RNS Number:6517X
Chemring Group PLC
23 January 2001
CHEMRING GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2000
* Group profit before tax increased to #7.1 million from #4.3 million, up
65%
* Basic earnings per ordinary share increased to 22.04p from 14.49p, up
52%
* Turnover on continuing operations increased to #67.2 million from #62.1
million
* Recommended final dividend per ordinary share 4.00p, making a total
dividend of 6.30p for the year, up 15% (1999 : 5.50p)
* Acquisition of Alliant Kilgore Flares Company LLC for US$23 million
Ken Scobie, Chemring Group Chairman, commented:
"The acquisition of Kilgore, announced today, enhances our foremost position
in expendable countermeasures, a rapidly expanding area of worldwide defence
expenditure. This, together with our technical superiority in certain "at
risk" situations, gives us high levels of confidence for substantial growth in
this industry.
In addition, the prospects for our Marine Safety and Military Pyrotechnics
businesses give your Board confidence that substantial growth can be achieved
in the coming year and can be sustained for several years."
Note
All comparisons are for the year ended 31 October 1999.
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
STATEMENT BY THE CHAIRMAN
I am delighted to inform shareholders of a further substantial improvement in
Group profit before tax to #7,127,000 (1999: #4,306,000) and earnings per
share of 22.04p (1999: 14.49p), increases of 65% and 52% respectively.
The year has seen major progress in the prospects of our two main businesses,
Countermeasures and Marine Safety.
The acquisition of Kilgore in the US, announced today, will strengthen
significantly our position as the world leader in supplying aircraft
expendable decoys. Kilgore also manufactures a range of pyrotechnics that
complements our existing Military Pyrotechnics activity.
Results
2000 1999
#000 #000 % increase
Operating profit 8,806 6,215 42
Profit before tax 7,127 4,306 65
Profit after tax 5,261 3,435 53
Earnings per share 22.04p 14.49p. 52
Group interest and finance costs reduced by 14% to #1,709,000.
The Group has continued its major investment in research and development,
particularly in the areas of Countermeasures and Marine Safety.
Business Activities
Chemring Countermeasures, Alloy Surfaces and Kilgore, now make your Group the
undisputed world leader in expendable countermeasure devices for air, naval
and land based systems, an industry with high levels of growth projected for
the immediate future. Chemring Countermeasures UK continued its excellent
performance, where further growth of 29% for the year followed the total 31%
growth achieved in the last year, producing earnings substantially in
excess of expectations.
Alloy Surfaces' range of products continues to grow as demand from the US
Department of Defense for our proprietary products increases, particularly in
pre-emptive operational mode. There are also considerable export
opportunities. However in the second half of the year, Alloy Surfaces
experienced minor quality problems with one product line, the result of which
was a major product rework to correct the defect. The impact of these
problems was not only the cost of the rework, but disruption to
the production programme during the second half, at a time when several new
products were entering production. It is estimated that this disruption has
cost in excess of US$ 1million in lost profit.
The acquisition of Kilgore will have a significant impact on our
international Countermeasures capability, bringing to the Group additional
annual sales in excess of US$30 million and a range of products complementary
to those produced by Alloy Surfaces with considerable potential for exports.
Our Marine Safety business is an international market leader in this
industry. The business consists of essentially two activities, the rapidly
growing electronics business and the more mature marine pyrotechnics
business. During the year, electronics growth was 20%, whilst pyrotechnics
sales reduced , predominantly due to European competition and the impact of a
weak Euro. The substantial research and development programme for our
electronic products has already been highly successful and in January 2001
the business received a prestigious award for 'Marine Product of the Year'
for one of its new electronic products at the London Boat Show's nautical
awards. The business is searching for acquisition opportunities, both to
consolidate its position as the market leader and also to establish a more
substantial base in the US market.
PW Defence, the Group's Military Pyrotechnics business, had a quiet first
half whilst it consolidated the majority of its manufacturing operations on
one site in Derby. However, the second half was very satisfactory, meeting
our expectations for the year. Although this market is not a high growth
area, the expectations for this year, when combined with the export potential
from the complementary military activities of Kilgore, are good. The business
continues to look for co-operation projects with other European manufacturers.
Kembrey Wiring Systems received the accolade from both BAE Systems and
Rolls-Royce as a Centre of Excellence during the year, securing its future as
a preferred sub-contractor for aircraft wiring systems. Unfortunately, this
coincided with short term delays in production scheduling by both customers,
resulting in a significant shortfall in workload, sales and full year
results, turning the profit for the first half into a small loss for the full
year. Predictions are that the coming year should return to more acceptable
levels of profitability, with strong growth thereafter.
