RNS Number:4660F
Chemring Group PLC
19 June 2001
19 June 2001
CHEMRING GROUP PLC
RESULTS FOR THE HALF YEAR TO 30 APRIL 2001
- Group profit before tax increased to #4.30 million from #3.22 million,
up 33%
- Earnings per ordinary share increased to 12.77p from 10.02p, up 27%
- Turnover increased to #45.37 million from #29.54 million, up 54%
- Interim dividend of 2.45p, up 6.5% from 2.30p
Ken Scobie, Chemring Group Chairman, commented:
"I remain extremely confident about the prospects for the Group. Nothing has
happened since my last report to vary these views. Countermeasures activity
and growing interest from the armed forces around the world continue to
support our strategy for this niche within the defence industry, where we are
the clear market leaders. Our other companies are confident of sound
performance in the second half and I believe that when I report to
shareholders for the full year we will have made further significant
progress."
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 Cardew & Co. 0207 930 0777
Notes
1. All comparisons are for the half year to 28 April 2000.
2. The interim dividend of 2.45p per ordinary share will be paid on 15
August 2001 to holders on the register at 10 August 2001. The ex-dividend
date will be 8 August 2001.
STATEMENT BY THE CHAIRMAN
The first six months show Group operating profit increasing by 29% to #5.2
million on turnover of #45.4 million, 54% ahead of last year. Our newly
acquired US company, Kilgore Flares, contributed #8.1 million of turnover. A
healthy order book supports second half expectations.
The defence businesses performed well, with good results from both
Countermeasures and Military Pyrotechnics. The acquisitions of Kilgore and
the flares business of Martin Electronics enhance our leading position in the
international countermeasures market against a background of increasing focus
on protection of military platforms.
Kilgore has been integrated smoothly into the Group and traded profitably in
the first half. Regrettably, there was a manufacturing incident at Kilgore in
April resulting in the loss of a life. Operations were suspended to carry out
safety reviews and manufacture is now recommencing. Costs associated with the
incident are being covered by our insurance arrangements.
There are exciting opportunities for Alloy Surfaces' proprietary special
material decoys, notably in a pre-emptive mode to protect aircraft operating
at low level. Manufacturing problems which impacted Alloy Surfaces last year
have been resolved.
The half year ended with strong demand for Marine products after a quiet
start. New electronic products continue to be developed for market launch
later in the year.
Kembrey Wiring Systems returned to profit as expected, as the BAE Systems
Nimrod programme gained momentum.
RESULTS FOR THE HALF YEAR TO 30 APRIL 2001
2001 2000 %
#000 #000 Increase
Turnover 45,370 29,540 54
Operating profit 5,185 4,011 29
Profit before tax 4,300 3,223 33
Profit after tax 3,134 2,385 31
Earnings per share 12.77p 10.02p 27
An exceptional profit of #369,000 was made on the disposal of one of the
Group's properties.
Interest costs increased to #1,254,000 (2000: #788,000). Interest was covered
by operating profit 4.13 times (2000: 5.09 times).
The tax rate is estimated at 27% (2000: 26%).
Due to financing of the Kilgore acquisition and increases in working capital
to support underlying business growth, net debt rose to #38,658,000 from
#20,118,000 at the end of the last financial year.
DIVIDEND
The directors have declared an interim dividend of 2.45p per ordinary share
(2000: 2.30p), up 6.5%, payable on 15 August 2001 to holders on the register
at 10 August 2001.
BUSINESS PERFORMANCE
DEFENCE BUSINESSES
Turnover of our defence businesses doubled to #32
million compared with last year's interim and these businesses generated more
than 70% of the Group's total turnover. 88% of defence turnover was overseas,
with significant sales to the US Department of Defense, demonstrating our
strong US and global market position.
Countermeasures
Turnover increased by 130% to #26 million. Continuing Countermeasures
businesses' sales increased 59% to #18 million and Kilgore provided #8.1
million of additional sales.
Against a background of increasing use of aircraft expendable decoys
worldwide, Chemring Countermeasures (CCM) continues to expand its overseas
markets with its innovative products. There is strong demand for Alloy
Surfaces' proprietary special material decoys. Qualification tests for
Alloy's BOL IR decoy on the US Air Force F15 are due to complete this year.
