TIDMCHG
RNS Number : 3294K
Chemring Group PLC
24 June 2014
FOR IMMEDIATE RELEASE 24 JUNE 2014
CHEMRING GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 30 APRIL 2014
2014 2013
Including discontinued
operations
Revenue GBP277.4m GBP297.4m
Underlying operating profit(1) GBP27.0m GBP35.1m
Underlying operating margin(1) 9.7% 11.8%
Underlying profit before
tax(1) GBP18.0m GBP25.2m
Net debt GBP229.2m GBP275.1m
Underlying earnings per
share(1) 7.3p 10.0p
Dividend per share(2) 2.4p 3.4p
Total operating (loss)/profit GBP(63.0)m GBP0.7m
Loss before tax GBP(72.0)m GBP(9.2)m
Total loss per share (37.5)p (1.8)p
Continuing operations
Revenue GBP208.8m GBP225.4m
Underlying operating profit(1) GBP22.4m GBP28.7m
Underlying operating margin(1) 10.7% 12.7%
Underlying profit before
tax(1) GBP13.4m GBP19.1m
Underlying earnings per
share(1) 5.4p 7.4p
Total operating profit/(loss) GBP14.1m GBP(3.1)m
Profit/(loss) before tax GBP5.1m GBP(12.7)m
Total earnings/(loss) per
share 2.4p (3.6)p
(1) Underlying measures referred to in this announcement are
stated before costs relating to acquisitions and disposals,
business restructuring and incident costs, profit on disposal of
businesses, items deemed to be of an exceptional nature, impairment
of goodwill and acquired intangibles, impairment of other net
assets held for sale, amortisation of acquired intangibles and
gains/losses on the movement in the fair value of derivative
financial instruments, as stated in the 2013 Annual Report and
Accounts. Further details of underlying and total measures are
shown in notes 2 and 5.
(2) The interim dividend of 2.4p per ordinary share will be paid
on 15 August 2014 to shareholders on the register at 25 July 2014.
The ex-dividend date is 23 July 2014.
Highlights
-- Overall interim results in line with expectations. Full year
outlook remains broadly unchanged before the effect of further
foreign exchange headwind in the second half
-- Strong margins in Sensors & Electronics and good
operational progress in Energetic Sub-Systems mitigates ongoing
issues in US Countermeasures business
-- Significant reduction in net debt to GBP229.2 million at
period end (2013: GBP275.1 million) before receipt of disposal
proceeds, reflecting inherent cash generative nature of the
business
-- Completed small but significant acquisition of 3d-Radar,
which consolidates Chemring's leading international position in
ground penetrating radar
Divestment of European Munitions Business
-- Strategic disposal completed on 27 May 2014, GBP134.5 million
(EUR165.3 million) proceeds received
-- Chemring is now a focused defence technology business with
well-established core competencies and world-leading positions in
Countermeasures, Sensors & Electronics and Energetic
Systems
-- Whilst dilutive to earnings, the divestment significantly
strengthens Chemring's balance sheet, creating greater flexibility
to pursue growth opportunities in chosen markets
-- Concludes the disposal process that resulted from the 2013 strategic review
Appointment of Group Chief Executive
-- A separate announcement has been made today regarding the
appointment of Michael Flowers as Group Chief Executive with
immediate effect
Peter Hickson, Chairman of Chemring, commented:
"The Group has made important progress in the period,
re-focusing its operations and strengthening the balance sheet to
create greater flexibility to invest for growth. The divestment of
the European munitions business was a key milestone for Chemring
and concludes the disposal processes stemming from the 2013
strategic review.
As a result, we are now moving to a position where we can take
advantage of the stronger platform that has been created. The
appointment of Michael Flowers, with his proven track record, both
within the international defence industry and within Chemring,
places us in a strong position to build on our world leading
technologies and market positions in Countermeasures, Sensors &
Electronics and Energetic Systems.
While end markets remain challenging and customer behaviour
difficult to predict, we will continue to drive operational
efficiencies. We are also pursuing growth opportunities,
particularly in non-NATO and commercial markets. Excluding the
effects of further movements in exchange rates, the Board's outlook
for the full year remains broadly unchanged."
For further information:
Peter Hickson Chairman, Chemring Group PLC 01489 881880
Michael Flowers Group Chief Executive, Chemring Group PLC 01489
881880
Steve Bowers Group Finance Director, Chemring Group PLC 01489
881880
Rupert Pittman Group Director of Communications and
Investor Relations, Chemring Group PLC 01489 881880
Andrew Jaques MHP Communications 0203 128 8100
John Olsen
James White
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 four
countries, selling high-technology electronics and energetic
products to over fifty countries worldwide.
-- Chemring has a diverse portfolio of products protecting
military people and platforms against constantly changing
threats.
-- Operating in niche markets with short product development
timescales, Chemring has the agility to react rapidly to urgent
customer needs.
-- Strong research and development investment in new products
and improvements in technology enable Chemring to expand its
addressable markets.
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 Tuesday 24 June 2014. The presentation can also be listened to
at that time by dialling +44 (0) 20 3059 8125 and using the
participant password of Chemring. A recording of the audio webcast
will be available later that day.
Photography
Original high resolution photography is available to the media
by contacting Ben Griffiths, MHP Communications:
ben.griffiths@mhpc.com / tel: 0203 128 8100.
Interim Management Statement
Chemring's third quarter Interim Management Statement is
scheduled to be released on Wednesday 17 September 2014.
INTERIM MANAGEMENT REPORT
Group overview - including discontinued operations
Revenue, including discontinued operations, reduced by 6.7% to
GBP277.4 million (2013: GBP297.4 million) and underlying profit
before tax was 28.6% lower at GBP18.0 million (2013: GBP25.2
million). Underlying earnings per share were 7.3p (2013: 10.0p), a
reduction of 27.0%. The results were, as anticipated, impacted by
lower activity levels, but were also affected by adverse foreign
exchange rate movements. On a constant currency basis, revenue was
2.8% lower than the comparative period and underlying profit before
tax was 23.2% lower.
The total order book reduced by 12.5% over the period to
GBP591.1 million (October 2013: GBP675.5 million). Excluding
businesses disposed of, the Group's order book at 30 April 2014 was
GBP401.8 million (October 2013: GBP485.2 million), of which
GBP175.6 million is scheduled for delivery during the current
financial year.
Since the period end the Group successfully divested its
European munitions business for GBP134.5 million (EUR165.3
million). This transaction has re-shaped Chemring for future
growth, resulting in a more focused defence technology business
with well-established and world leading positions in
Countermeasures, Sensors & Electronics and Energetic Systems.
At the same time, the disposal significantly strengthened the
Group's balance sheet, reducing net debt, providing the Group with
greater flexibility to re-invest in the growth opportunities that
these market positions create, whilst avoiding expenditure that
would otherwise have been required in the near term within the
divested business.
Update on Performance Recovery Programme
The two year Performance Recovery Programme, announced in
January 2013, is yielding sustainable improvements in operational
performance. Further improvements will be made during the second
half, providing increased resilience to difficult market
conditions.
A key priority was the divestment of non-core businesses and the
consequent reduction of net debt. On 19 December 2013, the Group
completed the sale of Chemring Energetic Devices' build-to-print
business located in Clear Lake, South Dakota for $10.0 million
(GBP5.9 million).
On 27 May 2014, the Group completed the sale of its European
munitions business based in Belgium and Italy, for GBP134.5 million
(EUR165.3 million) and, on the same date, also sold Chemring
Defence Germany for GBP2.2 million (EUR2.8 million). The related
revaluation of net assets related to these businesses has led to an
impairment charge of GBP70.2 million in the period.
This divestment programme, which is now complete, has enabled
the Group to strengthen its balance sheet, providing a more stable
financial platform and greater flexibility to invest. The Group now
has the core technologies, products and market positioning to
achieve sustainable improvements in margins and revenue.
Markets
The major declines in defence budgets in the US and the rest of
NATO result from the withdrawal from Afghanistan and economic
austerity measures. However, the latest analysis of global defence
spending confirms the previously identified trends, with the rate
of decline moderating through 2015, before stabilising and slowly
recovering from 2016.
The US still dominates defence spending, accounting for
approximately 40% of the global spend. The US Overseas Contingency
Operations budget is contracting rapidly and forward funding
remains very uncertain, counteracting proposed increases in the
FY16 baseline budget. Specifically for Chemring, the
countermeasures market remains at minimum sustaining levels, but
key programmes such as the F-35 Joint Strike Fighter, the Patriot
missile enhancement project and the Husky Mounted Detection System
("HMDS") ground penetrating radar Program of Record have the
potential to generate substantial revenues over the longer
term.
In Europe, defence budgets remain very tight as a result of
sustained austerity programmes. A limited recovery in demand for
countermeasures has begun and there is continued interest in
advanced flare technology.
Growth in defence spending continues in the Middle and Far East.
There is some slowing of growth as major procurement programmes
complete, but regional tensions continue to drive demand for
Chemring's countermeasures and electronics products. The South
American market, while still relatively small, continues to
grow.
Countermeasures review
The Countermeasures segment had a mixed first half, with revenue
reducing by 23.7% to GBP43.5 million (2013: GBP57.0 million) and
underlying operating profit down 69.4% to GBP1.5 million (2013:
GBP4.9 million). The operating margin reduced to 3.4% (2013:
8.6%).
The most significant factor in this performance was the tragic
incident at Chemring Countermeasures USA's Kilgore facility on 22
February 2014, in which an employee was fatally injured. All
production was suspended while an investigation took place.
Following regulatory clearance, a structured and controlled
re-start commenced in March 2014. The portion of the facility where
the incident occurred is in the process of being re-commissioned
and, subject to receipt of appropriate regulatory clearances, is
expected to re-open in August 2014.
The impact on Chemring Countermeasures USA from reduced demand
as a result of the drawdown from Afghanistan has been compounded by
continued operational issues which the Group is actively
addressing. The recently appointed General Manager of the Kilgore
site is driving significant improvements which have already been
reflected in better process controls and site management. While
uncertainties regarding the US defence budget continue to cause
delays to orders and sales, there are signs that volumes have
stabilised. An encouraging sign of longer term prospects was the
receipt in January 2014 of a $1.6 million production order for
initial supplies to the F-35 Joint Strike Fighter programme.
