TIDMCHG
RNS Number : 2493W
Chemring Group PLC
24 January 2013
FOR IMMEDIATE RELEASE 24 January 2013
CHEMRING GROUP PLC
PRELIMINARY RESULTS FOR THE YEAR ENDED 31 OCTOBER 2012
FINANCIAL HIGHLIGHTS
Year ended Year ended
31 Oct 2012 31 Oct 2011 Change
GBPm GBPm
Revenue 740.3 724.1 2%
Underlying operating profit* 88.3 135.8 (35%)
Underlying operating margin* 12% 19% (7 pts)
Underlying profit before tax* 70.1 120.2 (42%)
Profit before tax 18.8 85.4 (78%)
Underlying operating cash flow* 114.9 118.6 (3%)
Net debt 244.8 262.7 (7%)
Underlying earnings per share 28.5p 50.0p (43%)
Dividend per
share - final 4.2p 10.8p (61%)
- full year total 9.5p 14.8p (36%)
-- Group performance for the year impacted by uncertainty in key
markets and operational issues, as previously reported
-- Ongoing market uncertainty continues to affect visibility
- Year end order book of GBP760.9 million, down 13% on 2011
-- Appointment of new senior leadership team in order to address key operational issues
-- Management focus in 2013 will be on addressing Chemring's operational performance
-- Management's initial review of operations has identified five
key priorities for performance recovery, the benefits of which are
expected to be seen from 2014 onwards
- Strengthen and simplify the management structure
- Integration of operating units
- Operational performance improvement
- Focussed business development
- Prioritisation of cash and cost management
Peter Hickson, Chemring Group Chairman, commented:
"2012 was a particularly disappointing year for the business,
characterised by uncertainty in our markets and a number of factors
that disrupted our operational performance.
These difficult market conditions are expected to remain in
place in 2013, with defence spending in the US, UK and Europe
likely to remain under significant pressure. However, following the
appointments of Mark Papworth as Chief Executive and Steve Bowers
as permanent Finance Director, we now have the leadership in place
to address the operational issues that contributed to our recent
underperformance.
The emphasis in 2013 will be on driving operational performance
efficiency, and reorganising the business to create efficiency,
resilience and more focussed business development, during what will
be a difficult period for the defence industry. In parallel, cash,
cost management and debt reduction will be absolute priorities
across the Group, all with the ultimate aim of returning Chemring
to profitable growth.
Although the defence industry is facing significant challenges
in the near term, Chemring's leading market positions, innovative
products and manufacturing expertise should ensure that our
underlying business remains robust in the face of market pressures.
Whilst the new management team is actively addressing the issues
and opportunities, 2013 is still expected to be a challenging year
for Chemring, and therefore the Board's expectations for the year
remain unchanged."
* Before non-underlying items (see Note 3)
For further information:
Mark Papworth Chief Executive, Chemring Group PLC 01489 881880
Steve Bowers Finance Director, Chemring Group PLC 01489 881880
Group Director of Communications and Investor
Relations,
Rupert Pittman Chemring Group PLC 01489 881880
Andrew Jacques
James White MHP Communications 0203 128 8100
Cautionary statement
This announcement contains forward-looking statements that are
based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be
identified by the fact that they do not relate only to historical
or current facts. Forward-looking statements often use words such
as anticipate, target, expect, estimate, intend, plan, goal,
believe, will, may, should, would, could, is confident, or other
words of similar meaning. Undue reliance should not be placed on
any such statements because they speak only as at the date of this
document and, by their very nature, they are subject to known and
unknown risks and uncertainties and can be affected by other
factors that could cause actual results, and Chemring's plans and
objectives, to differ materially from those expressed or implied in
the forward-looking statements.
There are a number of factors which could cause actual results
to differ materially from those expressed or implied in
forward-looking statements. Among the factors that could cause
actual results to differ materially from those described in the
forward-looking statements are; increased competition, the loss of
or damage to one or more key customer relationships, changes to
customer ordering patterns, delays in obtaining customer approvals
for engineering or price level changes, the failure of one or more
key suppliers, the outcome of business or industry restructuring,
the outcome of any litigation, changes in economic conditions,
currency fluctuations, changes in interest and tax rates, changes
in raw material or energy market prices, changes in laws,
regulations or regulatory policies, developments in legal or public
policy doctrines, technological developments, the failure to retain
key management, or the key timing and success of future acquisition
opportunities or major investment projects.
Chemring undertakes no obligation to revise or update any
forward-looking statement contained within this announcement,
regardless of whether those statements are affected as a result of
new information, future events or otherwise, save as required by
law and regulations.
Notes to Editors
-- Chemring is a manufacturing business with facilities in eight
countries selling high technology electronics and energetic
products to over sixty countries worldwide.
-- The Company has a diverse portfolio of products protecting
military people and platforms against a constantly changing
threat.
-- Operating in niche markets with short product development
timescales, Chemring has the agility to rapidly react to urgent
customer needs.
-- Strong R&D investment for new products and improvements
in technology continually allows Chemring to expand its addressable
markets.
www.chemring.co.uk
Presentation
The presentation slides and a live audio webcast of the
presentation to analysts will be available at the Chemring Group
results centre www.chemring.co.uk/resultscentre at 09.30 (UK time)
on Thursday 24 January 2013. A recording of the audio webcast will
be available later that day.
Photography
Original high-resolution photography is available to the media
by contacting James White, MHP Communications. James.White@mhpc.com
/ Tel: 0203 128 8100
CHAIRMAN'S STATEMENT
2012 was extremely disappointing for Chemring, our shareholders,
our customers and our employees. During the course of the year,
against an already challenging market background, a number of
additional issues disrupted the operational performance of the
business, including problems with the supply chain, contract delays
and changes in senior management.
Although the general decline in defence spending in a number of
our markets had a significant impact on trading during the year, a
large proportion of the problems that affected the Group's
performance stemmed from operational issues within the business, a
failure to anticipate the impact of changing market dynamics, and
poor management of expectations. Overall, this resulted in a
significant decline in the market value of the Company.
However, with the appointment of Mark Papworth as Chief
Executive in November 2012, followed by the appointment of Steve
Bowers as Finance Director in January 2013, we are now rebuilding
the senior management team required to lead our recovery. This
recovery will focus on operational performance efficiency, margin
improvement, and business reorganisation to enable the Group to
deal with the ongoing challenges in its end markets. Turning to the
balance sheet, there will need to be a tighter focus on the
generation and management of our cash flows in order to reduce our
levels of debt. The objective is to ensure the business is
well-positioned to operate effectively in an environment of
constrained defence spending, and to ensure the Group can return to
profitable growth.
Trading
Chemring's trading result during 2012 was unsatisfactory.
Defence spending pressures on both sides of the Atlantic, but
particularly in the USA, affected a number of defence companies
during 2012 and Chemring was no different. We failed to anticipate
and react to those changing market dynamics quickly enough and to
understand the impact on our businesses. Our trading performance
suffered as a result. In addition, the overall performance also
reflected specific issues at several of our subsidiary
companies.