The application of Alloy's technology in a pre-emptive mode to protect
low-flying aircraft is an exciting development. The US Air Force's Air Combat
Command division is conducting trials on a new pod mounted decoy to provide
extended pre-emptive capability.
The Kilgore acquisition and the complementary acquisition of the infra-red
decoy business and assets of Martin Electronics have been well received by
the US customer. The Martin Electronics business provides $15 million of
orders to Kilgore, where the products will be manufactured.
The incident at Kilgore in April, resulting in the loss of a life, arose at a
stage of manufacturing previously considered safe. The Kilgore facility had
been given a clean bill of health by the State safety authorities in February
of this year. The manufacture of magnesium based infra-red flares can be
potentially dangerous, and the level of accidents at US manufacturers,
including Kilgore, over the years has been unacceptably high. In contrast,
the Group in the UK has many years of safe manufacturing history.
A review of all safety aspects of Kilgore's manufacturing has been carried
out by our experienced UK personnel, resulting in plant modifications to
protect the employees and bring safety up to our high UK standards. This will
not only provide a safer working environment for employees but also help
reduce the involvement of direct operators in the manufacturing process.
Production of certain products has recommenced. Modifications to the
infra-red plant will provide low volume manufacture this summer and higher
rate production by the end of 2001. Whilst the incident will delay sales in
the second half, Kilgore's results should not be affected as costs and any
loss of profit will be covered by the Group's insurers. Our customers are
fully supportive and relationships remain good. Kilgore has been an excellent
acquisition for the Group and also provides a conduit for CCM's naval decoys
and chaff products into the US Department of Defense.
On naval countermeasures, significant development costs have been incurred in
extending the widely used MK 36 decoy system range of naval decoys. The
development phase has completed and production deliveries have commenced
against current order book and there are many new opportunities for these
naval decoys. The 'bought out' content of naval decoys is much higher than in
air decoys and this contributed to a reduction in overall margins for the
first half.
To strengthen CCM's total customer support capability, the Group has recently
taken a 25% stake in DT Media Ltd, a UK based company that specialises in
high quality computer based training solutions, especially in the fields of
electronic warfare, information warfare and other defence related training.
To exploit synergies, marketing and technical working groups have been
established, encompassing expertise from across the expanded Countermeasures
companies.
Military Pyrotechnics
Turnover increased by 32% over last year to #6 million. International order
opportunities continue to look healthy and investment has been made in new
production facilities to cope with the increase in demand. In Europe we are
now in discussions with a number of companies in order to form strategic
alliances. We continue to discuss ways of helping the UK MOD in their long
term plans for SMART procurement.
NON-DEFENCE BUSINESSES
Turnover of our non-defence businesses at #13.3 million was at a similar
level to last year's interim and represents 29% of the Group's total
turnover.
Marine Safety
Demand for Marine products picked up strongly in the second quarter,
particularly in the US for the new 406 EPIRB with integrated GPS, following a
slow start to the year.
Our growth strategy is to expand our Marine electronics range against known
legislation and maintain our strong market position on safety pyrotechnics
and location lights.
The award winning EPIRB with GPS is selling well. A Personal Locating Beacon
(PLB) based on similar technology has completed development, and will enter
the market in the second half. Increasing demand for electronic products will
provide turnover increase in future years. Products in development include
VHF radios with Digital Selective Calling (DSC) and Automatic Identification
Systems (AIS) products.
In May the Group acquired 51% of Pirotecnia Oroquieta, a manufacturer of a
range of marine safety products based in Spain. The acquisition will
strengthen our market position in Southern Europe and provide access to a
lower cost manufacturing facility.
Wiring Harnesses
Kembrey Wiring Systems returned to profit. It is benefiting
from increased Nimrod and Tornado activity with BAE Systems. Rolls-Royce is
providing additional business and Kembrey is held up as a successful example
of their Challenge Partnership initiative. These important relationships will
ensure growth for Kembrey along with new partnerships being developed.