Chemring Countermeasures UK had a strong start to the year, with
order intake significantly ahead of the comparative period as a
number of orders relating to the Typhoon programme and naval
countermeasures were received earlier than expected, indicating
that customer demand is stabilising. Operational improvements are
delivering enhanced quality and productivity.
Chemring Australia's performance was comparable to the prior
year, as expenditure by the Australian Defence Force stabilised
following the Afghanistan withdrawal. Work on the Joint Strike
Fighter project continues to progress towards Chemring
Australia'sobjective of becoming a qualified supplier of the
principal flare used on this platform.
Countermeasures' order book of GBP161.8 million was broadly
unchanged during the period (October 2013: GBP160.8 million).
Sensors & Electronics review
Revenue for Sensors & Electronics decreased by 12.6% to
GBP94.7 million (2013: GBP108.3 million) and underlying operating
profit reduced by 7.5% to GBP23.3 million (2013: GBP25.2 million).
The operating margin increased to 24.6% (2013: 23.3%), with this
strong performance due to operational efficiencies at the US
business and the fulfilment of major orders, enabling contract risk
reserves to be released.
The integration in 2013 of the US businesses to form Chemring
Sensors & Electronic Systems ("CSES") is realising cost
benefits, allowing improved leverage of the Group's technology
capabilities and enabling better customer interaction. The contract
with the US Department of Defense ("DoD") for the supply of the
HMDS ground penetrating radar performed strongly, with all orders
being completed during the period, slightly ahead of expectations.
A final order under this indefinite-delivery/indefinite-quantity
contract, previously anticipated in the second half of the current
financial year, is now not expected to materialise. However, this
is anticipated to be largely offset by a number of funded research
and development awards, and ground penetrating radar opportunities
with non-NATO customers including some which have resulted from the
recent acquisition of 3d-Radar.
On 9 May 2014, Chemring completed the strategically important
technology acquisition of 3d-Radar, consolidating its position as a
world leader in ground penetrating radar. 3d-Radar, based in
Norway, was acquired for a cash consideration of $3.0 million
(GBP1.8 million). 3d-Radar's ground penetrating radar technology is
not restricted by US International Traffic in Arms Regulations
("ITAR"), enabling Chemring to target significant opportunities in
both non-NATO and commercial markets which were hitherto not
accessible to the Group. 3d-Radar is already benefitting from
access to Chemring's sales and distribution channels.
The chemical and biological detection systems business delivered
a strong performance and was awarded a final contract for the
supply of Joint Biological Point Detection Systems to the US Army.
A proposal for the DoD's Next Generation Chemical Detection system
has been submitted and a funded research and development award is
expected in the coming months. CSES also submitted a proposal for
the next generation Joint Biological Tactical Detection System, a
$179.0 million biological detection development program. CSES's
latest product introduction, the JUNO hand-held chemical vapour
detector, received its first order from the US Army Corp of
Engineers in May 2014.
In the UK, Chemring Technology Solutions had a mixed first half.
Revenue reduced slightly due to a number of orders being delayed.
The sale of the Resolve electronic warfare manpack system to a new
customer in the Middle East was encouraging and an innovative
enterprise security solution, Perception, has been launched with
technical evaluations now underway.
The order book for Sensors & Electronics at 30 April 2014
was GBP50.1 million (October 2013: GBP106.2 million). As
anticipated, this reduction reflects the fulfilment of a number of
US based product orders. Programs such as HMDS and certain chemical
detection products are commencing the transition from being funded
as Urgent Operational Requirements to being funded as Programs of
Record within the DoD's base budget. Bid submissions for a total of
$271.1 million of contracts were made in the period and funded
development contract awards are anticipated in the second half of
the current financial year.
Pyrotechnics & Munitions review
Revenue for Pyrotechnics & Munitions rose by 20.7% to
GBP107.7 million (2013: GBP89.2 million); however, underlying
operating profit reduced to GBP4.8 million (2013: GBP5.0 million).
The resulting operating margin of 4.5% (2013: 5.6%) reflects both
product mix and heightened competitive pressures in certain end
markets. These factors have outweighed the benefits of operational
improvement, which have been manifested in greater consistency in
production quality.
The order book for Pyrotechnics & Munitions at 30 April 2014
was GBP297.6 million (October 2013: GBP315.5 million). Market
conditions continue to be mixed; however, the prevailing themes
remain reduced spending within NATO and the deferment of order
placement in non-NATO markets.
The divestment of the European munitions business, which
comprised Mecar, based in Belgium, and Simmel, located in Italy,
was completed on 27 May 2014. There were positive order intake
signs during the period, but this was offset by weakness in the
naval munitions sector. Since the period end, the Group has
received gross proceeds of GBP134.5 million (EUR165.3 million) from
the disposal of the European munitions business.
On 27 May 2014, the Group also completed the disposal of
Chemring Defence Germany, which specialises in the supply of
pyrotechnic products and training rounds, for GBP2.2 million
(EUR2.8 million).
The disposed businesses had revenue in the period of GBP68.6
million (2013: GBP72.0 million) and achieved an operating profit of
GBP4.6 million (2013: GBP6.4 million). Their order book at 30 April
2014 was GBP189.3 million (31 October 2013: GBP180.6 million).
These businesses have been classified as discontinued operations,
with their net assets being classified as held for sale at 30 April
2014. The related revaluation of these net assets has led to an
impairment charge of GBP70.2 million arising in the period.
The remaining businesses within the Pyrotechnics & Munitions
segment are Chemring Defence UK and Chemring Ordnance, which is
based in the US. Chemring Defence UK continues to experience
difficult trading conditions due to reduced UK demand and delays on
the placement of certain Middle Eastern orders. Indicators of
potential impairment of assets relating to Chemring Defence have
been considered but no impairment is required at the current time.
Chemring Ordnance is delivering much improved performance, with
greater consistency in its production processes, which has enabled
significant growth in revenue compared to the comparative period.
Following the disposals, these two businesses are being combined
within the existing Energetic Sub-Systems segment and will in
future be reported as Energetic Systems.
Energetic Sub-Systems review
Revenue for Energetic Sub-Systems reduced by 26.6% to GBP31.5
million (2013: GBP42.9 million) and underlying operating profit was
53.8% lower at GBP2.4 million (2013: GBP5.2 million). This was, in
part, a result of the disposal of the Clear Lake business in
January 2014, but the reduction in operating profit was primarily
due to the phasing of activity which will be weighted toward the
second half of the current financial year. The operating margin was
7.6% (2013: 12.1%), reflecting the impact of lower volumes on
operations that have a relatively high proportion of fixed
costs.
In the UK, activity reduced as a result of the phasing of demand
and delays in the resolution of technical issues relating to its
Next Generation Light Anti-tank Weapon. These issues have now been
resolved, enabling deliveries under this contract to be
completed.
In the US, the integration of Hi-Shear into Chemring Energetic
Devices is progressing well. Chemring Energetic Devices' enterprise
resource planning system has been implemented at the Hi-Shear site,
enabling much improved workflow management. The process of
transferring elements of Hi-Shear's production and engineering
workload to other US sites continues. Encouragingly, US order
intake exceeded the comparative period, with strong order intake of
aircraft pyrotechnic safety products for aircrew egress.
The order book for Energetic Sub-Systems at 30 April 2014 was
GBP81.6 million (October 2013: GBP93.0 million).
Analysis of non-underlying items
The use of underlying measures, in addition to the total
measures noted above, is considered by the Board to improve
comparability of business performance between periods and, in line
with past practice, certain items are classed as non-underlying as
set out below. The non-underlying items relate to both continuing
and discontinued operations.
2014 2013
GBPm GBPm
Acquisition and disposal related costs 9.1 2.3
Business restructuring and incident costs 3.0 5.6
Profit on disposal of business (0.5) -
Impairment of goodwill and acquired intangibles
held for sale 56.6 15.7
Impairment of other net assets held for sale 13.6 -
Intangible amortisation arising from business
combinations 9.2 10.4
(Gain)/loss on fair value movements on derivative
financial instruments (1.0) 0.4
------ ------
Total non-underlying items 90.0 34.4
------ ------
Analysed as:
Continuing operations 8.3 31.8
Discontinued operations 81.7 2.6
------ ------
90.0 34.4
------ ------
Acquisition and disposal related costs of GBP9.1 million include
fees and provisions of GBP8.5 million relating to the disposal of
the European munitions business. Business restructuring and
incident costs of GBP3.0 million include GBP0.9 million relating to
the Kilgore incident and GBP0.7 million associated with the
relocation of the Group's corporate head office to Chemring
Technology Solutions' site in Romsey, one of the final
restructuring projects being undertaken as part of the Performance
Recovery Programme.
The European munitions disposal gave rise to an impairment of
goodwill and intangible assets of GBP56.6 million, wholly in
relation to Simmel. There was an impairment of other net assets of
GBP13.6 million, of which GBP7.3 million related to Simmel and
GBP6.3 million was in respect of Chemring Defence Germany.
Intangible amortisation arising from business combinations was
GBP9.2 million (2013: GBP10.4 million), with the decrease
reflecting the fact that certain intangible assets are now fully
amortised.
Including non-underlying items, operating profit from continuing
operations improved to GBP14.1 million (2013: GBP3.1 million loss),
due mainly to the reduced level of non-underlying costs in respect
of continuing operations. Including non-underlying items, profit
before tax from continuing operations similarly improved to GBP5.1
million (2013: GBP12.7 million loss). The effective tax rate on the
profit before tax from continuing operations was 7.8% (2013:
45.7%), due to a higher proportion of expenses not deductible for
tax purposes in the comparative period.
Dividend
The Board has declared an interim dividend of 2.4p per ordinary
share (2013: 3.4p), with the dividend continuing to be three times
covered by underlying earnings per share. The interim dividend will
be paid on 15 August 2014 to shareholders on the register at 25
July 2014.
Balance sheet
The Group's net debt decreased by GBP19.5 million during the
period to GBP229.2 million (October 2013: GBP248.7 million; April
2013: GBP275.1 million). This decrease was principally due to
GBP11.8 million of exchange rate effects attributable to the
strengthening of sterling giving rise to a lower translated value
of US dollar denominated debt.
