TIDMCHG
RNS Number : 0595S
Chemring Group PLC
21 June 2018
21 JUNE 2018
CHEMRING GROUP PLC
("Chemring" or "the Group")
INTERIM RESULTS FOR THE SIX MONTHS TO 30 APRIL 2018
As reported At H1 2017
exchange rates
H1 2018 Change H1 2018 Change H1 2017
Revenue (GBPm) 229.3 - 8% 244.8 - 2% 249.6
Underlying EBITDA(*) (GBPm) 29.0 - 3% 31.1 + 4% 30.0
Underlying operating profit(*)
(GBPm) 18.1 + 5% 19.6 + 14% 17.2
Underlying profit before tax(*)
(GBPm) 14.8 + 31% 16.1 + 42% 11.3
Statutory profit/(loss) before
tax (GBPm) 4.3 (6.8)
Underlying earnings per share(*)
(pence) 4.1p + 28% 4.5p + 41% 3.2p
Underlying diluted earnings per
share(*) (pence) 4.0p + 29% 3.1p
Interim dividend per share (pence) 1.1p + 10% 1.0p
Net debt at 30 April (GBPm) 84.6 -24% 87.7 - 21% 111.7
Highlights
-- Performance continues to progress positively, with improved
first half revenue weighting delivering underlying operating profit
of GBP18.1m, despite a currency headwind
-- Net debt significantly down year on year
-- Net working capital reduction and repayment of loan notes
have resulted in finance costs being down 44%
-- Impact of recent changes to US tax legislation reflected in
the period, resulting in a non-underlying write down of deferred
tax assets of GBP17.4m
-- Safety performance continues to be strong
-- Operational Excellence Programme delivering improved return
on sales, 7.9% (H1 2017: 6.9%) and lower working capital, GBP129.8m
(H1 2017: GBP135.6m)
-- Key US Programs of Record progressing in line with
expectations. Contract negotiations ongoing on HMDS, solicitations
responded to on chemical and biological detection programmes and
testing ongoing on the JBTDS biological programme
-- Order intake in H1 of GBP208m (H1 2017: GBP218m). Order book
at half year GBP442m (FY 2017: GBP478m), of which approximately
GBP212m is currently expected to be delivered in H2 2018,
representing cover of approximately 80% of expected H2 revenues
-- Board declared interim dividend of 1.1p per share (H1 2017: 1.0p)
-- Board's expectations for FY 2018 remain unchanged
Michael Flowers, Chemring Group Chief Executive, commented:
"Market conditions and business performance in the first half of
2018 have continued to strengthen, with margins and earnings
improving across the Group. We expect this trend to continue as the
impact of significant increases to the US Defense budget start to
flow through, with the Group maximising the impact of these
improvements through improved delivery performance resulting from
the Operational Excellence Programme.
Our Countermeasures segment continues to grow, with a
strengthening order book and increased global market activity
underpinning capital investments in all facilities, most notably
our recently approved transformation programme at the Tennessee
site. Improved operational performance, improved capability, and an
improved market all point to strong future performance in the
segment. With contract finalisation on the first phase of the Husky
Mounted Detection System program expected shortly and customer
decisions on the Next Generation Chemical Detector and Enhanced
Maritime Biological Detection programs imminent, the second half is
key to our long term growth in the US sensors market.
In light of strong order book cover and improved performance,
the Board's outlook for FY 2018 remains positive, with expectations
unchanged. As previously highlighted, we expect a stronger
contribution from Countermeasures and scheduled reductions in
Energetics."
Notes:
*The principal Alternative Performance Measures ("APMs")
presented are the underlying measures of earnings which exclude
discontinued operations, exceptional items, gain or loss on the
movement on the fair value of derivative financial instruments, and
the amortisation of acquired intangibles. The Directors believe
that these APMs improve the comparability of information between
reporting periods. The term underlying is not defined under IFRS
and may not be comparable with similarly titled measures used by
other companies.
All profit and earnings per share figures in this news release
relate to underlying business performance (as defined above) unless
otherwise stated.
