TIDMCHG
RNS Number : 8914Q
Chemring Group PLC
23 June 2015
FOR IMMEDIATE RELEASE 23 JUNE 2015
CHEMRING GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 30 APRIL 2015
Continuing operations 2015 2014
Revenue GBP161.7m GBP208.8m
Underlying operating profit(1) GBP5.5m GBP22.4m
Underlying (loss)/profit before tax(1) GBP(1.3)m GBP13.4m
Net debt at 30 April GBP148.5m GBP229.2m
Net debt at 31 October GBP135.6m
Underlying (loss)/earnings per share(1) (0.5)p 5.4p
Dividend per share(2) 2.4p 2.4p
Total operating (loss)/profit GBP(8.3)m GBP14.1m
(Loss)/profit before tax GBP(15.1)m GBP5.1m
Total (loss)/earnings per share (5.6)p 2.4p
1 Underlying measures referred to in this announcement are
stated before costs relating to acquisitions and disposals,
business restructuring and incident costs, profit/(loss) on
disposal of businesses, items deemed to be of an exceptional
nature, impairment of goodwill and acquired intangibles, impairment
of 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 2014 Annual Report and
Accounts. Further details of underlying and total measures are
shown in notes 3 and 6.
2 The interim dividend of 2.4p per ordinary share will be paid
on 25 September 2015 to shareholders on the register at 4 September
2015. The ex-dividend date is 3 September 2015.
Highlights
-- Significant reduction in H1 profit, due to delays in order
receipts and customer acceptance
-- Full year expectations unchanged - more than 75% of required H2 revenue now in order book
-- Order book GBP502.8 million at 30 April 2015 (2014: GBP401.8
million), GBP208.8 million for delivery in the current year
-- Significant orders exceeding GBP50.0 million received since
period end, with deliveries scheduled to start in H2, and further
material orders expected to be secured in H2 in all three
segments
-- Key strategic wins on long-term US Sensors & Electronics development programmes
-- Restructuring of operations to reflect long-term programmes and opportunities
-- Interim dividend maintained at prior-year level
Michael Flowers, Group Chief Executive of Chemring,
commented:
"Prolonged negotiations and delays in the receipt of significant
Middle East orders mean that we expect a heavy weighting of this
year's performance towards the second half. The receipt of orders
exceeding GBP50.0 million since the period end, coupled with
further significant orders expected to be won and the resolution of
certain operational issues, is expected to result in a strong
second half performance. We are taking the necessary steps to
enable delivery of these orders to commence in the current
financial year. Having carefully scrutinised the status of the
order pipeline and subject to receipt of key orders in the coming
months, our expectations for the full year remain unchanged.
The first half of 2015 has seen ongoing implementation of
Chemring's strategy, with significant success on long-term
counter-IED, chemical and biological detection programmes for the
US Department of Defense. Overall, we are making good strategic and
operational progress, and look forward with increasing optimism to
the longer-term potential of the Group being delivered."
For further information:
Group Chief Executive, Chemring Group
Michael Flowers PLC 01794 833901
Group Finance Director, Chemring Group
Steve Bowers PLC 01794 833901
Group Director of Communications and
Investor Relations, Chemring Group
Rupert Pittman PLC 01794 833901
John Olsen MHP Communications 0203 128 8100
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 global business that specialises in the
manufacture of high technology products and the provision of
services to the aerospace, defence and security markets
-- Employing approximately 3,000 people worldwide, and with
production facilities in four countries, Chemring meets the needs
of customers in more than fifty countries
-- Chemring is organised under three strategic product segments:
Countermeasures, Sensors & Electronics, and Energetic
Systems
-- Chemring has a diverse portfolio of products that deliver
high reliability solutions to protect people, platforms, missions
and information against constantly changing threats
-- Operating in niche markets and with strong investment in
research and development, Chemring has the agility to rapidly react
to urgent customer needs
www.chemring.co.uk
Presentation
The presentation slides and a live audio webcast of the
presentation to analysts will be available at the Chemring Group
results centre www.chemring.co.uk/resultscentre at 09.30 (UK time)
on Tuesday 23 June 2015. The presentation can also be listened to
at that time by dialling +44 (0) 20 3059 8125 and using the
participant password '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 Jennifer Iveson, MHP Communications:
jennifer.iveson@mhpc.com/ tel: 0203 128 8100.
Trading update
Chemring will issue a trading update in September 2015.
INTERIM MANAGEMENT REPORT
Group overview
Revenue from continuing operations reduced by 22.6% to GBP161.7
million (2014: GBP208.8 million) and underlying operating profit
was GBP5.5 million (2014: GBP22.4 million). There was an underlying
loss per share from continuing operations of 0.5p (2014: 5.4p
earnings per share). The results were, as anticipated, impacted by
lower activity levels. On a constant currency basis, revenue from
continuing operations was GBP156.9 million and underlying operating
profit was GBP6.1 million.
The Group's order book at 30 April 2015 was GBP502.8 million (31
October 2014: GBP486.8 million), of which GBP208.8 million is
scheduled for delivery during the current financial year. The order
book was weighted towards Countermeasures and Energetic
Systems.
Order intake, production improvements and outlook
The significant reduction in first-half profitability is
disappointing and reflects ongoing contract delays, primarily in
relation to Middle East customers. However, in light of key
contracts secured since the period end, a number of material
opportunities expected to be finalised in the coming months and
with the resolution of certain operational issues, Chemring's full
year performance will be very heavily weighted towards the second
half. Having carefully scrutinised the status of the order pipeline
and subject to receipt of key orders in the coming months, the
Group's expectations for the full year remain unchanged.
Since the period end orders exceeding GBP50.0 million have been
received, primarily for supply to customers in the Middle East.
Included within this order intake is a significant award for the
provision of non-standard ammunition under a US Government contract
which is expected to be wholly fulfilled in the current financial
year.
In addition, following prolonged negotiations in the Middle
East, orders are expected to be received for the supply of 3d-Radar
detection equipment and 40mm ammunition rounds. Further progress is
also expected on the Middle East Husky Mounted Detection System
("HMDS") ground penetrating radar order received in 2014. Initial
procurement and production to fulfil these requirements has
commenced, enabling these key orders and contracts to be
significantly progressed in the coming months, with revenues in the
current financial year. These revenues underpin the Group's
full-year expectations and are expected to deliver a profit
contribution of approximately GBP12 million.
Alongside this expected order intake, the Group expects to see
the benefit of increases in production volumes and improved
efficiency levels at Alloy Surfaces, as well as further production
gains at Kilgore, Chemring Defence and Chemring Energetic
Devices.
During the period, a lack of available shipping capacity
prevented certain deliveries of product to Middle East customers.
These issues have now been resolved and this backlog will be
delivered in the second half.
Notwithstanding the short-term delays in order intake, the Group
has made important strategic progress during the period, refocusing
its operations towards longer-term opportunities, including the
F-35 Joint Strike Fighter, counter-IED, and chemical and biological
detection programmes for the US Department of Defense ("US DoD").
Significant progress has been made in addressing the Group's
structure, with greater focus on Chemring's core capability areas,
a clearer emphasis on collaboration within segments, and a research
and development investment programme that is better aligned to
customer requirements.
While end markets remain challenging and customer behaviour
difficult to predict, the Group continues to pursue growth
opportunities, particularly in non-NATO and commercial markets, and
to drive operational efficiencies.
As a result, the Group remains well placed to achieve
longer-term growth, capitalising on its leading technologies and
market positions in Countermeasures, Sensors & Electronics, and
Energetic Systems.
Markets
The declines in defence spending that have occurred in recent
years appear to have stabilised and the global defence market is
expected to be broadly flat through 2015, before slowly
recovering.
The US remains the dominant player in defence spending. Recent
declines in US DoD budgets have reflected austerity measures and
the ongoing drawdown of operations in Afghanistan, though these
reductions appear to be partially reversing. Early indications are
that the US DoD's FY16 spending is likely to see an unchanged base
budget but a significant rise in the operational budget. This
expenditure is likely to be concentrated on areas of preferential
spending such as cyber security, and chemical and biological threat
detection.
Elsewhere in NATO, defence spending remains constrained.
Ambiguity surrounds the future level of UK defence expenditure,
with reports that it will be maintained at 2% of GDP with a 1% real
increase per year being conflicted by reports of budget cuts. Given
reduced exposure to UK Ministry of Defence ("UK MoD") expenditure,
any short-term cuts are not expected to materially impact
Chemring.
The Middle East defence market remains robust, with growth in
spending continuing to be fuelled by regional tensions and the
threat from Islamic State. While there are increased opportunities
in this market, the timing of order placement remains difficult to
predict.
Countermeasures review
The Countermeasures segment had a mixed first half, with revenue
increasing by 13.8% to GBP49.5 million (2014: GBP43.5 million) and
underlying operating profit increasing to GBP4.7 million (2014:
GBP1.5 million). The underlying operating margin rose to 9.5%
(2014: 3.4%). Activity in the comparative period was impacted by
the February 2014 incident at Kilgore.
Sales and profits were slightly below expectations. This was
largely the result of short-term production issues on particular
product lines which have either been mitigated or resolved since
the period end. It is expected that the resultant shortfall in
performance will be recovered in the second half.