Working capital decreased during the period by GBP16.3 million
to GBP109.2 million, of which GBP43.8 million related to
discontinued operations. This reflects the heavy working capital
requirement of the European munitions business. Capital
expenditure, including capitalised development costs, was GBP10.8
million (2013: GBP7.6 million), principally comprising investment
in Sensors & Electronics product development and health and
safety related investment in production facilities.
Since the period end, the Group has received gross proceeds of
GBP134.5 million (EUR165.3 million) from the disposal of the
European munitions business.
Debt facilities
During the period, Chemring successfully concluded a revision of
financial covenants with the holders of its loan notes, enabling
greater flexibility in the application of disposal proceeds. The
revised covenants give Chemring the ability to offer a proportion
of disposal proceeds to loan note holders to repay outstanding
notes at par. To the extent that note holders do not accept this
offer of repayment, the Company is entitled to offset rejected
proceeds against gross debt to derive an adjusted debt value that
is used in calculating covenant compliance. Following receipt of
disposal proceeds in May 2014, the loan note leverage test will be
calculated based on the ratio of earnings before interest, tax,
depreciation and amortisation ("EBITDA") to this adjusted debt
value, such ratio not to exceed 3.00x. In addition, a covenant
based upon total debt is retained but at an alleviated level of
3.50x EBITDA at the April 2014 test date. Following completion of
the disposal of the European munitions business, this gross debt
covenant is set at a permanently increased level of 3.75x
EBITDA.
During May 2014, GBP113.3 million of proceeds from the
divestment of the European munitions business were offered to note
holders. Acceptances received from note holders will lead to
GBP14.6 million of loan notes being repaid at par by July 2014.
The revolving credit facility net debt covenant was increased to
3.25x EBITDA for the April 2014 test date, reverting to 3.00x for
the July 2014 and subsequent test dates. The revolving credit
facility is due to expire on 30 April 2015 and the Company has
commenced discussions with debt providers in the normal course in
relation to the refinancing of this facility.
The directors have acknowledged the latest guidance on going
concern. The refinancing of the revolving credit facility is
ongoing and discussions with potential providers of finance are
positive. As a result of the status of these negotiations, the
directors do not believe the refinancing of the revolving credit
facility represents a material uncertainty. Management have
considered the latest forecasts available to them and additional
sensitivity analysis has been prepared on the covenant forecasts to
consider the impact on covenants of any reduction in anticipated
levels of EBITDA. This sensitised scenario includes identified
mitigating actions that can be taken if needed and, based on the
application of these, shows headroom on all covenant test
dates.
After consideration of the above, the directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. Thus,
they continue to adopt the going concern basis in preparing the
half-yearly condensed financial statements. Further details are set
out in note 1.
The Group complied with its financial covenants throughout the
period and this compliance is expected by the directors to continue
for the foreseeable future.
The following tables detail the results of the covenant tests at
the period end and at 31 October 2013, together with the
composition of gross and net debt:
2014 2013
Covenant ratios - revolving credit facility
Maximum allowed ratio of consolidated net debt
to underlying EBITDA 3.25x 3.25x
Actual ratio of consolidated net debt to underlying
EBITDA 2.72x 2.65x
Minimum allowed ratio of underlying EBITDA to finance
costs 4.00x 4.00x
Actual ratio of underlying EBITDA to finance costs 4.97x 4.98x
Covenant ratios - loan note agreements
Maximum allowed ratio of consolidated total debt
to underlying EBITDA 3.50x 3.50x
Actual ratio of consolidated total debt to underlying
EBITDA 2.98x 2.78x
Minimum allowed ratio of underlying EBITDA to finance
costs 3.50x 3.50x
Actual ratio of underlying EBITDA to finance costs 5.24x 5.61x
------ ------
GBPm GBPm
Loan notes (247.0) (259.1)
Revolving credit facility - -
Other loans and finance leases (2.8) (3.8)
-------- --------
Gross debt (249.8) (262.9)
Cash 20.6 14.2
-------- --------
Net debt (229.2) (248.7)
-------- --------
Cash at 30 April 2014 includes GBP5.7 million relating to
businesses held for sale.
Board of directors
On 24 June 2014, Chemring announced Michael Flowers' appointment
as Group Chief Executive with immediate effect. Mark Papworth
stepped down from the Board of Chemring with effect from that
date.
Health and safety
The incident at Kilgore on 22 February 2014 tragically resulted
in the death of one of our employees. In addition to external
regulatory investigations, a full internal review of the cause of
the incident was launched. The factors which led to this incident
have been addressed and the Group has introduced a number of
changes to prevent an incident of this nature happening again. It
is recognised that a deeper cultural challenge needs to be overcome
at the Kilgore facility and this is being actively addressed.
The Group continues to make health and safety its first
priority, investing substantial funds and effort in improving the
safety of its operations and protecting employees, especially those
who work with volatile and energetic materials. Capital expenditure
continues to be invested in order to automate processes and enable
employees to be isolated from sensitive operations.
Principal risks and uncertainties
The principal risks and uncertainties which could have a
material impact on the Group's performance over the remaining six
months of the financial year, and could cause actual results to
differ materially from expected and historical results, have not
changed from those set out in the "Principal Risks and
Uncertainties" section of the Group's 2013 Annual Report and
Accounts. A detailed description of the Group's principal risks and
uncertainties and the ways they are mitigated can be found at Annex
1. These can be summarised as:
-- Health and safety risks
-- Possible defence budget cuts
-- Timing and value of orders
-- Political risks
-- Operational risks
-- Introduction of new products
-- Product liability and other customer claims
-- Management resource
-- Compliance and corruption risks
-- Environment laws and regulations
-- Financial risks
Management have detailed mitigation plans and assurance
processes to manage and monitor these risks.
Outlook
The Group has made important progress in the period, re-focusing
its operations and strengthening the balance sheet to create
greater flexibility to invest for growth. The divestment of the
European munitions business was a key milestone for Chemring and
concludes the disposal processes stemming from the 2013 strategic
review.
As a result, Chemring is now moving to a position where it can
take advantage of the stronger platform that has been created. The
appointment of Michael Flowers, with his proven track record, both
within the international defence industry and within Chemring,
places the Group in a strong position to build on its world leading
technologies and market positions in Countermeasures, Sensors &
Electronics and Energetic Systems.
While end markets remain challenging and customer behaviour
difficult to predict, Chemring will continue to drive operational
efficiencies. The Group is also pursuing growth opportunities,
particularly in non-NATO and commercial markets. Excluding the
effects of further movements in exchange rates, the Board's outlook
for the full year remains broadly unchanged.
Cautionary statement
This Interim Management Report has been prepared solely to provide
additional information to shareholders to assess the Group's strategies
and the potential for those strategies to succeed. The Interim
Management Report should not be relied on by any other party or
for any purpose.
The Interim Management Report contains certain forward-looking
statements. These statements are made by the directors in good
faith based on information available to them up to the time of
their approval of this report but such statements should be treated
with caution due to the inherent uncertainties, including both
economic and business risk factors, underlying any such forward-looking
information.
-------------------------------------------------------------------------
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for the maintenance and integrity
of the Company website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial information differs from legislation in
other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
a) the Condensed Set of Financial Statements has been prepared
in accordance with IAS 34 Interim Financial Reporting;
b) the Interim Management Report includes a fair review of the
information required by DTR 4.2.7R (indication of important
events during the first six months and description of principal
risks and uncertainties for the remaining six months of the
year); and
c) the Interim Management Report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related
parties' transactions and changes therein).
By order of the Board
Michael Flowers Steve Bowers
Group Chief Executive Group Finance Director
24 June 2014 24 June 2014
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2014
Unaudited Unaudited
Half year to Half year to
30 April 2014 30 April 2013
Note Underlying
Underlying Non-underlying business Non-underlying Total
business items* performance items* (restated)(#)
performance Total (restated)(#)
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue from
continuing
operations 208.8 - 208.8 225.4 - 225.4
Discontinued
operations 68.6 - 68.6 72.0 - 72.0
Total revenue 277.4 - 277.4 297.4 - 297.4
Operating
profit/(loss)
from continuing
operations 22.4 (8.3) 14.1 28.7 (31.8) (3.1)
Discontinued
operations 4.6 (81.7) (77.1) 6.4 (2.6) 3.8
Total operating
profit/(loss) 27.0 (90.0) (63.0) 35.1 (34.4) 0.7
Finance income 0.2 - 0.2 - - -
Finance expense (9.2) - (9.2) (9.6) - (9.6)
------------- ---------------- -------- -------------- ---------------- ---------------
Profit/(loss)
before
tax from
continuing
operations 13.4 (8.3) 5.1 19.1 (31.8) (12.7)
Tax 4 (2.9) 2.5 (0.4) (4.8) 10.6 5.8
------------- ---------------- -------- -------------- ---------------- ---------------
Profit/(loss)
after
tax from
continuing
operations 10.5 (5.8) 4.7 14.3 (21.2) (6.9)
Discontinued operations
Profit/(loss)
after
tax from
discontinued
operations 8 3.6 (80.8) (77.2) 5.2 (1.7) 3.5
Profit/(loss)
after
tax for the
period 2 14.1 (86.6) (72.5) 19.5 (22.9) (3.4)
------------- ---------------- -------- -------------- ---------------- ---------------
Earnings/(loss)
per
ordinary share 5
Continuing operations
Basic 5.4p 2.4p 7.4p (3.6)p
Diluted 5.3p 2.4p 7.2p (3.6)p
------------- ---------------- -------- -------------- ---------------- ---------------
Continuing and discontinued operations
Basic 7.3p (37.5)p 10.0p (1.8)p
Diluted 7.1p (37.5)p 9.8p (1.8)p
------------- ---------------- -------- -------------- ---------------- ---------------
* Further information about non-underlying items can be found in
note 2.
(#) The restatement relates to the prior period interest charge
as a result of the adoption of IAS 19 (Revised) Employee Benefits.
See note 10 for further details.
