two Nimrod harness sets are well advanced and another four sets are required in 2002. An important order was received from Rolls-Royce for engine harnesses for the Tornado RB199 engine refit programme during the year. GKN's restructuring of its manufacturing base has resulted in Kembrey entering into a new strategic alliance with GKN for the supply of wiring harnesses. Kembrey's civil engine business has been marginally affected by the downturn in the aviation market. However, harnesses for military applications account for more than 50% of the order book and this is supporting further growth. Chemical Coatings Alloy Surfaces has a niche market in supplying special chemicals to the aerospace sector for use in diffusion coating of engine components and demand is expected to continue at current levels. D R Evans Chief Executive 22 January 2002 REVIEW BY THE FINANCE DIRECTOR Operating Results Group turnover for continuing operations grew by 19% to £79,989,000. Including the turnover from acquired operations of £15,256,000, total turnover was £95,245,000 (2000: £67,169,000). There was increased spend on research and development across the Group during the year. This, together with the impact of the high material content on naval countermeasures contracts, reduced gross profit margins for the continuing operations to 24% (2000: 28%). The gross profit for the acquired operations of £5,457,000 includes a credit to cost of sales for business interruption insurance proceeds. The accounting for business interruption is such that credits are taken to cost of sales rather than turnover, hence the gross profit margins are higher than would normally be expected at 36%. On a proforma basis gross profit margins would have been in the region of 24%, on additional turnover of approximately £7.5 million. Total overheads, representing 13% of turnover (2000: 15%), were well controlled, with increases principally due to the acquired businesses. Net operating margin was 13% (2000: 13%). Research and Development During the year research and development expenditure of £5,038,000 (2000: £2,622,000) was incurred, of which £1,373,000 (2000: £1,180,000) was funded by customers and £2,238,000 (2000: £585,000) was capitalised. Profit on Disposal A £369,000 profit on disposal of one of the Group's freehold properties was made in the year. Interest The interest charge for the year was £2,984,000 (2000: £1,709,000). Interest cover on operating profits was 4 times (2000: 5.2 times). Interest was higher than anticipated due to increased working capital and delays in the receipt of insurance proceeds following the incident at Kilgore. Taxation The tax charge of £2,342,000 (2000: £1,866,000) is based on an effective rate of 25% (2000: 26%). The underlying tax rate is arrived at as follows: Profit Tax Tax rate £000 £000 % Profit before tax and gain on disposal 9,030 2,342 26 Gain on disposal 369 0 0 Profit before tax 9,399 2,342 25 The gain on disposal is free of tax due to the utilisation of brought forward capital losses. The tax on the profit before the gain on disposal has also been reduced by brought forward losses. It is anticipated the tax rate will increase to around 30% next year. Shareholder Returns Earnings per ordinary share were 27.96p (2000: 22.04p), an increase of 27%. Earnings per ordinary share before profit on disposal increased by 20% to 26.49p (2000: 22.04p). The dividend per ordinary share of 6.70p (2000: 6.30p) is covered 3.85 times (2000: 3.48 times). Post tax return on capital employed was 15.2% (2000: 15.8%). Shareholders' funds at the year end were £46,403,000 (2000: £33,304,000). Goodwill Goodwill arising on the acquisitions made in the year is as follows: £000 Kilgore Flares Company LLC 5,477 Martin Electronics flare business 478 Pirotecnia Oroquieta S.L 588 Total additions 6,543 The Board has carried out an annual impairment test on the Group's total goodwill of £24,789,000 that has demonstrated that no amortisation is necessary on the constituent parts of the goodwill balance. Cash Flow and Gearing Operating cash flow was £4,134,000 (2000: £7,937,000). Working capital balances have risen during the year in support of our naval countermeasures programmes, and at the year end £5.6 million of