We reported a number of issues during the year. At our Florida
subsidiary, we encountered problems with the installation of a new
resource planning system which, together with delays on a major
contract, considerably eroded its profit. At the year end, the
Group's results were significantly below expectations, as we
experienced a delay in the receipt of a major order from the Middle
East, continued to suffer technical problems with a specific
countermeasure product, and were unable to deliver as much of a
vehicle based mortar system product as we had anticipated due to
export licence difficulties.
Overall, revenue for the year was GBP740.3 million, an increase
of 2%, generating an underlying operating profit* of GBP88.3
million, down 35%. Underlying profit before tax* fell by 42% to
GBP70.1 million, producing underlying earnings per share* of 28.5p,
a fall of 43% against the previous year.
The order intake for the Group was GBP660.2 million, which is
17% lower than last year. Although we saw strong order growth in
our Counter-IED and Pyrotechnics businesses, this was offset by a
downturn in order intake within Countermeasures and Munitions. The
Munitions segment was affected by export licence delays, and the
timing of orders, with several large multi-year contracts having
been received in the prior year. The lower order intake in the
Countermeasures segment principally reflects lower customer demand,
driven by government fiscal and budgetary controls. As a result,
the Group's closing order book reached GBP760.9 million, down 13%
on 2011.
GROUP RESULTS
An analysis of the underlying results is set out below:
2012 2011
GBPm GBPm
Total continuing revenue 740.3 724.1
------- -------
Divisional continuing operating profit 98.8 145.8
Unallocated corporate costs (10.5) (10.0)
------- -------
Underlying continuing operating profit 88.3 135.8
Share of post-tax results of associate 0.1 0.1
Finance income 0.1 0.1
Finance expense (18.4) (15.8)
------- -------
Underlying continuing profit before tax 70.1 120.2
Tax on underlying continuing profit before
tax (15.1) (27.3)
------- -------
Underlying continuing profit after tax 55.0 92.9
------- -------
Total continuing revenue was GBP740.3 million (2011: GBP724.1
million), an increase of 2%.
Revenue generated during the year by Chemring Detection Systems,
acquired in July 2011, was GBP51.9 million (from acquisition in
July 2011: GBP14.6 million), representing an increase of 5% of
total continuing revenue. During the year, the Euro depreciated
against sterling, which reduced the reported sterling revenues of
Euro subsidiaries by GBP12.2 million, although this was partially
offset by increases of GBP3.9 million on US dollar and other
currencies. This gave a net decrease due to currency effects of
GBP8.3 million, equivalent to 1%. Organic revenue() reduced by
2%.
An analysis of revenue and divisional operating profit by
segment*, excluding unallocated corporate costs, is set out
below:
2012 2011
Underlying Underlying Underlying Underlying
operating operating operating operating
Revenue profit* margin Revenue profit*(#) margin
GBPm GBPm GBPm GBPm
Counter-IED 205.3 43.9 21% 167.6 31.9 19%
Countermeasures 184.1 18.3 10% 200.8 46.7 23%
Pyrotechnics 123.0 12.3 10% 118.7 26.4 22%
Munitions 227.9 24.3 11% 237.0 40.8 17%
---------- ----------- ----------- ---------- ------------ -----------
Divisional results 740.3 98.8 13% 724.1 145.8 20%
---------- ----------- ----------- ---------- ------------ -----------
Counter-IED revenue increased 22% to GBP205.3 million, due
predominantly to the full year impact of Chemring Detection
Systems, which contributed additional revenue of GBP37.3 million.
Operating margins increased to 21%, largely due to a strong result
from Chemring Detection Systems.
Countermeasures revenue decreased by 8%, due principally to
lower demand for decoys at Alloy Surfaces. Margins decreased
considerably, predominantly due to the two issues identified in the
Group's trading update issued on 1 November 2012 - technical
problems on the development of a countermeasure, which resulted in
the product not being accepted by the customer and considerable
rework costs, and a delay in the receipt of a multi-year contract
for the supply of aircraft countermeasures to a customer in the
Middle East. In addition, profit at Alloy Surfaces has decreased in
line with revenue, and given the high margins achieved historically
by this business, this has led to a further decline in the
segmental margin.
Pyrotechnics revenue increased 4% to GBP123.0 million, although
underlying operating profit* decreased by 53% to GBP12.3 million.
This was principally due to lower demand for 81mm illumination
products and production issues at Hi-Shear, which were compensated
for in revenue terms by other lower margin product sales.
Munitions was largely flat, with revenue at GBP227.9 million.
Mecar's margin declined in the second half, largely due to issues
on a contract for the supply of vehicle based mortar systems for a
Middle Eastern customer. The issues were attributable to delays in
the granting of export licences for a limited number of parts. The
licences are now being issued but substantial progress is unlikely
to be made on this contract until 2014.
Unallocated corporate costs were GBP10.5 million, slightly
higher than in 2011, due largely to additional costs associated
with the Group's London office, which has been vacated since the
year end.
As a result of the above, total underlying operating profit* was
GBP88.3 million (2011: GBP135.8 million), a decrease of 35%.
Total underlying operation margin* reduced to 12% from 19% last
year. This reduction reflects the decreases in the Countermeasures,
Pyrotechnics and Munitions segments, as explained above.
Finance income in the year was GBP0.1 million (2011: GBP0.1
million). Finance expense for the year was GBP18.4 million (2011:
GBP15.8 million), an increase of 16%. The increase is largely due
to higher average debt during 2012, compared with 2011. Included
within finance expense is GBP0.8 million (2011: GBP0.7 million) for
retirement benefit obligations.
Underlying profit before tax* was GBP70.1 million (2011:
GBP120.2 million), a decrease of 42%.
Tax on underlying profit before tax* was GBP15.1 million (2011:
GBP27.3 million), representing an underlying tax rate of 22% (2011:
23%). The tax rate is lower than the UK corporation tax rate, due
predominantly to the utilisation of R&D tax credits across the
Group, particularly at Roke, and the utilisation of tax losses
within our European businesses which had not previously been
recognised.
Underlying profit after tax* was GBP57.1 million (2011: GBP96.8
million), a decrease of 41%.
Analysis of non-underlying items
The Board monitors underlying operating profit and underlying
profit before tax for reporting purposes so as not to distort
year-on-year comparisons; hence, certain items are classed as
non-underlying as set out below:
2012 2011
GBPm GBPm
Acquisition and disposal related costs 8.2 5.7
Restructuring and incident costs 11.9 7.2
Profit on disposal of business (10.3) -
Impairment of goodwill 22.5 -
Intangible amortisation arising from business
combinations 20.9 24.3
Gain on fair value movements on derivatives (1.9) (2.4)
------- ------
Total non-underlying items 51.3 34.8
------- ------
Acquisition and disposal related costs include costs associated
with the approach by a third party in connection with a potential
offer for the Group, external costs incurred in acquiring
businesses, costs associated with aborted bids, and costs
associated with the establishment of joint ventures.