CONDENSED CONSOLIDATED INCOME STATEMENT (continued)
for the half year to 30 April 2014
Audited
Year to
31 Oct 2013
Note Underlying
business Non-underlying Total
performance items* (restated)(#)
(restated)(#)
GBPm GBPm GBPm
Revenue from continuing operations 472.3 - 472.3
Discontinued operations 152.6 - 152.6
Total revenue 624.9 - 624.9
Operating profit/(loss) from continuing
operations 56.3 (103.0) (46.7)
Discontinued operations 15.8 (6.0) 9.8
Total operating profit/(loss) 72.1 (109.0) (36.9)
Finance income 0.2 - 0.2
Finance expense (20.0) - (20.0)
--------------- ----------------- ----------------
Profit/(loss) before tax from continuing
operations 36.5 (103.0) (66.5)
Tax 4 (6.5) 17.4 10.9
--------------- ----------------- ----------------
Profit/(loss) after tax from continuing
operations 30.0 (85.6) (55.6)
Discontinued operations
Profit/(loss) after tax from discontinued
operations 8 11.0 (3.7) 7.3
--------------- ----------------- ----------------
Profit/(loss) after tax for the year 2 41.0 (89.3) (48.3)
--------------- ----------------- ----------------
Earnings/(loss) per ordinary share 5
Continuing operations
Basic 15.5p (28.8)p
Diluted 15.2p (28.8)p
--------------- ----------------- ----------------
Continuing and discontinued operations
Basic 21.2p (25.0)p
Diluted 20.8p (25.0)p
--------------- ----------------- ----------------
* Further information about non-underlying items can be found in
note 2.
(#) The restatement relates to the prior period interest charge
as a result of the adoption of IAS 19 (Revised) Employee Benefits.
See note 10 for further details.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year to 30 April 2014
Unaudited Unaudited Audited
Half year Half year Year to
to to
30 April 30 April 31 Oct 2013
2014 2013
GBPm GBPm GBPm
Loss after tax for the period/year attributable
to equity holders of the parent as reported (72.5) (3.0) (47.5)
Restatement of finance expense (IAS19
Revised) - (0.4) (0.8)
Loss after tax for the period/year attributable
to equity holders of the parent restated (72.5) (3.4) (48.3)
---------- ---------- ------------
Items that will not be reclassified subsequently
to profit or loss
Actuarial (losses)/gains on defined benefit
pension schemes (2.4) (4.8) 1.5
Movement on deferred tax relating to
pension schemes (0.4) 1.4 (0.9)
---------- ---------- ------------
(2.8) (3.4) 0.6
---------- ---------- ------------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations (7.5) 14.5 13.6
Deferred tax on items taken directly
to equity - - (1.8)
---------- ---------- ------------
(7.5) 14.5 11.8
---------- ---------- ------------
Total comprehensive (expense)/income
for the period/year attributable to equity
holders of the parent (82.8) 7.7 (35.9)
---------- ---------- ------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2014
Share Special
Share premium capital Revaluation Translation Retained Own
capital account reserve reserve reserve earnings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November 2013 2.0 230.7 12.9 1.3 (26.0) 172.5 (9.6) 383.8
----------------------------- -------- -------- -------- ------------ ------------ --------- ------- -------
Loss after tax for the
period - - - - - (72.5) - (72.5)
Other comprehensive expense
for the period - - - - (7.5) (2.8) - (10.3)
----------------------------- -------- -------- -------- ------------ ------------ --------- ------- -------
Total comprehensive expense
for the period - - - - (7.5) (75.3) - (82.8)
Share-based payments (net
of settlement) - - - - - 0.6 - 0.6
At 30 April 2014 2.0 230.7 12.9 1.3 (33.5) 97.8 (9.6) 301.6
-------- -------- -------- ------------ ------------ --------- ------- -------
Share Special
Share premium capital Revaluation Translation Retained Own
capital account reserve reserve reserve earnings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November 2012 2.0 230.7 12.9 1.3 (39.6) 235.8 (9.6) 433.5
-------------------------------- -------- -------- -------- ------------ ------------ --------- ------- ------
Loss after tax for the
period - - - - - (3.4) - (3.4)
Other comprehensive
income/(expense)
for the period - - - - 14.5 (3.4) - 11.1
-------------------------------- -------- -------- -------- ------------ ------------ --------- ------- ------
Total comprehensive
income/(expense)
for the period - - - - 14.5 (6.8) - 7.7
Share-based payments (net
of settlement) - - - - - 0.6 - 0.6
At 30 April 2013 2.0 230.7 12.9 1.3 (25.1) 229.6 (9.6) 441.8
-------- -------- -------- ------------ ------------ --------- ------- ------
Share Special
Share premium capital Revaluation Translation Retained Own
capital account reserve reserve reserve earnings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November 2012 2.0 230.7 12.9 1.3 (39.6) 235.8 (9.6) 433.5
------------------------------- -------- -------- -------- ------------ ------------ --------- ------- -------
Loss after tax for the
year - - - - - (48.3) - (48.3)
Other comprehensive
income/(expense)
for the year - - - - 13.6 (1.2) - 12.4
------------------------------- -------- -------- -------- ------------ ------------ --------- ------- -------
Total comprehensive
income/(expense)
for the year - - - - 13.6 (49.5) - (35.9)
Dividends paid - - - - - (14.7) - (14.7)
Share-based payments (net
of settlement) - - - - - 0.9 - 0.9
At 31 October 2013 2.0 230.7 12.9 1.3 (26.0) 172.5 (9.6) 383.8
-------- -------- -------- ------------ ------------ --------- ------- -------
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 April 2014
Note Unaudited Unaudited Audited
As at As at As at
30 April 30 April
2014 2013 31 Oct 2013
Non-current assets GBPm GBPm GBPm
Goodwill 117.5 220.5 168.3
Development costs 29.7 31.7 32.7
Other intangible assets 87.4 146.8 135.5
Property, plant and equipment 175.5 242.2 222.3
Interest in associate 1.5 1.4 1.5
Deferred tax 11.9 24.2 21.7
---------- ---------- ------------
2 423.5 666.8 582.0
---------- ---------- ------------
Current assets
Inventories 83.4 139.3 113.7
Trade and other receivables 89.5 197.2 203.9
Cash and cash equivalents 7 14.9 25.9 14.2
Derivative financial instruments 1.7 0.5 1.5
---------- ---------- ------------
189.5 362.9 333.3
Assets held for sale 9 195.0 - 6.7
---------- ---------- ------------
Total assets 808.0 1,029.7 922.0
---------- ---------- ------------
Current liabilities
Borrowings (0.4) (26.3) (0.4)
Obligations under finance leases (1.6) (0.9) (1.6)
Trade and other payables (94.6) (180.3) (176.7)
Provisions (3.2) (3.3) (2.7)
Current tax (8.8) (7.1) (15.4)
Derivative financial instruments (2.1) (0.8) (0.4)
Liabilities held for sale 9 (94.7) - (1.1)
(205.4) (218.7) (198.3)
---------- ---------- ------------
Non-current liabilities
Borrowings (247.2) (270.8) (259.4)
Obligations under finance leases (0.5) (2.9) (1.4)
Trade and other payables (2.0) (1.4) (2.3)
Provisions (7.7) (6.8) (10.3)
Deferred tax (22.4) (53.6) (38.8)
Preference shares (0.1) (0.1) (0.1)
Retirement benefit obligations 10 (20.8) (31.7) (25.1)
Derivative financial instruments (0.3) (1.9) (2.5)
---------- ---------- ------------
(301.0) (369.2) (339.9)
---------- ---------- ------------
Total liabilities (506.4) (587.9) (538.2)
---------- ---------- ------------
Net assets 301.6 441.8 383.8
---------- ---------- ------------
Equity
Share capital 2.0 2.0 2.0
Share premium account 230.7 230.7 230.7
Special capital reserve 12.9 12.9 12.9
Revaluation reserve 1.3 1.3 1.3
Translation reserve (33.5) (25.1) (26.0)
Retained earnings 97.8 229.6 172.5
---------- ---------- ------------
311.2 451.4 393.4
Own shares (9.6) (9.6) (9.6)
---------- ---------- ------------
Equity attributable to equity
holders of the parent 301.6 441.8 383.8
---------- ---------- ------------
Total equity 301.6 441.8 383.8
---------- ---------- ------------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2014
Note Unaudited Unaudited Audited
Half year Half year
to to Year to
30 April 30 April
2014 2013 31 Oct 2013
GBPm GBPm GBPm
Cash flows from operating activities
-------------------------------------------- ----- ---------- ---------- ------------
Cash generated from continuing underlying
operations 11.7 14.7 80.5
Cash generated from/(absorbed by)
discontinued underlying operations 15.5 (9.7) (11.9)
-------------------------------------------- ----- ---------- ---------- ------------
Cash generated from underlying operations 12 27.2 5.0 68.6
Acquisition and disposal related costs (2.3) (3.3) (3.8)
Business restructuring and incident
costs (1.6) (3.3) (8.9)
---------- ---------- ------------
23.3 (1.6) 55.9
Tax (paid)/received (0.5) 1.3 (0.5)
---------- ---------- ------------
Net cash inflow/(outflow) from operating
activities 22.8 (0.3) 55.4
---------- ---------- ------------
Cash flows from investing activities
Purchases of intangible assets (5.5) (1.9) (7.4)
Purchases of property, plant and equipment (5.3) (5.7) (12.3)
Receipt of finance income 0.2 - 0.2
Receipts from sales of trades and
businesses (net of cash transferred) 8 6.2 - -
---------- ---------- ------------
Net cash outflow from investing activities (4.4) (7.6) (19.5)
---------- ---------- ------------
Cash flows from financing activities
Dividends paid - - (14.7)
Finance expense paid (9.7) (11.4) (20.6)
New borrowings - 27.0 -
Capitalised facility fees paid (0.8) - (1.7)
Repayments of borrowings (0.3) (77.6) (79.1)
Repayment of finance leases (0.8) (0.9) (1.7)
Net cash outflow from financing activities (11.6) (62.9) (117.8)
---------- ---------- ------------
Increase/(decrease) in cash and cash
equivalents during the period/year 6.8 (70.8) (81.9)
Cash and cash equivalents at beginning
of the period/year 14.2 96.0 96.0
Effect of foreign exchange rate changes (0.4) 0.7 0.1
---------- ---------- ------------
Cash and cash equivalents at end of
the period/year 20.6 25.9 14.2
---------- ---------- ------------
Analysis of continuing and discontinued cash and cash equivalents
Unaudited Unaudited Audited
Half year Half year Year to
to to
30 April 30 April 31 Oct 2013
2014 2013
GBPm GBPm GBPm
Cash and cash equivalents at the end of
the period/year
- continuing operations 14.9 25.9 14.2
- discontinued operations - assets held 5.7 - -
for sale
---------- ---------- ------------
Cash and cash equivalents at the end of
the period/year 20.6 25.9 14.2
---------- ---------- ------------
INDEPENDENT REVIEW REPORT TO CHEMRING GROUP PLC
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 April 2014, which comprises the condensed
consolidated income statement, the condensed consolidated statement
of comprehensive income, the condensed consolidated statement of
changes in equity, the condensed consolidated balance sheet, the
condensed consolidated cash flow statement, and related notes 1 to
16. We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
Company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Services Authority.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
April 2014 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority.