Chemring Australia had a strong first half with order intake and
revenue above expectations. Qualification of Chemring Australia as
the second source manufacturer of countermeasures for the F-35,
alongside Kilgore, continues to progress well with further design
reviews successfully completed in the period.
Alloy Surfaces continues to experience a significant downturn in
demand from the US DoD. Although improved second-half performance
is partially dependent upon the receipt of orders from the US DoD
and Middle East customers, the current order book gives coverage of
over 75% of second half revenues. Options for reducing the cost
base at Alloy Surfaces are currently under review, including the
potential consolidation of manufacturing operations into one
plant.
Kilgore's operational performance continues to improve, albeit
gradually. Specific production problems on two product lines
persisted into the first half but have now been resolved, and gross
margin levels are rising as production consistency increases. All
of Kilgore's anticipated revenues for the second half are covered
by orders in hand.
Chemring Countermeasures UK's performance was impacted by
production challenges on infra-red flares, the specification for
which is particularly demanding. These issues have, however, now
been largely resolved. Order intake for the period was above
expectations and, in view of continued order book growth, a night
shift has been introduced to increase manufacturing capacity. The
new automated, flare-mixing facility is now operational and will
provide greater flexibility in managing production workload.
Following the successful resolution of certain technical
problems associated with the development of a new and advanced
countermeasure, highlighted in the 2014 Annual Report and Accounts,
work has continued on the qualification of this product and the
results of the final customer acceptance test are expected by July
2015.
Countermeasures' order book of GBP199.3 million increased by
3.1% during the period (October 2014: GBP193.3 million, April 2014:
GBP161.8 million).
Sensors & Electronics review
Revenue for Sensors & Electronics decreased by 56.3% to
GBP41.4 million (2014: GBP94.7 million). Contract delays and sales
mix caused the revenue decline to result in underlying operating
profit falling to GBP0.9 million (2014: GBP23.3 million). The
underlying operating margin consequently decreased to 2.2% (2014:
24.6%). This performance was principally due to delays in
progressing production contracts with Middle East customers, which
were anticipated to offset the current pause in manufacturing for
the US DoD.
This Middle East demand includes a requirement for 3d-Radar
detection equipment, for which an order is expected to be received
in the second half. Further progress is expected on the HMDS ground
penetrating radar production order received in 2014. Initial
procurement and production to fulfil these requirements has
commenced and revenue from these contracts is now anticipated for
the second half.
Chemring has continued to focus its efforts on long-term US DoD
Programs of Record. The first half of 2015 has seen success on the
development phases of the Programs of Record for counter-IED,
chemical and biological detection. In April 2015, Chemring received
a $14.9 million award as the sole contractor for the US DoD's Joint
Biological Tactical Detection System ("JBTDS") development
programme. Production activity on the JBTDS programme is expected
to have lifetime revenues in excess of $300 million. This award,
combined with wins on the Next Generation Chemical Detector and the
HMDS ground penetrating radar development programmes, sees the
Group making good strategic progress in the US.
Expansion into the commercial market is gaining pace, with the
3d-Radar ground penetrating radar being applied to support anomaly
detection in the infrastructure and construction sectors.
Technologies developed as part of the Group's chemical and
biological detection capabilities are being adapted to meet
emerging requirements, particularly in the police and first
responder markets.
As a result of the reduced production workload in the US and the
near-term focus on US research and development activity, further
production consolidation is taking place at Charlottesville,
Virginia, with one of the two production sites being closed.
In the UK, a major restructuring of Chemring Technology
Solutions is being implemented to deliver greater focus on customer
service within Roke, the contract research and development
business. Roke will now operate separately from the products-based
business, which will continue to develop its positions in
electronic warfare and communications.
Chemring Technology Solutions has continued to make progress in
its core business areas. Sales of the Resolve electronic warfare
system have continued to gain traction, with contracts received
from customers in the Asia-Pacific and Middle East regions.
Positive dialogue continues with other NATO and Middle East
customers as the Group works on establishing Resolve as the
man-portable electronic warfare system of choice.
The order book for Sensors & Electronics at 30 April 2015
was GBP88.8 million (October 2014: GBP77.5 million, April 2014:
GBP50.1 million). Further funded development awards and production
orders are anticipated in the second half of the current financial
year.
Energetic Systems review
Revenue for Energetic Systems was broadly unchanged at GBP70.8
million (2014: GBP70.6 million), while underlying operating profit
rose by 38.5% to GBP3.6 million (2014: GBP2.6 million). The
underlying operating margin was 5.1% (2014: 3.7%), reflecting the
benefit of improved operational performance and a favourable sales
mix. Margins are expected to increase in the second half in line
with normal seasonal variations.
In the UK, the reorganisation of Chemring Energetics is
delivering positive results, with greater focus on operational
effectiveness, collaboration and customer engagement. This was
demonstrated by the first deliveries of plastic explosive block for
the UK MoD from the newly-commissioned manufacturing facility,
strengthening Chemring Energetics UK's position as a leader in the
supply of demolition products.
Chemring Defence had a strong first half. Demand from customers
in the Middle East remains robust and further orders are expected
over the next twelve months. Demand from the UK MoD remains
subdued, with demand not expected to re-start until 2017.
In the US, significant progress has been made at Chemring
Energetic Devices in relieving capacity constraints. The common
enterprise resource planning system, implemented in 2014, is
resulting in operational efficiencies and improving delivery
performance. Customer confidence is growing as a result and the
order book has continued to increase.
Chemring Ordnance performed strongly, with production of
Anti-Personnel Obstacle Breaching Systems ("APOBS") in line with
expectations and additional product lines progressively increasing
manufacturing throughput. In May 2015, Chemring Ordnance was
awarded a US DoD $62.7 million contract for non-standard
ammunition, which is expected to be fulfilled in the second half.
Further significant contracts for the supply of 40mm ammunition to
the Middle East are expected to be received in the second half,
with deliveries spanning the current and future financial
years.
The order book for Energetic Systems at 30 April 2015 was
GBP214.7 million (October 2014: GBP216.0 million, April 2014:
GBP189.9 million).
Analysis of non-underlying items
The use of underlying measures, in addition to total measures,
is considered by the Board to improve comparability of business
performance between periods and, consistent with past practice,
certain items are classed as non-underlying, as set out below.
2015 2014
GBPm GBPm
Acquisition and disposal related (credit)/costs (2.7) 9.1
Business restructuring and incident costs 1.8 3.0
Claim-related costs 4.7 -
Profit on disposal of business - (0.5)
Impairment of goodwill - 45.9
Impairment of acquired intangibles - 10.7
Impairment of assets held for sale - 13.6
Intangible amortisation arising from business
combinations 7.1 9.2
Gain on fair value movement of derivative
financial instruments (0.1) (1.0)
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Total non-underlying items 10.8 90.0
------ ------
Analysed as:
Continuing operations 13.8 8.3
Discontinued operations (3.0) 81.7
------ ------
10.8 90.0
------ ------
Acquisition and disposal related items included a credit of
GBP3.0 million in respect of discontinued operations, which results
from the release of certain provisions established on the disposal
of businesses in prior years, which are no longer required, and the
retranslation of remaining provisions. Business restructuring and
incident costs of GBP1.8 million include GBP1.4 million relating to
the restructuring of Chemring Technology Solutions' site in Romsey
and GBP0.2 million relating to headcount reductions elsewhere
within the Group. Further costs will be incurred in the second half
of the current financial year in respect of the restructuring at
Romsey and US site rationalisation.
Claim-related costs of GBP4.7 million are associated with
proceedings by the US Department of Justice relating to historic
supplies of product by Kilgore. A settlement with the Department of
Justice is expected to be reached in the second half and the
estimated value of this settlement has been reflected as a
non-underlying item due to its scale and unusual nature.
Intangible amortisation arising from business combinations was
GBP7.1 million (2014: GBP9.2 million), with the decrease
principally reflecting the disposal of the European munitions
businesses.
The effective tax rate on the underlying profit before tax from
continuing operations was 20.3% (2014: 22.0%).
Including non-underlying items, the operating loss from
continuing operations was GBP8.3 million (2014: GBP14.1 million
profit), reflecting the reduction in underlying operating profit
and a higher level of non-underlying items. Including
non-underlying items, the loss before tax from continuing
operations was GBP15.1 million (2014: GBP5.1 million profit). The
effective tax rate on the result before tax from continuing
operations was 28.5% (2014: 7.8%), with the increase being due to
the result before tax in the period comprising a greater proportion
of non-underlying costs, which are subject to tax at a higher
average rate.
Dividend
The Board has declared an unchanged interim dividend of 2.4p per
ordinary share (2014: 2.4p). The Board's policy of declaring a
dividend covered three times by underlying earnings per share is
expected to be maintained for the current financial year. The
interim dividend will be paid on 25 September 2015 to shareholders
on the register at 4 September 2015.
