FOR IMMEDIATE
RELEASE
28 June 2005
CHEMRING GROUP PLC
Interim Results for the Six Months to 30 April 2005
Chemring Group PLC today announces its interim results:
Profit before tax and loss on disposal up 12% at �6.5 million (2004: �5.8
million)
Profit before tax up 27% at �6.5 million (2004: �5.1 million)
Basic earnings per share up 20% at 15.14p (2004: 12.63p)
Interim dividend per ordinary share up 14% at 3.20p (2004: 2.80p)
Divisional Highlights
Countermeasures
Record order book of �106 million (2004: �75 million)
Record growth in turnover and profit at Alloy Surfaces
Alloy Surfaces' second facility fully operational
Contract appeal by Kilgore competitor on US multi-year procurement fully
rejected
Energetic Materials
Current order book of �9 million (2004: �6 million)
Marine Pyrotechnics business now included within Energetic Materials division
Marine Lights and Electronics
Restructuring nearing successful completion
Results for the Half Year to 30 April 2005
2005 2004
�000 �000
Turnover 54,321 57,441
Operating profit 7,801 7,463
Profit before tax and loss on disposal 6,472 5,803
Loss on disposal - (690)
Profit before tax 6,472 5,113
Basic earnings per share 15.14p 12.63p
Ken Scobie, Chemring Group Chairman, commented:
"The results for the half year were satisfactory and would have been outstanding
with a full contribution from Kilgore, PW Defence and the Marine division. The
Countermeasures division, with its substantial order book, should perform well
in the second half, and with a stronger performance from the Group's other businesses,
we expect to achieve another year of excellent growth."
Notes:
All comparisons are for the half year to 30 April 2004.
The interim dividend of 3.20p per ordinary share will be paid on 23 September
2005 to holders on the register at 9 September 2005. The ex-dividend date will
be 7 September 2005.
For further information:
David Price Chief Executive, Chemring Group PLC 0207 930 0777
Paul Rayner Finance Director, Chemring Group PLC 0207 930 0777
Jonathan Rooper Cardew Group 0207 930 0777
STATEMENT BY THE CHAIRMAN
Results for the Half Year to 30 April 2005
2005 2004
�000 �000
Turnover 54,321 57,441
Operating profit 7,801 7,463
Interest (1,329) (1,660)
Profit before tax and loss on disposal 6,472 5,803
Loss on disposal - (690)
Profit before tax 6,472 5,113
Basic earnings per share 15.14p 12.63p
I am pleased to report a satisfactory increase in the overall Group results for
the six months to 30 April 2005. Operating profit increased to �7.8 million
(2004: �7.5 million). Interest has reduced by 24% to �1.3 million (2004: �1.7
million). Profit before tax increased by 27% to �6.5 million (2004: �5.1
million) and basic earnings per share increased by 20% to 15.14p (2004:
12.63p).
In the Countermeasures division in the US, Alloy Surfaces' continuing
exceptional performance made up for a disappointing, if understandable, result
from Kilgore. Kilgore's sales were significantly reduced as a result of a
temporary "stop work" being placed on two major contracts, following an appeal
by a competitor, which was subsequently rejected by the US Department of
Defense (DoD). UK-based Chemring Countermeasures again generated a solid
profit. PW Defence and Pains Wessex Australia both had a quiet first half, as
did the Marine division, where significant changes have been made to ensure
improved profitability in the future.
The directors have recommended an interim dividend of 3.20p per ordinary share
(2004: 2.80p), an increase of 14%. The interim dividend will be paid on 23
September 2005 to shareholders on the register at 9 September 2005.
The depreciation of the US dollar against sterling from $1.80 in the first half
of 2004 to $1.90 in 2005 has reduced sales on translation by approximately �1.5
million. The adverse impact of this exchange rate movement has been offset
through forward sales of US dollars. In addition, in November 2004, the Group
converted �10 million of sterling overdraft into dollar overdraft, to protect
against the possible fall in the US dollar, with its consequent impact on our
translated earnings, and to enjoy the benefit of lower interest rates. These
actions proved exceedingly successful and further transactions have
subsequently been completed to protect the benefits secured in the first six
months.
In my last statement, I referred to the settlement of the Kilgore insurance
claim against Royal & Sun Alliance, and our pursuance of a claim against our
former insurance broker, Willis, for an additional amount. Willis has now
agreed to a non-binding mediation in an attempt to resolve matters, which is
provisionally scheduled for September 2005.