A reconciliation of underlying measures to statutory measures is
provided below:
Group: Underlying Non-underlying Statutory
EBITDA (GBPm) 29.0 (2.8) 26.2
----------- --------------- ----------
Operating profit (GBPm) 18.1 (10.5) 7.6
----------- --------------- ----------
Profit before taxation (GBPm) 14.8 (10.5) 4.3
----------- --------------- ----------
Tax charge (GBPm) (3.3) (15.8) (19.1)
----------- --------------- ----------
Profit/(loss) after tax (GBPm) 11.5 (26.3) (14.8)
----------- --------------- ----------
Basic earnings/(loss) per share
(pence) 4.1 (9.4) (5.3)
----------- --------------- ----------
Diluted earnings/(loss) per share
(pence) 4.0 (9.3) (5.3)
----------- --------------- ----------
Segments:
----------- --------------- ----------
Countermeasures EBITDA (GBPm) 12.6 (0.9) 11.7
----------- --------------- ----------
Countermeasures operating profit
(GBPm) 7.3 (1.8) 5.5
----------- --------------- ----------
Sensors EBITDA (GBPm) 8.8 (0.5) 8.3
----------- --------------- ----------
Sensors operating profit (GBPm) 6.8 (3.8) 3.0
----------- --------------- ----------
Energetics EBITDA (GBPm) 11.3 0.2 11.5
----------- --------------- ----------
Energetics operating profit (GBPm) 8.3 (3.3) 5.0
----------- --------------- ----------
The adjustments comprise:
-- amortisation of acquired intangibles of GBP7.0m (H1 2017:
GBP7.7m, 2017: GBP15.0m)
-- exceptional items of GBP0.5m (H1 2017: GBPnil, 2017: GBP2.3m)
relating to acquisition and disposal related costs
-- exceptional items of GBP1.6m (H1 2017: GBP11.1m, 2017:
GBP14.3m) relating to business restructuring costs
-- exceptional items of GBP1.5m (H1 2017: GBP0.2m, 2017:
GBP0.4m) relating to claim related costs
-- exceptional items of GBPnil (H1 2017: GBPnil, 2017: GBP10.6m)
relating to an impairment of a business
-- gain on the movement in the fair value of derivative
financial instruments of GBP0.1m (H1 2017: GBP0.9m, 2017:
GBP1.7m)
-- tax credit on adjustments of GBP1.6m (H1 2017: GBP5.8m, 2017:
GBP7.2m)
-- deferred tax write-off relating to the changes to US tax
legislation of GBP17.4m (H1 2017: GBPnil, 2017: GBPnil)
-- discontinued operations credits of GBPnil (H1 2017: GBP1.2m,
2017: GBP3.5m)
Further details are provided in note 3.
For further information:
Group Director of Corporate Affairs,
Rupert Pittman Chemring Group PLC +44 (0) 1794 833901
+44 (0) 20 3128
Andrew Jaques MHP Communications 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 2,600 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, and Energetics
-- 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 ("R&D"), 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 Thursday 21 June 2018. The presentation can also be listened to
at that time by dialling +44 (0)20 3936 2999 and using the
participant access code: 94 47 29. A recording of the audio webcast
will be available later that day.
Photography
Original high resolution photography is available to the media
by contacting Luke Briggs, MHP Communications: luke.briggs@mhpc.com
/ tel: +44 (0) 20 3128 8100.
This announcement contains inside information that qualified, or
may have qualified, as inside information for the purposes of
Article 17 of the Market Abuse Regulation (EU) 596/2014 (MAR). For
the purposes of MAR and Article 2 of commission Implementing
Regulation (EU) 2016/1055, this announcement is made by Sarah
Ellard, Company Secretary, for Chemring Group PLC.
INTERIM MANAGEMENT REPORT
Group overview
The Group has had a good first half year, in line with the
Board's expectations, and continuing the performance improvement of
last year. In particular, the first half saw a good performance
from the Countermeasures segment, driven by improving customer
demand and continued consistency of operational performance across
the segment. At constant currency the Group's underlying operating
profit was up 14% and underlying earnings per share was up 41%. As
expected, revenue at constant currency decreased by 2% driven by
lower deliveries of 40mm ammunition to customers in the Middle
East. Reported revenue was GBP229.3m (H1 2017: GBP249.6m, 2017:
GBP547.5m) and underlying operating profit was GBP18.1m (H1 2017:
GBP17.2m, 2017: GBP55.4m).
Net debt was GBP84.6m at the end of the period (H1 2017:
GBP111.7m, 2017: GBP80.0m), the increase since 31 October 2017
being largely attributable to the normal seasonality of the Group.
Underlying operating cash inflow of GBP21.4m (H1 2017: GBP7.9m
absorbed, 2017: GBP47.1m) represented 74% (H1 2017: (26%), 2017:
58%) of EBITDA.
The Group's order book at 30 April 2018 was GBP441.5m (H1 2017:
GBP556.2m, 2017: GBP478.0m), of which approximately GBP212.0m is
scheduled for delivery during H2 2018, representing cover of
approximately 80% of expected H2 revenue. The reduction since 31
October 2017 is attributable to the weaker US Dollar and delivery
of 40mm and Non-Standard Ammunition orders, offset by an increase
in Countermeasures driven by strong order intake in the US and
UK.
Markets
Geopolitical unrest in multiple markets, particularly the Middle
East, appears to be growing in complexity. This increased tension
has brought defence spending into greater focus as nations respond
to increased threats, and consequently we are seeing signs of
improvement in some markets.
Indications are that global growth in defence spending will be
sustained at around 3% per annum, although in certain areas growth
is likely to be stronger. The US remains the dominant market and
the Presidential Budget Request for Fiscal Year 2019 sees the
largest military budget in US history, at $700 billion.
Spending in Western Europe remains relatively subdued and in the
UK, exchange rate pressures and major platform acquisitions are
constraining other expenditure. The UK market is expected to remain
flat until the Defence Modernisation Programme, to be completed
later this summer, provides clarity on future procurement
priorities. It should be noted that the UK MOD now represents less
than 5% of Group revenues.
The Middle East defence market remains volatile and difficult to
predict. While regional tensions remain high, and oil prices are
still recovering, defence spending remains strong but customers are
having to prioritise procurement. Consequently order placements and
payments are regularly being delayed. In the Asia Pacific region,
there is growth in defence spending in Chemring's key markets in
the region, including Australia, India, Japan and Singapore in
response to increased activity by China.
Chemring's areas of focus at a segmental level broadly reflect
these macro trends. In the US the countermeasures market has
continued to show good growth with increased solicitation, bid
activity and order intake, together with evidence that we are
growing market share. The wider countermeasures market also remains
positive with increased activity in the UK and Australia, and
growing activity in other international markets.