Working capital
A summary of working capital in respect of continuing operations
is set out below:
2015 2014
GBPm GBPm
Inventories 96.3 83.4
Trade receivables 49.4 47.3
Contract receivables 22.7 31.0
Trade payables (43.6) (36.6)
Advance payments (11.6) (6.1)
Other items (37.7) (53.6)
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75.5 65.4
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Working capital was GBP75.5 million (April 2014: GBP65.4
million, October 2014: GBP70.0 million), with GBP1.5 million of the
increase in the period resulting from foreign exchange rate
changes. Inventory levels rose at all three operating segments.
Within Countermeasures and Energetic Systems, the increases reflect
timing of shipments and production scheduling. For Sensors &
Electronics, inventory has risen in anticipation of production
contracts to be awarded in the second half of the financial year.
Trade receivables were broadly consistent year-on-year, but were
lower than the level at October 2014 due to the phasing of sales.
Trade payables and advance payments have risen as a result of
continuing efforts to optimise the Group's cash position. Other
items reduced due to lower levels of accruals and provisions, and
the reclassification of provisions relating to discontinued
operations.
Contract-accounted revenues represented 3% (2014: 29%) of
revenue from continuing operations, with the reduction reflecting
the decline in US-based production activity within Sensors &
Electronics.
Balance sheet
The Group's net debt increased by GBP12.9 million during the
period to GBP148.5 million (October 2014: GBP135.6 million, April
2014: GBP229.2 million). Of the increase since 31 October 2014,
GBP6.0 million was attributable to exchange rate changes resulting
in a higher translated value of US dollar-denominated debt.
Capital expenditure, including capitalised development costs,
was GBP7.6 million (2014: GBP10.8 million), principally comprising
spend on Sensors & Electronics product development and
investment in production infrastructure.
Debt facilities
The expected weighting of profit towards the second half,
combined with the weighting of earnings towards the first half of
the prior financial year, has led to a significant reduction in the
level of trailing earnings. In May 2015, Chemring therefore agreed
revisions to financial covenants with the syndicate of banks
providing its revolving credit facility and with the holders of its
loan notes, in order to provide appropriate levels of near-term
headroom.
Following these revisions, the permitted ratios for the loan
note adjusted debt leverage test and the revolving credit facility
leverage test have been increased, to 3.75x for the April 2015 test
date and to 3.50x for the July 2015 test date. Thereafter, these
permitted leverage ratios revert to their previous level of 3.00x.
Leverage is calculated as the ratio of debt, as defined in the
respective agreements, to earnings before interest, tax,
depreciation and amortisation ("underlying EBITDA"). In addition,
the minimum allowed ratio of underlying EBITDA to finance costs has
been reduced to 3.00x at the April 2015 and July 2015 test dates.
Thereafter, the permitted ratios of underlying EBITDA to finance
costs revert to the previously agreed levels of 3.50x under the
loan notes and 4.00x under the revolving credit facility.
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 directors have acknowledged the latest guidance on going
concern. 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 table below details the results of the covenant tests at 30
April 2015 and at 31 October 2014:
2015 2014
Covenant ratios - revolving credit facility
Maximum allowed ratio of net debt to underlying
EBITDA 3.75x 3.00x
Actual ratio of net debt to underlying EBITDA 3.07x 1.93x
Minimum allowed ratio of underlying EBITDA to finance
costs 3.00x 4.00x
Actual ratio of underlying EBITDA to finance costs 3.41x 4.28x
Covenant ratios - loan note agreements
Maximum allowed ratio of adjusted debt to underlying
EBITDA 3.75x 3.00x
Actual ratio of adjusted debt to underlying EBITDA 3.13x 2.25x
Maximum allowed ratio of total debt to underlying
EBITDA 3.75x 3.75x
Actual ratio of total debt to underlying EBITDA 3.21x 2.31x
Minimum allowed ratio of underlying EBITDA to finance
costs 3.00x 3.50x
Actual ratio of underlying EBITDA to finance costs 3.68x 4.39x
------ ------
The table below details net debt at 30 April 2015 and at 30
April 2014:
2015 2014
GBPm GBPm
Loan notes, net of facility fees (160.8) (247.0)
Revolving credit facility - -
Other loans and finance leases (1.1) (2.8)
-------- --------
Gross debt (161.9) (249.8)
Cash 13.4 20.6
-------- --------
Net debt (148.5) (229.2)
-------- --------
Board of directors
At the Group's Annual General Meeting on 19 March 2015, Vanda
Murray stepped down as a non-executive director and from the Board
of Chemring with effect from that date.
Health and safety
The safety and wellbeing of employees and operations remains the
Group's first priority. The emphasis on communicating safety at
every level continues, with culture and behaviour programmes
embedding safety at the core of all our operations. There is now
greater collaboration on safety programmes across the Group and in
the sharing of lessons learnt.
The Group continues to focus on the reduction of risk in
high-hazard activities, and on continuous improvement of safety
cases and process safety management programmes. During the period,
the automated manufacturing facility at Chemring Countermeasures UK
and the new block explosive manufacturing facility at Chemring
Energetics were commissioned. These facilities are now fully
operational, further reducing employees' exposure to the hazards of
energetic materials.
Complacency is now Chemring's greatest risk to a continued
strong performance in respect of health and safety. While lost-time
injuries have maintained an improving trend, the Group remains
vigilant, and is focused on further reductions in exposure to
potential hazards and improvement in safety culture.
Principal risks and uncertainties
The principal risks and uncertainties which could have a
material impact on the Group's performance and could cause actual
results to differ materially from expected and historical results
have not changed significantly from those set out in the Group's
2014 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 risks 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;
-- environmental laws and regulations; and
-- financial risks.
Management have detailed mitigation plans and assurance
processes to manage and monitor these risks.
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.
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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
23 June 2015 23 June 2015
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2015
Unaudited Unaudited
Half year to Half year to
30 April 2015 30 April 2014
Underlying Non-underlying Underlying Non-underlying
Note performance* items* Total performance* items* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 161.7 - 161.7 208.8 - 208.8
-------------- --------------- ------- -------------- --------------- --------
Operating profit/(loss) 5.5 (13.8) (8.3) 22.4 (8.3) 14.1
Finance income - - - 0.2 - 0.2
Finance expense (6.8) - (6.8) (9.2) - (9.2)
-------------- --------------- ------- -------------- --------------- --------
(Loss)/profit before
tax (1.3) (13.8) (15.1) 13.4 (8.3) 5.1
Tax credit/(charge)
on (loss)/profit 5 0.3 4.0 4.3 (2.9) 2.5 (0.4)
-------------- --------------- ------- -------------- --------------- --------
(Loss)/profit after
tax (1.0) (9.8) (10.8) 10.5 (5.8) 4.7
Discontinued operations
Profit/(loss) after
tax from discontinued
operations 11 - 3.0 3.0 3.6 (80.8) (77.2)
(Loss)/profit after
tax 3 (1.0) (6.8) (7.8) 14.1 (86.6) (72.5)
-------------- --------------- ------- -------------- --------------- --------
Unaudited Unaudited
Half year to Half year to
30 April 2015 30 April 2014
Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
(Loss)/earnings per
ordinary share 6
Continuing operations
Basic (0.5)p (5.1)p (5.6)p 5.4p (3.0)p 2.4p
Diluted (0.5)p (5.1)p (5.6)p 5.3p (2.9)p 2.4p
-------------- --------------- ------- -------------- --------------- --------
Continuing operations
and discontinued
operations
Basic (0.5)p (3.5)p (4.0)p 7.3p (44.8)p (37.5)p
Diluted (0.5)p (3.5)p (4.0)p 7.1p (44.6)p (37.5)p
-------------- --------------- ------- -------------- --------------- --------
* Further information about non-underlying items is set out in
note 3.