OUTLOOK
I remain extremely confident about the prospects for your Group. Nothing has
happened since my last report to vary these views. Countermeasures activity
and growing interest from the armed forces around the world continue to
support our strategy for this niche within the defence industry, where we are
the clear market leaders. Our other companies are confident of sound
performance in the second half and I believe that when I report to
shareholders for the full year we will have made further significant
progress.
K C SCOBIE - Chairman
19 June 2001
UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT
for the half year to 30 April 2001
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2001 28 April 2000 31 Oct 2000
#000 #000 #000
Turnover
Continuing operations 37,293 29,540 67,169
Acquired operations 8,077 - -
45,370 29,540 67,169
Operating profit
Continuing operations 4,363 4,011 8,806
Acquired operations 822 - -
Total operating profit 5,185 4,011 8,806
Profit on disposal 369 - -
Associated undertaking - - 30
Profit on ordinary activities
before interest 5,554 4,011 8,836
Interest payable (1,254) (788) (1,709)
Profit on ordinary activities
before taxation 4,300 3,223 7,127
Tax on profit on ordinary activities (1,166) (838) (1,866)
Profit on ordinary activities
after taxation 3,134 2,385 5,261
Dividends (629) (550) (1,511)
Retained profit 2,505 1,835 3,750
Basic earnings per ordinary share 12.77p 10.02p 22.04p
Earnings per ordinary share
before profit on disposal 11.33p 10.02p 22.04p
Diluted earnings per ordinary share 12.57p 9.73p 21.19p
Dividend per ordinary share 2.45p 2.30p 6.30p
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2001 28 April 2000 31 Oct 2000
#000 #000 #000
Profit on ordinary activities
after taxation 3,134 2,385 5,261
Currency translation differences
on foreign currency net investments 311 260 388
3,445 2,645 5,649
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2001 28 April 2000 31 Oct 2000
#000 #000 #000
Profit on ordinary activities
after taxation 3,134 2,385 5,261
Dividends (629) (550) (1,511)
2,505 1,835 3,750
Ordinary shares issued 88 11 11
Share premium arising 4,225 268 306
Other recognised gains 311 260 388
Net addition to shareholders' funds 7,129 2,374 4,455
Opening shareholders' funds 33,304 28,849 28,849
Closing shareholders' funds 40,433 31,223 33,304
UNAUDITED CONSOLIDATED BALANCE SHEET
as at 30 April 2001
Unaudited Unaudited Audited
As at As at As at
30 April 2001 28 April 2000 31 Oct 2000
#000 #000 #000
Fixed assets
Intangible assets 25,384 18,894 19,248
Tangible assets 29,107 17,845 19,199
Investments 893 880 883
55,384 37,619 39,330
Current assets
Stock 17,826 12,976 14,235
Debtors 25,954 17,237 20,794
Cash at bank and in hand 1,768 1,509 2,062
45,548 31,722 37,091
Creditors due within one year
Bank loans and overdraft 7,014 4,964 4,832
Loan stock 40 44 44
Other 19,805 15,333 20,884
26,859 20,341 25,760
Net current assets 18,689 11,381 11,331
Total assets less current liabilities 74,073 49,000 50,661
Creditors due after more than one year (33,372) (17,337) (17,089)
Provisions for liabilities and charges (268) (440) (268)
40,433 31,223 33,304
Capital and reserves
Called up share capital 1,346 1,258 1,258
Reserves 39,087 29,965 32,046
Shareholders' funds 40,433 31,223 33,304
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2001
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2001 28 April 2000 31 Oct 2000
#000 #000 #000
Net cash (outflow)/inflow from
operating activities (784) 3,309 7,937
Returns on investments and
servicing of finance (1,054) (951) (1,694)
Taxation (343) (592) (881)
Net capital expenditure (1,679) (1,384) (3,130)
Acquisitions and disposals (14,063) - -
Equity dividends paid (1,007) (836) (1,380)
Cash (outflow)/inflow before use
of liquid resources and financing (18,930) (454) 852
Financing - issue of shares 775 279 317
- increase/(decrease) in debt 19,157 - (884)
Increase/(decrease) in cash 1,002 (175) 285
Reconciliation of operating profit to
net cash flow from operating activities
Operating profit 5,185 4,011 8,806
Amortisation charge 198 67 139