Dividends
An interim dividend for the year ended 31 October 2000 of 2.30p per ordinary
share was paid on 16 August 2000. The directors recommend a final dividend of
4.00p per ordinary share to be paid on 10 April 2001, making a total for the
year of 6.30p per ordinary share, up 15% on last year's total dividend of
5.50p.
Employees
I would like to thank all our employees for another year of hard work and
commitment to the Group.
Prospects
The acquisition of Kilgore, announced today, enhances our foremost position
in expendable countermeasures, a rapidly expanding area of worldwide defence
expenditure. This, together with our technical superiority in certain "at
risk" situations, gives us high levels of confidence for substantial growth
in this industry.
In addition, the prospects for our Marine Safety and Military Pyrotechnics
businesses, together with the recovery at Alloy Surfaces and return to
acceptable profitability of Kembrey Wiring, give your Board confidence that
substantial growth can be achieved in the coming year and can be sustained
for several years. We intend to strengthen the Group's organisation to ensure
management resources keep pace with the growth in the business.
Your Group has an exciting future and I am determined that it will be
delivered.
K C Scobie
Chairman
(23 January 2001)
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 and Explosives: PW Defence, Pains Wessex Australia
Non-Defence
Marine Safety: McMurdo Marine, Pains Wessex Safety
Systems, Nova Marine
Wiring Harnesses: Kembrey Wiring Systems
Chemical Coatings: Alloy Surfaces
Defence Businesses
It was a good year for our defence businesses where further growth in both
sales and order book was achieved. Turnover in defence activities improved by
11% to #39.7million. The policy of investing in new products resulted in
several important new defence products entering into the production phase
during the year, increasing our product range and underpinning the expected
continued organic growth in defence activities. The year ended with a healthy
order book of #38 million, up #12 million on 1999.
Countermeasures
The Group is recognised as an international market leader in the development
and manufacture of expendable countermeasures to protect valuable military
platform, with operations in the US, the UK and Australia. It continues to
develop new products and new markets to maintain its leading position.
Turnover increased by 13% to #28.5 million for the year, and the order book
increased by 65% over the year to #25.2 million.
The acquisition of Kilgore, the leading US IR decoy manufacturer, was also
announced today. Kilgore, based in Toone, Tennessee, is the largest supplier
of conventional IR decoys to the US Government and exports 30% of its
turnover. The product range of this business, along with the complementary
products of our other UK and US countermeasure activities, further enhances
our position and strengthens considerably the Group's IR air decoy capability
worldwide. Kilgore has recently been awarded a development IR decoy contract
for the US F22 aircraft.
For aircraft countermeasures in the US, the Group is now the leading supplier
to the US Department of Defense of IR decoy flares, providing both
conventional and special materials decoys (SMDs). The Group is prime
contractor to the UK MoD for its current range of IR flares and RF chaff
decoys, and exports its range of products worldwide.
Alloy Surfaces' range of products continues to grow as the demand for its
proprietary products increases, particularly in pre-emptive operational mode.
Alloy's unique IR material features in several advanced IR expendable
countermeasure programmes in the US. Production deliveries commenced on the
Advanced Strategic and Tactical Expendables (ASTE) programme, where Alloy is
the sole source supplier of two out of the family of four flares.
As a consequence of the number of new products entering production in the
year, Alloy Surfaces experienced problems in ramping up its production
facilities. The production management has now been significantly
strengthened, and investment has been made in equipment and people to ensure
that the production facility meets its future output targets.
Alloy currently provides special material decoys (SMDs) for Naval helicopters
and has also developed a product for US Army helicopters. This will commence
series production in 2001, when the Advanced Threat IR Countermeasures
(ATIRCM), which combine missile warning with directable IR countermeasures in
a single package, enter service.
The use of Alloy's SMDs in pre-emptive mode is attracting increasing
interest. This pre-emptive capability has already been demonstrated by the
BOL dispenser and in tests with a Raytheon ALE 50 towed decoy containing
Alloy's special material. A feasibility study for a pod mounted pre-emptive
SMD is underway and we anticipate a growing demand for these types of
products, which significantly improve aircraft survival when operating in
'front line' scenarios.
The UK business, Chemring Countermeasures ("CCM"), provides decoys to Tornado
aircraft users, which include the UK, Germany, Italy and Saudi Arabia, and is
also the developer of the chaff and flare decoys for the European Fighter
Aircraft 2000 (Typhoon).
