TIDMCHG
RNS Number : 6200Z
Chemring Group PLC
18 January 2011
FOR IMMEDIATE RELEASE 18 January 2011
CHEMRING GROUP PLC
PRELIMINARY RESULTS
FOR THE YEAR ENDED 31 OCTOBER 2010
-- Revenue up 18% to GBP597.1 million (2009: GBP503.9 million)
-- Underlying operating profit* up 18% to GBP135.6 million
(2009: GBP114.7 million)
-- Year end order book up 44% at GBP803.3 million (2009:
GBP559.0 million)
-- Order book today at new record high of GBP902 million, up
54% on January 2010
-- Underlying profit before tax* up 14% to GBP116.8 million
(2009: GBP102.6 million)
-- Underlying earnings per share* up 15% at 246p (2009: 213p)
-- Profit before tax GBP89.1 million (2009: GBP95.8 million)
-- Basic earnings per share 189p (2009: 199p)
-- Dividend per ordinary share up 18% at 59p (2009: 50p)
-- Underlying operating cashflow** up 18% to GBP126.1 million
(2009: GBP106.7 million)
-- Net debt of GBP307.5 million (2009: GBP122.8 million)
-- New four year unsecured bank facilities of GBP230 million
completed on 14 January 2011, which together with the US
private placement provides total borrowing facilities of
GBP491 million
Divisional Highlights
Countermeasures
-- Steady growth in revenue, up 7% to GBP196.3 million
-- Revenue at Kilgore increased 17% to new record of GBP47
million
-- 70% growth in naval countermeasures to GBP17 million
Counter-IED
-- Outstanding performance from NIITEK, with revenue up 124%
to GBP102 million
-- Strong growth driven by HMDS sales to US and Canadian
Armies
-- Order book stands at GBP99 million, more than double last
year
-- Acquisition of Roke provides us with a wide range of
technologies for the Counter-IED market
Pyrotechnics
-- Revenue remains steady at GBP170.0 million, after GBP19.1
million contribution from Hi-Shear
-- Successful development of new compact smoke grenade and
production of 150,000 units per month attained
-- New "blacklight" payload developed for 105mm ammunition in
less than six months and initial deliveries made to UK
customer
Munitions
-- Revenue grew 35% to GBP115.9 million
-- Mecar acquisition completed in September
-- $35 million of large calibre ammunition delivered to NATO
and Middle East customers
-- 33% increase in demand for safety and arming units for
ballistic missile defence
Peter Hickson, Chemring Group Chairman, commented:
"These results show another year of strong performance with
revenue up 18% to GBP597 million. Two thirds of our growth was
organic, which is very encouraging. The Group's underlying earnings
per share grew to 246p a substantial increase. Our current order
book of GBP902 million, our solid balance sheet and our proven
strategy for growth provide clear visibility of the prospects for
2011 and should provide the foundation for further growth in the
future."
* Before acquisition related costs, intangible amortisation
arising from business combinations and (loss)/gain on fair value
movements on derivatives totalling GBP27.7 million (2009: GBP6.8
million)
** Before acquisition related costs
For further information:
Chief Executive, Chemring Group
Dr David Price PLC 0207 930 0777
Finance Director, Chemring
Paul Rayner Group PLC 0207 930 0777
Rupert Pittman Cardew Group 0207 930 0777
RESULTS
Total revenue was up GBP93.2 million to GBP597.1 million, an
increase of 18%. GBP26.5 million of the increased revenue was
generated by acquired companies. Revenue excluding acquisitions was
13% up on 2009. Total underlying operating profit* was GBP135.6
million (2009: GBP114.7 million), an increase of 18%. The net
underlying margin * was 23% (2009: 23%).
An analysis of revenue and underlying operating profit* is set
out below:
2010 2009
Underlying Underlying Underlying Underlying
operating operating operating operating
Revenue profit* margin Revenue profit* margin
GBPm GBPm GBPm GBPm
Division
Countermeasures 196.3 58.8 30% 183.5 53.5 29%
Counter-IED 114.9 28.1 25% 61.2 15.6 25%
Pyrotechnics 170.0 40.1 24% 173.2 43.8 25%
Munitions 115.9 20.9 18% 86.0 13.4 16%
Share-based
payments - (2.3) - (2.1)
Restructuring
costs - (1.5) - (2.9)
Incident costs - (2.8) - -
Provision
release - 2.4 - -
Unallocated head
office costs - (8.1) - (6.6)
Total 597.1 135.6 23% 503.9 114.7 23%
Restructuring Costs
In the second half of the year a decision was taken to
restructure the Group's UK counter-IED business at a cost of GBP1.5
million. As a result one of the two sites out of which it operated
was closed. The benefits of this closure will be seen in the
current financial year.
The GBP2.9 million of restructuring costs in 2009 related to our
UK countermeasures business and Chemring Ordnance in the USA.
Incident Costs
In September two separate incidents stopped production at our
Kilgore Flares facility in Tennessee and our newly acquired
subsidiary, Mecar, in Belgium. As a result of these incidents
approximately GBP7 million of revenue and GBP3 million of
underlying operating profit* was deferred into the current
financial year. In addition, GBP2.8 million of non-recurring costs
arising out of the incidents were incurred in respect of the
write-off of damaged stock and destroyed assets.