Deloitte LLP
Chartered Accountants and Statutory Auditors
London, United Kingdom
24 June 2014
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation
The condensed consolidated income statement for each of the six
month periods and the condensed consolidated balance sheet as at 30
April 2014 do not constitute statutory accounts as defined by
section 435 of the Companies Act 2006 and have not been delivered
to the Registrar of Companies. The half-yearly financial report was
approved by the Board of Directors on 24 June 2014. The information
for the year ended 31 October 2013 does not constitute statutory
accounts as defined in section 435 of the Companies Act 2006. Full
accounts for the year ended 31 October 2013, which include an
unqualified audit report, did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying the report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006, have been
delivered to the Registrar of Companies.
These half-yearly financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRSs"), as adopted by the European Union. The condensed set of
financial statements included in the half-yearly financial report
has been prepared in accordance with International Accounting
Standard 34 Interim Financial Reporting as adopted by the European
Union.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates.
Going concern
The directors believe the Group is well placed to manage its
business risks successfully, despite the current uncertain economic
outlook. The Group's forecasts and projections, taking account of
reasonably possible changes in trading performance, show that the
Group should be able to operate within the level of its current
committed facilities.
As part of their regular assessment of Chemring's working
capital and financing position, the directors have prepared a
detailed trading and cash flow forecast for a period which covers
at least twelve months after the date of approval of the financial
statements. In assessing the forecast, the directors have
considered:
-- trading risks presented by the current economic conditions in
the defence market, particularly in relation to government budgets
and spending
-- the impact of macroeconomic factors, particularly interest rates and foreign exchange rates
-- the status of the Group's financial arrangements and associated covenant requirements
-- progress made in developing and implementing outcomes from
the Performance Recovery Programme
-- mitigating actions available should business activities fall
behind current expectations, including the deferral of
discretionary overheads and restricting cash outflows
-- the long-term nature of the Group's business which, taken
together with the Group's order book, provides a satisfactory level
of confidence to the Board in respect of trading
The directors have acknowledged the latest guidance on going
concern. The refinancing of the revolving credit facility is
ongoing and discussions with potential providers of finance are
positive. As a result of the status of these negotiations, the
directors do not believe the refinancing of the revolving credit
facility represents a material uncertainty. Management have
considered the latest forecasts available to them and additional
sensitivity analysis has been prepared on the covenant forecasts to
consider the impact on covenants of any reduction in anticipated
levels of EBITDA. This sensitised scenario includes identified
mitigating actions that can be taken if needed and, based on the
application of these, shows headroom on all covenant test dates.
After consideration of the above, the directors have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the foreseeable future. Thus, they
continue to adopt the going concern basis in preparing the
half-yearly condensed financial statements.
Accounting policies
Other than explained below, the accounting policies applied by
the Group in this half-yearly financial report are the same as
those applied by the Group in its consolidated financial statements
for the year ended 31 October 2013.
In the period ended 30 April 2014, IAS 19 (Revised) Employee
Benefits was adopted. The impact of the change in accounting policy
is to increase the finance expense and to re-analyse items within
the statement of comprehensive income. Further details are shown in
note 10.
2. SEGMENTAL ANALYSIS
A segmental analysis of revenue and results is set out
below:
Unaudited
Unaudited Half year Audited
Half year to Year to
to 30 April 30 April 31 Oct
2014 2013(#) 2013(#)
GBPm GBPm GBPm
Revenue
Countermeasures 43.5 57.0 125.0
Sensors & Electronics 94.7 108.3 211.3
Pyrotechnics & Munitions 39.1 17.2 48.0
Energetic Sub-Systems 31.5 42.9 88.0
------------- ----------- ---------
Revenue from continuing operations 208.8 225.4 472.3
Revenue from discontinued operations
Pyrotechnics & Munitions 68.6 72.0 152.6
Total revenue 277.4 297.4 624.9
Underlying operating profit/(loss)
Countermeasures 1.5 4.9 13.2
Sensors & Electronics 23.3 25.2 44.7
Pyrotechnics & Munitions 0.2 (1.4) (2.8)
Energetic Sub-Systems 2.4 5.2 11.3
Unallocated corporate costs (5.0) (5.2) (10.1)
Underlying operating profit from continuing
operations 22.4 28.7 56.3
Underlying operating profit from discontinued
operations
Pyrotechnics & Munitions 4.6 6.4 15.8
Total underlying operating profit 27.0 35.1 72.1
Acquisition and disposal related costs (0.4) (2.3) (2.6)
Business restructuring and incident
costs (3.0) (5.6) (11.7)
Profit on disposal of business 0.5 - -
Impairment of goodwill and acquired
intangibles - (15.7) (66.6)
Impairment of other net assets held
for sale - - (8.8)
Amortisation of intangibles arising
from business combinations (6.6) (7.7) (13.4)
Gain/(loss) on fair value movements
of derivative financial instruments 1.2 (0.5) 0.1
------------- ----------- ---------
Non-underlying items (8.3) (31.8) (103.0)
------------- ----------- ---------
Operating profit/(loss) from continuing
operations 14.1 (3.1) (46.7)
Finance income 0.2 - 0.2
Finance expense (9.2) (9.6) (20.0)
Profit/(loss) before tax for the period/year
from continuing operations 5.1 (12.7) (66.5)
Tax (0.4) 5.8 10.9
------------- ----------- ---------
Profit/(loss) after tax for the period/year
from continuing operations 4.7 (6.9) (55.6)
(Loss)/profit after tax for the period/year
from discontinued operations (77.2) 3.5 7.3
------------- ----------- ---------
Loss after tax for the period/year (72.5) (3.4) (48.3)
------------- ----------- ---------
There were no material inter-segment sales in any of the
periods.
(#) Restated as a result of the adoption of IAS 19 (Revised)
Employee Benefits. See note 10 for further details.
Reconciliation from profit/(loss) before tax to underlying
profit after tax
Underlying profit before tax has been defined as earnings before
costs relating to acquisitions and disposals, business
restructuring and incident costs, profit on disposal of businesses,
items deemed to be of an exceptional nature, impairment of goodwill
and acquired intangibles, impairment of other net assets held for
sale, amortisation of acquired intangibles and gains/losses on the
movement in the fair value of derivative financial instruments. The
directors consider this measure of profit allows a more meaningful
comparison of earnings trends. These are set out below.
Continuing Discontinued
Half year to 30 April 2014 operations operations Total
GBPm GBPm GBPm
Profit/(loss) before tax 5.1 (77.1) (72.0)
Tax (0.4) (0.1) (0.5)
------------ ------------- -------
Profit/(loss) after tax 4.7 (77.2) (72.5)
------------ ------------- -------
Non-underlying items
Acquisition and disposal related costs 0.4 8.7 9.1
Business restructuring and incident costs 3.0 - 3.0
Profit on disposal of business (0.5) - (0.5)
Impairment of goodwill and acquired intangibles
held for sale - 56.6 56.6
Impairment of other net assets held for sale - 13.6 13.6
Intangible amortisation arising from business
combinations 6.6 2.6 9.2
(Gain)/loss on fair value movements of derivative
financial instruments (1.2) 0.2 (1.0)
------------ ------------- -------
Total non-underlying items 8.3 81.7 90.0
Tax on non-underlying items (2.5) (0.9) (3.4)
------------ ------------- -------
Total non-underlying items after tax 5.8 80.8 86.6
------------ ------------- -------
Underlying profit after tax 10.5 3.6 14.1
------------ ------------- -------
An analysis of non-underlying items by segment is provided
below:
Counter- Sensors Pyrotechnics Energetic Corp-orate Total
measures & Electronics & Munitions Sub-Systems
GBPm GBPm GBPm GBPm GBPm GBPm
Acquisition and disposal
related costs - - 8.7 0.3 0.1 9.1
Business restructuring and
incident costs 1.5 0.3 0.1 - 1.1 3.0
Profit on disposal of business - - - (0.5) - (0.5)
Impairment of goodwill and
acquired intangibles held
for sale - - 56.6 - - 56.6
Impairment of other net assets
held for sale - - 13.6 - - 13.6
Intangible amortisation arising
from business combinations - 3.4 3.7 2.1 - 9.2
Loss/(gain) on fair value
movements of derivative financial
instruments - - 0.2 - (1.2) (1.0)
---------- --------------- ------------- ------------- ----------- ------
Total non-underlying items 1.5 3.7 82.9 1.9 - 90.0
---------- --------------- ------------- ------------- ----------- ------
Continuing Discontinued
Half year to 30 April 2013 operations operations Total
GBPm GBPm GBPm
(Loss)/profit before tax (restated) (12.7) 3.5 (9.2)
Tax 5.8 - 5.8
------------ ------------- -------
(Loss)/profit after tax (restated) (6.9) 3.5 (3.4)
------------ ------------- -------
Non-underlying items
Acquisition and disposal related costs 2.3 - 2.3
Business restructuring and incident costs 5.6 - 5.6
Profit on disposal of business - - -
Impairment of goodwill and acquired intangibles
held for sale 15.7 - 15.7
Impairment of other net assets held for sale - - -
Intangible amortisation arising from business
combinations 7.7 2.7 10.4
Loss/(gain) on fair value movements of derivative
financial instruments 0.5 (0.1) 0.4
------------ ------------- -------
Total non-underlying items 31.8 2.6 34.4
Tax on non-underlying items (10.6) (0.9) (11.5)
------------ ------------- -------
Total non-underlying items after tax 21.2 1.7 22.9
------------ ------------- -------
Underlying profit after tax (restated) 14.3 5.2 19.5
------------ ------------- -------
Year to 31 October 2013 GBPm GBPm GBPm
(Loss)/profit before tax (restated) (66.5) 9.1 (57.4)
Tax 10.9 (1.8) 9.1
------------ ------------- -------
(Loss)/profit after tax (restated) (55.6) 7.3 (48.3)
------------ ------------- -------
Non-underlying items
Acquisition and disposal related costs 2.6 0.6 3.2
Business restructuring and incident costs 11.7 - 11.7
Profit on disposal of business - - -
Impairment of goodwill and acquired intangibles
held for sale 66.6 - 66.6
Impairment of other net assets held for sale 8.8 - 8.8
Intangible amortisation arising from business
combinations 13.4 5.4 18.8
Gain on fair value movements of derivative
financial instruments (0.1) - (0.1)
------------ ------------- -------
Total non-underlying items 103.0 6.0 109.0
Tax on non-underlying items (17.4) (2.3) (19.7)
------------ ------------- -------
Total non-underlying items after tax 85.6 3.7 89.3
------------ ------------- -------
Underlying profit after tax (restated) 30.0 11.0 41.0
------------ ------------- -------
In 2014, there were acquisition and disposal related costs of
GBP9.1 million (H1 2013: GBP2.3 million, 2013: GBP3.2 million). The
costs in the period related to the disposal of the European
munitions business and Chemring Defence Germany, as well as ongoing
merger and acquisition activity. See note 8 for further
details.