CONDENSED CONSOLIDATED INCOME STATEMENT (continued)
for the half year to 30 April 2015
Audited
Year to
31 Oct 2014
Underlying Non-underlying
performance* items* Total
Note GBPm GBPm GBPm
Continuing operations
Revenue 403.1 - 403.1
-------------- --------------- --------
Operating profit/(loss) 46.7 (21.3) 25.4
Finance income 0.1 - 0.1
Finance expense (18.7) (12.0) (30.7)
-------------- --------------- --------
Profit/(loss) before tax 28.1 (33.3) (5.2)
Tax (charge)/credit on profit/(loss) 5 (5.7) 9.5 3.8
-------------- --------------- --------
Profit/(loss) after tax 22.4 (23.8) (1.4)
Discontinued operations
Profit/(loss) after tax from discontinued
operations 11 1.5 (55.0) (53.5)
-------------- --------------- --------
Profit/(loss) after tax 3 23.9 (78.8) (54.9)
-------------- --------------- --------
Earnings/(loss) per ordinary share 6
Continuing operations
Basic 11.6p (12.3)p (0.7)p
Diluted 11.3p (12.0)p (0.7)p
-------------- --------------- --------
Continuing operations and discontinued
operations
Basic 12.4p (40.8)p (28.4)p
Diluted 12.1p (40.5)p (28.4)p
-------------- --------------- --------
* Further information about non-underlying items is set out in
note 3.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year to 30 April 2015
Unaudited Unaudited
Half year Half year
to to Audited
30 April 30 April Year to
2015 2014 31 Oct 2014
GBPm GBPm GBPm
Loss after tax attributable to equity holders
of the parent (7.8) (72.5) (54.9)
----------- ----------- -------------
Items that will not be reclassified subsequently
to profit or loss
Actuarial gains/(losses) on defined benefit
pension schemes 1.0 (2.4) (4.8)
Movement on deferred tax relating to pension
schemes (0.6) (0.4) 1.1
----------- ----------- -------------
0.4 (2.8) (3.7)
----------- ----------- -------------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations 2.0 (7.5) (14.6)
Income tax on items taken directly to equity - - 0.5
----------- ----------- -------------
2.0 (7.5) (14.1)
----------- ----------- -------------
Total comprehensive expense attributable
to equity holders of the parent (5.4) (82.8) (72.7)
----------- ----------- -------------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2015
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 2014 2.0 230.7 12.9 1.2 (32.6) 95.7 (9.6) 300.3
--------------------------- --------- --------- --------- ------------ ------------ ---------- -------- ------
Loss after tax - - - - - (7.8) - (7.8)
Other comprehensive
expense - - - - 2.0 0.4 - 2.4
--------------------------- --------- --------- --------- ------------ ------------ ---------- -------- ------
Total comprehensive
income/(expense) - - - - 2.0 (7.4) - (5.4)
Share-based payments
(net of settlement) - - - - - 0.6 - 0.6
At 30 April 2015 2.0 230.7 12.9 1.2 (30.6) 88.9 (9.6) 295.5
--------- --------- --------- ------------ ------------ ---------- -------- ------
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 - - - - - (72.5) - (72.5)
Other comprehensive
expense - - - - (7.5) (2.8) - (10.3)
----------------------- --------- --------- --------- ------------ ------------ ---------- -------- -------
Total comprehensive
expense - - - - (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 2013 2.0 230.7 12.9 1.3 (26.0) 172.5 (9.6) 383.8
-------------------------- --------- --------- --------- ------------ ------------ ---------- -------- -------
Loss after tax - - - - - (54.9) - (54.9)
Other comprehensive
expense - - - - (6.6) (11.2) - (17.8)
-------------------------- --------- --------- --------- ------------ ------------ ---------- -------- -------
Total comprehensive
expense - - - - (6.6) (66.1) - (72.7)
Dividends paid - - - - - (12.0) - (12.0)
Share-based payments
(net of settlement) - - - - - 1.2 - 1.2
Transfers between
reserves - - - (0.1) - 0.1 - -
At 31 October 2014 2.0 230.7 12.9 1.2 (32.6) 95.7 (9.6) 300.3
--------- --------- --------- ------------ ------------ ---------- -------- -------
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 April 2015
Unaudited Unaudited
As at As at Audited
30 April 30 April As at
Note 2015 2014 31 Oct 2014
Non-current assets GBPm GBPm GBPm
Goodwill 121.4 117.5 119.7
Development costs 35.2 29.7 33.2
Other intangible assets 81.5 87.4 85.9
Property, plant and equipment 174.1 175.5 177.1
Interest in associate - 1.5 -
Deferred tax 33.5 11.9 31.9
---------- ---------- -------------
3 445.7 423.5 447.8
---------- ---------- -------------
Current assets
Inventories 96.3 83.4 78.1
Trade and other receivables 87.5 89.5 90.7
Cash and cash equivalents 8 13.4 14.9 21.8
Derivative financial instruments 1.4 1.7 0.7
Assets held for sale 12 - 195.0 -
---------- ---------- -------------
198.6 384.5 191.3
---------- ---------- -------------
Total assets 644.3 808.0 639.1
---------- ---------- -------------
Current liabilities
Borrowings (0.1) (0.4) (0.3)
Obligations under finance leases (0.5) (1.6) (1.0)
Trade and other payables (95.1) (94.6) (86.0)
Provisions (6.7) (3.2) (2.9)
Current tax (2.9) (8.8) (6.7)
Derivative financial instruments (3.0) (2.1) (1.7)
Liabilities held for sale 12 - (94.7) -
(108.3) (205.4) (98.6)
---------- ---------- -------------
Non-current liabilities
Borrowings (160.8) (247.2) (155.6)
Obligations under finance leases (0.4) (0.5) (0.4)
Trade and other payables (1.3) (2.0) (2.0)
Provisions (20.4) (7.7) (24.1)
Deferred tax (38.0) (22.4) (35.5)
Preference shares (0.1) (0.1) (0.1)
Retirement benefit obligations 13 (18.6) (20.8) (21.8)
Derivative financial instruments (0.9) (0.3) (0.7)
---------- ---------- -------------
(240.5) (301.0) (240.2)
---------- ---------- -------------
Total liabilities (348.8) (506.4) (338.8)
---------- ---------- -------------
Net assets 295.5 301.6 300.3
---------- ---------- -------------
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 1.2 1.3 1.2
Translation reserve (30.6) (33.5) (32.6)
Retained earnings 88.9 97.8 95.7
---------- ---------- -------------
305.1 311.2 309.9
Own shares (9.6) (9.6) (9.6)
---------- ---------- -------------
Equity attributable to equity
holders of the parent 295.5 301.6 300.3
---------- ---------- -------------
Total equity 295.5 301.6 300.3
---------- ---------- -------------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2015
Note Unaudited Unaudited Audited
Half year Half year Year to
to to 31 Oct 2014
30 April 30 April GBPm
2015 2014
GBPm GBPm
Cash flows from operating activities
Cash generated from continuing underlying
operations 12.9 11.7 45.9
Cash generated from discontinued
underlying operations - 15.5 17.6
----------- ----------- -------------
Cash generated from underlying operations 15 12.9 27.2 63.5
Acquisition and disposal related
costs (0.2) (2.3) (7.5)
Business restructuring and incident
costs (3.6) (1.6) (6.4)
----------- ----------- -------------
9.1 23.3 49.6
Tax paid (2.8) (0.5) (3.4)
----------- ----------- -------------
Net cash inflow from operating activities 6.3 22.8 46.2
----------- ----------- -------------
Cash flows from investing activities
Purchases of intangible assets (4.5) (5.5) (12.1)
Purchases of property, plant and
equipment (3.1) (5.3) (10.9)
Receipt of finance income - 0.2 0.2
Receipts from sales of businesses,
net of cash transferred - 6.2 137.1
Acquisition of subsidiary undertaking,
net of cash acquired - - (1.4)
Proceeds on disposal of property,
plant and equipment - - 0.4
----------- ----------- -------------
Net cash (outflow)/inflow from investing
activities (7.6) (4.4) 113.3
----------- ----------- -------------
Cash flows from financing activities
Dividends paid - - (12.0)
Finance expense paid (6.2) (9.7) (32.8)
Capitalised facility fees paid (0.6) (0.8) (2.8)
Repayments of borrowings (0.2) (0.3) (102.1)
Repayments of finance leases (0.5) (0.8) (1.6)
Net cash outflow from financing
activities (7.5) (11.6) (151.3)
----------- ----------- -------------
(Decrease)/increase in cash and
cash equivalents (8.8) 6.8 8.2
Cash and cash equivalents at beginning
of period/year 21.8 14.2 14.2
Effect of foreign exchange rate
changes 0.4 (0.4) (0.6)
----------- ----------- -------------
Cash and cash equivalents at end
of period/year 13.4 20.6 21.8
----------- ----------- -------------
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 2015, 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
20. 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 2015 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
23 June 2015
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 2015 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 23 June 2015. The information
for the year ended 31 October 2014 does not constitute statutory
accounts as defined in section 435 of the Companies Act 2006. Full
accounts for the year ended 31 October 2014, 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 cost reduction
programmes and operational improvements;
-- mitigating actions available should business activities fall
behind current expectations, including the deferral of
discretionary overheads and restricting cash outflows; and
-- 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. 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
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
2014.
2. REVENUE BY DESTINATION
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2015 2014 2014
GBPm GBPm GBPm
Continuing operations
UK 31.9 43.0 80.5
USA 75.4 127.1 230.2
Europe 14.1 16.7 41.4
Asia Pacific 20.6 13.0 30.2
Middle East 19.0 7.7 17.5
Rest of the world 0.7 1.3 3.3
161.7 208.8 403.1
----------- ----------- ---------
Discontinued operations
UK - 1.8 1.8
USA - 1.6 3.1
Europe - 7.8 8.8
Asia Pacific - 3.9 3.9
Middle East - 53.5 54.2
- 68.6 71.8
----------- ----------- ---------
Total 161.7 277.4 474.9
----------- ----------- ---------
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 from continuing operations generated revenue of GBP6.9
million (H1 2014: GBP4.8 million, 2014: GBP9.2 million). Including
discontinued operations, sales to the Kingdom of Saudi Arabia
generated revenue of GBP6.9 million (H1 2014: GBP41.2 million,
2014: GBP47.8 million).
3. SEGMENTAL ANALYSIS
IFRS 8 Operating Segments requires operating segments to be
identified on the basis of internal reports about components of the
Group that are regularly reviewed by the Group Chief Executive and
the Board to allocate resources to the segments and to assess their
performance. The Group's operating and reporting structure was
revised during the year to 31 October 2014 to better cluster
similar businesses together within the following three operating
segments - Countermeasures, Sensors & Electronics, and
Energetic Systems. These segments are the basis on which the Group
reports its segmental information.