Provision Release
During the second half of the year, a third party assessment was
carried out of the provision held in respect of the environmental
liabilities associated with the Chemring Energetic Devices site in
Illinois, USA. After taking into account this assessment and the
additional insurance coverage that was secured in respect of this
exposure during the year, the Group has released part of the
provision.
Analysis of Underlying Profit*
2010 2010 2009 2009
GBPm GBPm GBPm GBPm
Underlying operating profit 135.6 114.7
Share of post tax results of associate 0.1 0.1
Finance income 0.5 0.7
Finance expense (19.4) (12.9)
Net finance expense (18.9) (12.2)
Underlying profit before tax 116.8 102.6
Tax on underlying profit before tax (29.9) (27.6)
Underlying profit after tax 86.9 75.0
Finance income in the year was GBP0.5 million (2009: GBP0.7
million). Finance expense for the year was GBP19.4 million (2009:
GBP12.9 million). Included within finance expense is GBP1.2 million
(2009: GBP1.3 million) for retirement benefit obligations. Net
finance expense was covered 7.2 times (2009: 9.4 times) by
underlying operating profit*, with the decrease of cover reflecting
the fact that all acquisitions in the year were financed by
debt.
Underlying profit before tax* was GBP116.8 million (2009:
GBP102.6 million), an increase of 14%.
Tax on the underlying profit before tax* was GBP29.9 million
(2009: GBP27.6 million), representing an underlying rate of 26%
(2009: 27%).
Underlying profit after tax* was GBP86.9 million (2009: GBP75.0
million) an increase of 16%.
Countermeasures
-- Orders: GBP219.2 million
-- Revenue: GBP196.3 million
-- Operating profit: GBP58.8
million
-- Operating margin: 30%
In 2010, our revenue was GBP196.3 million, 7% higher than the
previous year and equating to a market share of just over 50%.
Sales of decoys used on fast-jets increased slightly to GBP91
million, with increased demand at Kilgore offset by reduced demand
elsewhere. Sales of decoys for helicopters and transport aircraft,
whose usage is more closely linked to peacekeeping activities, rose
6% to GBP87 million, driven by increased demand from the US Air
Force. Revenue from naval countermeasures grew by 70% to GBP17
million, driven by an increase in Royal Navy requirements.
The year end order book for the Countermeasures division was
GBP265.4 million, up 14% on the previous year, and should be
considered a positive indicator of further steady growth in 2011.
This growth is dominated by the order book for decoys used on
fast-jet aircraft, which rose 44% compared to 2009. The order book
for Kilgore, in particular, increased by 95% to a record level of
$186 million, bolstered by $105 million of multi-year orders for
the flare sets used to protect the B-52 and F-22 aircraft. A
further $50 million of order book is for the M212 spectral
flare.
Kilgore Flares, one of our US subsidiaries, had an encouraging
year, with revenue up 17% to a new record on steady production
volumes of around 1.1 million flares. This was principally driven
by 24% growth in demand for fast-jet flares and, in particular, by
a 120% increase in the volume of advanced flares delivered on the
F-22 and Joint Strike Fighter (JSF) programmes. Development of the
JSF flare set was completed during the year and low rate initial
production has now started. Production volumes are expected to
gently increase over the next few years before the transition to
volume production from 2014 onwards.
On 14 September 2010, there was a serious incident at Kilgore
within a specialist assembly facility that undertakes the final
assembly on the MJU-7 flare that protects the F-16 and a number of
other aircraft. Three of our employees sustained serious injury and
our investigations have identified a number of safety improvements
that we have implemented across the site. The incident is still
under investigation by the US regulatory authorities. There was
substantial damage to the facility and it will be several months
before it can be returned to operation. The restart of all other
production lines was reviewed and a number of important safety
improvements implemented. This took several months to complete and
resulted in about GBP7 million of revenue being delayed from 2010
to 2011, which would have added another 15% to Kilgore's full year
revenue.
The UK market was a major component of the growth in the naval
countermeasures business in 2010, with significant deliveries of
both infra-red and chaff decoy rounds. Orders to the value of GBP24
million were awarded, including the full development of an advanced
technology decoy, which is expected to start production in 2011.
However, to make full use of the latest variable range technology,
we have developed a new launcher system that will significantly
enhance the performance of the decoys against a wide range of
threats. The new launcher is called Centurion, and a prototype
version has recently been demonstrated to the UK Ministry of
Defence in live firing trials involving a range of different types
of decoy. The performance demonstration was a success and there is
considerable interest in qualifying the launcher for use on the
Type 45 Destroyer. Significant interest has also been shown in the
system by overseas customers and we estimate that there could be a
global market of 500 systems over the next ten years.
Counter-IED
-- Orders: GBP178.5 million
-- Revenue: GBP114.9 million
-- Operating profit: GBP28.1 million
-- Operating margin: 25%
Our revenue in 2010 was GBP114.9 million, 88% higher than the
previous year and equating to a market share of 4%. Sales of our
detection products were GBP102 million, 124% higher than last year,
principally driven by the demand from the US Army for the Husky
Mounted Mine Detection System (HMDS) ground penetrating radar.