In 2014, restructuring and incident costs totalling GBP3.0
million relate to the ongoing reorganisation of the American
businesses, closure of the head office in Fareham, UK and the
non-recurring incentive scheme designed to ensure continued service
of key personnel. There were GBP0.9 million of costs incurred in
relation to the Kilgore incident in February 2014.
In 2013, the restructuring costs relate to the restructuring of
the divisional management structure (GBP3.1 million), the
integration of the US Countermeasures businesses (GBP1.2 million)
and to an incentive scheme designed to ensure the continued service
of key personnel during the restructuring process (GBP0.2 million).
In addition, in 2013 there were costs of GBP0.9 million relating to
several smaller restructuring projects and incident related costs
of GBP0.2 million.
In 2014, the impairment of goodwill and acquired intangibles,
and the impairment of other net assets relate to the transfer of
the European munitions business and Chemring Defence Germany to
assets and liabilities held for sale, with the net assets impaired
to net realisable value less costs to sell. See note 9 for further
details.
In 2013, the GBP15.7 million charge in respect of acquired
intangible assets was recognised in relation to Chemring Energetic
Devices, Inc., these assets are therefore fully amortised. This was
primarily driven by the lower cash flows within the business plans,
reflecting the continuing challenging economic conditions facing
the defence industry within the US, and Chemring Energetic Devices,
Inc.'s markets in particular. The business operates in the
Energetic Sub-Systems segment. The impairment loss was recognised
in the income statement as part of non-underlying items within
continuing operating profit and was based on value-in-use
calculations.
An update of the annual impairment assessment performed for the
preparation of the Group's financial statements for the year ended
31 October 2013 has been undertaken, with indicators of potential
impairment having been considered. Indicators were identified for
Chemring Energetics. A 10% fall in forecast cash flows at Chemring
Energetics would require an impairment charge of up to GBP3.0
million. Chemring Defence UK Limited is expecting to secure a
number of orders from the Middle East in the second half of the
current financial year. If these orders are not received, an
impairment of up to GBP3.0 million may be required. A 1% increase
in the discount rate was modelled, along with setting the long term
growth rate beyond the four year forecast period to zero, and in
neither case would an impairment be required at any of the
remaining cash generating units.
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2014 2013 2013
GBPm GBPm GBPm
Revenue by destination
Continuing operations
UK 43.0 51.3 92.0
USA 127.1 131.9 278.0
Europe 16.7 16.8 34.6
Australia and Far East 13.0 16.1 35.3
Middle East 7.7 7.7 28.5
Rest of the world 1.3 1.6 3.9
208.8 225.4 472.3
----------- ----------- ---------
Discontinued operations
UK 2.6 8.9 17.9
USA 1.6 0.1 2.7
Europe 7.0 11.0 25.9
Australia and Far East 4.0 3.5 9.3
Middle East 37.8 46.8 95.3
Rest of the world 15.6 1.7 1.5
----------- ----------- ---------
68.6 72.0 152.6
----------- ----------- ---------
Total 277.4 297.4 624.9
----------- ----------- ---------
The directors consider the only countries that are significant
in accordance with IFRS 8 Operating Segments are the UK and USA, as
disclosed above, and the Kingdom of Saudi Arabia, which is included
within the Middle East category. Sales to the Kingdom of Saudi
Arabia generated revenue of GBP28.6 million (H1 2013: GBP48.0
million, 2013: GBP97.6 million).
The Group does not disclose assets or liabilities by segment in
the monthly management accounts provided to the Executive Committee
or the Board of directors. The Improvements to IFRSs amendment
document issued in April 2009 only requires to be disclosed that
information that is provided to the chief operating decision maker
as a key decision making tool. The Group has adopted this amendment
in order to clarify that the chief operating decision maker does
not use this information as a key decision tool. IFRS 8 Operating
Segments requires a geographic analysis of non-current assets, and
a disclosure of non-current assets by location is therefore shown
below:
Unaudited Unaudited Audited
As at As at As at
30 April 30 April 31 Oct
2014 2013 2013
GBPm GBPm GBPm
Non-current assets by location
UK 212.8 225.7 222.8
USA 179.8 269.7 195.8
Europe 5.7 141.2 136.8
Australia and Far East 25.2 30.2 26.6
Total 423.5 666.8 582.0
---------- ---------- --------
3. SEASONALITY OF REVENUE
Revenue for all four of the business segments is more weighted
towards the second half of the financial year, in line with defence
spending.
4. TAX
Including discontinued operations, the effective tax rate on
underlying profit before tax for the period is 22.0% (H1 2013:
22.6%, 2013: 20.5%) and is based on the estimated effective tax
rate on underlying profit before tax for the full year. The tax
credit on non-underlying items for the period, including
discontinued operations, results in an effective tax rate of 3.8%
(H1 2013: 33.3%, 2013: 18.1%). The tax rate on total profit before
tax, including discontinued operations, is therefore 0.7% (H1 2013:
63.0%, 2013: 15.9%). The full year effective tax rate on total
profit before tax is currently forecast to be 6.3% (H1 2013: 63.0%,
2013: 15.9%).
5. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in
issue of 193,296,213 (H1 2013: 193,292,527) and a loss on ordinary
activities after tax and minority interests of GBP72.5 million (H1
2013: GBP3.4 million loss). Diluted earnings per share has been
calculated using a diluted average number of shares in issue of
197,457,734 (H1 2013: 198,377,126) and a loss on ordinary
activities after tax and minority interests of GBP72.5 million (H1
2013: GBP3.4 million loss).
No dilution has been recognised for the purposes of basic
earnings per share due to there being a loss per share. Dilution
has however been recognised in the calculation of underlying
earnings per share.
The earnings and number of shares used in the calculations are
as follows:
Continuing operations
2014 2013
Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm
Underlying profit after tax 10.5 10.5 14.3 14.3
Non-underlying items (see reconciliation
in note 2) (5.8) (5.8) (21.2) (21.2)
------ ------- ------ -------
Total profit/(loss) after tax 4.7 4.7 (6.9) (6.9)
------ ------- ------ -------
2014 2013
Basic Diluted Basic Diluted
Pence Pence Pence Pence
Underlying earnings per share 5.4 5.3 7.4 7.2
Non-underlying items (3.0) (2.9) (11.0) (10.8)
------ ------- ------ -------
Earnings/(loss) per share 2.4 2.4 (3.6) (3.6)
------ ------- ------ -------
Continuing and discontinued operations
2014 2013
Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm
Underlying profit after tax 14.1 14.1 19.5 19.5
Non-underlying items (see reconciliation
in note 2) (86.6) (86.6) (22.9) (22.9)
------ ------- ------ -------
Total loss after tax (72.5) (72.5) (3.4) (3.4)
------ ------- ------ -------
2014 2013
Basic Diluted Basic Diluted
Pence Pence Pence Pence
Underlying earnings per share 7.3 7.1 10.0 9.8
Non-underlying items (44.8) (44.6) (11.8) (11.6)
------ ------- ------ -------
Loss per share (37.5) (37.5) (1.8) (1.8)
------ ------- ------ -------
The following table shows the effect of share options on the
calculation of diluted earnings per share for both continuing
operations, and for continuing and discontinued operations:
2014 2013
Shares Shares
Million Million
Weighted average number of ordinary shares per basic
earnings per share calculations 193.3 193.3
Additional shares issuable other than at fair value
in respect of options outstanding 4.2 5.1
-------- --------
Weighted average number of ordinary shares used
for diluted earnings per share 197.5 198.4
-------- --------
6. DIVIDENDS
Unaudited Unaudited
Half year Half year
to to
30 April 30 April
2014 2013
GBPm GBPm
Dividends on ordinary shares of 1p each
Interim dividend for the year ended 31 October
2013: 3.4p - 6.6
Final dividend for the year ended 31 October 2013:
3.8p (2012: 4.2p) 7.3 8.1
---------- ----------
Total dividends 7.3 14.7
---------- ----------
The proposed interim dividend in respect of the half year ended
30 April 2014 of 2.4p per share will, if approved, absorb
approximately GBP4.6 million of shareholders' funds. No liability
for the proposed interim dividend has been included in these
half-yearly financial statements.
7. CASH AND CASH EQUIVALENTS
Included within cash is GBP0.6 million of restricted cash (H1
2013: GBPnil, 2013: GBP0.8 million).
8. DISPOSALS AND DISCONTINUED OPERATIONS
On 19 December 2013, the Group entered into a sale agreement to
dispose of Chemring Energetics Devices' business located in Clear
Lake, South Dakota ("the Clear Lake business"). The initial cash
proceeds were $10.0 million (GBP5.9 million) and a further $0.5
million (GBP0.3 million) was received in the period following
finalisation of completion accounts. This disposal was made to
generate cash flow and reduce the Group's indebtedness. The
disposal was completed on 24 January 2014, on which control passed
to the acquirer. During the period, the Clear Lake business made a
GBP0.5 million outflow (H1 2013: GBP1.2 million inflow; 2013:
GBP1.5 million inflow) to the Group's operating cash flow and had a
cash outflow of GBPnil (H1 2013: GBP0.4 million; 2013: GBP1.0
million) in respect of investing activities. At 31 October 2013 the
Clear Lake business net assets were treated as held for sale. The
profit arising on disposal was GBP0.5 million.