Segmental analyses of revenue and underlying operating profit
are set out below:
Unaudited
Unaudited Half year to 30 April
Half year to 30 April 2015 2014
Continuing Discontinued Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue
Countermeasures 49.5 - 49.5 43.5 - 43.5
Sensors & Electronics 41.4 - 41.4 94.7 - 94.7
Energetic Systems 70.8 - 70.8 70.6 - 70.6
Discontinued operations - - - - 68.6 68.6
----------- ------------- ------ ----------- ------------- ------
161.7 - 161.7 208.8 68.6 277.4
----------- ------------- ------ ----------- ------------- ------
Audited
Year to 31 Oct 2014
Continuing Discontinued Total
GBPm GBPm GBPm
Revenue
Countermeasures 96.1 - 96.1
Sensors & Electronics 154.4 - 154.4
Energetic Systems 152.6 - 152.6
Discontinued operations - 71.8 71.8
----------- ------------- ------
403.1 71.8 474.9
----------- ------------- ------
Unaudited
Unaudited Half year to 30 April
Half year to 30 April 2015 2014
Continuing Discontinued Total Continuing Discontinued Total
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying operating
profit
Countermeasures 4.7 - 4.7 1.5 - 1.5
Sensors & Electronics 0.9 - 0.9 23.3 - 23.3
Energetic Systems 3.6 - 3.6 2.6 - 2.6
Discontinued operations - - - - 4.6 4.6
Unallocated corporate
costs (3.7) - (3.7) (5.0) - (5.0)
----------- ------------- ------ ----------- ------------- ------
5.5 - 5.5 22.4 4.6 27.0
----------- ------------- ------ ----------- ------------- ------
Audited
Year to 31 Oct 2014
Continuing Discontinued Total
GBPm GBPm GBPm
Underlying operating
profit
Countermeasures 9.7 - 9.7
Sensors & Electronics 31.9 - 31.9
Energetic Systems 15.0 - 15.0
Discontinued operations - 2.3 2.3
Unallocated corporate
costs (9.9) - (9.9)
----------- ------------- ------
46.7 2.3 49.0
----------- ------------- ------
Analyses of operating profit to (loss)/profit before tax are set
out below, with separate reconciliations provided for continuing
and discontinued operations, and for the underlying and total
measures of profit:
Unaudited
Half year to 30 April
2015
Continuing Continuing Discontinued Discontinued Total
Underlying Total Underlying Total Underlying Total
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying operating profit 5.5 5.5 - - 5.5 5.5
Acquisition and disposal
related (costs)/credit - (0.3) - 3.0 - 2.7
Business restructuring
an incident costs - (1.8) - - - (1.8)
Claim-related costs - (4.7) - - - (4.7)
Intangible amortisation
arising from business
combinations - (7.1) - - - (7.1)
Gain on fair value movement
of derivative financial
instruments - 0.1 - - - 0.1
------------ ----------- ------------- ------------- ------------ -------
Non-underlying items - (13.8) - 3.0 - (10.8)
------------ ----------- ------------- ------------- ------------ -------
Operating profit/(loss) 5.5 (8.3) - 3.0 5.5 (5.3)
Finance income - - - - - -
Finance expense (6.8) (6.8) - - (6.8) (6.8)
(Loss)/profit before tax
for the period (1.3) (15.1) - 3.0 (1.3) (12.1)
Tax credit on loss 0.3 4.3 - - 0.3 4.3
------------ ----------- ------------- ------------- ------------ -------
(Loss)/profit after tax
for the period (1.0) (10.8) - 3.0 (1.0) (7.8)
------------ ----------- ------------- ------------- ------------ -------
Unaudited
Half year to 30 April
2014
Continuing Continuing Discontinued Discontinued Total
Underlying Total Underlying Total Underlying Total
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying operating profit 22.4 22.4 4.6 4.6 27.0 27.0
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 - - - (45.9) - (45.9)
Impairment of acquired
intangibles - - - (10.7) - (10.7)
Impairment of 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
movement of derivative
financial instruments - 1.2 - (0.2) - 1.0
------------ ----------- ------------- ------------- ------------ -------
Non-underlying items - (8.3) - (81.7) - (90.0)
------------ ----------- ------------- ------------- ------------ -------
Operating profit/(loss) 22.4 14.1 4.6 (77.1) 27.0 (63.0)
Finance income 0.2 0.2 - - 0.2 0.2
Finance expense (9.2) (9.2) - - (9.2) (9.2)
Profit/(loss) before tax
for the period 13.4 5.1 4.6 (77.1) 18.0 (72.0)
Tax charge on profit/(loss) (2.9) (0.4) (1.0) (0.1) (3.9) (0.5)
------------ ----------- ------------- ------------- ------------ -------
Profit/(loss) after tax
for the period 10.5 4.7 3.6 (77.2) 14.1 (72.5)
------------ ----------- ------------- ------------- ------------ -------
Audited
Year to 31 October 2014
Continuing Continuing Discontinued Discontinued Total
Underlying Total Underlying Total Underlying Total
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying operating profit 46.7 46.7 2.3 2.3 49.0 49.0
Acquisition and disposal
related costs - (0.6) - (8.0) - (8.6)
Business restructuring
and incident costs - (7.2) - - - (7.2)
Loss on disposal of associate - - - (0.9) - (0.9)
Profit on disposal of
business - 0.5 - 26.0 - 26.5
Impairment of goodwill - - - (45.9) - (45.9)
Impairment of acquired
intangibles - - - (10.7) - (10.7)
Impairment of assets held
for sale - - - (13.6) - (13.6)
Intangible amortisation
arising from business
combinations - (13.5) - (2.6) - (16.1)
Loss on fair value movement
of derivative financial
instruments - (0.5) - (0.2) - (0.7)
------------ ----------- ------------- ------------- ------------ -------
Non-underlying items - (21.3) - (55.9) - (77.2)
------------ ----------- ------------- ------------- ------------ -------
Operating profit/(loss) 46.7 25.4 2.3 (53.6) 49.0 (28.2)
Finance income 0.1 0.1 0.1 0.1 0.2 0.2
Finance expense (18.7) (18.7) (0.2) (0.2) (18.9) (18.9)
Non-underlying accelerated
interest costs - (12.0) - - - (12.0)
------------ ----------- ------------- ------------- ------------ -------
Profit/(loss) before tax
for the year 28.1 (5.2) 2.2 (53.7) 30.3 (58.9)
Tax (charge)/credit on
profit/(loss) (5.7) 3.8 (0.7) 0.2 (6.4) 4.0
------------ ----------- ------------- ------------- ------------ -------
Profit/(loss) after tax
for the year 22.4 (1.4) 1.5 (53.5) 23.9 (54.9)
------------ ----------- ------------- ------------- ------------ -------
There are no material intra-group transactions included within
the revenue and profit values disclosed in this note.
Underlying profit before tax has been defined as earnings before
costs relating to acquisitions and disposals, business
restructuring and incident costs, profit/(loss) on disposal of
businesses, items deemed to be of an exceptional nature, impairment
of goodwill and acquired intangibles, impairment of 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.
Segmental analyses of depreciation and amortisation are set out
below. All depreciation is reflected in both underlying and total
measures of operating profit. The analysis of amortisation is shown
for both the underlying and total operating profit measures.
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2015 2014 2014
GBPm GBPm GBPm
Depreciation
Countermeasures 3.6 3.5 7.0
Sensors & Electronics 1.3 1.3 2.7
Energetic Systems 2.4 2.4 4.8
Discontinued operations - 1.7 1.8
Unallocated corporate
items 0.2 0.4 0.7
----------- ----------- ---------
7.5 9.3 17.0
----------- ----------- ---------
Within underlying operating
profit Within total operating profit
Unaudited Unaudited Unaudited Unaudited
Half year Half year Audited Half year Half year Audited
to to Year to to to Year to
30 April 30 April 31 Oct 30 April 30 April 31 Oct
2015 2014 2014 2015 2014 2014
GBPm GBPm GBPm GBPm GBPm GBPm
Amortisation
Countermeasures 0.7 0.3 1.1 0.7 0.3 1.1
Sensors & Electronics 1.8 1.4 3.3 5.5 4.8 10.3
Energetic Systems 0.4 0.6 1.2 3.8 3.7 7.7
Discontinued operations - 0.8 0.9 - 3.5 3.5
Unallocated corporate
items 0.2 0.1 0.2 0.2 0.1 0.2
3.1 3.2 6.7 10.2 12.4 22.8
----------- ----------- --------- ----------- ----------- ---------
An analysis of non-underlying items by segment is provided
below:
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2015 2014 2014
GBPm GBPm GBPm
Non-underlying items by segment
Countermeasures 4.8 1.5 2.0
Sensors & Electronics 5.2 3.7 7.8
Energetic Systems 3.4 3.1 7.1
Discontinued operations (3.0) 81.7 55.9
Unallocated 0.4 - 16.4
10.8 90.0 89.2
----------- ----------- ---------
Unallocated items in the year to 31 October 2014 include GBP12.0
million (H1 2015: GBPnil, H1 2014: GBPnil) of accelerated interest
due on early repayment of loan notes.