In 2012, restructuring and incident costs comprised costs
related to the closure of the Group's Marshall, Texas site (GBP3.3
million), the restructuring of the Group's US countermeasures
businesses (GBP2.5 million), the restructuring of the Group's UK
operations (GBP2.6 million), and an additional GBP1.5 million
relating to several smaller restructuring projects. There were also
a number of Board changes during the year, resulting in associated
costs of GBP2.0 million. Further details of the compensation for
loss of office payments of GBP1.1 million and deferred share awards
worth GBP0.3 million received by two of the former executive
directors will be set out in the 2012 Annual Report. The balance of
the costs relate to recruitment, and various other legal and
professional fees.
The profit on disposal of business relates to the sale of the
Group's marine pyrotechnics business, further details of which are
provided below.
Following a detailed review, impairment losses have been
recognised in relation to Chemring Ordnance (GBP6.8 million) and
Chemring Energetic Devices (GBP15.7 million) at the year end,
totalling GBP22.5 million (2011: GBPnil). The impairment losses
were based on value-in-use calculations and relate only to
goodwill. The impairment charges were primarily driven by business
valuations that were negatively impacted by lower cash flows within
business plans, reflecting the challenging economic conditions
facing the defence industry within the US.
Intangible amortisation arising from business combinations
decreased in the year, despite a full year's charge for Chemring
Detection Systems. This is due to some intangible assets arising on
previous acquisitions being fully amortised.
A gain on derivatives of GBP1.9 million arose (2011: GBP2.4
million gain), due largely to movements in interest rates during
the year.
BUSINESS REVIEW
Counter-IED
- Orders received: GBP252.0 million
- Revenue: GBP205.3 million
- Underlying operating profit: GBP43.9 million
- Underlying operating margin: 21%
Counter-IED revenue in 2012 was GBP205.3 million, 22% higher
than the previous year, driven mainly by the full year contribution
of Chemring Detection Systems, which was acquired in July 2011.
NIITEK's revenue for the year was flat compared to 2011, primarily
due to the delayed placement of the $579 million HMDS (Husky Mine
Detection System) IDIQ (indefinite delivery/indefinite quantity)
contract, which impacted deliveries in the first half of the
year.
Deliveries were also delayed on Chemring Ordnance's IDIQ
contract for the supply of Anti-Personnel Obstacle Breaching
Systems (APOBS) to the US Army, as a result of problems with a US
Government directed supplier who had to implement new processes and
improvements in order to meet current government standards. The
supplier is now delivering, and APOBS is expected to complete its
first article test in February, with production commencing
thereafter.
The closing order book for Counter-IED was GBP172.8 million, up
36% on 2011, as a result of major orders for HMDS, chemical and
biological detection products, and the APOBS minefield breaching
system.
During the year, threat detection remained the dominant element
of our activity in the Counter-IED segment, with our expanded range
of products covering chemical and biological agents, as well as
improvised and concealed explosive devices. The most significant
contract of the year was NIITEK's $579 million HMDS IDIQ contract.
This three year contract, with an initial order worth $161 million,
provides the US Department of Defense with the means to procure
spares and replacement systems to replenish theatre sustainment
stock, as well as providing new systems for the US Army, the US
Marine Corps, and US Government supported Foreign Military Sales. A
second delivery order worth $32 million was awarded to NIITEK in
December 2012.
NIITEK also won new export orders for the HMDS, with the award
in October 2012 of a $6.9 million contract from the Commonwealth of
Australia for the production and delivery of ten complete systems,
and associated spare parts, for the Australian Army. NIITEK also
secured its first order in Europe, with a $5.9 million contract
from MBDA Italia S.p.A for the supply of the "Mine Buster" Ground
Penetrating Radar (GPR) systems, and logistics support to the
CALIFE 3 Italian Army Programme for the Italian Ministry of
Defence. Deliveries under the contract will be made in 2013, and
will support the Italian Army's Route Clearance Mission. NIITEK has
established a partnership with Critical Solutions, Inc., the
manufacturer of the Husky vehicle, to jointly promote the vehicle
and detector to the international market. The partnership recently
completed a successful demonstration to the Turkish Army's
Engineering School.
NIITEK continues to enhance its technology base and product
offering with incremental product upgrades, as well as development
of hand-held, robot-mounted and multi-sensor solutions. Following
successful evaluation of its RVIS remote visualisation system,
NIITEK won a contract, potentially worth up to $18 million, to
produce 102 RVIS systems and initial spare parts, and deliver
technical support, training and logistics data in support of
Operation Enduring Freedom (OEF). The RVIS system provides remote
viewing of the HMDS graphical user interface display in a follow-on
vehicle, providing improved situational awareness to the route
clearance package. NIITEK also established a partnership with
Minelab Electronics Pty Limited, to incorporate Minelab's proven
metal detection technology into a new prototype dual sensor
hand-held detector, which was completed in July.
Chemring Detection Systems performed well in its first full year
under Chemring's ownership. In the US, it won two key orders for
its chemical and biological detection systems. The first, announced
in February 2012, was a $29 million contract to supply over one
hundred Joint Services Lightweight Stand-off Chemical Agent
Detectors (JSLSCAD) for the US Army's Stryker Nuclear Biological
Chemical Reconnaissance Vehicle (NBCRV). The second was a $49
million contract award to supply Joint Biological Point Detection
Systems (JBPDS) for installation on Stryker NBCRVs and US Navy
ships such as the USS Ross (DDG 71). Chemring Detection Systems
also delivered an export contract for JBPDS to Japan, and completed
a six week in-country operator training course for the Japanese
Ground Self Defence Force.
The outlook for the Counter-IED segment is positive. Most
militaries have identified that there is a significant and growing
gap in their capabilities to deal with the persistent and rapidly
evolving threat of IEDs as the insurgent's weapon of choice. We are
seeing sustained interest in our detection, jamming and defeat
products, from both NATO and non-NATO users. Even in the
budget-constrained environments in the UK and US, new programmes of
record are being developed to ensure that forces are equipped with
state-of-the-art equipment, irrespective of current operations in
Afghanistan.
Countermeasures
- Orders received: GBP131.5 million
- Revenue: GBP184.1 million
- Underlying operating profit: GBP18.3 million
- Underlying operating margin: 10%
In 2012, revenue from the Countermeasures segment was GBP184.1
million, down 8% on the previous year, mainly due to reduced NATO
demand as customers reduced stockpiles in anticipation of
withdrawal from Afghanistan. Sales at our US subsidiary, Alloy
Surfaces, and at our UK subsidiary, Chemring Countermeasures, were
most affected. This situation was exacerbated at the end of the
year by a delay in receipt of a multi-year contract for the supply
of aircraft countermeasures to a customer in the Middle East, and
technical problems on the development of a new countermeasure,
which resulted in it not being accepted by the customer until
further tests have successfully taken place.
The combination of these issues affected revenue, and had a
major impact on profit for the year, which, at GBP18.3 million, was
down 61% on the prior year. Delay to the Middle East order meant
that profit could not be recognised as expected under contract
accounting policies, on product that had been manufactured during
the year in expectation of that order award. The customer is
reconsidering the timing of the order placement, and it is now
considered unlikely that the full contract will be placed before
the end of the current financial year. The product development
issue related to the supply of a newly developed countermeasure,
where several lot acceptance test failures required a substantial
provision to be made to recognise the costs and implications
involved in meeting acceptance conditions. Work to resolve the
technical problem is ongoing, and further customer acceptance tests
are planned during the second half of the year.