contract receivables were outstanding. The naval countermeasures are undergoing final acceptance testing. Additionally, outstanding insurance receipts compounded the increase in working capital. Total capital expenditure in the year was as follows: 2001 2000 £000 £000 Fixed assets additions 7,457 2,687 Development costs additions 2,238 585 Proceeds from asset sales (1,647) (142) Trade investment purchase 10 - 8,058 3,130 Of the total spend on fixed assets, £3.2 million was incurred by Kilgore as part of the investment in its facilities. Further capital spend of £2.2 million has been invested by Kilgore in the first quarter of the current financial year to complete the overall reconstruction. The development costs have been capitalised by our countermeasures and marine safety businesses. The proceeds on sale relate to the disposal of one of the Group's freehold properties. On 26 October 2001, the Group placed 1,196,080 ordinary shares, equivalent to 4.65% of the share capital of the Company at that time, raising £3,962,000 net of expenses. These funds are being used to provide additional resources to the Group. Net debt stood at £40,942,000 at the year end (2000: £20,118,000). Gearing was 88% (2000: 60%). Facilities The Group has agreed total facilities of £51m with the Bank of Scotland to provide funding and working capital for the UK businesses and Kilgore. In addition, facilities of $11 million are in place with Wilmington Trust and Pennsylvania Industrial Development Authority to provide funding for Alloy Surfaces, and facilities of A$1.4 million in Australia provide funding for Pains Wessex Australia. The Board has reviewed the latest guidance on going concern and considers the above facilities provide the Group with sufficient resources. Pensions In accordance with FRS17 - Accounting for Pension Costs, the Group has disclosed the additional information required in Note 7 to the accounts, but in accordance with the FRS, no provision has been made. Under FRS17, the calculated deficit on the Group's two defined benefit pension schemes was £6,396,000 at 31 October 2001. This compares with the combined deficit on the two schemes of around £500,000 at the dates of their last formal actuarial valuations. The apparent deterioration of the funding position on the two schemes, as suggested by the FRS17 valuation, is attributable to the fall in equity markets last year and the lower average discount rate applied to scheme liabilities under FRS17 compared to that used in normal actuarial valuations. P A Rayner Finance Director 22 January 2002 SUMMARY FINANCIAL INFORMATION Audited Audited Audited Year Year Year ended ended ended 31 Oct 2001 31 Oct 2000 31 Oct 1999 £000 £000 £000 Turnover Defence Countermeasures - continuing operations 37,027 28,538 25,180 - acquired operations 14,325 - - 51,352 28,538 25,180 Military pyrotechnics 12,991 11,169 10,616 64,343 39,707 35,796 Non-defence Marine safety - continuing operations 18,425 17,700 16,765 - acquired operations 931 - - 19,356 17,700 16,765 Wiring harnesses 9,594 7,608 7,197 Chemical coatings 1,952 2,154 2,324 30,902 27,462 26,286 Continuing operations 79,989 67,169 62,082 Acquired operations 15,256 - - Discontinued operations - - 3,316 95,245 67,169 65,398 Operating profit/(loss) Continuing operations 8,526 8,806 7,766 Acquired operations 3,445 - - Discontinued operations - - (1,551) 11,971 8,806 6,215 Profit before tax 9,399 7,127 4,306 Dividend per ordinary share 6.70p 6.30p 5.50p Basic earnings per ordinary share 27.96p 22.04p 14.49p Earnings per ordinary share before profit on disposal 26.49p 22.04p 14.49p Shareholders' funds 46,403 33,304 28,849 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 October 2001 Year Year ended ended 31 Oct 2001 31 Oct 2000 Continuing Acquired Total Total operations operations operations operations £000 £000 £000 £000 Turnover 79,989 15,256 95,245 67,169 Cost of sales (61,004) (9,799) (70,803) (48,164) Gross profit 18,985 5,457 24,442 19,005 Distribution costs (2,798) (410) (3,208) (2,693) Administrative expenses (7,661) (1,602) (9,263) (7,506) Operating profit 8,526 3,445 11,971 8,806 Profit on disposal 369 - Associated undertaking 43 30 Profit on ordinary activities before interest 12,383 8,836 Interest