Working capital continues to be a key focus area and the
operational improvement at sites such as Kilgore will drive greater
efficiency, notably through the reduction of inventories. Going
forward, the principal drivers of working capital will be the
timing of major production contracts within Sensors &
Electronics and the scheduling of production activity within
Energetic Systems.
Net debt and covenants
Net debt at 31 October 2014 was GBP135.6 million (2013: GBP248.7
million).
The Group's principal debt facilities comprise GBP161.0 million
of private placement loan notes and a GBP70.0 million revolving
credit facility. The revolving credit facility was established in
July 2014 and refinanced a previous facility scheduled to mature in
April 2015. The facility is with a syndicate of three banks and has
a four year term. Together with a smaller US facility, the Group
had GBP75.7 million (2013: GBP126.8 million) of undrawn borrowing
facilities at the year end.
Following receipt of proceeds from the divestment of the
European munitions businesses, GBP14.5 million ($24.7 million) of
the Group's loan notes were repaid at par in June 2014. In
September 2014, the Group applied a further GBP87.2 million ($142.8
million) of the disposal proceeds to repay loan notes, which led to
an accelerated interest payment of GBP12.0 million being incurred,
equivalent to 13.8% of the principal repaid. In view of the
non-recurring nature of this payment, it has been disclosed as a
non-underlying item. The remaining loan notes are repayable in
November 2016 ($48.9 million), November 2017 (GBP8.1 million and
$79.8 million), and November 2019 ($115.9 million).
The Group is subject to two key financial covenants, which are
tested quarterly. These covenants relate to the leverage ratio,
being the ratio between underlying earnings before interest, tax,
depreciation and amortisation ("underlying EBITDA") and debt, and
the interest cover ratio between underlying EBITDA and finance
costs. The calculation of these ratios involves the translation of
non-sterling denominated debt using average, rather than closing,
rates of exchange. The revolving credit facility and the loan notes
have differing covenant compliance calculations.
In respect of the revolving credit facility established in July
2014 and its predecessor facility, leverage is measured by
reference to net debt. The maximum permitted ratio of net debt to
underlying EBITDA under the revolving credit facilities was 3.25x
at January and April 2014, and 3.00x thereafter. In respect of the
loan notes, leverage has historically been measured using total
gross debt. This restricted Chemring's ability to divest
businesses, given that the resulting loss of underlying EBITDA
would not necessarily be accompanied by a reduced gross debt level.
In April 2014, Chemring successfully concluded a revision of
financial covenants with the loan note holders to enable greater
flexibility in the application of disposal proceeds. For the period
until January 2015, the revised covenants entitle Chemring to offer
a proportion of disposal proceeds to loan note holders to repay
outstanding notes at par. To the extent that such an offer was not
accepted by note holders, rejected proceeds can be offset against
gross debt to derive an adjusted debt value that is used in
calculating covenant compliance. Following the receipt of proceeds
from the sale of the European munitions businesses in May 2014,
leverage under the loan notes is calculated based on the ratio of
underlying EBITDA to this adjusted debt value, with such ratio not
to exceed 3.00x. As part of the revision to the terms of the loan
notes, a leverage test based upon total gross debt has been
retained, but at a permanently increased level of 3.75x underlying
EBITDA.
The Group complied with these covenants throughout the year and
the results of covenant tests at the year end are detailed
below:
2014 2013
--------------------------------------------------------- ----- -----
Covenant ratios - revolving credit facility
Maximum allowed ratio of net debt to underlying EBITDA 3.00x 3.25x
Actual ratio of net debt to underlying EBITDA 1.93x 2.65x
Minimum allowed ratio of underlying EBITDA to finance
costs 4.00x 4.00x
Actual ratio of underlying EBITDA to finance costs 4.28x 4.98x
Covenant ratios - loan note agreements
Maximum allowed ratio of adjusted debt to underlying
EBITDA 3.00x -
Actual ratio of adjusted debt to underlying EBITDA 2.25x -
Maximum allowed ratio of total debt to underlying EBITDA 3.75x 3.50x
Actual ratio of total debt to underlying EBITDA 2.31x 2.78x
Minimum allowed ratio of underlying EBITDA to finance
costs 3.50x 3.50x
Actual ratio of underlying EBITDA to finance costs 4.39x 5.61x
--------------------------------------------------------- ----- -----
The composition of gross and net debt is set out below:
2014 2013
GBPm GBPm
--------------------------------- ------- -------
Loan notes, net of facility fees (155.6) (259.1)
Revolving credit facility - -
Other loans and finance leases (1.8) (3.8)
--------------------------------- ------- -------
Gross debt (157.4) (262.9)
Cash 21.8 14.2
--------------------------------- ------- -------
Net debt (135.6) (248.7)
--------------------------------- ------- -------
Going concern
During the year, the Group has achieved a substantive reduction
in debt levels, and therefore in future financing costs, through
the divestment programme and ongoing focus on operational
efficiency. The Group continues to work towards further reduction
in debt through the consistent conversion of operating profit to
operating cash flow. The long-term nature of the Group's business,
together with the Group's order book, provides a satisfactory level
of confidence to the Board in respect of trading.
As part of their regular assessment of the Group's working
capital and financing position, the directors have prepared a
detailed trading budget 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 spends;
-- the impact of macroeconomic factors, particularly interest rates and foreign exchange rates;
-- the status of the Group's financial arrangements and associated covenant requirements; and
-- the availability of mitigating actions should business
activities fall behind current expectations, including the deferral
of discretionary overheads and restricting cash flows.
Additional sensitivity analysis has been prepared on the
forecasts to consider the impact on covenants of any reduction in
anticipated levels of underlying 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 for the foreseeable future.
The directors have acknowledged the latest guidance on going
concern. They have made appropriate enquiries and taken into
account factors which are detailed in the strategic report. As a
consequence, the directors believe that the Company is well-placed
to manage its risks.
The directors, having considered the forecasts, the risks and
associated mitigating actions, have a reasonable expectation that
adequate financial resources will continue to be available for the
foreseeable future. Thus, they continue to adopt the going concern
basis in preparing the financial statements.
Shareholder returns
Including discontinued operations, underlying earnings per share
were 12.4p (2013: 21.2p), a decrease of 41.5%. The total loss per
share was 28.4p (2013: 25.0p). For continuing operations,
underlying earnings per share were 11.6p (2013: 15.5p) and there
was a total loss per share of 0.7p (2013: 28.8p).
Shareholders' funds were GBP300.3 million (2013: GBP383.8
million), with the reduction principally resulting from the
non-underlying loss on disposal of the European munitions
businesses and the related one-off accelerated interest payment
incurred in repaying loan notes.
Dividends
The Board is recommending a final dividend in respect of the
year to 31 October 2014 of 1.7p (2013: 3.8p). With the interim
dividend of 2.4p (2013: 3.4p), this results in a total dividend of
4.1p (2013: 7.2p). This total dividend is in line with the Group's
policy of maintaining a dividend that is covered three times by
underlying earnings. If approved, the final dividend will be paid
on 8 May 2015 to shareholders on the register on 17 April 2015.
RESPONSIBILITY STATEMENT OF THE DIRECTORS ON THE ANNUAL REPORT
AND ACCOUNTS
The responsibility statement below has been prepared in
connection with the Company's full annual report and accounts for
the year ended 31 October 2014. Certain parts thereof are not
included within this announcement.
Chemring (LSE:CHG)
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부터 6월(6) 2024 으로 7월(7) 2024
Chemring (LSE:CHG)
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부터 7월(7) 2023 으로 7월(7) 2024