Revenue from our Defeat products was GBP12 million, lower than last
year and reflecting the delayed order intake from European
customers.
The closing order book for Counter-IED was GBP99.3 million, up
169% on 2009, and a clear indicator of continued revenue growth in
2011. The availability of qualified demolition stores product with
Insensitive Munitions (IM) characteristics in 2011 is also expected
to enhance this year's prospects.
The detection of IEDs continued to dominate the activities of
our Counter-IED division during the year, and resulted in the
delivery of 107 HMDS ground penetrating radars to the US and
Canadian Armies for high reliability route clearance in support of
peacekeeping operations. Feedback from customers on the performance
of the system has been very positive and has confirmed that it
makes an important contribution to the safety of coalition forces.
To meet the increased demand, an additional production facility was
brought into operation, raising the monthly production rate to over
twenty HMDS units. Revenues did, therefore, grow by 124% compared
with the previous year.
In August 2010, the US Army placed a new production contract,
worth $217 million, on our US subsidiary, NIITEK, for the supply of
76 HMDS, together with the necessary spares, in-country maintenance
and training. A contract for a further 64 systems has recently been
placed, covering both the US Army and US Marine Corps requirements
for 2011. This contract will take the number of delivered systems
above 240. The US Army intends to place a multi-year, sustainment
contract for the support of these systems, which is expected to be
worth in excess of $60 million per annum, and will provide the
necessary funding to maintain the sixty support staff that are
currently located at forward operating bases. A multi-sensor, next
generation product is expected to be competitively procured in the
second half of 2012.
Demolition stores, which are used to destroy suspect packages or
unwanted ordnance and for forced entry into buildings, are another
important product range for the Group. Chemring Energetics is
currently developing a suite of products, such as the SABREX
flexible linear cutting charge, the Bangalore Torpedo and plastic
sheet explosive, which all have IM explosive characteristics.
The remote initiation of disrupters and explosives is also a key
capability for the Group, and we continue to see a steady market
for our BREACH secure-coded RF initiation system. A derivative,
called the Forced Rapid Entry Device (FRED), that better meets the
needs of Special Forces has been developed, and there is
considerable interest in its application to Remote Operating
Vehicle counter-IED operation.
Our recent acquisition of UK-based Roke provides us with a wide
range of technologies that will enhance our opportunities in the
counter-IED market. Their wide-band technology is a key component
in UK jamming systems that are used to counter remote initiation.
They also provide detection sensors across the full range of the
electro-magnetic spectrum for close-range and stand-off
applications. They have substantial data fusion and network enabled
capabilities to support distributed operation.
Roke also produces a range of technologies for cyber warfare,
including the Vanguard system that provides a scalable modular
lawful intercept product that is deployed on five continents. A new
generation system is currently under development and will be
launched into the market in 2011.
Pyrotechnics
-- Orders: GBP181.4 million
-- Revenue: GBP170.0 million
-- Operating profit: GBP40.1 million
-- Operating margin: 24%
Our revenue in 2010 was GBP170.0 million, which is slightly
lower than the previous year and represents a market share of
nearly 11%. Sales of smoke and illumination products were GBP112
million, 7% lower than the previous year, principally due to the
timing of order intake from our UK and European customers. Sales of
training and simulation products were GBP16 million, substantially
down on the previous year, reflecting reduced US production levels
due to the timing of product improvement and manufacturing
transfer. These were compensated for by growth in safety systems
and space products sales of GBP34 million and GBP8 million
respectively.
The closing order book was GBP171.9 million, similar to the
previous year, providing a clear indication of the stable outlook
for 2011. The resumption of volume production in the USA of
training grenades and Battlefield Effects Simulations (BES)
cartridges should lead to a recovery in that part of the market,
and the growing order book for safety systems and space should
ensure growth in the future.
Deliveries of "black light" and conventional illumination mortar
rounds remained fairly stable throughout the year, with reductions
in UK deliveries offset by the requirements from other NATO
countries.
A new compact smoke grenade completed development during the
year and was qualified by the UK Ministry of Defence. A multi-year
contract, worth over GBP40 million, which included the supply of
this new grenade, was awarded in March 2010. Production was
increased rapidly in the second half of the year and reached its
maximum capacity of 150,000 units per month.
Munitions
-- Orders: GBP245.2 million
-- Revenue: GBP115.9 million
-- Operating profit: GBP20.9 million
-- Operating margin: 18%
In 2010, our revenue from components was GBP54 million,
representing 47% of our total Munitions revenue, an increase of 8%
compared with the previous year and equating to a market share of
3%. The global market for ammunition, excluding small calibre, is
estimated to be GBP4 billion. Our total revenue in 2010 was GBP62
million, a 72% increase on last year and equating to a market share
of 2%. This growth was driven by the award of a number of
multi-year contracts from Middle East customers, which increased
sales volumes by 270%.