New aircraft products which entered production this year included the MEB
(Modular Expendable Block), which 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 selected for the Swiss Cougar programme, and the RF
MEB version has already entered service in numerous NATO and non-NATO
countries on C130, F16 and various helicopters, including the GKN Westland's
WH64 Apache.
In naval countermeasures, development of the MK36 130mm naval IR round and
innovative proprietary combined MK36 compatible 130mm RF/IR rounds is
complete, and the products are in the process of final acceptance trials
ahead of deliveries to the UK MoD and Danish customers. CCM is the only
company worldwide that can offer the full range of passive IR and RF decoys
for the MK36 decoy launcher, which is standard in most NATO navies.
This has been another good year for our Countermeasures business with both
orders and sales reaching record highs, and significant opportunities for
further increases. Investment will continue in both facilities and R&D to
ensure the Group maintains its market position and capitalises on the
increasing need to protect valuable military platform.
Military Pyrotechnics and Explosives
PW Defence is a leading supplier to the UK MoD and an international market
leader for its range of specialist pyrotechnic and explosive products used in
training and other non-offensive activities.
Turnover in the year increased by 5% to #11.2 million. During the year, the
manufacture of military pyrotechnics was concentrated at the production
facilities in Derby. At the year end, the order book had increased by 22% to
#13 million.
In the domestic market the UK MoD continue to be the major customer. PW
Defence again won the majority share of this business and has a number of
long-term contracts with this customer for the supply of a variety of
training pyrotechnics. The announcement by the MoD that they wish companies
to participate in SMART procurement is seen as an opportunity to participate
in discussions with MoD.
Export orders increased on last year, and at the year end the company had an
order book providing nearly 12 months' sales cover. PW Defence has held it's
international market share and we continue to explore collaboration
initiatives particularly in Europe, exploring closer working relationships
with our industry participants, to position us for possible European-led
defence procurement programmes.
North America is a difficult market to penetrate from overseas but initial
orders have been received direct from the US DoD for some of the company's
specialised defence pyrotechnics. The acquisition of Kilgore provides a
better 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.
Pains Wessex Australia's military turnover was at a similar level to last
year's high, in support of the Australian government strategy to encourage
in-country industrial capability.
Non-Defence Businesses
Marine Safety
The Group is a market leader in providing legislated marine safety products
to aid location and rescue, including pyrotechnics, electronic location
beacons, location lights and VHF radios.
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.
Turnover increased by 6% to #17.7 million, with electronic sales increasing
by 20%, offsetting a reduction in sales of pyrotechnics into Europe, which
were affected by the weakness of the Euro. The emphasis on innovative, low
cost products, has helped to improve margins for the business, resulting in
increased overall operating profitability.
New electronics products will drive the growth of our Marine Safety business.
Our continuing development of 406MHz technology has provided an EPIRB with
integral Global Positioning Systems (GPS), which has already won a
prestigious award for innovation and now has two further award nominations.
This is the smallest and most technically advanced GPS EPIRB 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 within three
minutes, typically to within 30 metres.
Additional 406MHz technology products currently in development, which will
provide access to further new market areas include Personal Location Beacons
(PLBs) for land use and Emergency Location Transmitters (ELTs) for aviation
use, as legislation is introduced in these areas. Sales are expected to
increase significantly in these areas following the recent announcement by
Cospas-Sarsat that satellite processing on 121.5 and 243 MHz is to be
terminated. This will move all product sales to 406 MHz beacons.
Forthcoming legislation, both internationally from the IMO and from within
the European Union, will further expand our market opportunities. This
includes new fishing vessel safety requirements within the EU and additional
safety measures, such as voyage data recorders and automatic identification
systems.
Wiring Harnesses
Kembrey Wiring Systems ("Kembrey") is one of the largest UK manufacturers of
high specification cable harnesses for the aerospace industry. It has an
excellent reputation for supplying quality wiring systems to manufacturers of
aircraft and aircraft engines.
Kembrey has established 'Strategic Partnership' status with its major
customers, including Rolls-Royce, BAE Systems and Hurel Dubois. These
relationships help secure the long-term future of the business.
In support of BAE Systems, the Hawk programme was completed on time and we
achieved 'world class' status on the Tornado update programme. However,
delays in commencing activity on the Nimrod programme held overall turnover
to a similar level as last year. Engineering support to the Nimrod programme
has commenced.