The closing order book for the Countermeasures segment was
GBP182.3 million, down 22% on the previous year. This reflects
lower orders for flares of all types, particularly in the US
market.
The outlook for the air countermeasures business is tight, with
the decline in NATO procurement being faster than non-NATO growth.
Delays in Joint Strike Fighter deliveries and expected in-service
dates will correspondingly delay major procurements of warstock for
these fleets. This will drive some capability extension to existing
platforms, and there is growing interest in Alloy Surfaces'
pre-emptive solutions in the US, NATO and the Middle-East. There is
also a growing capability gap in customers' naval countermeasure
inventories, and there is interest in improved naval decoys and
launchers. However, the timing of orders in tight budget
environments remains uncertain. In land EW, a growing user
community and an in-service fleet of equipment creates both a
demand for upgrades and a momentum of interest in next generation
equipment.
Pyrotechnics
- Orders received: GBP130.6 million
- Revenue: GBP123.0 million
- Underlying operating profit: GBP12.3 million
- Underlying operating margin: 10%
In 2012, revenue from our continuing operations in military and
aerospace pyrotechnics was GBP123.0 million, which is 4% higher on
a like-for-like basis than in 2011. This increase resulted from
growth in sales of pyrotechnic products and rounds to the Middle
East, which offset the reduction in deliveries of illumination
mortar rounds to the UK, which were affected by supply chain issues
in the first half of the year. This also substantially reduced the
profitability of this segment. Sales of training and simulation
products were down 50%, reflecting reduced demand for training
grenades in the US. Space and safety systems' revenues were broadly
flat.
In addition to the impact of product mix on the profitability of
the segment, Chemring Ordnance also identified significant errors
in the data underpinning its resource planning system. Issues that
led to this problem are now well understood and corrective action
has been taken such that the problems will not reoccur.
The closing order book was GBP178.2 million, up 24% on the
previous year, due to the receipt of UK orders for illumination
rounds, Middle East demand for pyrotechnic rounds and products, and
orders for space components.
In July, the Group completed the sale of its marine safety
pyrotechnics business to Drew Marine, for GBP30.4 million. The
focus of this business on the commercial and leisure market was no
longer aligned with the growth strategy of the Group, and it was
clear that Chemring Marine would benefit from new owners, who would
provide the investment needed to expand its marine safety business
and to develop its global maritime safety network.
The outlook for pyrotechnics is stable, with space and safety
systems sustained by long term programmes and large in-service
aircraft fleets. In recent years, military signal and illumination
enjoyed a major surge in demand, as a result of UK demand for 81mm
illumination mortars, but this has now levelled, with some orders
still to be delivered to the UK, and continued requirements from
the Middle East.
Munitions
- Orders received: GBP146.1 million
- Revenue: GBP227.9 million
- Underlying operating profit: GBP24.3 million
- Underlying operating margin: 11%
In 2012, our Munitions revenues were GBP227.9 million, a 4%
reduction from 2011. Ammunition sales for land forces grew by 55%
in the year, in both Europe and the Middle East, and naval
ammunition and component sales remained steady during the year.
This was offset by the delayed delivery of mortar systems, due to
extended delays in the granting of export licences for a limited
number of critical components. These licences have recently been
issued, and deliveries should commence in the 2014 financial year,
when a customer-funded contract modification has been
finalised.
The profitability of the segment fell significantly as a result
of the different product mix in the year.
The closing order book for the Munitions segment was GBP227.6
million, a reduction of 39% on the previous year, notably due to
delays in the placing of significant munitions contracts both at
Simmel and Mecar. Delays in the granting of export licences were
also a significant factor. About 75% of the order book is from
non-NATO customers.
Chemring operates in the global market for naval ammunition, and
mainly in the non-NATO market for land forces' ammunition. The
naval market has suffered budget constraints, with NATO countries
struggling to fund their land operations in Afghanistan, but demand
is expected to remain steady. Defence budgets in the Middle East
and Far East are growing but local volatility and export licence
risks mean that the market for land forces' ammunition will remain
a challenge.
Principal risks and uncertainties
The principal risks and uncertainties which could have a
material impact on the Groups 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
2011 Financial Statements and the 2012 Interim Report. These can be
summarised as:
-- Health and safety risks
-- Political and economic risks, including possible defence budget cuts
-- Risks associated with the timing of receipt and value of orders
-- Risks associated with the introduction of new manufacturing facilities
-- Risks associated with the introduction of new products
-- Product failure risks
-- Competitive risks
-- Risks related to management resource
-- Compliance and corruption risks
-- Financial risks, including credit, interest rate and foreign exchange risks
Disposals
On 31 July 2012, the Group sold its marine interests to Drew
Marine for GBP30.4 million. This figure is less than the GBP32
million anticipated sale proceeds announced on 6 June 2012, due to
a working capital adjustment determined at the completion date. The
marine business included operations in four jurisdictions, and
restructuring of each individual business was required in order to
facilitate a sale. This involved separating the German
manufacturing facility into two for the retained defence business
and the marine business, together with a carve-out of the marine
activities from the Group's defence businesses in Spain and
Australia.
The net assets of the marine interests at the date of disposal
were GBP10.3 million. Attributable costs associated with the
disposal were GBP9.8 million. The profit on disposal of the marine
interests was GBP10.3 million.
The deferred working capital adjustment was settled in cash by
the Group in December 2012.
Research and development
Research and development expenditure totalled GBP59.0 million
(2011: GBP59.6 million), 1% lower than last year. The continued
significant spend supports the Group's investment in future growth.
An analysis of expenditure is set out below:
2012 2011
GBPm GBPm
Customer-funded research and development 34.4 38.4
Internally-funded research and development 24.6 21.2
------ ------
Total research and development expenditure 59.0 59.6
------ ------
Of the internally-funded research and development costs, GBP12.3
million (2011: GBP12.4 million) was capitalised in the year. The
Group's policy is to amortise capitalised development costs over a
three to five year period from the date on which the intangible
asset is available for use. Amortisation of development and patent
costs was GBP4.6 million (2011: GBP2.6 million).
Pensions
The deficit on the Group's defined benefit schemes before
associated tax credits, as defined by IAS 19 Accounting for pension
costs, was GBP27.0 million (2011: GBP25.2 million).
The Chemring Group Staff Pension Scheme is a defined benefit
scheme, with the assets held in a separate trustee-administered
fund. The Scheme was closed to future accrual on 6 April 2012,
resulting in a curtailment gain of GBP1.4 million. A full actuarial
valuation for the Scheme as at 6 April 2009 has been prepared and
updated to 31 October 2012 by a qualified actuary, using the
projected unit credit method. The triennial valuation at 6 April
2012 is currently being progressed, and is expected to be
signed-off in the coming months. The Group has given a bank
guarantee and letters of credit totalling GBP27.2 million (2011:
GBP27.2 million) to the Scheme. A GBP20 million letter of credit
may be drawn by the Scheme trustees in June 2014, subject to the
size of the deficit of the Scheme at April 2014. The remaining
GBP7.2 million bank guarantee may only be drawn upon certain events
of default by the Company.