The recent use of chemical weapons in Douma, Syria and also in
Salisbury, UK has highlighted the need for Chemring's products in
the Sensors segment. The Group continues to maintain its position
on the US Programs of Record for chemical and biological detection,
and counter-IED detection, however, production awards continue to
be subject to on-going development, customer testing programmes and
customer decision making processes.
The increasing threat to information security, together with the
proliferation of autonomous systems and artificial intelligence is
seeing customer budgets for Roke's consultancy services continue to
improve. Continued investment in capability in this area is ongoing
in order to optimise the opportunity for Chemring.
Within Energetics, the high specification energetic devices
businesses continue to grow as customers recognise niche
technological capabilities in this area, particularly in space and
missile applications, and also in the production of high explosive
material. Demand for pyrotechnic and ammunition products is being
driven by political unrest in certain parts of the world, although,
as expected, is reducing from recent high levels.
Health and safety
The lost time incident rate (incidents per 100 employees per
annum) as at 30 April 2018 was 0.29, the lowest on record (H1 2017:
0.61, 2017: 0.59), resulting from a number of minor occupational
safety incidents. It is critical to remember that many of
Chemring's manufacturing activities are inherently hazardous, and
that despite major investment and process improvements, the Group
must continue to improve its facilities, processes, training and
risk management to ensure safety performance continues to improve
further. Chemring had no energetic incidents in the period that
resulted in serious injury to an employee.
This year we are increasing our focus on human factors that
might contribute to an incident and reviewing in detail our
mitigation arrangements for all of our major accident
scenarios.
Group Financial Performance
The underlying operating profit of GBP18.1m (H1 2017: GBP17.2m,
2017: GBP55.4m), resulted in an underlying operating margin of 7.9%
(H1 2017: 6.9%, 2017: 10.1%). The improved margin on H1 2017
primarily reflects a higher margin sales mix with increased
contribution from Countermeasures, together with improved
operational performance driven by the Group's Operational
Excellence Programme.
Foreign exchange translation has had a dampening impact on half
year comparison. While exchange rates have been volatile in the
period, there has been a strengthening of Sterling against the US
Dollar compared to the equivalent period in 2017. On a constant
currency basis, restating the current period at the H1 2017 average
rate, revenue would have been higher at GBP244.8m and underlying
operating profit would have been GBP19.6m.
Statutory operating profit was GBP7.6m (H1 2017: GBP0.9m loss,
2017: GBP15.3m) and after statutory finance expenses of GBP3.3m (H1
2017: GBP5.9m, 2017: GBP11.3m), statutory profit before tax was
GBP4.3m (H1 2017: GBP6.8m loss, 2017: GBP4.0m) as a result of
improved underlying performance as discussed above and reduced
level of non-underlying business restructuring costs from H1
2017.
The statutory loss per share of 5.3p (H1 17: 1.2p, 2017: 1.1p
earnings) was as a result of the improved operating performance and
lower finance expenses, offset by the non-underlying deferred tax
asset write-off arising from the new US tax legislation.
Following the repayment of GBP51.4m private placement loan notes
in November 2017, the net finance expense fell to GBP3.3m (H1 2017:
GBP5.9m, 2017: GBP11.3m). This resulted in an underlying profit
before tax of GBP14.8m (H1 2017: GBP11.3m, 2017: GBP44.1m). The
effective tax rate on the underlying profit before tax from
continuing operations was 22.3% (H1 2017: 21.2%, 2017: 18.4%). The
underlying earnings per share was 4.1p (H1 2017: 3.2p, 2017:
12.9p).
Segmental Review - Countermeasures
Markets
The countermeasures market is starting to show some positive
signs with an increase in solicitation, bid activity and orders,
particularly within the US. The broader global countermeasures
market remains more robust with improving levels of activity in the
UK and Australia, supplemented by growing export order
opportunities.
Performance
Revenue increased by 4.7% to GBP55.9m (H1 2017: GBP53.4m, 2017:
GBP134.8m) and the segment reported an underlying operating profit
of GBP7.3m (H1 2017: GBP1.0m, 2017: GBP16.7m). The underlying
operating margin improved to 13.1% (H1 2017: 1.9%, 2017: 12.4%). On
a constant currency basis revenue would have increased by 11.2% to
GBP59.4m and operating profit would have been GBP7.8m.
Order intake in the period has been strong with significant
orders for both air and naval countermeasures received from UK MOD,
International and US customers in particular. The Group's new
Special Material Decoy continues to progress and there is evidence
of growth in market share.
Margins have improved as the Operational Excellence Programme
begins to deliver tangible results. In Countermeasures the focus
has been on achieving "right first time" production thereby
reducing the costs of rework, scrap and labour
under-utilisation.
The period saw significant development on the F-35 program, with
over half of the units on Low Rate Initial Production ("LRIP") 6 of
the F-35 operational flares now delivered. The contract for LRIP 7
has been awarded and delivery is due to commence in H2, and the
contract for LRIP 8 is expected to be awarded in H2.
Opportunities and outlook
After a number of years of weakness in the countermeasures
markets that followed the end of the Iraq and Afghanistan
conflicts, the outlook for the segment is increasingly positive.
Segment focus remains on maintaining and growing the Group's market
leading position, in particular on key platforms such as the F-35
as it begins to enter service in increasing numbers, and in the
important Special Material Decoy market.