The year end order book for the Munitions division was GBP266.7
million, an increase of 126% on the previous year and a clear
indication of further growth in 2011. The improvement in the order
book was well-distributed, with the Middle East growing by 207%,
the Far East by 127%, Europe by 140% and the USA by 53%.
Our Italian subsidiary, Simmel Difesa, had an excellent year,
with a substantial increase in the number of large calibre tank
ammunition rounds sold to a variety of customers.
Interest in ballistic missile defence systems continues to grow
internationally, with many countries expressing concern about the
threat from nuclear, biological or chemical payloads. Hi-Shear's
revenue from electronic safety and arming systems for the Mk3
Patriot missile grew by 33% compared to 2009, and further growth
over the next few years is now expected.
The new lead azide manufacturing facility was completed in South
Dakota and a broad set of samples manufactured for qualification
testing by the US Army. This should complete in 2011 and we expect
to rapidly expand our production to cater for the growing demand
for both military and commercial applications.
Principal Risks and Uncertainties
The principal risks and uncertainties which could have a
material impact on the Group's performance and could cause actual
results to differ materially from expected and historical results
have not changed significantly from those set out in the Group's
2009 Financial Statements and the 2010 Interim Report. These can be
summarised as:
-- Health and safety risks
-- Political, economic and financial risks
-- Risks associated with the timing of receipt of orders
-- Risks related to the strength and breadth of management
resource
-- Risks associated with the introduction of new manufacturing
facilities
-- Risks associated with the introduction of new products
-- Competitive risks
-- Compliance and corruption risks
Acquisitions
The following acquisitions were completed during the year:
Proportion
============== ================== ============= =========== ==============
of shares Acquisition
============== ================== ============= =========== ==============
Name of
business Date of
acquired Activity acquisition acquired consideration
============== ================== ============= =========== ==============
% GBPm
============== ================== ============= =========== ==============
Hi-Shear
Technology 25 November
Corporation Pyrotechnics 2009 100 78.7
============== ================== ============= =========== ==============
1 September
Mecar S.A. Munitions 2010 100 29.6
============== ================== ============= =========== ==============
Roke Manor
Research Countermeasures/ 30 September
Ltd Counter-IED 2010 100 56.7
============== ================== ============= =========== ==============
Other
acquisitions Munitions Various 19.2
============== ================== ============= =========== ==============
Cash paid for acquisitions in the year 184.2
============================================================== ==============
Net cash acquired with acquisitions (7.4)
============================================================== ==============
Cash outflow from investing activities 176.8
============================================================== ==============
Acquisition related costs included within cash generated
from operations 6.7
============================================================== ==============
Net cash outflow 183.5
============================================================== ==============
The combined net assets acquired are shown below:
Provisional
fair value
Book value adjustments Fair value
GBPm GBPm GBPm
Intangible assets 13.5 98.1 111.6
Property, plant and equipment 22.6 (0.6) 22.0
Cash 7.4 - 7.4
Regional development loan (5.0) - (5.0)
Finance leases (0.2) (0.2) (0.4)
Working capital (net of advance
payments) 1.1 (11.6) (10.5)
Deferred tax 0.2 (26.0) (25.8)
Net assets acquired 39.6 59.7 99.3
Goodwill - 84.9 84.9
Total 39.6 144.6 184.2
Total cash paid for acquisitions
during the year 184.2
Research and Development
Research and development expenditure totalled GBP34.2 million
(2009: GBP18.9 million), 81% higher than last year. An analysis of
expenditure is set out below:
2010 2009
GBPm GBPm
Customer funded research and development 20.6 9.7
Internally funded research and development 5.8 4.4
Capitalised development costs 7.8 4.8
Total research and development expenditure 34.2 18.9
The Group's policy is to write-off capitalised development costs
over a three year period. Amortisation of development costs was
GBP2.4 million (2009: GBP1.5 million).
Pensions
The deficit on the Group's defined benefit pension schemes
before associated tax credits, as defined by IAS19 Accounting for
pension costs was GBP23.0 million (2009: GBP28.1 million). The
deficit reduced by 18% during the year due largely to the increase
in the fair value of scheme assets as a result of the improvement
in equity markets during the year.
During the year, the 2009 triennial actuarial valuation for the
UK Chemring Group Staff Pension Scheme was concluded.
In accordance with the agreed funding plan, during the year the
Group placed an additional GBP10.0 million in an escrow account
(giving a total of GBP15.0 million) to provide additional funding
for the Staff Pension Scheme in the event of a default. The bank
guarantee for the Staff Pension Scheme, which may be drawn upon
only in certain events of default by the Company, was maintained at
GBP7.2 million during the year. Although the Staff Pension Scheme
currently remains open for future accrual for existing members,
most of our UK employees are now offered membership of a defined
contribution pension scheme. The majority of our overseas pension
arrangements are also defined contribution, save in those European
countries where certain defined benefit pension arrangements are
required.
Foreign Exchange
The results of overseas subsidiary undertakings are translated
into sterling at weighted average exchange rates. Currency
denominated net assets are translated at year end rates.
Effective translation rates were as follows:
2010 2009
Average rates
US dollar 1.53 1.55
Euro 1.16 1.13
Year end rates
US dollar 1.60 1.65
Euro 1.15 1.12
The movements in the currencies against sterling were broadly
neutral in the year.