Alloy Surfaces' second facility was completed and commenced production in
February 2005. �2.5 million of capital expenditure was incurred on the facility
during the period, and �4.5 million was invested in working capital. Working
capital also increased by �3 million at Kilgore, as production ramped up for
sales in the second half following the release of the "stop work" order.
Net debt at the end of the first half was �39.7 million (2004: 41.7 million).
Reporting
The Board has decided to restructure the Group's reporting to align more closely
with our various business activities. Accordingly, the Marine Pyrotechnics business
is now included within the Energetic Materials division.
The Energetic Materials division currently comprises the following businesses:
PW Defence
Marine Pyrotechnics
Kilgore Pyrotechnics
Pains Wessex Australia
Pirot�cnia Oroquieta
The Marine Lights and Electronics division now includes McMurdo and ICS Electronics,
our marine systems businesses.
Countermeasures
The Group continues to benefit from strong demand for its countermeasure
decoys, with the order book for this division now standing at �106 million.
Alloy Surfaces is the only company in the world producing an advanced,
patented, covert special material decoy. The business had an exceptional six
months, with turnover doubling and earnings increasing threefold. As more
branches of the armed services come to appreciate the advantages of deploying
these decoys, the order book continues to expand rapidly and has recently been
boosted by the receipt of a $20.3 million order from the US Army.
To date, Alloy Surfaces' expansion has been partially restricted because it has
been able to supply only to immediate allies of the US. These restrictions are
now gradually being relaxed, and this should provide substantial export
opportunities in the longer term.
Kilgore's production was seriously disrupted for most of the first half by a
temporary "stop work" order placed against two of its major contracts by the US
DoD, following an appeal against the award of these contracts by a newcomer to
the industrial base in the US. We did not believe that this protest was valid
or that it had any chance of success. In February, the appeal was rejected in
its entirety, and in April, the DoD placed $22m of contract options for the
second year of these five year contracts. Kilgore returned to full production
in April, and it is anticipated that the substantial shortfall in turnover in
the first half will be recovered in the second half.
Chemring Countermeasures continues to provide products for the military in many
parts of the world, and has extensive research programmes in place to preserve
its position at the forefront of the industry. During the first half, the
business performed well and met our expectations.
I have referred in previous statements to the US Department of Homeland
Security's (DHS) initiatives in relation to the protection of commercial
aircraft. The Group continues to be involved in this area and we are still
hopeful of participating in the DHS project with Alloy Surfaces' special
material decoys, particularly as funds have recently been made available for
alternative solutions.
Energetic Materials
After a quiet 2004 at PW Defence, the expected improvement in orders in 2005
has not yet materialised, either domestically or from overseas. The business
has experienced similar market conditions previously, and continues to compete
vigorously for orders all around the world, whilst looking at new products to
expand the range.
The separation of the Marine Pyrotechnics business from the rest of our Marine
division continued during the first half, and will be completed by the year end.
Whilst only a small profit was generated in the first half, sales in the Marine
Pyrotechnics business are biased to the second half, and a sound performance for
the year is anticipated.
After an excellent 2004 Pains Wessex Australia predicted a quieter 2005, both
in its military and marine activities. The company now acts as an agent for
both Alloy Surfaces and Kilgore with the military in Australia, following the
expiry of the previous contract with an external agent. This should improve the
profitability of the business as sales to Australia are significant.
Marine Lights and Electronics
The restructuring of the Marine division is proceeding satisfactorily, with costs
of approximately �0.35 million being incurred during the first half. Marine Lights
performed well, although not at the same, excellent level that they did in 2004.
With the exception of one updated product range, Electronics achieved its anticipated
sales, with improvements expected in the second half from the seasonal business.
Board of Directors
As referred to previously, on 4 April 2005, Dr David Price joined us as Chief Executive
and David Evans was appointed Non-Executive Deputy Chairman. Tim Hayter resigned as
Chief Operating Officer on 10 March 2005.
Pensions
The Board is obviously aware of all the changes currently affecting company
pension schemes but in the absence of yet to be produced Government
legislation, finds it impossible to judge the best course of action for the
future. On the basis of current information before the Board, and taking into
consideration the actions that we have already taken to improve the funding of
our defined benefit schemes, we do not believe the Group is facing any material
problem with long-term funding of the schemes.
I will report more fully on pension issues in my next statement.
Prospects
The results for the half year were satisfactory and would have been outstanding
with a full contribution from Kilgore, PW Defence and the Marine division. The
Countermeasures division, with its substantial order book, should perform well
in the second half, and with a stronger performance from the Group's other
businesses, we expect to achieve another year of excellent growth.