During the period the Board approved a project amounting to
approximately $50m to transform the Tennessee facility. The
project, which is expected to take approximately three years to
complete, will result in an automated capability with additional
capacity reflecting expected customer demand over the medium term.
The majority of the investment will be capital, but some
demolition, remediation work and asset write offs will be expensed
in 2018 as non-underlying costs. This investment, which is expected
to safeguard and expand the Group's position in the Global
countermeasures market, will see fully automated production lines
in place at the Group's countermeasures facilities in the US, UK
and Australia.
Countermeasures' order book at 30 April 2018 was GBP193.4m (H1
2017: GBP171.5m, October 2017: GBP178.6m). The increase is as a
result of strong order intake in the US and UK, and at constant
currency the order book is 11.6% higher than at 31 October 2017. Of
the 30 April 2018 order book, approximately GBP73m is currently
expected to be delivered in the second half of 2018.
Segmental Review - Sensors
Markets
The Sensors sector remains Chemring's principal long-term growth
area, with customer budgets for Roke's security related consultancy
services rising and ongoing development efforts in support of US
Programs of Record in the counter-IED, chemical and biological
detection markets. Production awards for new Sensors products
continue to be subject to on-going development and testing
programmes and protracted customer decision-making processes.
Performance
Revenue for Sensors increased by 10.4% to GBP44.5m (H1 2017:
GBP40.3m, 2017: GBP94.5m) and underlying operating profit increased
to GBP6.8m (H1 2017: GBP4.5m, 2017: GBP14.3m), an underlying
operating margin improved to 15.3% (H1 2017: 11.2%, 2017: 15.1%).
The Sensors business in the US continues to focus on the
development and testing phases of the biological and chemical
detection Programs of Record. On a constant currency basis revenue
would have risen 14.1% to GBP46.0m and operating profit would have
been up 55.6% to GBP7.0m.
The US Department of Defense ("US DoD") remains committed to
counter-IED through the Husky Mounted Detection System ("HMDS")
programme. During the period Chemring responded to sole-source
solicitations for fleet refurbishment and upgrade, and we expect
the outcome of these to be known during the second half of 2018.
These contracts cover development and manufacture and are expected
to run over the next three years.
The cyber-security market, in which Roke is a leading
participant, was buoyant in the period. Roke's focus on investing
in its people ensures it has the right mix of skills to meet market
requirements and has supported its success and revenue growth in
the period.
During the period Chemring disposed of its 3d-Radar business,
but retained the rights to use the technology in the military
market.
Opportunities and outlook
In chemical and biological detection, the Group has continued to
focus activity on the long-term US DoD Programs of Record. Chemring
has progressed to the prototype phase on the Next Generation
Chemical Detector ("NGCD") program. We responded to a competitive
solicitation to move to the Engineering and Manufacturing
Development and Production phases in November 2017 on one of the
three variants, and we expect a second solicitation for a further
variation shortly. Funded development of Chemring's sole-source
position on the Joint Biological Tactical Detection System
("JBTDS") programme is continuing with US Government testing of the
product commencing in this period.
The order book for Sensors at 30 April 2018 decreased since the
year end to GBP44.2m (H1 2017: GBP57.5m, October 2017: GBP55.4m).
While the Roke business remains a short-cycle order book business,
the division has orders of approximately GBP30m for delivery in the
second half of the year.
Segmental Review - Energetics
Markets
Within Energetics, the Group is seeing a medium-term trend of
increased demand for specialist products, particularly for
applications in the space, missile and aerospace markets, balanced
by some decline in the more commodity based pyrotechnics and
ammunition products. Demand for high grade high explosive materials
continues to grow, with this seen as a positive driver in future
years.
Performance
As expected, revenue for Energetics decreased by 17.3% to
GBP128.9m (H1 2017: GBP155.9m, 2017: GBP318.2m), while underlying
operating profit decreased by 50.6% to GBP8.3m (H1 2017: GBP16.8m,
2017: GBP34.8m). The underlying operating margin was 6.4% (H1 2017:
10.8%, 2017: 10.9%), reflecting the decline in 40mm ammunition
revenue and a sales mix biased towards lower margin externally
sourced non-standard ammunition ("NSA") revenue in the first half
of 2018. On a constant currency basis, revenue would have fallen
10.6% to GBP139.4m and operating profit would have fallen 45.8% to
GBP9.1m.
The expected decline in performance in the segment was due to
the completion of the large 40mm ammunition contract to a customer
in the Middle East. The final shipment under this contract was
completed early in the period and therefore 40mm ammunition only
contributed GBP11.2m (H1 2017: GBP44.3m, 2017: GBP64.2m) to revenue
in the first half. The Group continues to see a number of smaller
opportunities for 40mm ammunition but is not building its plans
around a repeat of the size of orders won in 2016 and 2017.
Sales of procured NSA product grew in the period. Due to the
externally sourced nature of the products involved, margins on NSA
sales are significantly lower than for manufactured product. Supply
of NSA products to the US Government contributed GBP60.6m (H1 2017:
GBP43.5m, 2017: GBP97.6m) to revenue in the first half.
Aside from these large contracts, the Group's specialist devices
businesses remain healthy. The planned closure of the Torrance
facility and integration into a modernised Downers Grove facility
has caused some operational disruption which is expected to delay
some revenues to 2019.