Cash Flow
Underlying operating cash flow was GBP126.1 million (2009:
GBP106.7 million), which represents a conversion rate of underlying
operating profit* to operating cash of 93% (2009: 93%). Working
capital was well controlled in the year and was kept below
increases in Group revenues.
Fixed asset expenditure across the Group was GBP48.7 million
(2009: GBP38.2 million), which includes GBP18.8 million related to
the construction of new facilities at our sites in Salisbury and
Australia. These facilities will be completed during 2011, at a
further cost of approximately GBP16 million.
Cash flow before financing activities and acquisitions was
GBP40.7 million (2009: GBP49.8 million), which represents a
conversion rate of underlying operating profit* to cash flow of 30%
(2009: 43%).
A summary of Group cash flow is set out below:
2010 2009
GBPm GBPm
Underlying operating cash flow 126.1 106.7
Acquisition related costs (6.7) -
Fixed asset expenditure (48.7) (38.2)
Tax (30.0) (18.7)
Cash flow before financing activities
and acquisitions 40.7 49.8
Interest (14.0) (10.5)
Dividends (18.7) (13.8)
Net cash inflow before acquisitions 8.0 25.5
Net Debt, Facilities and Going Concern
Net debt at the year end was GBP307.5 million (2009: GBP122.8
million), an increase of 150%, which was predominantly due to the
debt-funding of acquisitions during the year. The Group had
GBP104.6 million (2009: GBP106.9 million) of undrawn borrowing
facilities at the year end.
Gearing at the year end was 95% (2009: 45%). A summary of debt
is set out below:
2010
GBPm
Cash 58.4
Loans (104.7)
Loan notes (261.2)
(307.5)
In November 2009 the Group completed a $280 million private
placement of loan notes. The proceeds were used to fund the
acquisitions of Hi-Shear and Mecar.
The Group's two main bank covenants require that interest cover
to EBITDA be maintained at not less than four times, and debt to
EBITDA be maintained at not more than three times. At the year end,
there was in excess of GBP80 million of headroom on both of these
covenants.
The directors have acknowledged the latest guidance on going
concern. Whilst the current volatility in financial markets has
created general uncertainty, the Group has significant working
capital headroom, strong covenant compliance and a record order
book. Accordingly, the directors have a reasonable expectation that
adequate financial resources will continue to be available for the
foreseeable future. The going concern assumption is further
supported by the recent bank refinancing, as noted in the post
balance sheet events section below.
Post Balance Sheet EventS
Bank refinancing
On 14 January 2011, the Group completed a refinancing of its
bank facilities with a syndicate of five banks. The new Group
facilities, which are unsecured, total GBP230 million, which is a
GBP55 million increase on the previous secured facilities. In
addition, the term of the facilities has been extended from April
2012 to April 2015.
The increase in the level of the facility and the tenure,
together with the introduction of several new banks to the Group,
will provide greater capacity and capability to support the Group's
future requirements.
Share split
At the forthcoming Annual General Meeting, shareholder approval
will be sought to sub-divide the Company's 5p ordinary shares into
ordinary shares of 1p each. Further details are set out in the
Notice of the Annual General Meeting.
Dividends
The Board is recommending a final dividend of 42p per ordinary
share, a 17% increase on the final dividend for 2009. This,
together with the interim dividend of 17p paid in August 2010,
gives a total dividend for the year of 59p, an 18% increase over
2009. The dividend is over 4.2 times covered on underlying profits
after tax. The shares will be marked "ex dividend" on 23 March 2011
and the dividend is payable on 15 April 2011 to shareholders on the
register at the close of business on 25 March 2011.
Prospects
Over the last twelve months, the European defence market has
weakened considerably with many nations reducing or deferring
defence expenditure as they struggle to cope with rising deficit
problems. Recent announcements from the US Government on their 2012
budget intentions have provided greater assurance in the future
prospects for that market. We remain confident that the USA
represents an area of future growth in all of our market segments.
However, it is our non-NATO customers that represent the largest
opportunity for growth over the next five years. In 2010, our
revenues from Middle East and Far East customers grew by over 60%
and we believe that future growth in these regions should be
substantial.
Our closing order book increased substantially to GBP803 million
and, since the year end, it has increased further to GBP902
million. This strong order book, our solid balance sheet and our
proven strategy provide clear visibility of the prospects for 2011
and should provide the foundation for further growth in the
future.
Responsibility Statement of the Directors on the Annual Report
and Accounts
The responsibility statement below has been prepared in
connection with the Company's full Annual Report and Accounts for
the year ended 31 October 2010. Certain parts thereof are not
included within this announcement.
We confirm to the best of our knowledge:
1. The financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
2. The Statement by the Chairman, the Review by the Chief Executive
and the Review by the Finance Director, together with the
sections of the Annual Report on each of the business segments,
key performance indicators and principal risks, and the Corporate
Responsibility Review, which are incorporated into the Directors'
Report, include a fair review of the development and performance
of the business and the position of the Company and the undertakings
included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties they
face.