K C SCOBIE - Chairman
28 June 2005
*All comparisons are for the half year to 30 April 2004.
UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT
for the half year to 30 April 2005
Unaudited Unaudited Audited
Half year Half year to Year to
to
30 April 2004 31 Oct
30 April 2004
2005 �000
�000
�000
Turnover - continuing operations 54,321 57,441 125,580
Operating profit - continuing operations 7,801 7,463 16,927
Loss on disposal of subsidiary undertaking - (690) (690)
Associated undertaking -
- 151
Profit on ordinary activities before 7,801 6,773 16,388
interest
Interest payable (1,329) (1,660) (3,073)
Profit on ordinary activities before 6,472 5,113 13,315
taxation
Tax on profit on ordinary activities (2,071) (1,616) (3,822)
Profit on ordinary activities after taxation 4,401 3,497 9,493
Equity minority interest 13
(6) 15
Profit for financial period/year 4,395 3,510 9,508
Dividends (933) (811) (2,690)
Retained profit 3,462 2,699 6,818
Basic earnings per ordinary share 15.14p 12.63p 33.32p
Diluted earnings per ordinary share 15.09p 12.56p 33.14p
Basic earnings per ordinary share - 15.14p 15.12p 35.02p
continuing operations
Dividend per ordinary share 3.20p 2.80p 9.00p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited Audited
Half year Half year Year to
to to
31 Oct
30 April 30 April 2004
2005 2004
�000
�000 �000
Profit for the financial period/year 4,395 3,510 9,508
Foreign currency translation differences on net (2,708) (696) (1,945)
investments
1,687 2,814 7,563
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
Half year Half year Year to
to to
31 Oct
30 April 30 April 2004
2005 2004
�000
�000 �000
Profit on ordinary activities after taxation 4,401 3,497 9,493
Equity minority interest (6) 13 15
Dividends (933) (811) (2,690)
Retained profit 3,462 2,699 6,818
Ordinary shares issued 6 73 77
Share premium arising 230 5,752 5,984
Foreign currency translation differences on (2,708) (696) (1,945)
net investment
Net addition to shareholders' funds 990 7,828 10,934
Opening shareholders' funds 63,357 52,423 52,423
Closing shareholders' funds 64,347 60,251 63,357
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30 April 2005
Unaudited Unaudited Audited
As at As at As at
30 April 2005 30 April 2004 31 Oct 2004
�000 �000 �000
Fixed assets
Development costs 2,575 2,384 2,841
Goodwill 27,984 28,442 27,984
Tangible assets 42,236 41,525 41,810
Investments 1,073 1,063 1,073
73,868 73,414 75,708
Current assets
Stock 31,123 24,456 25,090
Debtors 30,114 31,498 27,036
Cash at bank and in hand 327 4,093 9,933
61,564 60,047 62,059
Creditors due within one year
Bank loans and overdrafts 16,825 24,021 20,493
Loan stock 40 40 40
Other 28,097 21,893 29,382
44,962 45,954 49,915
Net current assets 16,602 14,093 12,144
Total assets less current liabilities 90,470 87,507 85,852
Creditors due after more than one year (22,252) (21,638) (18,174)
Provisions for liabilities and charges (3,601) (5,352) (4,057)
Equity minority interest (270) (266) (264)
64,347 60,251 63,357
Capital and reserves
Called-up share capital 1,517 1,507 1,511
Share premium account 26,940 26,478 26,710
Special capital reserve 12,939 12,939 12,939
Revaluation reserve 2,392 2,446 2,410
Revenue reserves 20,559 16,881 19,787
Shareholders' funds 64,347 60,251 63,357
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2005
Unaudited Unaudited Audited
Half year Half year to Year to
to
30 April 31 Oct
30 April 2004 2004
2005
�000 �000
�000
Net cash (outflow)/inflow from operating (2,460) (5,715) 14,462
activities
Returns on investments and servicing of (1,320) (1,276) (3,045)
finance
Taxation (2,856) (748) (2,291)
Net capital expenditure (3,673) (2,323) (5,580)
Acquisitions 242 645 485
Equity dividends paid
- - (2,219)
Cash (outflow)/inflow before use of liquid
resources and financing
(10,067) (9,417) 1,812
Financing -issue of 236 5,825 6,061
shares
-increase/ 5,340 (1,688) (4,478)
(decrease) in
debt
(Decrease)/increase in cash (4,491) (5,280) 3,395
Reconciliation of net cash flow to movement
in net debt
(Decrease)/increase in cash (4,491) (5,280) 3,395
Cash (inflow)/outflow from the (increase)/
decrease in debt and lease financing
(5,340) 1,688 4,478
Change in net debt resulting from cash flows (9,831) (3,592) 7,873
New finance leases - (231) (354)
Translation difference 219 808 1,157
Amortisation of debt finance costs (85) (48) -