Chemring's high explosive manufacturing business in Norway has
again achieved record order intake levels with significant effort
being undertaken to enhance capacity. This investment is supported
by a strategy of engaging customers in long-term agreements for
supply, which has proved successful with a number of customers
moving to this arrangement to secure their continuity of
supply.
Opportunities and outlook
The Group's niche propellant and devices businesses in Ardeer
and Chicago are increasingly securing long-term contracts with
customers supporting greater short and medium-term visibility and
providing a framework for long-term planning and investment
decisions. Similarly, demand for high quality high explosives has
enabled Chemring Nobel in Norway to work proactively with its
customer base on long term contracting models, providing much
improved visibility. Whilst the 'commodity' type pyrotechnic and
ammunition lines are seeing revenue decline, greater focus in niche
and higher margin products is expected to deliver a return to
growth in the medium term.
The order book for Energetics at 30 April 2018 was GBP203.9m (H1
2017: GBP327.2m, October 2017: GBP244.0m), and included GBPnil (H1
2017: GBP42.0m, 2017: GBP11.2m) in respect of the 40mm ammunition
contract and GBP29.5m in respect of NSA (H1 2017: GBP121.3m, 2017:
GBP83.7m). The decrease since 31 October 2017 was attributable to
both stronger Sterling and deliveries against the 40mm and NSA
contracts. Of the order book approximately GBP109m is expected to
be delivered in the second half of the financial year.
Finance expenses
Following the repayment of GBP51.4m of private placement loan
notes in November 2017, the total finance expense fell to GBP3.3m
(H1 2017: GBP5.9m, 2017: GBP11.3m).
Total finance expenses included interest costs of GBP2.8m (H1
2017: GBP4.3m, 2017: GBP8.5m), amortisation of debt finance costs
of GBP0.5m (H1 2017: GBP1.2m, 2017: GBP2.4m) and other non-cash
finance expenses associated with the defined benefit pension scheme
of GBPnil (H1 2017: GBP0.4m, 2017: GBP0.4m).
Tax
The continuing statutory tax charge totalled GBP19.1m (H1 2017:
GBP3.4m credit, 2017: GBP0.9m) on a continuing statutory profit
before tax of GBP4.3m (H1 2017: GBP6.8m loss, 2017: GBP4.0m). The
increase in the continuing effective rate of tax on the results of
the Group is primarily due to recently enacted US tax legislation
which reduces the US corporate tax rate and changes the rules
regarding US interest tax deduction limitations. In addition, the
rate is impacted by the geographic mix of profits, changes to the
amounts of deferred tax assets considered recoverable in respect of
both tax losses and prior year adjustments.
The continuing underlying tax charge totalled GBP3.3m (H1 2017:
GBP2.4m, 2017: GBP8.1m) on a continuing underlying profit before
tax of GBP14.8m (H1 2017: GBP11.3m, 2017: GBP44.1m). The effective
tax rate on underlying profit before tax for the period is a charge
of 22.3% (H1 2017: 21.2%, 2017: 18.4%) and is based on the
estimated effective tax rate on underlying profit before tax for
the full year.
The US Tax Cuts and Jobs Act ("TCJA") was substantively enacted
on 22 December 2017. The TCJA provides for a reduction in the main
rate of US federal corporate income tax from 35% to 21% for the
period after 1 January 2018, thus first impacting Chemring for part
of its 2018 financial year, however the impact on the deferred tax
asset has been recognised in full during the first half of
2018.
The impact on Chemring has been two-fold; the reduction in the
main rate of US federal corporate income tax has resulted in a
write-off of deferred tax of GBP8.6m associated with tax losses and
interest restrictions, offset by a GBP3.9m credit on the
revaluation of the deferred tax liabilities associated with US
related acquired intangibles. This has resulted in a net write-off
of GBP4.7m in respect of the rate change. In addition, the
introduction of restrictions on the availability of interest
deductions has resulted in a write-off of deferred tax of GBP12.7m.
The total impact of GBP17.4m has been treated as a non-underlying
item in 2018, see note 3.
Earnings per share
Underlying earnings per share were 4.1p (H1 2017: 3.2p, 2017:
12.9p) and diluted underlying earnings per share were 4.0p (H1
2017: 3.1p, 2017: 12.6p). Statutory profit before tax was GBP4.3m
(H1 2017: GBP6.8m loss, 2017: GBP4.0m), giving statutory loss per
share of 5.3p (H1 17: 1.2p, 2017: 1.1p earnings).
Net debt and cash flow
Net debt at 30 April 2018 was GBP84.6m (H1 2017: GBP111.7m,
2017: GBP80.0m).
Underlying operating activities generated cash of GBP21.4m (H1
2017: GBP7.9m absorbed, 2017: GBP47.1m), reflecting the normal
seasonality of the Group's business and the collection of year end
receivables which were particularly high from increased levels of
40mm deliveries and sales to the US Government in the last quarter
of FY17, offset by payments made to suppliers for 40mm.
In November 2017, the Group repaid GBP5.3m and $61.2m of
outstanding loan notes out of existing cash resources and debt
facilities. The remaining loan notes of $83.6m are repayable in
November 2019.