This responsibility statement was approved by the Board of
Directors on 18 January 2011 and has been signed on its behalf by
Dr D J Price and Mr P A Rayner.
* Before acquisition related costs, intangible amortisation
arising from business combinations and (loss)/gain on fair value
movements on derivatives totalling GBP27.7 million (2009: GBP6.8
million) - see Note 3
SUMMARY FINANCIAL INFORMATION
Note 2010 2009 2008
GBPm GBPm GBPm
Revenue
Countermeasures 196.3 183.5 157.5
Counter-IED 114.9 61.2 15.2
Pyrotechnics 170.0 173.2 95.7
Munitions 115.9 86.0 85.8
Total revenue 2 597.1 503.9 354.2
Underlying operating profit*
- continuing operations 124.6 114.7 84.9
- acquired 11.0 - -
Total underlying operating profit* 135.6 114.7 84.9
Underlying profit before tax* 116.8 102.6 74.2
Underlying basic earnings per ordinary
share* 246p 213p 160p
Operating profit 107.9 107.9 68.4
Profit before tax 89.1 95.8 57.7
Basic earnings per ordinary share 189p 199p 123p
Diluted earnings per ordinary share 187p 197p 123p
Dividend per ordinary share 59p 50p 35p
Net debt (GBPm) 307.5 122.8 116.7
Shareholders' funds (GBPm) 323.2 273.6 230.6
* Before acquisition related costs, intangible amortisation
arising from business combinations and (loss)/gain on fair value
movements on derivatives totalling GBP27.7 million (2009: GBP6.8
million) - see Note 3
CONSOLIDATED INCOME STATEMENT
for the year ended 31 October 2010
Note 2010 2009
GBPm GBPm
Continuing operations
Revenue - continuing 570.6 503.9
- acquired 26.5 -
Total revenue 597.1 503.9
Operating profit - continuing 105.9 107.9
- acquired 2.0 -
Total operating profit 3 107.9 107.9
Operating profit is analysed as:
Underlying operating profit* 135.6 114.7
Acquisition related costs (6.7) -
Intangible amortisation arising from business
combinations (17.0) (13.8)
(Loss)/gain on fair value movements on
derivatives (4.0) 7.0
107.9 107.9
-------------------------------------------------- ----- ------- -------
Share of post-tax results of associate 0.1 0.1
Finance income 0.5 0.7
Finance expense (19.4) (12.9)
Profit before tax for the year 3 89.1 95.8
Profit before tax is analysed as:
Underlying profit before tax* 116.8 102.6
Acquisition related costs (6.7) -
Intangible amortisation arising from business
combinations (17.0) (13.8)
(Loss)/gain on fair value movements on
derivatives (4.0) 7.0
89.1 95.8
-------
Tax (22.4) (25.7)
Profit after tax for the year attributable
to equity holders of
the parent 66.7 70.1
Earnings per ordinary share 4
Underlying* 246p 213p
Basic 189p 199p
Diluted 187p 197p
* Before acquisition related costs, intangible amortisation
arising from business combinations and (loss)/gain on fair value
movements on derivatives
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 October 2010
2010 2009
GBPm GBPm
Profit after tax for the year attributable
to equity holders of
the parent 66.7 70.1
Other recognised income
Gains/(losses) on cash flow hedges 1.0 (1.0)
Movement on deferred tax relating to cash
flow hedges (0.3) 0.2
Exchange differences on translation of
foreign operations 0.4 (3.1)
Actuarial gains/(losses) on defined benefit
pension schemes 4.0 (14.1)
Movement on deferred tax relating to pension
schemes (1.4) 4.0
Current tax on items taken directly to
equity 0.2 (1.2)
Deferred tax on items taken directly to
equity (0.5) 0.3
Total comprehensive income for the year
attributable to
equity holders of the parent 70.1 55.2
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 October 2010
2010 2009
GBPm GBPm
Total comprehensive income for the year
(see above) 70.1 55.2
Dividend (18.7) (13.8)
51.4 41.4
Ordinary shares issued - -
Share premium arising 0.1 0.5
Credit to equity-settled share-based payments 0.1 0.9
Deferred tax on share-based payment transactions - (0.3)
Transactions in own shares (2.0) 0.5
Net addition to shareholders' funds 49.6 43.0
Opening shareholders' funds 273.6 230.6
Closing shareholders' funds 323.2 273.6
CONSOLIDATED BALANCE SHEET
as at 31 October 2010
2010 2009
GBPm GBPm GBPm GBPm
Non-current assets
Goodwill 236.4 149.5
Other intangible assets 195.4 90.4
Property, plant and equipment 188.7 135.0
Interest in associate 1.1 1.1
Deferred tax 16.6 17.7
638.2 393.7
Current assets
Inventories 142.3 96.9
Trade and other receivables 166.3 98.8
Cash and cash equivalents 58.4 61.3
Derivative financial instruments 1.9 0.4
368.9 257.4
Total assets 1,007.1 651.1
Current liabilities
Borrowings (65.6) (34.3)
Obligations under finance leases (2.6) (0.5)
Trade and other payables (219.7) (115.1)
Short term provisions (1.9) (1.2)
Current tax liabilities (8.0) (14.6)