payable (2,984) (1,709) Profit on ordinary activities before taxation 9,399 7,127 Tax on profit on ordinary activities (2,342) (1,866) Profit on ordinary activities after taxation 7,057 5,261 Equity minority interest (25) - Profit for the financial year 7,032 5,261 Dividends (1,831) (1,511) Retained profit 5,201 3,750 Basic earnings per ordinary share 27.96p 22.04p Earnings per ordinary share before profit on 26.49p 22.04p disposal Diluted earnings per ordinary share 27.85p 21.19p ADDITIONAL FINANCIAL PERFORMANCE STATEMENTS For the year ended 31 October 2001 Year Year ended ended 31 Oct 2001 31 Oct 2000 £000 £000 Statement of total recognised gains and losses Profit on ordinary activities after taxation 7,057 5,261 Currency translation differences on foreign currency net investments (469) 388 Total recognised gains and losses 6,588 5,649 Reconciliation of movements in shareholders' funds Profit on ordinary activities after taxation 7,057 5,261 Equity minority interest (25) - Dividends (1,831) (1,511) Retained profit 5,201 3,750 Other recognised (losses)/profits (469) 388 Ordinary shares issued 151 11 Share premium arising 8,216 306 Net addition to shareholders' funds 13,099 4,455 Opening shareholders' funds 33,304 28,849 Closing shareholders' funds 46,403 33,304 CONSOLIDATED BALANCE SHEET As at 31 October 2001 As at As at 31 Oct 2001 31 Oct 2000 £000 £000 £000 £000 Fixed assets Intangible assets Development costs 2,690 1,002 Goodwill 24,789 18,246 27,479 19,248 Tangible assets 33,901 19,199 Investments 924 883 62,304 39,330 Current assets Stock 18,231 14,235 Debtors 30,494 20,794 Cash at bank and in hand 2,418 2,062 51,143 37,091 Creditors due within one year (33,910) (25,760) Net current assets 17,233 11,331 Total assets less current liabilities 79,537 50,661 Creditors due after more than one year (32,097) (17,089) Provisions for liabilities and charges (706) (268) Equity minority interest (331) - 46,403 33,304 Capital and reserves Called-up share capital 1,409 1,258 Reserves Share premium account 19,335 11,119 Special capital reserve 12,939 12,939 Revaluation reserve 2,518 2,554 Revenue reserves 10,202 5,434 44,994 32,046 Shareholders' funds 46,403 33,304 Attributable to equity shareholders 46,341 33,242 Attributable to non-equity shareholders 62 62 46,403 33,304 CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 October 2001 As at As at 31 Oct 2001 31 Oct 2000 £000 £000 £000 £000 Net cash inflow from operating 4,134 7,937 activities Returns on investments and servicing (3,077) (1,694) of finance Taxation (1,522) (881) Capital expenditure (8,058) (3,130) Acquisitions (15,401) - Equity dividends paid (1,640) (1,380) Cash (outflow)/inflow before use of liquid resources and financing (25,564) 852 Financing - issue of shares 4,833 317 - increase/(decrease)in debt 16,896 (884) 21,729 (567) (Decrease)/increase in cash (3,835) 285 Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash (3,835) 285 Cash (inflow)/outflow from the increase/(decrease) in debt and lease financing (16,896) 884 Change in net debt resulting from cash (20,731) 1,169 flows New finance leases (115) (259) Translation difference 22 (347) Movement in net debt (20,824) 563 Opening net debt (20,118) (20,681) Closing net debt (40,942) (20,118) Notes 1. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 October 2001 or 31 October 2000 but is derived from those accounts. Statutory accounts for 2000 have been delivered to the Registrar of Companies, and those for 2001 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 section 237(2) or (3) of the Companies Act 1985. The financial information has been prepared in accordance with the accounting policies adopted for the 2000 accounts. 2. The financial statements for the year ended 31 October 2001 will be posted to shareholders on 4 February 2002 and will also be available from that date at the registered office, 1645 Parkway, Whiteley, Fareham, Hampshire PO15 7AH. 3. Subject to shareholder approval, the final dividend of 4.25p per ordinary share will be paid on 10 April 2002 to all shareholders registered at the close of business on 15 March 2002.

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Chemring Group (CHG)
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