Debt facilities
The Group's principal debt facilities comprise $83.6m of US
private placement loan notes and a GBP100.0m revolving credit
facility. The revolving credit facility is with a syndicate of
three banks and runs to July 2019. The Group had GBP67.6m (H1 2017:
GBP105.0m, 2017: GBP106.0m) of undrawn borrowing facilities at the
half year.
Contingent liabilities
As announced in January 2018, the Serious Fraud Office ("SFO")
is currently undertaking a formal investigation into concerns about
bribery, corruption and money laundering involving intermediaries
who previously represented one of the Group's UK-based
subsidiaries, Chemring Technology Solutions Limited ("CTSL") and
its predecessor companies.
The investigation commenced following a voluntary report made by
CTSL relating to two specific historic contracts, the first of
which was awarded prior to the Group's ownership of the business
concerned and the second in 2011, neither of which are considered
to be material in the context of the Group. It is too early to
predict the outcome of the SFO's investigation. The Group continues
to co-operate fully with the SFO in its investigation, and will
provide a further update as and when appropriate.
Board changes
As announced on 1 May 2018, Michael Flowers has informed the
Board of his decision to retire. Michael will be stepping down from
the Board of Chemring on 30 June 2018, and will leave the Group on
31 October 2018. Following a comprehensive search process, the
Board proposed the appointment of Michael Ord as Michael Flowers'
successor, who joined Chemring on 1 June 2018. Michael Ord will
take over as Group Chief Executive on 1 July 2018.
Auditor
As outlined in the FY 2017 Annual Report and Accounts, the Group
undertook a tender process for the selection and appointment of a
new external auditor to replace Deloitte LLP, who had provided
external audit services to the Group for more than fifteen years.
The Board of Chemring appointed KPMG LLP as the Group's external
auditor on 23 March 2018 and this is subject to confirmation by the
shareholders at the 2019 Annual General Meeting.
Dividends
At the Annual General Meeting on 20 March 2018 the shareholders
approved a final dividend in respect of the year ended 31 October
2017 of 2.0p per ordinary share. This was paid on 20 April 2018 to
shareholders on the register on 6 April 2018.
The Board has also declared an interim dividend in respect of
2018 of 1.1p per ordinary share which will be paid on 14 September
2018 to shareholders on the register on 31 August 2018. In
accordance with accounting standards this dividend has not been
recorded as a liability as at 30 April 2018.
Outlook
Approximately 80% of expected H2 revenue is in the current order
book or has been delivered to date. The bulk of orders awaited are
small routine orders for products or services, with no significant
contracts required to be finalised for full year delivery. Based on
this, current exchange rates and combined with improved operational
delivery and improvements being made under the Operational
Excellence Programme, the Board's expectations for FY 2018 remain
unchanged. As previously highlighted, we expect a stronger
contribution from Countermeasures and scheduled reductions in
Energetics.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for the maintenance and integrity
of the Company website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial information differs from legislation in
other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
a) the Condensed Set of Financial Statements has been prepared
in accordance with IAS 34 Interim Financial Reporting;
b) the Interim Management Report includes a fair review of the
information required by DTR 4.2.7R (indication of important
events during the first six months and details 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 Andrew Lewis
Group Chief Executive Group Finance Director
21 June 2018 21 June 2018
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2018
Unaudited Unaudited
Half year to Half year to
30 April 2018 30 April 2017
Note Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 229.3 - 229.3 249.6 - 249.6
-------------- --------------- ------- -------------- --------------- -------
Operating profit/(loss) 18.1 (10.5) 7.6 17.2 (18.1) (0.9)
Finance expense (3.3) - (3.3) (5.9) - (5.9)
-------------- --------------- ------- -------------- --------------- -------
Profit/(loss) before
tax 14.8 (10.5) 4.3 11.3 (18.1) (6.8)
Tax (charge)/credit
on profit/(loss) 5 (3.3) (15.8) (19.1) (2.4) 5.8 3.4
-------------- --------------- ------- -------------- --------------- -------
Profit/(loss) after
tax 11.5 (26.3) (14.8) 8.9 (12.3) (3.4)
Discontinued operations
Profit after tax from
discontinued operations 3,9 - - - - 1.2 1.2
Profit/(loss) after
tax for the period 11.5 (26.3) (14.8) 8.9 (11.1) (2.2)
-------------- --------------- ------- -------------- --------------- -------
Unaudited Unaudited
Half year to Half year to
30 April 2018 30 April 2017
Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
Earnings/(loss) per
ordinary share
Continuing operations
Basic 6 4.1p (9.4)p (5.3)p 3.2p (4.4)p (1.2)p
Diluted 6 4.0p (9.3)p (5.3)p 3.1p (4.3)p (1.2)p
-------------- --------------- ------- -------------- --------------- -------
Continuing operations
and discontinued
operations
Basic 6 4.1p (9.4)p (5.3)p 3.2p (4.0)p (0.8)p
Diluted 6 4.0p (9.3)p (5.3)p 3.1p (3.9)p (0.8)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 2018
Audited