Derivative financial instruments (1.6) (1.1)
(299.4) (166.8)
Non-current liabilities
Borrowings (294.6) (148.3)
Obligations under finance leases (3.0) (0.9)
Trade and other payables (1.0) (1.8)
Long term provisions (3.1) (5.2)
Deferred tax (52.4) (22.6)
Preference shares (0.1) (0.1)
Retirement benefit obligations (23.0) (28.1)
Derivative financial instruments (7.3) (3.7)
(384.5) (210.7)
Total liabilities (683.9) (377.5)
Net assets 323.2 273.6
Equity
Share capital 1.8 1.8
Share premium account 120.4 120.3
Special capital reserve 12.9 12.9
Hedging reserve (2.7) (3.4)
Revaluation reserve 1.4 1.4
Retained earnings 196.6 145.8
330.4 278.8
Own shares (7.2) (5.2)
Equity attributable to equity
holders of the parent 323.2 273.6
Total equity 323.2 273.6
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2010
2010 2009
Note GBPm GBPm
Cash flows from operating activities
Underlying cash generated from operations A 126.1 106.7
Acquisition related costs (6.7) -
Cash generated from operations 119.4 106.7
Tax paid (30.0) (18.7)
Net cash inflow from operating activities 89.4 88.0
Cash flows from investing activities
Dividends received from associate 0.1 -
Purchases of intangible assets (7.8) (4.8)
Purchases of property, plant and equipment (40.9) (33.4)
Acquisition of subsidiary undertakings
(net of cash acquired) (176.8) (27.6)
Net cash outflow from investing activities (225.4) (65.8)
Cash flows from financing activities
Dividends paid (18.7) (13.8)
Interest paid (14.0) (10.5)
Proceeds on issues of shares 0.1 0.5
New borrowings 208.8 14.9
Repayments of borrowings (41.7) (20.7)
Repayment of finance leases (0.7) (1.6)
Proceeds from sale and finance leaseback 4.5 -
Purchase of own shares (3.9) (1.5)
Net cash inflow/ (outflow) from financing
activities 134.4 (32.7)
Decrease in cash and cash equivalents
during the year (1.6) (10.5)
Cash and cash equivalents at start of
the year 61.3 69.6
Effect of foreign exchange rate changes (1.3) 2.2
Cash and cash equivalents at end of the
year 58.4 61.3
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2010
2010 2009
GBPm GBPm
A. Cash generated from operations
Operating profit from continuing operations 105.9 107.9
Operating profit from acquired operations 2.0 -
Adjustment for:
Depreciation of property, plant and equipment 11.6 13.3
Impairment charge - 1.1
Amortisation of other intangibles 2.4 1.5
Loss on disposal of intangible assets 0.2 -
Amortisation of intangible assets arising
from business combinations 17.0 13.8
Loss/(gain) on fair value movements on derivatives 4.0 (7.0)
Share-based payment expense 2.3 2.1
Difference between pension contributions
paid and amount
recognised in Income Statement 0.7 0.1
(Decrease)/increase in provisions (1.4) 0.5
Operating cash flows before movements in
working capital 144.7 133.3
Increase in inventories (19.2) (8.4)
Increase in trade and other receivables (44.0) (10.0)
Increase/(decrease) in trade and other payables 37.9 (8.2)
Cash generated from operations 119.4 106.7
Acquisition related costs 6.7 -
Cash generated from underlying operations 126.1 106.7
Reconciliation of net cash flow to movement
in net debt
Decrease in cash and cash equivalents during
the year (1.6) (10.5)
(Increase)/decrease in debt and lease financing
due to cash flows (171.1) 7.5
Change in net debt resulting from cash flows (172.7) (3.0)
Acquired debt (5.4) -
New finance leases - 0.5
Translation difference relating to loans (5.4) (3.1)
Amortisation of debt finance costs (1.2) (0.5)
Movement in net debt in the year (184.7) (6.1)
Net debt at start of the year (122.8) (116.7)
Net debt at end of the year (307.5) (122.8)
Analysis of net debt
As at As at
1 Nov Cash Non-cash Exchange 31 Oct
2009 flow changes movement 2010
GBPm GBPm GBPm GBPm GBPm
Cash at bank and in
hand 61.3 (1.6) - (1.3) 58.4
Debt due within one
year (34.3) (10.1) (20.5) (0.7) (65.6)
Debt due after one
year (148.3) (157.2) 14.3 (3.4) (294.6)
Finance leases (1.4) (3.8) (0.4) - (5.6)
Preference shares (0.1) - - - (0.1)
(122.8) (172.7) (6.6) (5.4) (307.5)
Notes
1. ACCOUNTS AND AUDITORS' REPORT
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 October 2010 or
31 October 2009 but is derived from those accounts. Statutory
accounts for 2009 have been delivered to the Registrar of
Companies, and those for 2010 will be delivered following the
company's Annual General Meeting. The auditors have reported on
these accounts; their reports were unqualified, did not draw
attention to any matters by way of emphasis without qualifying
their report, and did not contain any statements required under
either s498(2) or s498(3) of the Companies Act 2006.