Depreciation charge 1,044 830 1,555
Profit on sale of tangible fixed assets - (27) (68)
Decrease/(increase) in stocks 909 (3,379) (4,638)
(Increase)/decrease in debtors (2,872) 63 (3,517)
(Decrease)/increase in creditors (5,248) 1,744 5,660
Net cash (outflow)/inflow
from operating activities (784) 3,309 7,937
Reconciliation of net cash flow
to movement in net debt
Increase/(decrease) in cash 1,002 (175) 285
Cash (inflow)/outflow from the
increase/(decrease) in debt
and lease financing (19,157) - 884
Change in net debt resulting
from cash flows (18,155) (175) 1,169
New finance leases - 47 (259)
Translation difference (385) (160) (347)
(18,540) (288) 563
Analysis of net debt
As at Cash Exchange As at
1 Nov 2000 flow movement 30 April 2001
#'000 #'000 #'000 #'000
Cash at bank in hand 2,062 (298) 4 1,768
Overdrafts (4,832) 1,300 - (3,532)
(2,770) 1,002 4 (1,764)
Debt due within one year (44) (3,478) - (3,522)
Debt due after one year (16,889)(15,875) (389) (33,153)
Finance leases (415) 196 - (219)
(20,118)(18,155) (385) (38,658)
INDEPENDENT REVIEW REPORT BY THE AUDITORS
To Chemring Group PLC
Introduction
We have been instructed by the Company to review the financial information on
pages 2 to 5 for the 6 months ended 30 April 2001, and 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.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The Listing
Rules of the UK Listing Authority 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 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.
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 6
months ended 30 April 2001.
DELOITTE & TOUCHE, Chartered Accountants, 19 June 2001
Mountbatten House, 1 Grosvenor Square, Southampton, Hampshire SO15 2BZ
NOTES TO THE INTERIM STATEMENT
1. ACCOUNTING POLICIES
The interim accounts to 30 April 2001 have been prepared on the basis
of the accounting policies set out in the full year accounts to 31 October
2000 with the following exception.
The accounting policy for revenue recognition has been broadened to
include long term contracts in accordance with SSAP9 (revised), whereby a
prudent level of income is recognised based on the estimated percentage
completion of contracts where the final outcome can be reasonably
assessed. The directors believe that this change is necessary, to reflect
certain major countermeasures contracts which have been in production in
the period, in order to give a more accurate representation of the results
of the Group. The effect of adopting this policy on the comparative
figures at 31 October 2000 and 28 April 2000 is not significant.
Accordingly no restatement of the comparative figures has been made.
2. SEGMENTAL ANALYSIS OF TURNOVER
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2001 28 April 2000 31 Oct 2000
#000 #000 #000
Defence
Countermeasures
- continuing operations 17,990 11,311 28,538
- acquired operations 8,077 - -
Military pyrotechnics 5,971 4,535 11,169
32,038 15,846 39,707
Non-defence
Marine safety 8,478 8,522 17,700
Wiring harnesses 4,249 3,968 7,608
Chemical coatings 605 1,204 2,154
13,332 13,694 27,462
Continuing operations 37,293 29,540 67,169
Acquired operations 8,077 - -
45,370 29,540 67,169
3. PURCHASE OF SUBSIDIARY
The Group acquired Kilgore Flares Company LLC on 5 February 2001. The
initial analysis of the fair value of assets acquired is as follows:
Fair value
to Group
#000
Fixed assets 10,196
Stock 4,500
Debtors 2,288
Creditors (4,139)
Net assets 12,845
Consideration: #000
1,200,000 5p ordinary shares allotted 3,538
Cash 14,053
Total consideration 17,591
Goodwill arising 4,746
The fair value adjustments are provisional and may be subject to
revision in the full year accounts to 31 October 2001. Any adjustment
made will be reflected in the goodwill calculation.
4. 2000 RESULTS
The figures for the year to 31 October 2000 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. CORPORATE WEBSITE
Further information on the Group and its activities can be found on the
corporate website at www.chemring.co.uk.
Chemring (LSE:CHG)
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