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.
Cash flow
Underlying operating cash flow* was GBP114.9 million (2011:
GBP118.6 million), which represents a conversion rate of underlying
profit, before interest, depreciation and amortisation*, to
operating cash of 103% (2011: 76%).
A summary of underlying Group cash flow is set out below:
2012 2011
GBPm GBPm
Underlying operating profit from continuing
operations 88.3 135.8
Depreciation and loss on disposal of fixed
assets 19.1 17.0
Amortisation of development costs, patents
and licences 4.6 2.6
------- -------
Underlying profit, before interest, depreciation
and amortisation 112.0 155.4
Working capital movements 19.9 (15.6)
Other movements (17.0) (21.2)
------- -------
Underlying operating cash flow from continuing
operations 114.9 118.6
Fixed asset expenditure (41.1) (56.6)
Tax (6.1) (17.2)
Interest (23.8) (22.5)
------- -------
Underlying free cash flow 43.9 22.3
------- -------
Fixed asset expenditure across the Group was GBP41.1 million
(2011: GBP56.6 million). This included GBP6.9 million (2011:
GBP19.7 million) of expenditure associated with the construction of
new facilities at our sites in Salisbury and Australia.
Tax payments were significantly lower than last year,
principally due to the lower profits of the Group. However, the
level of payments was also reduced due to the availability of
R&D tax credits, lower UK tax rates, and the timing of
payments.
Interest payments increased due to the higher level of gross
debt during 2012.
Working capital
A summary of working capital balances is set out below:
2012 2011 Variance
GBPm GBPm GBPm
Inventories 113.8 146.8 (33.0)
Trade receivables 90.9 109.0 (18.1)
Contract receivables 87.6 55.1 32.5
Trade payables (100.2) (105.3) 5.1
Advance payments (11.7) (48.7) 37.0
Accruals and deferred income (45.6) (20.9) (24.7)
Other working capital items (29.5) (10.8) (18.7)
-------- -------- ---------
Total working capital 105.3 125.2 (19.9)
-------- -------- ---------
Total working capital days 52 63
-------- --------
Overall working capital decreased by 16% on 2011. Total working
capital days have also decreased since last year at 52 days (2011:
63 days). The decrease in working capital is largely due to general
improvements in receivables, together with a GBP10 million
reduction associated with the marine business, which was included
within the October 2011 figures but not in the October 2012
figures. Contract receivables have increased, largely due to higher
revenue at Chemring Detection Systems and the adoption of contract
accounting by NIITEK for its new HMDS IDIQ contract received during
the year. The increase in contract receivables, which was the
result of a doubling of revenue accounted for under long term
contracts to 37% of total revenue, is compensated for by the
decrease in inventories.
The Group's level of working capital is a key focus area, and
initiatives to raise working capital efficiency will be implemented
in the current financial year.
Net debt, facilities and going concern
Net debt at 31 October 2012 was GBP244.8 million (2011: GBP262.7
million), a decrease of GBP17.9 million or 7%. The Group had
GBP143.9 million (2011: GBP150.1 million) of undrawn borrowing
facilities at the year end.
On 14 January 2011, the Group completed a refinancing of its
bank facilities with a syndicate of five banks. The resulting
facilities, which are unsecured, total GBP230 million. The term of
the facilities is to April 2015, with an option to extend for
twelve months.
In addition to the bank facilities, the Group has outstanding
fixed interest loan notes in the US, repayable in full in November
2016 ($80 million), November 2017 (GBP12.5 million and $125
million), and November 2019 ($200 million).
The Group is subject to two key financial covenants, which are
tested quarterly, relating to the ratio between underlying earnings
before interest, tax, depreciation and amortisation (underlying
EBITDA) and debt ('debt ratio'), and the ratio between underlying
EBITDA and finance costs ('interest cover'). The revolving credit
facility and the loan note agreements have different covenant
compliance calculations, and have therefore been separated out
below - the primary difference being that the revolving credit
facility uses consolidated net debt in the calculation whereas the
loan note agreements require consolidated total debt to be used.
The Group complied with both these covenants throughout the year,
and the position at the year end is detailed below:
2012 2011
Covenant ratio - revolving credit facility
Maximum allowed ratio of consolidated net debt to underlying
EBITDA 3.0 3.0
Actual ratio of consolidated net debt to underlying
EBITDA 2.1 1.6
Minimum allowed ratio of underlying EBITDA to finance
costs 4.0 4.0
Actual ratio of underlying EBITDA to finance costs 6.8 10.4
Covenant ratio - loan note agreements
Maximum allowed ratio of consolidated total debt to
underlying EBITDA 3.0 3.0
Actual ratio of consolidated total debt to underlying
EBITDA 2.8 2.1
Minimum allowed ratio of underlying EBITDA to finance
costs 3.5 3.5
Actual ratio of underlying EBITDA to finance costs 6.8 10.4
The loan note consolidated total debt to EBITDA covenant is
higher than the previous year, largely due to the reduction in
profitability in the year.
Gearing at the year end was 56% (2011: 55%). A summary of debt
is set out below:
2012 2011
GBPm GBPm
Cash 96.0 91.9
Loans and finance leases (79.6) (94.4)
Loan notes (261.2) (260.2)
-------- --------
(244.8) (262.7)
-------- --------
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. The Group has been in compliance with its bank
and loan note covenants throughout 2012, and is forecast to be in
compliance for the coming twelve months. Thus, the directors have a
reasonable expectation that adequate financial resources will
continue to be available for the foreseeable future.
Dividends
The Board is recommending a final dividend for the year of 4.2p
(2011: 10.8p). With the interim dividend paid of 5.3p (2011: 4.0p),
this gives a total dividend for 2012 of 9.5p (2011: 14.8p). The
total dividend for the year reflects the Company's policy outlined
last year, to provide dividends covered three times by
earnings.
Shareholder returns
Underlying basic earnings per ordinary share* was 28.5p (2011:
50.0p), a decrease of 43%. Basic earnings per share were 6.8p
(2011: 37.7p), a decrease of 82%.
The total dividend per ordinary share of 9.5p (2011: 14.8p) is
covered 3.0 times (2011: 3.4 times) by the underlying earnings per
share*.
The Group's underlying return on capital employed was 11% (2011:
16%).
Shareholders' funds at the year end were GBP433.5 million (2011:
GBP475.4 million), a decrease of 9%.
Board of Directors
There have been a number of changes at Board level during the
last twelve months. As outlined in last year's report, Vanda Murray
joined the Board as a non-executive director in November 2011, and
David Evans retired from the Board at the Annual General Meeting in
March 2012. Mark Papworth was appointed to the Board as Chief
Executive at the start of the new financial year, succeeding David
Price who resigned at the end of October 2012. Steve Bowers joined
the Board as Finance Director at the beginning of January 2013,
replacing Paul Rayner who resigned in July 2012.