The preliminary announcement has been prepared on the basis of
the accounting policies as stated in the financial statements for
the year ended 31 October 2010.
Whilst the financial information included in this preliminary
announcement has been computed in accordance with International
Financial Reporting Standards (IFRSs), this announcement does not
itself contain sufficient information to comply with IFRSs. The
Company expects to publish full financial statements that comply
with IFRSs on 18 February 2011 (see Note 8 below).
2. ANALYSIS OF REVENUE
2010
Continuing Acquired Total
GBPm GBPm GBPm
Countermeasures 195.2 1.1 196.3
Counter-IED 113.8 1.1 114.9
Pyrotechnics 150.9 19.1 170.0
Munitions 110.7 5.2 115.9
570.6 26.5 597.1
3. RECONCILIATION OF STATUTORY OPERATING PROFIT TO
UNDERLYING OPERATING PROFIT
Underlying profit is used by the Board to measure and monitor
the underlying performance of the Group. Set out below is a
reconciliation of statutory operating profit and underlying
operating profit.
2010 2009
GBPm GBPm
Statutory operating profit 107.9 107.9
Add back:
Acquisition related costs 6.7 -
Intangible amortisation arising from business
combinations 17.0 13.8
Loss/(gain) on fair value movements on
derivatives 4.0 (7.0)
Underlying operating profit 135.6 114.7
During 2010 a revision of IFRS3 Business Combinations was
adopted relating to the treatment of costs incurred in relation to
acquisitions. Accordingly, with effect from 1 November 2009, due
diligence and other acquisition related costs have been charged to
the Income Statement. In the past these costs have been charged to
cost of investment.
Profit before tax and underlying profit before tax also vary by
the above amounts.
4. EARNINGS PER ORDINARY SHARE
Earnings per share are based on the average number of shares in
issue of 35,320,445 (2009: 35,266,616) and profit on ordinary
activities after tax of GBP66.7 million (2009: GBP70.1 million).
Diluted earnings per share has been calculated using a diluted
average number of shares in issue of 35,677,687 (2009: 35,601,379)
and profit on ordinary activities after tax of GBP66.7 million
(2009: GBP70.1 million).
The earnings and shares used in the calculations are as
follows:
From continuing
operations 2010 2009
Ordinary Ordinary
shares shares
Earnings Number EPS Earnings Number EPS
GBPm 000s Pence GBPm 000s Pence
Basic 66.7 35,320 189 70.1 35,267 199
Additional shares
issuable
other than at
fair value in
respect of
options
outstanding - 358 (2) - 334 (2)
Diluted 66.7 35,678 187 70.1 35,601 197
The number of shares in issue differs from the number held by
third parties due to the fact that the Group holds Chemring Group
PLC shares in treasury.
Reconciliation from basic earnings per share to underlying
earnings per share:
Underlying basic earnings are defined as earnings before
acquisition related costs, intangible amortisation arising from
business combinations and (loss)/gain on fair value movements on
derivatives. The directors consider this measure of earnings allows
a more meaningful comparison of earnings trends.
2010 2009
Ordinary Ordinary
shares shares
Earnings Number EPS Earnings Number EPS
GBPm 000s Pence GBPm 000s Pence
Basic 66.7 35,320 189 70.1 35,267 199
Acquisition
related costs,
intangible
amortisation
arising
from business
combinations
and (loss)/gain
on fair value
movements on
derivatives
(after tax) 20.2 - 57 4.9 - 14
Underlying 86.9 35,320 246 75.0 35,267 213
5. DIVIDEND
The final dividend of 42p per ordinary share will be paid on 15
April 2011 to all shareholders registered at the close of business
on 25 March 2011. The ex-dividend date will be 23 March 2011. The
total dividend for the year will be 59p (2009: 50p). The final
dividend is subject to approval by the shareholders at the Annual
General Meeting, and accordingly, has not been included as a
liability in the financial statements for the year ended 31 October
2010.
6. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed.
7. POST BALANCE SHEET EVENTS
Bank refinancing
On 14 January 2011, the Group completed a refinancing of its
bank facilities with a syndicate of five banks. The new Group
facilities, which are unsecured, total GBP230 million, which is a
GBP55 million increase on the previous secured facilities. In
addition, the term of the facilities has been extended from April
2012 to April 2015.
The increase in the level of the facility and the tenure,
together with the introduction of several new banks to the Group,
will provide greater capacity and capability to support the Group's
future requirements.
Share split
At the forthcoming Annual General Meeting, shareholder approval
will be sought to sub-divide the Company's 5p ordinary shares into
ordinary shares of 1p each. Further details are set out in the
Notice of the Annual General Meeting.
8. 2010 FINANCIAL STATEMENTS
The financial statements for the year ended 31 October 2010 will
be posted to shareholders on 18 February 2011. They will also be
available from that date at the registered office, Chemring House,
1500 Parkway, Whiteley, Fareham, Hampshire PO15 7AF and will be
posted on the Company's website at www.chemring.co.uk the following
morning.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UBUWRARAAAAR
Chemring (LSE:CHG)
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