Cash disposed with subsidiary undertaking
- - (3)
(9,697) (3,063) 8,673
Reconciliation of operating profit to net
cash flow from operating activities
Operating profit 7,801 7,463 16,927
Amortisation charge 625 1,044 1,555
Depreciation charge 1,939 1,891 3,229
Loss on sale of tangible fixed assets 47 - 128
Increase in stock (6,033) (535) (1,169)
(Increase)/decrease in debtors (3,320) (3,347) 1,116
Decrease in creditors (3,519) (12,231) (7,324)
Net cash (outflow)/inflow from operating (2,460) (5,715) 14,462
activities
Analysis of net debt
As at Cash Non cash Exchange As at
1 Nov flow changes movement 30 April
2004 2005
�000 �000 �000
�000 �000
Cash at bank and in 9,933 (9,477) - (129) 327
hand
Overdrafts (17,463) 4,986 - - (12,477)
(7,530) (4,491) - (129) (12,150)
Debt due within one (3,070) 1,254 (2,753) 181 (4,388)
year
Debt due after one (17,055) (7,132) 2,668 - (21,519)
year
Finance leases (2,353) 538 - 167 (1,648)
(30,008) (9,831) (85) 219 (39,705)
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 2005 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 insurance claim
In arriving at our review conclusion, we have considered the adequacy of the
disclosure made in note 3 concerning the amounts recognised under a claim
against the Group's former insurance brokers concerning the insurance for
Kilgore Flares Company LLC and their subsequent handling of an insurance claim.
The future settlement of the claim against the brokers could result in a
shortfall, or a surplus, when compared with the recorded debtor at 30 April
2005. 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 2005 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 2005.
DELOITTE & TOUCHE LLP, Chartered Accountants, 28 June 2005
Southampton
NOTES TO THE INTERIM STATEMENT
1. BASIS OF PREPARATION
The interim accounts to 30 April 2005 have been prepared on the
basis of the accounting policies set out in the audited full year accounts to
31 October 2004.
The unaudited consolidated profit and loss account for each of
the six month periods and the unaudited consolidated balance sheet as at 30
April 2005 do not amount to full accounts within the meaning of section 240 of
the Companies Act 1985 and have not been delivered to the Registrar of
Companies. The interim report was approved by the Board of Directors on 28
June 2005.
2. SEGMENTAL ANALYSIS OF TURNOVER
As discussed in the Chairman's Statement, segmental analysis of turnover has
been amended and prior period results restated to reflect more accurately the
current structure and management of the Group.
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2005 30 April 2004 31 Oct 2004
�000 �000 �000
Countermeasures 34,050 34,303 78,724
Energetic materials 13,927 15,564 31,360
Marine lights and electronics 6,344 7,574 15,496
Total 54,231 57,441 125,580
All turnover is derived from continuing operations.
3. INSURANCE CLAIM
The Group is pursuing a claim against its former insurance
brokers, concerning the insurance cover for Kilgore Flares Company LLC and the
broker's subsequent handling of a claim, following the manufacturing incident
at Kilgore Flares Company LLC on 18 April 2001.
At 31 October 2004 a balance of �2,689,000 was recognised with
other debtors. This outstanding balance has been reduced by �98,000, to �
2,591,000 at 30 April 2005, as a result of exchange rate movement against the
US dollar. All further legal and professional costs incurred in the half year
to 30 April 2005 have been taken to the profit and loss account.
4. 2004 RESULTS
The figures for the year to 31 October 2004 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 2005 is 32%
(2004: 32%).
6. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in
issue of 29,013,854 (2004: 27,765,886) and profit on ordinary activities after
taxation, minority interests and preference dividends of �4,393,000 (2004: �
3,508,000). Diluted earnings per share has been calculated using a diluted
average number of shares in issue of 29,119,379 (2004: 27,922,564) and profit
on ordinary activities after taxation, minority interests and preference
dividends of �4,393,000 (2004: �3,508,000).
7. CORPORATE WEBSITE
Further information on the Group and its activities can be found on the
corporate website at www.chemring.co.uk.
END
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