On 24 April 2014, the Group announced the sale of the European
munitions business, comprising Mecar and Simmel to Nexter Systems
SA, subject to shareholder and regulatory approval. On 19 May 2014,
the disposal of Mecar completed and, following regulatory approval
from the Italian government, the sale of the European munitions
business was completed with the divestment of Simmel on 27 May
2014, with proceeds of GBP134.5 million (EUR165.3 million) being
received. As at 30 April 2014, the European munitions business was
treated as a discontinued operation and the assets and liabilities
associated with the business have been classified as held for sale.
On 10 April 2014, the Group agreed to sell Chemring Defence
Germany. This sale completed on 27 May 2014. As at 30 April 2014,
the net assets of Chemring Defence Germany was treated as a
discontinued operation and the assets and liabilities associated
with the business have been classified as held for sale. These
disposals further the Group's strategic development, and re-shape
Chemring for future growth by enabling the Group to refocus on its
core competencies. The disposals also strengthen the balance sheet
and provide greater financial flexibility.
The results of the discontinued operations included in the
consolidated income statement were as follows:
Unaudited Unaudited Audited
Half year Half year
to to Year to
30 April 30 April 31 Oct
2014 2013 2013
GBPm GBPm GBPm
Revenue 68.6 72.0 152.6
Underlying expense (64.0) (65.6) (136.8)
Non-underlying items (81.7) (2.6) (6.0)
Finance expense - (0.3) (0.7)
---------- ---------- --------
(Loss)/profit before tax (77.1) 3.5 9.1
Attributable tax expense (0.1) - (1.8)
---------- ---------- --------
(Loss)/profit attributable to discontinued
operations after tax (77.2) 3.5 7.3
---------- ---------- --------
During the period, impairment of GBP70.2 million was recognised
in respect of Simmel, one of two operations that comprised the
European munitions business, and Chemring Defence Germany, together
with GBP8.7 million of disposal related costs. During the second
half of the current financial year, a profit on disposal is
expected to be recognised, representing the excess of proceeds over
carrying value for Mecar, the remaining operation that formed part
of the European munitions business.
9. ASSETS HELD FOR SALE
On 24 April 2014, the Group agreed to sell its European
munitions business, subject to regulatory and shareholder approval.
This sale completed during May 2014, and so the net assets of this
business have been classified as a disposal group held for sale and
presented separately on the balance sheet. The operations are shown
as part of the discontinued operations analysis in note 2. The
assets held for sale are held at net realisable value resulting in
an impairment charge of GBP63.9 million. The major classes of
assets and liabilities comprising the operations classified as held
for sale are as follows:
Unaudited
As at
30 April
2014
GBPm
Goodwill and acquired intangibles 24.4
Other intangible assets 4.3
Property, plant and equipment 33.9
Inventories 28.7
Trade and other receivables 93.6
Cash and cash equivalents 5.5
----------
Total assets classified as held for sale 190.4
----------
Trade and other payables (64.1)
Tax liabilities (17.8)
Provisions (9.0)
----------
Total liabilities classified as held for sale (90.9)
----------
Net assets of disposal group 99.5
----------
On 10 April 2014, the Group agreed to sell Chemring Defence
Germany for EUR2.8 million (GBP2.2 million). This sale was expected
to complete during May 2014, and so the net assets of this business
have been classified as a disposal group held for sale and
presented separately on the balance sheet. The operations are shown
as part of the discontinued operations analysis in note 2. The
assets held for sale are held at net realisable value resulting in
an impairment charge of GBP6.3 million. The major classes of assets
and liabilities comprising the operations classified as held for
sale are as follows:
Unaudited
As at
30 April
2014
GBPm
Inventories 3.6
Trade and other receivables 0.8
Cash and cash equivalents 0.2
----------
Total assets classified as held for sale 4.6
----------
Trade and other payables (1.0)
Tax liabilities (0.4)
Provisions (0.9)
Retirement benefit obligation (1.5)
----------
Total liabilities classified as held for sale (3.8)
----------
Net assets of disposal group 0.8
----------
10. PENSIONS
The defined benefit obligations are calculated using an
actuarial valuation as at 30 April 2014. The deficit on the
Chemring Group Staff Pension Scheme has decreased to GBP20.8
million (H1 2013: GBP30.6 million, 2013: GBP24.2 million),
principally as a result of employer contributions paid in
accordance with funding plan agreed with the trustees in 2013. The
difference between the expected return on assets and the actual
return on assets has been recognised as an actuarial loss in the
condensed consolidated statement of comprehensive income in
accordance with the Group's accounting policy.
The adoption of IAS 19 (Revised) Employee Benefits has resulted
in a restatement of the prior period's interest expense which has
increased by GBP0.4 million for H1 2013 and by GBP0.8 million for
2013. A corresponding decrease in actuarial losses on defined
benefit pension schemes has been recorded in the Consolidated
Statement of Comprehensive Income.
11. RELATED PARTY TRANSACTIONS
The Group had no related party transactions during the period
requiring disclosure.
12. CASH GENERATED FROM OPERATIONS
Unaudited Unaudited Audited
Half year Half year
to to Year to
30 April 30 April
2014 2013 31 Oct 2013
GBPm GBPm GBPm
Operating profit from continuing operations 14.1 (3.1) (46.7)
Operating profit from discontinued operations (77.1) 3.8 9.8
---------- ---------- ------------
(63.0) 0.7 (36.9)
Adjustment for:
Impairment of acquired intangibles/goodwill 56.6 15.7 66.6
Impairment of other net assets 13.6 - 8.8
Amortisation of development costs 3.1 2.2 5.5
Amortisation of intangible assets arising
from business combinations 9.2 10.4 18.8
Amortisation of patents and licenses 0.1 0.2 0.4
Loss on disposal of non-current assets 0.1 0.6 2.2
Profit on disposal of business (0.5) - -
Depreciation of property, plant and
equipment 9.3 9.8 20.1
(Gain)/loss on fair value movements
of derivative financial instruments (1.0) 0.4 (0.1)
Share-based payment expense 0.7 0.6 0.9
Employer contributions towards pension
scheme deficit reduction plan (4.0) - (1.0)
Difference between pension contributions
paid and amount recognised in income
statement - (0.8) (0.3)
---------- ---------- ------------
Operating cash flows before movements
in working capital 24.2 39.8 85.0
(Increase)/decrease in inventories (2.0) (25.5) 0.1
Decrease/(increase) in trade and other
receivables 27.2 (4.1) (15.9)
Decrease in trade and other payables (42.6) (14.2) (21.0)
Increase in provisions 8.3 1.1 5.5
---------- ---------- ------------
15.1 (2.9) 53.7
Acquisition and disposal related costs 9.1 2.3 3.2
Restructuring and incident costs 3.0 5.6 11.7
---------- ---------- ------------
Cash generated from operations 27.2 5.0 68.6
---------- ---------- ------------
13. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Unaudited Unaudited Audited
Half year Half year
to to Year to
30 April 30 April
2014 2013 31 Oct 2013
GBPm GBPm GBPm
Increase/(decrease) in cash and cash
equivalents during the period/year 6.8 (70.8) (81.9)
Decrease in debt and lease financing
due to cash flows 1.9 51.5 82.5
---------- ---------- ------------
Change in net debt resulting from cash
flows 8.7 (19.3) 0.6
Foreign exchange gains/(losses) 11.8 (10.1) (2.5)
Amortisation of debt finance costs (1.0) (0.9) (2.0)
---------- ---------- ------------
Movement in net debt in the period/year 19.5 (30.3) (3.9)
Net debt at beginning of the period/year (248.7) (244.8) (244.8)
Net debt at end of the period/year (229.2) (275.1) (248.7)
---------- ---------- ------------
14. ANALYSIS OF NET DEBT
As at
1 Nov Cash Non-cash Exchange As at 30
2013 flow changes rate effects April 2014
GBPm GBPm GBPm GBPm GBPm
Cash at bank and in hand 14.2 6.8 - (0.4) 20.6
Debt due within one year (0.4) 0.2 (0.2) - (0.4)
Debt due after one year (259.4) 0.8 (0.8) 12.2 (247.2)
Finance leases (3.0) 0.9 - - (2.1)
Preference shares (0.1) - - - (0.1)
-------- ------ --------- -------------- ------------
(248.7) 8.7 (1.0) 11.8 (229.2)
-------- ------ --------- -------------- ------------
15. EVENTS AFTER THE BALANCE SHEET DATE
On 9 May 2014, the Group acquired the entire share capital of
3d-Radar, a company based in Trondheim, Norway, for a cash
consideration of $3.0 million (GBP1.8 million). The company is a
leading developer of commercial three dimensional ground
penetrating radar technology.
On 27 May 2014, both the disposal of the European munitions
business and the disposal of Chemring Defence Germany were
completed.
On 24 June 2014, Chemring announced Michael Flowers' appointment
as Group Chief Executive with immediate effect. Mark Papworth
stepped down from the Board of Chemring with effect from that
date.
16. CORPORATE WEBSITE
Further information on the Group and its activities can be found
on the corporate website at www.chemring.co.uk.
Annex 1
PRINCIPAL RISKS AND UNCERTAINTIES
The Board has constituted a Risk Management Committee which
meets quarterly to review the key risks associated with the
achievement of the annual budget and the three year plan for each
business, the most significant health and safety risks identified
at each site, and the risk control procedures implemented. The
Committee reports biannually to the Audit Committee and the Board,
and through this process, the Board has identified the following
principal risks currently facing the Group. The mitigating actions
taken by the Group management to address these risks are also set
out below. The Group mitigates its risk exposure through an
insurance programme that covers property and liability risks, where
it is appropriate and cost effective to do so.
-- Health and safety risks - The Group's operations which
utilise energetic materials are subject to inherent health and
safety risks. From time to time, incidents may occur which could
result in the temporary shutdown of facilities or other disruption
to manufacturing processes, causing production delays and resulting
in financial loss and potential liability for workplace injuries
and fatalities.