Nigel Young, who was Interim Chief Financial Officer between
August 2012 and January 2013, will join the Board as a
non-executive director at the end of April 2013, after completing a
specific reorganisation project. He will become Chairman of the
Audit Committee, succeeding Lord Freeman who plans to retire from
the Board at the end of the year.
Sir Peter Norriss, who has been a non-executive director since
May 2004, has indicated his intention to retire from the Board at
the Annual General Meeting. During his time with the Group, Peter
has provided the Board with invaluable guidance, and I would like
to take this opportunity to thank him on behalf of the Board and
wish him well in the future.
Operational priorities
Since his appointment in October 2012, Mark Papworth has
identified five key priorities for the year ahead:
-- To strengthen and simplify the management structure
As noted above, Steve Bowers has joined the Board as Group
Finance Director. Steve was formerly Group Finance Director of
Umeco PLC. In addition, Jim Devine has been appointed as Group HR
Director, joining the Group from Centrica plc. We have recently
announced measures internally to streamline our head office and
divisional structure, in order to improve operating efficiencies.
Further work to standardise and simplify policies and procedures,
reporting lines, and the sharing of best practice across the Group
is underway.
-- Integration of operating units
We have also started the process of integrating similar
businesses to leverage the size and scale of these operations, as
well as extracting those synergies that exist. Alloy Surfaces and
Kilgore were the first to start this process, and NIITEK and
Chemring Detection Systems have followed. We will evaluate other
opportunities and prioritise them in terms of the potential
business benefit, balanced by the cost and resource required to
implement. As we execute each integration project, we will apply a
consistent review process to ensure that we deliver the maximum
improvements that can be achieved.
-- Operational performance improvements
Following the integration, we intend to improve the underlying
operational performance of all the operating businesses. A key
element of this process will be to upgrade operational leadership,
at the same time as driving performance through ownership and
accountability, rigorous measurement and continuous communication,
such that everyone in the organisation is aware of current
performance and future goals.
-- Focused business development
Whilst our traditional markets remain challenging, there are
opportunities to be won. We have focused our international
development activity to concentrate equally on selling new products
to old customers, as well as selling new products to new customers.
At the same time, we are looking at ways to exploit better the
cumulative effect of a more co-ordinated sales approach across the
Group. We have also started to consider the opportunities of
applying our technology to non-defence markets.
-- Prioritisation of cash and cost management
Some of the obvious excesses that the business can no longer
afford have already been addressed. This has included the closure
of our Pall Mall office, with other divisional offices being
considered, and the implementation of a robust review of all
discretionary spend. We have agreed a new delegated level of
authority across the Group, which will allow us to better control
those decisions and actions that impact the cost base of the Group.
There is also much work to do to improve our working capital
performance and cash generation. Performance in these areas will be
a key measurement of management performance going forward.
Successful managers in Chemring in the future will be those that
can deliver not only profit but also cash.
The programme of work needed to deliver all of these priorities
is not yet fully defined, and the actions required will take the
next twenty four months to complete. Whilst we expect all these
actions to benefit the Group, we do not anticipate that material
benefits of this recovery programme will be reflected in
improvements to 2013 results.
Outlook
The US defence market will remain vulnerable to budget
uncertainties during the coming year, and the lack of clarity over
defence expenditure is likely to continue to erode market
confidence and adversely affect the procurement process, as
purchase decisions are delayed.
Similarly, in the UK, funding for new and existing programmes is
expected to remain constrained during the course of 2013, as the
MoD's review of its procurement processes continues. Downward
pressure on European defence spending, as a result of deficit
reduction programmes, is also expected to continue.
Overall, therefore, the difficult market conditions that
contributed to the Group's disappointing performance in 2012 are
expected to continue in 2013.
However, against this challenging environment, Chemring's
strategy will be to drive improvements in operational performance
and structure the business in such a way as to provide greater
resilience. At the same time, the Group will continue to pursue the
opportunities that exist within non-NATO territories, where defence
spending may be less affected by the same constraints. Although the
defence industry is facing challenges, Chemring's leading market
positions, innovative products and manufacturing expertise should
ensure the Group's underlying business remains robust in the face
of market pressures. Whilst the new management team is actively
addressing these issues and opportunities, 2013 is still expected
to be a challenging year for Chemring, and therefore the Board's
expectations for the year remain unchanged.
() Organic growth at constant exchange rates excludes growth
from Chemring Detection Systems
* Before non-underlying items (see Note 3)
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 2012. 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 Chairman's Statement and the Business 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 24 January 2013 and has been signed on its behalf by
Mr M Papworth and Mr S Bowers.
SUMMARY FINANCIAL INFORMATION
Note 2012 2011
GBPm GBPm
Revenue from continuing operations 2
Counter-IED 205.3 167.6
Countermeasures 184.1 200.8
Pyrotechnics 123.0 118.7
Munitions 227.9 237.0
------ -------
740.3 724.1
Revenue from discontinuing operations
Pyrotechnics 15.1 21.2
------ -------
Total revenue 755.4 745.3
------ -------
Underlying operating profit*
- continuing operations 88.3 135.8
- discontinued operations 3.1 6.0
------ -------
Total underlying operating profit* 91.4 141.8
------ -------
Underlying profit before tax from continuing
operations* 70.1 120.2
Underlying basic earnings per ordinary share
from continuing operations* 28.5p 50.0p
Operating profit from continuing operations 37.0 101.0
Profit before tax from continuing operations 18.8 85.4
Basic earnings per ordinary share from continuing
and discontinued operations 7.9p 39.8p
Diluted earnings per ordinary share from continuing
and discontinued operations 7.8p 39.4p
Dividend per ordinary share 4.2p 14.8p
Net debt (GBPm) 244.8 262.7
Shareholders' funds (GBPm) 433.5 475.4
* Further information about non-underlying items can be found in
Note 3
CONSOLIDATED INCOME STATEMENT
for the year ended 31 October 2012
2012 2011
Underlying Non- Underlying Non-
business underlying business underlying