In the period to 30 April 2015, there was an acquisition and
disposal related credit of GBP2.7 million (H1 2014: GBP9.1 million
charge, 2014: GBP8.6 million charge), which includes a GBP3.0
million credit from the release of certain provisions established
on the disposal of businesses in prior years, which are no longer
required, and the retranslation of remaining provisions. This
GBP3.0 million credit has been included with discontinued
operations. The remaining GBP0.3 million charge relates to
acquisition related costs. Acquisition and disposal related costs
in the comparative period and in the year to 31 October 2014
principally related to the disposal of the European munitions
businesses and Chemring Defence Germany, as well as ongoing merger
and acquisition activity.
In the period to 30 April 2015, restructuring and incident costs
were GBP1.8 million (H1 2014: GBP3.0 million, 2014: GBP7.2 million)
and included GBP1.4 million in respect of the restructuring of
Chemring Technology Solutions in the UK. In the period to 30 April
2014, restructuring and incident costs were associated with the
ongoing reorganisation of the Group's US-based businesses,
relocation of the UK head office, and the non-recurring incentive
scheme designed to ensure continued service of key personnel,
together with GBP0.9 million of costs incurred in relation to the
Kilgore incident that occurred in February 2014. In the year to 31
October 2014, restructuring costs included GBP1.1 million relating
to senior executives leaving and GBP4.1 million relating to
simplification and integration activities at business units. In
addition, GBP0.9 million related to excess property costs and
GBP1.1 million related to the incident at the Kilgore site.
Claim-related costs of GBP4.7 million (H1 2014: GBPnil, 2014:
GBPnil) are associated with proceedings by the US Department of
Justice relating to historic supplies of product by Kilgore. A
settlement with the Department of Justice is expected to be reached
in the second half and the estimated value of this settlement has
been reflected as a non-underlying item due to its scale and
unusual nature.
The impairment of goodwill, the impairment of acquired
intangibles and the impairment of assets held for sale relate to
the transfer of the European munitions businesses and Chemring
Defence Germany to assets and liabilities held for sale in the
period to 30 April 2014, and their subsequent disposal in the year
to 31 October 2014. See notes 11 and 12 for further details.
An update of the annual impairment assessment performed for the
preparation of the Group's financial statements for the year to 31
October 2014 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 GBP1.1
million. A 1% increase in the discount rate, along with setting the
long-term growth rate beyond the four year forecast period to zero,
would not result in impairment at any of the remaining cash
generating units.
Non-current assets by location
The Group does not disclose assets or liabilities by segment in
the monthly management accounts provided to the Executive Committee
or the Board. 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
2015 2014 2014
GBPm GBPm GBPm
Non-current assets by location
UK 233.3 212.8 233.3
USA 184.2 179.8 184.5
Europe 4.8 5.7 5.1
Australia and Far East 23.4 25.2 24.9
445.7 423.5 447.8
---------- ---------- --------
4. SEASONALITY OF REVENUE
Revenue for all three of the business segments is more weighted
towards the second half of the financial year, in line with defence
spending and the timing of expected contract activity.
5. TAX
Including discontinued operations, the effective tax rate on
underlying profit before tax for the period is 20.3% (H1 2014:
22.0%, 2014: 21.1%) 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 37.0%
(H1 2014: 3.8%, 2014: 11.7%). The tax rate on total profit before
tax, including discontinued operations, is therefore 35.5% (H1
2014: 0.7%, 2014: 6.8%). The full year effective tax rate on total
profit before tax, including discontinued operations, is currently
forecast to be 8.6% (H1 2014: 0.7%, 2014: 6.8%).
6. (LOSS)/EARNINGS PER SHARE
(Loss)/earnings per share are based on the average number of
shares in issue, excluding own shares held, of 193,297,111 (H1
2014: 193,296,213, 2014: 193,296,666) and the loss on continuing
operations after tax of GBP10.8 million (H1 2014: GBP4.7 million
profit, 2014: GBP1.4 million loss). Diluted earnings per share has
been calculated using a diluted average number of shares in issue,
excluding own shares held, of 193,297,111 (H1 2014: 197,457,734,
2014: 193,266,666) and the loss on continuing operations after tax
of GBP10.8 million (H1 2014: GBP4.7 million profit, 2014: GBP1.4
million loss). No dilution has been recognised for the purposes of
basic earnings per share from continuing operations due to there
being a loss per share for the period to 30 April 2015, and for the
year to 31 October 2014. In addition, no dilution has been
recognised for the purposes of underlying earnings per share for
the period to 30 April 2015, due to there being a loss per share
for that period. Dilution has, however, been recognised in the
calculation of underlying earnings per share for the period to 30
April 2014 and the year to 31 October 2014, using a diluted average
number of shares in issue, excluding own shares held, of
197,457,734 and 197,285,824 respectively.
The earnings and number of shares used in the calculations are
as follows:
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2015 2014 2014
Number Number Number
000s 000s 000s
Weighted average number of shares used to
calculate basic and
diluted loss per share 193,297 193,296 193,297
Additional shares issuable other than at
fair value in respect of options outstanding - 4,162 3,989
---------- ---------- --------
Weighted average number of shares used to
calculate diluted
underlying (loss)/earnings per share 193,297 197,458 197,286
---------- ---------- --------
Continuing operations
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2015 2014 2014
Basic Diluted Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying (loss)/profit
after tax (1.0) (1.0) 10.5 10.5 22.4 22.4
Non-underlying items (9.8) (9.8) (5.8) (5.8) (23.8) (23.8)
------ ---------- ------ ---------- ------ --------
Total (loss)/profit
after tax (10.8) (10.8) 4.7 4.7 (1.4) (1.4)
------ ---------- ------ ---------- ------ --------
Basic Diluted Basic Diluted Basic Diluted
Pence Pence Pence Pence Pence Pence
(Loss)/earnings per
share (5.6) (5.6) 2.4 2.4 (0.7) (0.7)
------ ---------- ------ ---------- ------ --------
Underlying (loss)/earnings
per share (0.5) (0.5) 5.4 5.3 11.6 11.3
------ ---------- ------ ---------- ------ --------
Continuing and discontinued operations
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2015 2014 2014
Basic Diluted Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying (loss)/profit
after tax (1.0) (1.0) 14.1 14.1 23.9 23.9
Non-underlying items (6.8) (6.8) (86.6) (86.6) (78.8) (78.8)
------ ---------- ------ ---------- ------ --------
Total (loss)/profit
after tax (7.8) (7.8) (72.5) (72.5) (54.9) (54.9)
------ ---------- ------ ---------- ------ --------
Basic Diluted Basic Diluted Basic Diluted
Pence Pence Pence Pence Pence Pence
Loss per share (4.0) (4.0) (37.5) (37.5) (28.4) (28.4)
------ ---------- ------ ---------- ------ --------
Underlying (loss)/earnings
per share (0.5) (0.5) 7.3 7.1 12.4 12.1
------ ---------- ------ ---------- ------ --------
7. DIVIDENDS
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2015 2014 2014
GBPm GBPm GBPm
Dividends on ordinary shares of 1p each
Final dividend for the year to 31 October
2013: 3.8p - 7.3 7.3
Interim dividend for the year to 31 October
2014: 2.4p - - 4.7
Total dividends - 7.3 12.0
------------ ----------- ---------
The proposed interim dividend in respect of the half year to 30
April 2015 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.
8. CASH AND CASH EQUIVALENTS
Included within cash is GBP0.4 million of restricted cash (H1
2014: GBP0.6 million, 2014: GBP0.6 million).
9. FINANCIAL INSTRUMENTS
As at 30 April 2015, there were no significant differences
between the book value and fair value (as determined by market
value) of the Group's financial assets and liabilities.
The fair value of derivative financial instruments is estimated
by discounting the future contracted cash flow using readily
available market data and represents a Level 2 measurement in the
fair value hierarchy under IFRS 7 Financial Instruments:
Disclosures. As at 30 April 2015, the total fair value of forward
foreign exchange contracts recognised in the condensed consolidated
balance sheet were an asset of GBP1.0 million (H1 2014: GBP1.7
million, 2014: GBP0.7 million) and a liability of GBP3.9 million
(H1 2014: GBP0.5 million, 2014: GBP1.6 million). The fair value of
interest rate swap contracts recognised in the condensed
consolidated balance sheet were an asset of GBP0.4 million (H1
2014: GBPnil, 2014: GBPnil) and a liability of GBPnil (H1 2014:
GBP1.9 million, 2014: GBP0.8 million)
10. ACQUISITION
On 9 May 2014, the Group acquired the entire issued share
capital of 3d-Radar AS, a company based in Trondheim, Norway, for a
cash consideration of GBP1.8 million ($3.0 million). The company is
a leading developer of commercial three-dimensional ground
penetrating radar technology.