The Board believes that responsibility for the delivery of world
class safety standards is an integral part of operational
management accountability, and is committed to ensuring the Group's
leadership operates with health and safety as the top priority and
that the strength of our safety culture and the quality of our
protective systems deliver operations where all employees and
visitors feel and are absolutely safe. A new safety leadership
programme has been developed this year, which will be attended by
the management teams of every business during 2014. All employees
now receive a booklet setting out the Group's statements of intent
in relation to delivery of our health and safety strategy and the
behaviours required of them as individual employees. All employees
are encouraged to report potential hazards, and to raise any health
and safety concerns through the appropriate channels. We continue
to invest in state-of-the-art process safety systems and equipment.
Our safety and loss prevention programmes require detailed
pre-construction reviews of process changes and new operations, and
we undertake routine safety audits of operations on a regular
basis. All businesses are expected to proactively manage their own
risks but, in addition, the top site risks at each business and
their associated mitigation programmes are reviewed quarterly by
the Risk Management Committee. Health and safety is included on the
agenda at every Board meeting, and is discussed at the monthly
Group Executive Committee meeting.
-- Possible defence budget cuts - Defence spending depends on a
complex mix of political considerations, budgetary constraints and
the requirements of the armed forces to address specific threats
and perform certain missions. As such, defence spending may be
subject to significant fluctuations from year to year. Given the
large budget deficits and the prevailing economic conditions in
many NATO countries, we expect there to be continued downward
pressure on budgets, and consequently, defence expenditure could be
severely impacted. In particular, the Group has significant
exposure to the US defence market, where there is continuing
uncertainty in relation to the potential impact of sequestration on
the defence budget for 2014 and 2015.
In recognition of the issues affecting our traditional NATO
markets, we are focusing our business development activities in
non-NATO markets, where defence expenditure is forecast to grow
strongly over the next five to ten years. We have made good
progress on developing our routes to market in India, Saudi Arabia,
the United Arab Emirates and Brazil. We have established a more
focused international sales and business development team, and
implemented new processes to ensure that we are successful in
"winning every sales opportunity". We also continually assess
whether our planned organic growth strategies and product
developments align with government priorities for future funding.
Most of our product development programmes take between six and
twelve months to complete, and we believe that this gives the Group
the agility to quickly re-deploy engineering staff to product areas
where funding is more secure. We continue to closely monitor the
position in all the key markets in which we operate.
-- Timing and value of orders - The Group's profits and cash
flows are dependent, to a significant extent, on the timing of
award of defence contracts. In general, the majority of the Group's
contracts are of a relatively short duration and, with the
exception of framework contracts with key customers, do not usually
cover multi-year requirements. This means that an unmitigated delay
in the receipt of orders could affect our earnings, and achievement
of our budget, in any given financial year. We anticipate that
delays in the placement of orders by our traditional NATO
customers, as a result of budgetary constraints, are likely to
continue in the short to medium term. If our businesses are unable
to continue trading profitably during periods of lower order
intake, our financial performance will deteriorate and our assets
may be impaired.
As referred to above, we are focusing on expanding our business
in non-NATO markets, where defence expenditure is forecast to
increase. Maximising order intake remains a key objective for our
businesses, and we continue to address this through the
strengthening of our sales and marketing resources. We also
continue to pursue long-term, multi-year contracts with our
customers wherever possible. We have undertaken various
restructuring projects over the last year, which were aimed at
restoring the profitability of the Group's businesses which have
suffered most from order delays in recent times. We are now
developing site optimisation plans to ensure that we utilise our
manufacturing facilities as efficiently as possible, within the
constraints imposed by export control legislation and customer
requirements.
-- Political risks - The Group is active in several countries
that are suffering from political, social and economic instability.
Our business in these countries may be adversely affected in a way
that is material to the Group's financial position and the results
of our operations. In addition, political unrest and changes in the
political structure in certain non-NATO countries to which we
currently sell could impact on their future defence expenditure
strategy and our ability to export products to these countries.
During periods of unrest, delays in obtaining export licences can
result in delayed revenues.
Our businesses strive to maintain relationships at all levels
within the political structure of certain key countries, in order
to ensure that we are aware of and can react to proposed changes,
if and when they occur. We implement financing arrangements for
contracts with high risk customers, which are intended to mitigate
the impact of a deterioration in the customer's financial position,
and in certain circumstances, we may also procure political risks
insurance. We are exploring opportunities for collaboration on the
establishment of local manufacturing operations in certain
countries, which will remove some of the uncertainty regarding
export of products. Our planned expansion in non-defence markets
should also increase our portfolio of products which are less
sensitive from an export control perspective.
-- Operational risks - Our manufacturing activities may be
exposed to business continuity risks, arising from plant failures,
supplier interruptions or quality issues. These could result in
financial loss, reputational damage and loss of future
business.
We require all of our businesses to prepare business continuity
plans. We have introduced new requirements in relation to the
reporting of key performance indicators this year, in order to
provide better visibility on our operational performance and to
enable us to identify potential production and quality issues at an
early stage. We insure certain business interruption risks where
appropriate.
-- Introduction of new products - The Group's approach to
innovation and continued emphasis on research and development
activity ensure that we are continually adding new products to the
range. We need to ensure that this new product development is
completed in a timely manner, and to a standard which allows us to
undertake volume manufacturing and to produce products against high
reliability and safety criteria to meet our customers'
requirements. Failure to achieve this may have both financial and
reputational impacts. We also need to ensure that we continue to
upgrade our existing product range to compete with emerging
technologies and to avoid the risk of obsolescence or loss of
business.
We have introduced a more focused product development and
technology investment approach, in order to ensure that we are
applying our resources appropriately across the Group in support of
our three year plan. A Technology Review Board has been established
to review all proposed research and development projects to ensure
that key initiatives are being prioritised and to eliminate
possible duplication of effort in different parts of the Group. We
have initiated working groups to drive and co-ordinate our
technology growth in certain key areas, such as cyber security.
-- Product liability and other customer claims - The Group may
be subject to product liability and other claims from customers or
third parties, in connection with (i) the non-compliance of these
products or services with the customer's requirements, due to
faults in design or production; (ii) the delay or failed supply of
the products or the services indicated in the contract; or (iii)
possible malfunction or misuse of products. As many of the Group's
products are single-use devices, it is often impossible to conduct
functional testing without destroying the product, and this
increases the risk of possible product failure, either in use or
during customers' own sample-based functional tests. Substantial
claims could harm the Group's business and our financial position.
In addition, any accident, failure, incident or liability, even if
fully insured, could negatively affect the Group's reputation among
our customers and the public, therefore making it more difficult
for the Group to compete effectively. Material breaches in the
performance of contractual obligations may also lead to contract
termination and the calling of performance bonds.
We maintain rigorous control of our production processes,
monitoring critical parameters on a batch or unit basis. We apply
state-of-the-art techniques, including statistical process control
or Six Sigma, and where appropriate, automate processes to reduce
the scope for human operator error. We also conduct detailed
assessments of incoming components and materials to ensure
compliance with specifications. Product liability claims from third
parties for damage to property or persons are generally covered by
the Group's insurance policies, subject to applicable insurance
conditions.
-- Management resource - The Group requires competent management
to lead us through the next stage of our development. In
challenging markets and difficult times, there is a need to retain
and incentivise senior managers and key employees, in order to
ensure that the operations of the Group do not suffer from loss of
management expertise and knowledge. As the shape of the Group's
business also changes, with an increased focus on electronics, we
need to ensure that we build an appropriate skill base to enable us
to compete successfully in new markets and product areas.
A Group Human Resources Director was appointed during 2013, to
oversee our future people strategy. We have introduced a new
performance management system for 2014, which will facilitate
improved monitoring of individual employees' development objectives
and requirements. Alongside this, we are developing a talent
database, which will provide improved visibility on the skills and
resources we have across the Group, and will open up opportunities
for employees to progress their careers within different parts of
the Group. We have streamlined and improved our incentivisation
arrangements in certain areas of the business, to ensure that
employees are suitably incentivised to deliver key strategic
objectives.
-- Compliance and corruption risks - The Group operates in over
fifty countries worldwide, in a highly-regulated environment, and
is subject to the applicable laws and regulations of each of these
jurisdictions. We must ensure that all of our businesses, our
employees and third parties providing services on our behalf comply
with all relevant legal obligations, as non-compliance could result
in administrative, civil or criminal liabilities, and could expose
the Group to fines, penalties, suspension or debarment and
reputational damage. The nature of the Group's operations could
also expose us to government investigations relating to
import-export controls, money-laundering, false accounting, and
corruption or bribery.
The Group has a central legal and compliance function which
assists and monitors all Group businesses, assisted by dedicated
internal legal resource in the US. The Group's internal audit
activities also incorporate a review of legal risks. We operate
under a Global Code of Business Principles, which stipulates the
standard of acceptable business conduct required from all of our
employees and third parties acting on our behalf. The Group has
also adopted a Bribery Act Compliance Manual, incorporating all of
our anti-bribery policies and procedures. A significant proportion
of the Group's management have received training in relation to
ethics and anti-corruption.
-- Environmental laws and regulations - The Group's operations
and ownership or use of real property is subject to a number of
federal, state, and local environmental laws and regulations,
including those for discharge of hazardous materials, remediation
of contaminated sites, and restoration of damage to the
environment. At certain sites that we own or operate, or formerly
owned or operated, there is known or potential contamination for
which there is a requirement to remediate or provide resource
restoration. The Group could incur substantial costs, including
remediation costs, resource restoration costs, fines and penalties,
or be exposed to third-party property damage or personal injury
claims, as a result of liabilities associated with past practices
or violations of environmental laws or non-compliance with
environmental permits.
All of the Group's businesses are certified to the environmental
management system ISO14001, which requires the setting of
environmental goals and objectives focused on local aspects and
impacts. We have managed monitoring and remediation programmes at
certain sites, for which we make appropriate financial provision.
In certain circumstances, we procure environmental liability
insurance, subject to applicable insurance conditions.
-- Financial risks - The Group is exposed to financial risks
relating to foreign exchange, interest rates and liquidity, and
where appropriate it uses financial instruments to manage these
risks. Details of the financial risks which the Group is
potentially exposed are set out in the financial review and note 24
of the financial statements within the 2013 annual report and
accounts.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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Chemring (LSE:CHG)
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부터 6월(6) 2024 으로 7월(7) 2024
Chemring (LSE:CHG)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024