performance* items Total performance* items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from continuing
operations 740.3 - 740.3 724.1 - 724.1
Operating profit from
continuing operations 88.3 (51.3) 37.0 135.8 (34.8) 101.0
Share of post-tax
results
of associate 0.1 - 0.1 0.1 - 0.1
Finance income 0.1 - 0.1 0.1 - 0.1
Finance expense (18.4) - (18.4) (15.8) - (15.8)
------------- ----------- -------- ------------- ----------- -------
Profit before tax
from continuing operations 70.1 (51.3) 18.8 120.2 (34.8) 85.4
Tax (15.1) 9.5 (5.6) (27.3) 11.9 (15.4)
------------- ----------- -------- ------------- ----------- -------
Profit after tax from
continuing operations 55.0 (41.8) 13.2 92.9 (22.9) 70.0
Discontinued operations
Profit after tax from
discontinued operations 2.1 - 2.1 3.9 - 3.9
------------- ----------- -------- ------------- ----------- -------
Profit after tax 57.1 (41.8) 15.3 96.8 (22.9) 73.9
------------- ----------- -------- ------------- ----------- -------
Earnings per ordinary
share
From continuing operations
Basic 28.5 6.8 50.0 37.7
Diluted 28.1 6.7 49.5 37.3
From continuing operations
and discontinued operations
Basic 29.6 7.9 52.1 39.8
Diluted 29.2 7.8 51.6 39.4
* Further information about non-underlying items can be found in
Note 3. The non-underlying items charge of GBP51.3 million is shown
net of GBP10.3 million profit on disposal arising from the sale of
the marine business.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 October 2012
2012 2011
GBPm GBPm
Profit after tax for the year attributable
to equity holders of the parent 15.3 73.9
Items that will not be reclassified subsequently
to profit or loss:
Actuarial losses on defined benefit pension
schemes (2.7) (1.8)
Movement on deferred tax relating to pension
schemes 0.7 0.4
------- ---------
(2.0) (1.4)
------- ---------
Items that may be reclassified subsequently
to profit or loss:
Losses on cash flow hedges - (0.1)
Exchange differences on translation of foreign
operations (20.1) (7.4)
Deferred tax on exchange differences on translation
of foreign operations 0.7 0.3
------- ---------
(19.4) (7.2)
------- ---------
Total comprehensive income for the year attributable
to
equity holders of the parent (6.1) 65.3
------- ---------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 October 2012
Share Special
Share premium capital Hedging Revaluation Translation Retained Own
capital account reserve reserve reserve reserve earnings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November
2011 2.0 230.6 12.9 - 1.4 (19.5) 254.6 (6.6) 475.4
--------------- --------- ---------- --------- --------- ------------ ------------ --------- -------- --------
Profit after
tax for
the year - - - - - - 15.3 - 15.3
Other
comprehensive
income for
the
year - - - - - (20.1) (1.3) - (21.4)
Total
comprehensive
income for
the
year - - - - - (20.1) 14.0 - (6.1)
Ordinary
shares
issued - 0.1 - - - - - - 0.1
Dividends paid - - - - - - (31.1) - (31.1)
Share-based
payments (net
of
settlement) - - - - - - (1.8) - (1.8)
Transactions
in own shares - - - - - - - (3.0) (3.0)
Transfers
between
reserves - - - - (0.1) - 0.1 - -
--------- ---------- --------- --------- ------------ ------------ --------- -------- --------
At 31 October
2012 2.0 230.7 12.9 - 1.3 (39.6) 235.8 (9.6) 433.5
--------- ---------- --------- --------- ------------ ------------ --------- -------- --------
Share Special
Share premium capital Hedging Revaluation Translation Retained Own
capital account reserve reserve reserve reserve earnings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November
2010 1.8 120.4 12.9 (2.7) 1.4 (12.4) 209.0 (7.2) 323.2
--------------- --------- ---------- --------- ----------- ------------ ------------ --------- -------- --------
Profit after
tax for
the year - - - - - - 73.9 - 73.9
Other
comprehensive
income for
the
year - - - (0.1) - (7.1) (1.4) - (8.6)
Total
comprehensive
income for
the
year - - - (0.1) - (7.1) 72.5 - 65.3
Ordinary
shares
issued 0.2 110.2 - - - - - - 110.4
Dividends paid - - - - - - (22.7) - (22.7)
Share-based
payments (net
of
settlement) - - - - - - (2.1) - (2.1)
Current tax
relating to
share-based
payments - - - - - - 0.7 - 0.7
Transactions
in own shares - - - - - - - 0.6 0.6
Transfers
between
reserves - - - 2.8 - - (2.8) - -
--------- ---------- --------- ----------- ------------ ------------ --------- -------- --------
At 31 October
2011 2.0 230.6 12.9 - 1.4 (19.5) 254.6 (6.6) 475.4
--------- ---------- --------- ----------- ------------ ------------ --------- -------- --------
CONSOLIDATED BALANCE SHEET
as at 31 October 2012
2012 2011
GBPm GBPm GBPm GBPm
As restated(#) As restated(#)
Non-current assets
Goodwill 214.8 243.7
Development costs 31.0 23.3
Other intangible assets 167.4 191.5
Property, plant and equipment 240.0 231.1
Interest in associate 1.4 1.5
Deferred tax 16.9 21.7
-------- -------- --------------- ---------------
671.5 712.8
Current assets
Inventories 113.8 146.8
Trade and other receivables 193.0 190.8
Cash and cash equivalents 96.0 91.9
Derivative financial instruments 1.0 1.9
-------- -------- --------------- ---------------
403.8 431.4
Total assets 1,075.3 1,144.2
Current liabilities
Borrowings (74.0) (86.0)
Obligations under finance leases (1.7) (2.0)
Trade and other payables (201.5) (212.4)
Provisions (2.8) (2.5)
Current tax liabilities (5.2) (5.6)
Derivative financial instruments (0.1) (1.5)
-------- -------- --------------- ---------------
(285.3) (310.0)
Non-current liabilities
Borrowings (262.1) (262.1)
Obligations under finance leases (2.9) (4.4)
Trade and other payables (4.3) (1.2)
Provisions (4.9) (2.4)
Deferred tax (52.7) (59.0)
Preference shares (0.1) (0.1)
Retirement benefit obligations (27.0) (25.2)
Derivative financial instruments (2.5) (4.4)
-------- -------- --------------- ---------------
(356.5) (358.8)
Total liabilities (641.8) (668.8)
-------- -------- --------------- ---------------
Net assets 433.5 475.4
-------- -------- --------------- ---------------
Equity
Share capital 2.0 2.0
Share premium account 230.7 230.6
Special capital reserve 12.9 12.9
Revaluation reserve 1.3 1.4
Translation reserve (39.6) (19.5)
Retained earnings 235.8 254.6
-------- -------- --------------- ---------------
443.1 482.0
Own shares (9.6) (6.6)
-------- -------- --------------- ---------------
Equity attributable to equity
holders of the parent 433.5 475.4
-------- -------- --------------- ---------------
Total equity 433.5 475.4
-------- -------- --------------- ---------------
(#) The restatement above relates to the finalisation of the
fair value of acquired assets from prior year acquisitions
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2012
2012 2011
Note GBPm GBPm
Cash flows from operating activities
---------------------------------------------- ------ ------- ----------
Cash generated from continuing underlying
operations 114.9 118.6
Cash generated from discontinued underlying
operations 3.3 6.0
------------------------------------------------------ ------- ----------
Cash generated from underlying operations A 118.2 124.6
Acquisition and disposal related costs (5.5) (6.6)
Restructuring and incident costs (10.1) (6.7)
------- ----------
Cash generated from operations 102.6 111.3
Tax paid (6.1) (17.2)
------- ----------
Net cash inflow from operating activities 96.5 94.1
------- ----------
Cash flows from investing activities
Dividends received from associate 0.1 0.1