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
(23 January 2001)
REVIEW BY THE FINANCE DIRECTOR
Operating results
Group turnover for continuing operations grew by 8% to #67,169,000 (1999:
#62,082,000).
The continued introduction of lower cost products and the consolidation of
the Military Pyrotechnics business into the Derby site contributed an
improvement in gross profits of 11% to #19,005,000 (1999: #17,097,000). Gross
profit margins increased to 28% (1999: 27%)
Total overheads have been well controlled in the year and represent 15% of
sales (1999: 15%). #2,622,000 was expended on research and development
activities during the year.
Operating margins continued to improve and were at 13% for 2000 (1999: 12%).
There were no losses on discontinued businesses in the year (1999: #1,551,000
loss).
Interest
The interest charge for the year was #1,709,000 (1999: #1,979,000). Interest
cover generated by continuing operations was 5.2 times (1999: 3.9 times).
Taxation
The tax charge of #1,866,000 is at an effective rate of 26%, which represents
tax arising on overseas operations and a reduced charge on the UK operations,
due to the utilisation of brought forward tax losses. Next year it is
anticipated that the tax rate will increase to around 31%.
Shareholder returns
Basic earnings per ordinary share increased to 22.04p (1999: 14.49p).
The dividend per ordinary share of 6.30p (1999: 5.50p) is covered 3.48 times
(1999: 2.63 times).
Post tax return on capital employed was 15.8% (1999: 11.9%)
Goodwill
Goodwill of #18.3 million arose in previous years on acquisitions made in the
Countermeasures, Marine Safety and Military Pyrotechnics businesses. The
Board has carried out an annual impairment test that has demonstrated that no
amortisation is necessary on the constituent parts of the goodwill balance.
Cash flow and gearing
Operating cash flow was #7,937,000 (1999: #5,340,000), representing a
conversion rate to operating profit of 90% (1999: 86%).
The sharp increase in stock levels is attributable to the production costs
associated with the manufacture of naval rounds in our Countermeasures
business. After offsetting contract advance payments, net stock in relation
to the naval rounds, is approximately #1.9 milion. These naval rounds are
anticipated to be sold in the first half of the current financial year. Stock
levels at Alloy Surfaces increased in support of future business.
Capital expenditure on tangible assets and development costs of #3,139,000
(1999: #2,842,000) in support of continued growth was financed through cash
flow and leasing.
Net debt stood at #20,118,000 at the year end (1999: #20,681,000). Gearing
was 60% (1999: 72%).
Post balance sheet events and funding
The acquisition of Alliant Kilgore Flares Company LLC ("Kilgore") for US$23
million is to be financed as follows:
US$m
Issue of 1,200,000 new ordinary Shares 5.2
Balancing cash payment 17.8
Consideration 23.0
The consideration will be subject to adjustment depending on the audited net
assets of Kilgore at completion.
In order to finance the acquisition and provide working capital for the
Group, total new facilities of #38.5 million have been agreed with The Royal
Bank of
Scotland plc, supported by the Bank of Scotland.
Facilities of US$8.2 million are in place with Wilmington Trust and the
Pennsylvania Industrial Development Authority, to provide funding for Alloy
Surfaces.
Facilities of A$1.4 million exist to 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.