Year to
31 Oct 2017
Note Underlying Non-underlying
performance* items* Total
GBPm GBPm GBPm
Continuing operations
Revenue 547.5 - 547.5
-------------- --------------- -------
Operating profit 55.4 (40.1) 15.3
Finance expense (11.3) - (11.3)
-------------- --------------- -------
Profit before tax 44.1 (40.1) 4.0
Tax charge 5 (8.1) 7.2 (0.9)
-------------- --------------- -------
Profit after tax 36.0 (32.9) 3.1
Discontinued operations
Profit after tax from discontinued operations 3,9 - 3.5 3.5
-------------- --------------- -------
Profit after tax for the year 36.0 (29.4) 6.6
-------------- --------------- -------
Audited
Year to
31 Oct 2017
Underlying Non-underlying
performance* items* Total
GBPm GBPm GBPm
Earnings per ordinary share
Continuing operations
Basic 6 12.9p (11.8)p 1.1p
Diluted 6 12.6p (11.5)p 1.1p
-------------- --------------- -------
Continuing operations and discontinued
operations
Basic 6 12.9p (10.5)p 2.4p
Diluted 6 12.6p (10.3)p 2.3p
-------------- --------------- -------
* Further information about non-underlying items is set out in
note 3.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year to 30 April 2018
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2018 2017 2017
GBPm GBPm GBPm
(Loss)/profit after tax attributable to
equity holders of the parent (14.8) (2.2) 6.6
----------- ----------- ---------
Items that will not be reclassified subsequently
to profit or loss
Actuarial gains on defined benefit pension
schemes 1.5 3.8 11.9
Movement on deferred tax relating to pension
schemes (0.1) - (2.0)
----------- ----------- ---------
1.4 3.8 9.9
----------- ----------- ---------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations (10.1) (8.6) (11.6)
Current tax on items taken directly to
equity (0.6) - (3.1)
Deferred tax on exchange differences on
translation of foreign operations 1.6 - 0.8
----------- ----------- ---------
(9.1) (8.6) (13.9)
----------- ----------- ---------
Total comprehensive (loss)/profit attributable
to equity holders of the parent (22.5) (7.0) 2.6
----------- ----------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2018
Unaudited half year to 30 April 2018
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 2017 2.8 305.3 12.9 1.1 (24.8) 113.5 (9.6) 401.2
Loss after tax - - - - - (14.8) - (14.8)
Other comprehensive loss - - - - (4.9) (3.7) - (8.6)
Tax relating to
components
of other comprehensive
loss - - - - - 0.9 - 0.9
Total comprehensive loss - - - - (4.9) (17.6) - (22.5)
Ordinary shares issued - 0.1 - - - - - 0.1
Share-based payments
(net of settlement) - - - - - 0.1 - 0.1
Dividends paid - - - - - (5.6) - (5.6)
Transactions in own
shares - - - - - - 1.8 1.8
At 30 April 2018 2.8 305.4 12.9 1.1 (29.7) 90.4 (7.8) 375.1
--------- --------- --------- ------------ ------------ ---------- -------- -------
Unaudited half year to 30 April 2017
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 2016 2.8 305.1 12.9 1.1 (20.7) 121.8 (9.6) 413.4
---------------------- --------- --------- --------- ------------ ------------ ---------- -------- -------
Impact of adoption of
IFRS 15 - - - - - (10.2) - (10.2)
---------------------- --------- --------- --------- ------------ ------------ ---------- -------- -------
Loss after tax - - - - - (2.2) - (2.2)
Other comprehensive
loss - - - - (1.7) (3.1) - (4.8)
Total comprehensive
loss - - - - (1.7) (5.3) - (7.0)
Share-based payments
(net of settlement) - - - - - 0.5 - 0.5
At 30 April 2017 2.8 305.1 12.9 1.1 (22.4) 106.8 (9.6) 396.7
--------- --------- --------- ------------ ------------ ---------- -------- -------
Audited year to 31 October 2017
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 2016 2.8 305.1 12.9 1.1 (20.7) 121.8 (9.6) 413.4
-------------------------- --------- --------- --------- ------------ ------------ ---------- -------- -------
Impact of adoption of
IFRS 15 - - - - - (10.2) - (10.2)
-------------------------- --------- --------- --------- ------------ ------------ ---------- -------- -------
Profit after tax - - - - - 6.6 - 6.6
Other comprehensive
income - - - - (4.1) 4.4 - 0.3
Tax relating to
components
of other comprehensive
income - - - - - (4.3) - (4.3)
Total comprehensive
income - - - - (4.1) 6.7 - 2.6
Ordinary shares issued - 0.2 - - - - - 0.2
Share-based payments
(net of settlement) - - - - - 1.6 - 1.6
Dividend paid - - - - - (6.4) - (6.4)
At 31 October 2017 2.8 305.3 12.9 1.1 (24.8) 113.5 (9.6) 401.2
--------- --------- --------- ------------ ------------ ---------- -------- -------
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 April 2018
Note Unaudited Unaudited
As at As at Audited
30 April 30 April As at
2018 2017 31 Oct 2017
GBPm GBPm GBPm
Non-current assets
Goodwill 123.5 130.2 125.4
Development costs 31.6 36.6 33.7
Other intangible assets 47.9 65.7 57.0
Property, plant and equipment 156.7 169.7 160.1
Deferred tax 5 45.6 59.5 63.2
Retirement benefit surplus 10 3.5 - -
---------- ---------- -------------
408.8 461.7 439.4
---------- ---------- -------------
Current assets
Inventories 95.6 113.3 97.6
Trade and other receivables 114.5 128.7 131.0
Cash and cash equivalents 13 0.5 5.0 33.6
Derivative financial instruments 8 0.4 0.6 0.4
211.0 247.6 262.6
---------- ---------- -------------
Total assets 619.8 709.3 702.0
---------- ---------- -------------
Current liabilities
Borrowings 13 - (53.0) (51.6)
Obligations under finance leases - (0.1) -
Trade and other payables (89.5) (112.3) (111.9)
Provisions (7.3) (8.9) (6.5)
Current tax (5.4) - (5.5)
Derivative financial instruments 8 (0.3) (0.4) (0.4)