Provisional
fair value
GBPm
Property, plant and equipment 0.1
Cash acquired 0.4
Working capital 0.1
------------
Net assets acquired 0.6
Acquired intangibles 1.2
------------
Total 1.8
------------
Total cash consideration 1.8
Less cash acquired with subsidiary (0.4)
Cash outflow from investing activities 1.4
------------
11. DISCONTINUED OPERATIONS AND DISPOSALS
The Group disposed of its European munitions businesses,
comprising Mecar and Simmel, to Nexter Systems SA for gross cash
proceeds of GBP134.5 million (EUR165.3 million), being GBP126.5
million for the share purchase and an additional GBP8.0 million
settlement of outstanding inter-company balances. The net loss
arising on disposal was GBP37.9 million. The disposal of Mecar was
completed on 19 May 2014 and, following regulatory approval from
the Italian Government, the disposal of Simmel was completed on 27
May 2014.
On 27 May 2014, the Group also completed the disposal of its
German subsidiary, Chemring Defence Germany GmbH, for cash proceeds
of GBP2.2 million (EUR2.8 million) to Drew Marine Germany GmbH.
On 24 January 2014, the Group completed the sale of Chemring
Energetic Devices' business located in Clear Lake, South Dakota
("Clear Lake") to Amtec Corporation, USA. The initial cash proceeds
were GBP5.9 million ($10.0 million) and a further GBP0.3 million
($0.5 million) was received in the year to 31 October 2014
following finalisation of completion accounts. The profit arising
on the disposal of Clear Lake was GBP0.5 million.
On 29 October 2014, the Group sold its 49% shareholding in its
associate CIRRA S.A. for a cash consideration of GBP0.5 million
(EUR0.6 million).
These disposals reshaped Chemring for future growth by enabling
the Group to refocus on its core competencies. The disposals have
strengthened the balance sheet and thereby provided greater
financial flexibility.
As at 30 April 2014, the European munitions businesses and
Chemring Defence Germany were treated as discontinued operations
and the assets and liabilities associated with these businesses
were classified as held for sale.
In the period to 30 April 2015 there was a non-underlying credit
of GBP3.0 million resulting from the release of certain provisions
established on the disposal of businesses in prior years, which
were no longer required, and the retranslation of remaining
provisions.
The results of the discontinued operations, excluding Clear
Lake, to their dates of disposal, which have been included in the
consolidated income statement and the consolidated statement of
cash flows for the period to 30 April 2014 and the year to 31
October 2014, were as follows:
Unaudited
Period
to
30 April
2014
Underlying Non-underlying
---------------------------- ----------------------------------
European Chemring European Chemring
munitions Defence munitions Defence
businesses Germany Total businesses Germany Total Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 65.4 3.2 68.6 - - - 68.6
----------- -------- ----- ----------- ----------- -------- ---------
Operating profit 4.8 (0.2) 4.6 (75.3) (6.4) (81.7) (77.1)
Net finance expense - - - - - - -
Tax (1.1) 0.1 (1.0) 0.9 - 0.9 (0.1)
----------- -------- ----- ----------- ----------- -------- ---------
Profit/(loss) after tax 3.7 (0.1) 3.6 (74.4) (6.4) (80.8) (77.2)
----------- -------- ----- ----------- ----------- -------- ---------
European Chemring
munitions Defence
businesses Germany Total
GBPm GBPm GBPm
Net cash inflow from
operating activities 13.3 0.6 13.9
Net cash outflow from
financing activities - - -
Net cash flow from discontinued
operations 13.3 0.6 13.9
----------- -------- ---------
Audited
Year to
31 October 2014
Underlying Non-underlying
---------------------------- ----------------------------------------------
European Chemring European Chemring
munitions Defence munitions Defence
businesses Germany Total businesses Germany CIRRA Total Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 67.9 3.9 71.8 - - - - 71.8
----------- -------- ----- ----------- -------- ----------- ---------- ------
Operating profit 2.7 (0.4) 2.3 (47.1) (7.9) (0.9) (55.9) (53.6)
Net finance expense (0.1) - (0.1) - - - - (0.1)
Tax (0.7) - (0.7) 0.9 - - 0.9 0.2
----------- -------- ----- ----------- -------- ----------- ---------- ------
Profit/(loss)
after tax 1.9 (0.4) 1.5 (46.2) (7.9) (0.9) (55.0) (53.5)
----------- -------- ----- ----------- -------- ----------- ---------- ------
European Chemring
munitions Defence
businesses Germany Total
GBPm GBPm GBPm
Net cash inflow from
operating activities 16.7 0.9 17.6
Net cash outflow from
financing activities (0.1) - (0.1)
Net cash flow from discontinued
operations 16.6 0.9 17.5
----------- ---------- ------
12. HELD FOR SALE
As at 30 April 2015 and 31 October 2014 there were no assets or
liabilities classified as held for sale.
On 24 April 2014, the Group agreed to sell its European
munitions businesses, subject to regulatory and shareholder
approval, and, on 10 April 2014, the Group agreed to sell Chemring
Defence Germany GmbH. As set out in note 11, these disposals
completed during May 2014. As at 30 April 2014, the net assets of
these businesses were classified as held for sale and presented
separately on the balance sheet. The operations of these businesses
were classified as discontinued operations, as detailed in notes 3
and 11. The net assets held for sale at 30 April 2014 were held at
net realisable value, resulting in an impairment charge in the
period to 30 April 2014 of GBP63.9 million in respect of the
European munitions businesses and GBP6.3 million in respect of
Chemring Defence Germany GmbH. The major classes of assets and
liabilities comprising the operations classified as held for sale
at 30 April 2014 were as follows:
European Chemring
munitions Defence
businesses Germany Total
GBPm GBPm GBPm
Goodwill and acquired intangibles 24.4 - 24.4
Other intangible assets 4.3 - 4.3
Property, plant and equipment 33.9 - 33.9
Inventories 28.7 3.6 32.3
Trade and other receivables 93.6 0.8 94.4
Cash and cash equivalents 5.5 0.2 5.7
----------- -------- ------
Total assets classified as held for sale 190.4 4.6 195.0
----------- -------- ------
Trade and other payables (64.1) (1.0) (65.1)
Tax liabilities (17.8) (0.4) (18.2)
Provisions (9.0) (0.9) (9.9)
Retirement benefit obligation - (1.5) (1.5)
----------- -------- ------
Total liabilities classified as held for
sale (90.9) (3.8) (94.7)
----------- -------- ------
Net assets classified as held for sale 99.5 0.8 100.3
----------- -------- ------
13. PENSIONS
The defined benefit obligations are calculated using an
actuarial valuation as at 30 April 2015. In the period to 30 April
2015, retirement benefit obligations decreased to GBP18.6 million
(H1 2014: GBP20.8 million, 2014: GBP21.8 million), principally as a
result of employer contributions paid in accordance with the
funding plan agreed with the trustees of the Chemring Group Staff
Pension Scheme in 2013.
The difference between the expected return on assets and the
actual return on assets has been recognised as an actuarial
gain/(loss) on defined benefit pension schemes in the condensed
consolidated statement of comprehensive income in accordance with
the Group's accounting policy.
14. RELATED PARTY TRANSACTIONS
The Group had no related party transactions during the period
requiring disclosure.
15. CASH GENERATED FROM UNDERLYING OPERATIONS
Unaudited Unaudited
Half year Half year
to to Audited
30 April 30 April Year to
2015 2014 31 Oct 2014
GBPm GBPm GBPm
Operating (loss)/profit from continuing
operations (8.3) 14.1 25.4
Operating profit/(loss) from discontinued
operations 3.0 (77.1) (53.6)
----------- ----------- -------------
(5.3) (63.0) (28.2)
Impairment of acquired goodwill - 45.9 45.9
Impairment of acquired intangibles - 10.7 10.7
Impairment of assets held for sale - 13.6 13.6
Amortisation of development costs 3.0 3.1 6.5
Amortisation of intangible assets arising
from business combinations 7.1 9.2 16.1
Amortisation of patents and licenses 0.1 0.1 0.2
Loss on disposal of non-current assets - 0.1 (0.2)
Depreciation of property, plant and equipment 7.5 9.3 17.0
(Gain)/loss on the movement in the fair
value of derivative financial instruments (0.1) (1.0) 0.7
Share-based payment expense 0.6 0.7 1.2
Employer contributions to retirement
pension obligations (2.5) (4.0) (8.2)
----------- ----------- -------------
Operating cash flows before movements
in working capital 10.4 24.7 75.3
(Increase)/decrease in inventories (16.8) (2.0) 2.3
Decrease/(increase) in trade and other
receivables 6.0 27.2 24.0
Decrease in trade and other payables 9.6 (42.6) (26.8)
Decrease/(increase) in provisions (0.1) 8.3 (1.5)
----------- ----------- -------------
9.1 15.6 73.3
Add back non-underlying items:
Acquisition and disposal related (credit)/costs (2.7) 9.1 8.6
Business restructuring and incident costs 1.8 3.0 7.2
Claim related costs 4.7 - -
Profit on disposal of businesses - (0.5) (26.5)
Loss on disposal of associate - - 0.9
----------- ----------- -------------
Cash generated from underlying operations 12.9 27.2 63.5
----------- ----------- -------------
Analysed as:
Continuing operations 12.9 11.7 45.9
Discontinued operations - 15.5 17.6
----------- ----------- -------------
12.9 27.2 63.5
----------- ----------- -------------
16. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Unaudited Unaudited
Half year Half year
to to Audited
30 April 30 April Year to
2015 2014 31 Oct 2014
GBPm GBPm GBPm
(Decrease)/increase in cash and cash
equivalents (8.8) 6.8 8.2
Decrease in debt and lease financing
due to cash flows 1.3 1.9 106.5
----------- ----------- -------------
(Increase)/decrease in net debt resulting
from cash flows (7.5) 8.7 114.7
Effect of foreign exchange rate changes (6.0) 11.8 1.3
Accrued debt finance costs 1.5 - -
Amortisation of debt finance costs (0.9) (1.0) (2.9)
----------- ----------- -------------
Movement in net debt (12.9) 19.5 113.1
Net debt at beginning of the period/year (135.6) (248.7) (248.7)
----------- ----------- -------------
Net debt at end of the period/year (148.5) (229.2) (135.6)
----------- ----------- -------------
17. ANALYSIS OF NET DEBT
As at
1 Nov Cash Non-cash Exchange As at 30
2014 flows changes rate effects April 2015
GBPm GBPm GBPm GBPm GBPm
Cash at bank and in hand 21.8 (8.8) - 0.4 13.4
Debt due within one year (0.3) 0.2 - - (0.1)
Debt due after one year (155.6) 0.6 0.6 (6.4) (160.8)
Finance leases (1.4) 0.5 - - (0.9)
Preference shares (0.1) - - - (0.1)
-------- ------- --------- -------------- ------------
(135.6) (7.5) 0.6 (6.0) (148.5)
-------- ------- --------- -------------- ------------
18. CONTINGENT LIABILITIES
The Group is, from time to time, party to legal proceedings and
claims, and is involved in correspondence relating to potential
claims, which arise in the ordinary course of business.