New accounting developments
The following accounting standards have been adopted in the year and the
financial information amended as appropriate:
* FRS 15 Tangible Fixed Assets
* FRS 16 Current Tax
P A Rayner
Finance Director
(23 January 2001)
SUMMARY FINANCIAL INFORMATION
For the year ended 31 October 2000
Audited Unaudited Audited
Year 6 month Year
ended period ended
31 Oct ended 31 Oct
2000 28 April 1999
2000
#000 #000 #000
Turnover : Continuing operations
Defence
Countermeasures 28,538 11,311 25,180
Military pyrotechnics and explosives 11,169 4,535 10,616
39,707 15,846 35,796
Non-defence
Marine safety 17,700 8,522 16,765
Wiring harnesses 7,608 3,968 7,197
Chemical coatings 2,154 1,204 2,324
27,462 13,694 26,286
67,169 29,540 62,082
Turnover: Discontinued operations - - 3,316
67,169 29,540 65,398
Operating profit/(loss)
Continuing operations 8,806 4,011 7,766
Discontinued operations - - (1,551)
Profit before taxation 7,127 3,223 4,306
Dividend per ordinary share 6.30p 2.30p 5.50p
Basic earnings per ordinary share 22.04p 10.02p 14.49p
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 October 2000
Year Year
ended ended
31 Oct 2000 31 Oct 1999
Total Continuing Discontinued Total
operations operations operations Operations
#000 #000 #000 #000
Turnover 67,169 62,082 3,316 65,398
Cost of sales (48,164) (44,985) (2,064) (47,049)
Gross profit 19,005 17,097 1,252 18,349
Distribution costs (2,693) (2,648) (149) (2,797)
Administrative expenses (7,506) (6,683) (2,654) (9,337)
Operating profit/(loss) 8,806 7,766 (1,551) 6,215
Associated undertaking 30 70
Profit on ordinary
activities before interest 8,836 6,285
Interest payable (1,709) (1,979)
Profit on ordinary
activities before
taxation 7,127 4,306
Tax on profit on
ordinary activities (1,866) (871)
Profit on ordinary
activities after
taxation 5,261 3,435
Dividends (1,511) (1,308)
Retained profit 3,750 2,127
Basic earnings
per ordinary share 22.04p 14.49p
Diluted earnings per
ordinary share 21.19p 13.98p
ADDITIONAL FINANCIAL PERFORMANCE STATEMENTS
For the year ended 31 October 2000
Year ended Year ended
31 Oct 2000 31 Oct 1999
#000 #000
Statement of total recognised gains and losses
Profit on ordinary activities after taxation 5,261 3,435
Currency translation differences on foreign
currency net investments 388 (118)
Total recognised gains and losses 5,649 3,317
Reconciliation of movements in shareholders' funds
Profit on ordinary activities after taxation 5,261 3,435
Dividends (1,511) (1,308)
Retained profit 3,750 2,127
Other recognised profits/ (losses) 388 (118)
Ordinary shares issued 11 1
Share premium arising 306 24
Net addition to shareholders' funds 4,455 2,034
Shareholders' funds at 1 November 1999 28,849 26,815
Shareholders' funds at 31 October 2000 33,304 28,849
CONSOLIDATED BALANCE SHEET
As at 31 October 2000
As at As at
31 31
Oct 2000 Oct 1999
#000 #000 #000 #000
Fixed assets
Intangible assets
Development costs 1,002 549
Goodwill 18,246 18,246
19,248 18,795
Tangible assets 19,199 17,219
Investments 883 880
39,330 36,894
Current assets
Stock 14,235 9,597
Debtors 20,794 17,928
Cash at bank and in hand 2,062 2,408
37,091 29,933
Creditors due within one year (25,760) (20,449)
Net current assets 11,331 9,484
Total assets less current liabilities 50,661 46,378
Creditors due after more than one year (17,089) (17,089)
Provisions for libilities and charges (268) (440)
33,304 28,849
Capital and reserves
Called-up share capital 1,258 1,247
Reserves
Share premium account 11,119 10,813
Special capital reserve 12,939 12,939
Revaluation reserve 2,554 2,590
Revenue reserves 5,434 1,260
32,046 27,602
Shareholders' funds 33,304 28,849
Attributable to equity
shareholders 33,242 28,787
Attributable to non-equity
shareholders 62 62
33,304 28,849
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 October 2000
Year Year
ended ended
31 Oct 2000 31 Oct 1999
#000 #000 #000 #000
Net cash inflow from 5,340
operating activities 7,937
Returns on investments and
servicing of finance (1,694) (2,006)
Taxation (881) (495)
Capital expenditure (3,130) (2,842)
Acquisitions and disposals - 2,813
Equity dividends paid (1,380) (1,186)
Cash inflow before use of
liquid resources and
financing 852 1,624
Financing - issue of shares 317 25
- (decrease)/increase in
debt (884) 318
(567) 343
Increase in cash
285 1,967
Reconciliation of net cash
flow to movement in net
debt
Increase in cash 285 1,967
Cash outflow/(inflow) from
the (decrease)/increase in
debt and lease financing 884 (318)
Change in net debt
resulting from cash flows 1,169 1,649
New finance leases (259) -
Translation difference (347) 49
Disposals - 193
563 1,891
Notes
1. The financial information set out above does not constitute the
company's statutory accounts for the year ended 31 October 2000 or 31 October
1999 but is derived from those accounts. Statutory accounts for 1999 have
been delivered to the Registrar of Companies, and those for 2000 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 1999 accounts.
2. The financial statements for the year ended 31 October 2000 will be
posted to shareholders on 5 February 2001 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 4.00p per
ordinary share will be paid on 9 April 2001 to all shareholders registered at
the close of business on 16 March 2001. The ex-dividend date will be 14 March
2001.
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