Purchases of intangible assets (11.0) (12.9)
Purchases of property, plant and equipment (30.1) (44.1)
Proceeds on disposal of property, plant
and equipment - 0.4
Receipts from sales of trades or businesses 21.8 -
(net of cash transferred)
Acquisition of subsidiary undertakings
(net of overdraft assumed) - (58.0)
------- ----------
Net cash outflow from investing activities (19.2) (114.5)
------- ----------
Cash flows from financing activities
Dividends paid (31.1) (22.7)
Interest paid (23.8) (22.5)
Proceeds on issues of shares - 110.4
New borrowings 12.5 107.2
Capitalised facility fees - (4.8)
Repayments of borrowings (23.0) (112.6)
Proceeds from new finance leases - 3.4
Repayments of finance leases (1.8) (2.6)
Purchase of own shares (4.8) (1.5)
------- ----------
Net cash (outflow)/inflow from financing
activities (72.0) 54.3
------- ----------
Increase in cash and cash equivalents during
the year 5.3 33.9
Cash and cash equivalents at start of the
year 91.9 58.4
Effect of foreign exchange rate changes (1.2) (0.4)
------- ----------
Cash and cash equivalents at end of the
year 96.0 91.9
------- ----------
NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2012
2012 2011
GBPm GBPm
A. Cash generated from operations
Operating profit from continuing operations 37.0 101.0
Operating profit from discontinuing operations 3.1 6.0
-------- ------------
40.1 107.0
Adjustment for:
Impairment of goodwill 22.5 -
Amortisation of development costs 4.3 2.4
Amortisation of intangible assets arising from
business combinations 20.9 24.3
Amortisation of patents and licences 0.3 0.2
Loss on disposal of property, plant and equipment 3.4 0.5
Depreciation of property, plant and equipment 15.9 17.2
Gain on fair value movements on derivatives (1.9) (2.4)
Share-based payment (credit)/expense (0.1) 0.2
Difference between pension contributions paid
and amount recognised in Income Statement 0.6 (0.4)
Increase/(decrease) in provisions 2.8 (0.1)
-------- ------------
Operating cash flows before movements in working
capital 108.8 148.9
Decrease/(increase) in inventories 28.0 (1.2)
Increase in trade and other receivables (8.2) (22.5)
Decrease in trade and other payables (20.2) (13.5)
-------- ------------
108.4 111.7
Add back non-underlying items:
Acquisition and disposal related costs 8.2 5.7
Restructuring and incident costs 11.9 7.2
Profit on disposal of businesses (10.3) -
-------- ------------
Cash generated from underlying operations 118.2 124.6
-------- ------------
B. Reconciliation of net cash flow to movement
in net debt
Increase in cash and cash equivalents during
the year 5.3 33.9
Decrease in debt and lease financing due to cash
flows 12.3 9.4
-------- ------------
Change in net debt resulting from cash flows 17.6 43.3
Foreign exchange differences 1.9 3.0
Amortisation of debt finance costs (1.6) (1.5)
-------- ------------
Movement in net debt in the year 17.9 44.8
Net debt at start of the year (262.7) (307.5)
-------- ------------
Net debt at end of the year (244.8) (262.7)
-------- ------------
C. Analysis of net debt
As at Cash Non-cash Exchange As at
1 Nov 2011 flow changes movement 31 Oct
2012
GBPm GBPm GBPm GBPm GBPm
Cash at bank and in hand 91.9 5.3 - (1.2) 96.0
Debt due within one year (86.0) 10.5 (2.2) 3.7 (74.0)
Debt due after one year (262.1) - 0.6 (0.6) (262.1)
Finance leases (6.4) 1.8 - - (4.6)
Preference shares (0.1) - - - (0.1)
------------ ------------- ------------- ------------- -----------
(262.7) 17.6 (1.6) 1.9 (244.8)
------------ ------------- ------------- ------------- -----------
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 2012 or
31 October 2011 but is derived from those accounts. Statutory
accounts for 2011 have been delivered to the Registrar of
Companies, and those for 2012 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 2012.
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 2013 (see Note 7 below).
2. ANALYSIS OF REVENUE
2012 2011
Total Discontinued Continuing Total Discontinued Continuing
GBPm GBPm GBPm GBPm GBPm GBPm
Counter-IED 205.3 - 205.3 167.6 - 167.6
Countermeasures 184.1 - 184.1 200.8 - 200.8
Pyrotechnics 138.1 (15.1) 123.0 139.9 (21.2) 118.7
Munitions 227.9 - 227.9 237.0 - 237.0
------ ------------- ----------- ------ ------------- ---------------
755.4 (15.1) 740.3 745.3 (21.2) 724.1
------ ------------- ----------- ------ ------------- ---------------
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.
2012 2011
GBPm GBPm
Statutory operating profit from continuing
operations 37.0 101.0
Add back:
Acquisition and disposal related costs 8.2 5.7
Restructuring and incident costs 11.9 7.2
Profit on disposal of business (10.3) -
Impairment of goodwill 22.5 -
Intangible amortisation arising from business
combinations 20.9 24.3
Gain on fair value movements on derivatives (1.9) (2.4)
------- ---------
Underlying operating profit from continuing
operations 88.3 135.8
------- ---------
Further details on the non-underlying items are provided earlier
in this preliminary results announcement.
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 193,309,230 (2011: 185,633,996) and profit on continuing
ordinary activities after tax of GBP13.2 million (2011: GBP70.0
million). Diluted earnings per share has been calculated using a
diluted average number of shares in issue of 195,792,140 (2011:
187,636,114) and profit on continuing ordinary activities after tax
of GBP13.2 million (2011: GBP70.0 million).
The earnings and shares used in the calculations are as
follows:
2012 2011
Ordinary Ordinary
shares Shares
Earnings Number EPS Earnings Number EPS
GBPm 000s Pence GBPm 000s Pence
Basic 15.3 193,309 7.9 73.9 185,634 39.8
Additional shares issuable
other than at fair value
in respect of options outstanding - 2,483 (0.1) - 2,002 (0.4)
------------ --------- --------- ------------ --------- ---------
Diluted 15.3 195,792 7.8 73.9 187,636 39.4
------------ --------- --------- ------------ --------- ---------
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 and disposal related costs, restructuring and incident
costs, profit on disposal of business, impairment of goodwill,
intangible amortisation arising from business combinations and gain
on fair value movements on derivatives. The directors consider this
measure of earnings allows a more meaningful comparison of earnings
trends.
2012 2011
Ordinary Ordinary
shares Shares
Earnings Number EPS Earnings Number EPS
GBPm 000s Pence GBPm 000s Pence
Basic 15.3 193,309 7.9 73.9 185,634 39.8
Non-underlying items* 41.8 - 21.7 22.9 - 12.3
--------- --------- --------- --------- ------------- ---------
Underlying 57.1 193,309 29.6 96.8 185,634 52.1
--------- --------- --------- --------- ------------- ---------
* Before non-underlying items (see Note 3) and tax thereon of
GBP9.5 million
5. DIVIDEND
The final dividend of 4.2p per ordinary share will be paid on 10
May 2013 to all shareholders registered at the close of business on
19 April 2013. The ex-dividend date will be 17 April 2013. The
total dividend for the year will be 9.5p (2011: 14.8p). 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
2012.
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. 2012 FINANCIAL STATEMENTS
The financial statements for the year ended 31 October 2012 will
be posted to shareholders on 18 February 2013. 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
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