The Group is currently engaged in pre-action correspondence in
relation to the manufacture of certain components for the Next
Generation Light Anti-Tank Weapon combat weapon by Chemring
Energetics UK. The Group is also engaged in pre-action
correspondence with the Defense Contract Audit Agency of the US
Department of Defense in relation to disputed pricing calculations
on certain contracts fulfilled by Alloy Surfaces.
In light of the current status of these matters, the directors
do not consider the outcome of all the proceedings, actions and
claims in which it is currently involved, either individually or in
aggregate, will have a material adverse effect upon the Group's
financial position. A provision of GBP8.6 million (H1 2014: GBP4.9
million, 2014: GBP4.5 million) exists to cover estimated legal
costs for the Group with regards to pending and probable legal
actions.
19. ADOPTION OF FRS101 REDUCED DISCLOSURE FRAMEWORK
The Group intends to apply FRS101 Reduced Disclosure Frameworkin
its separate financial statements for the year to 31 October 2015.
Any objections should be notified to the Company by 31 August
2015.
20. 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 bi-annually 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's key performance indicators also give insight
into how these risks and uncertainties are being managed. The Group
mitigates certain elements of 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
harm to employees, 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. The Board is committed to ensuring that
the Group's leadership operates with health and safety as the top
priority, and that the strength of the Group's safety culture and
the quality of its protective systems deliver operations where all
employees and visitors feel and are absolutely safe.
Chemring's Safety Leadership Programme was attended by the
senior management teams of every Group business during 2014. All
employees have received a booklet setting out the Group's
statements of intent in relation to delivery of its health and
safety strategy and the behaviours required of them as individuals.
All employees are encouraged to report potential hazards, and to
raise any health and safety concerns through the appropriate
channels.
The Group continues to invest in state-of-the-art process safety
systems and equipment. The Group's safety and loss prevention
programmes require detailed pre-construction reviews of process
changes and new operations, and safety audits of operations are
undertaken on a regular basis. All businesses are expected to
pro-actively manage their own risks but, in addition, the most
significant 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 levels depend
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, the Group expects there to be continued
downward pressure on budgets and consequently defence expenditure
could be severely impacted.
In recognition of the issues affecting the Group's traditional
NATO markets, business development activities are being focused on
non-NATO markets, where defence expenditure is forecast to grow
strongly over the next five to ten years. The Group continues to
make progress on developing its routes to market in the Middle
East, India and Brazil.
The Group also continually assesses whether its planned organic
growth strategies and product developments align with government
priorities for future funding. Most product development programmes
take between six and twelve months to complete, and this gives the
Group the ability to quickly redeploy engineering staff to product
areas where funding is more secure.
The Group continues to closely monitor the position in all the
key markets in which it operates.
-- 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 cover
multi-year requirements. This means that an unmitigated delay in
the receipt of orders could affect the Group's earnings and
achievement of its budget in any given financial year.
The Group anticipates that delays in the placement of orders by
NATO customers, as a result of budgetary constraints, are likely to
continue in the short to medium term. If the Group's businesses are
unable to continue trading profitably during periods of lower order
intake, financial performance will deteriorate and assets may be
impaired.
To mitigate the order placement dynamics within NATO markets,
the Group is focusing on the expansion of its business in non-NATO
markets, where defence expenditure is forecast to increase.
Maximising order intake remains a key objective for the
businesses, and they continue to address this through the
strengthening of their sales and marketing resources. The
businesses also continue to pursue long-term, multi-year contracts
with their major customers wherever possible.
The Group has undertaken various restructuring projects over the
last year, aimed at restoring the profitability of those Group
businesses which have suffered most from order delays.
Site optimisation plans continue to be refined to ensure that
the Group utilises its 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.
The Group's business in these countries may be adversely affected
in a way that is material to the Group's financial position and the
results of its operations.
In addition, political unrest and changes in the political
structure in certain non-NATO countries to which the Group
currently sells could impact on their future defence expenditure
strategy and the Group's ability to export products to these
countries.
During periods of unrest, delays in obtaining export licences
can result in delayed revenue.
The Group's businesses strive to maintain relationships at all
levels within the political structure of certain key countries, in
order to ensure that they are aware of and can react to changes, if
and when they occur.
The businesses 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 they may also procure political risks
insurance.
The Group is exploring opportunities for collaboration on the
establishment of local manufacturing operations in certain
countries, which may remove some of the uncertainty regarding
export of products.
-- Operational risks - The Group's 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.
All of the Group's businesses are required to prepare business
continuity plans.
The Group has introduced new requirements in relation to the
reporting of operational key performance indicators, in order to
provide better visibility on operational performance and to
facilitate the identification of potential production and quality
issues at an early stage.
The Group insures certain business interruption risks where
appropriate.
-- Introduction of new products- The Group's approach to
innovation and continued emphasis on research and development
activity means that it is continually adding new products to the
range. There is a need to ensure that this new product development
is completed in a timely manner, and to a standard which allows
volume manufacturing to be undertaken and the production of
products against high reliability and safety criteria to meet
customers' requirements. Failure to achieve this may have both
financial and reputational impacts.
The Group also needs to ensure that it continues to upgrade its
existing product range to compete with emerging technologies, and
to avoid the risk of obsolescence or loss of business.
The Group has introduced a more focused product development and
technology investment approach, in order to ensure that resources
are applied appropriately across the Group in support of the three
year plan. A Technology Board has been established to review all
proposed research and development projects, to ensure that key
initiatives are being prioritised and to prevent possible
duplication of effort in different parts of the Group. Working
groups have been established to drive and co-ordinate technology
investment 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 the non-compliance of these
products or services with the customer's requirements, due to
faults in design or production; the delay or failed supply of the
products or the services indicated in the contract; or 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 its
financial position. In addition, any accident, failure, incident or
liability, even if fully insured, could negatively affect the
Group's reputation among customers and the public, thereby 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.
The businesses maintain rigorous control of their production
processes, monitoring critical parameters on a batch or unit basis.
State-of-the-art techniques, including statistical process control
or Six Sigma, are applied and, where appropriate, processes are
automated to reduce the scope for human error. Detailed assessments
of incoming components and materials are conducted 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 it through the next stage of its 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,
there is a need to ensure that the businesses build an appropriate
skill base to enable them to compete successfully in new markets
and product areas.
Incentivisation arrangements have been streamlined and improved,
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 applicable laws and regulations in each of these
jurisdictions. The Group must ensure that all of its businesses,
its employees and third parties providing services on its 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 it 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, supported by dedicated
internal legal resource in the US. The Group's internal audit
activities also incorporate a review of legal risks.
The Group operates under a Global Code of Business Principles,
which stipulates the standard of acceptable business conduct
required from all employees and third parties acting on the Group's
behalf. The Group has also adopted a Bribery Act Compliance Manual,
incorporating all of its 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 relating to discharge of hazardous materials,
remediation of contaminated sites, and restoration of damage to the
environment. At certain sites that the Group owns or operates, 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.
The Group has managed monitoring and remediation programmes at
certain sites, for which appropriate financial provision has been
made. In certain circumstances, the Group procures environmental
liability insurance, subject to insurance conditions.
-- Financial risks - Details of the financial risks to which the
Group is potentially exposed and details of mitigating factors are
set out in the financial review and note 24 of the Group financial
statements within the 2014 Annual Report and Accounts.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BIGDLCUDBGUD
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