(102.5) (174.7) (175.9)
---------- ---------- -------------
Non-current liabilities
Borrowings 13 (85.0) (63.5) (61.9)
Trade and other payables - (3.2) -
Provisions (6.9) (8.4) (8.8)
Deferred tax 5 (50.2) (51.4) (53.5)
Preference shares 13 (0.1) (0.1) (0.1)
Retirement benefit obligations 10 - (11.3) (0.6)
(142.2) (137.9) (124.9)
---------- ---------- -------------
Total liabilities (244.7) (312.6) (300.8)
---------- ---------- -------------
Net assets 375.1 396.7 401.2
---------- ---------- -------------
Equity
Share capital 2.8 2.8 2.8
Share premium account 305.4 305.1 305.3
Special capital reserve 12.9 12.9 12.9
Revaluation reserve 1.1 1.1 1.1
Translation reserve (29.7) (22.4) (24.8)
Retained earnings 90.4 106.8 113.5
---------- ---------- -------------
382.9 406.3 410.8
Own shares (7.8) (9.6) (9.6)
---------- ---------- -------------
Total equity 375.1 396.7 401.2
---------- ---------- -------------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2018
Note Unaudited Unaudited
Half year Half year
to to Audited
30 April 30 April Year to
2018 2017 31 Oct 2017
GBPm GBPm GBPm
Cash flows from operating activities
------------------------------------------ ----- ----------- ----------- -------------
Cash generated from/(used in) underlying
operations 12 21.4 (7.9) 47.1
Cash impact of non-underlying items (1.7) (2.8) (6.3)
------------------------------------------ ----- ----------- ----------- -------------
Cash flows from operating activities 19.7 (10.7) 40.8
Retirement benefit deficit recovery
contributions (2.5) (2.5) (5.0)
Tax paid (4.1) (3.3) (3.6)
----------- ----------- -------------
Net cash inflow/(outflow) from operating
activities 13.1 (16.5) 32.2
----------- ----------- -------------
Cash flows from investing activities
Purchases of intangible assets (1.5) (2.1) (3.9)
Purchases of property, plant and
equipment (7.7) (6.1) (12.6)
Acquisition - deferred consideration (0.7) - -
Proceeds on disposal of property,
plant and equipment 0.4 - -
Net cash outflow from investing
activities (9.5) (8.2) (16.5)
----------- ----------- -------------
Cash flows from financing activities
Dividends paid 7 (5.6) - (6.4)
Finance expense paid (3.8) (5.2) (9.3)
Capitalised facility fees paid (0.2) (0.2) (0.5)
Repayments of borrowings (26.5) (27.7) (28.8)
Repayments of finance leases - - (0.1)
Net cash outflow from financing
activities (36.1) (33.1) (45.1)
----------- ----------- -------------
Decrease in cash and cash equivalents (32.5) (57.8) (29.4)
Cash and cash equivalents at beginning
of period/year 33.6 63.1 63.1
Effect of foreign exchange rate
changes (0.6) (0.3) (0.1)
----------- ----------- -------------
Cash and cash equivalents at end
of period/year 0.5 5.0 33.6
----------- ----------- -------------
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation
The condensed consolidated financial information for each of the
six month periods does 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 21 June 2018. The
information for the year ended 31 October 2017 does not constitute
statutory accounts as defined in section 435 of the Companies Act
2006. Full accounts for the year ended 31 October 2017, 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.
Whilst the financial information included in this announcement
has been computed in accordance with International Financial
Reporting Standards ("IFRSs"), this announcement does not itself
contain sufficient information to comply with IFRSs. The 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
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.
Alternative Performance Measures ("APMs")
In the analysis of the Group's financial performance and
position, operating results and cash flows, APMs are presented to
provide readers with additional information. The principal APMs
presented are underlying measures of earnings including underlying
operating profit, underlying profit before tax, underlying profit
after tax, underlying EBITDA, underlying earnings per share, and
underlying operating cash flow. In addition, EBITDA, net debt, and
constant currency revenues are presented which are also considered
to be non-IFRS measures. These measures are consistent with
information regularly reviewed by management to run the business,
including planning, budgeting and reporting purposes and for its
internal assessment of the operational performance of individual
businesses.
The directors believe that the use of these APMs assist in
providing additional information on the underlying trends,
performance and position of the Group. APMs are used to improve the
comparability of information between reporting periods by adjusting
for items that are non-recurring or otherwise non-underlying.
Management consider non-underlying items to be:
-- amortisation of acquired intangibles;
-- discontinued operations;
-- exceptional items, for example relating to acquisitions and
disposals, restructuring of business and incident costs, and claim
costs;
-- gains or losses on the movement in the fair value of derivative financial instruments; and
-- the tax impact of all of the above.
Our use of APMs is consistent with the prior year and we provide
comparatives alongside all current period figures.
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
2017.
Recent accounting developments
The following standards, amendments and interpretations have
been issued by the International Accounting Standards Board (IASB)
or by the IFRS IC. The Group's approach to these is as follows:
i) The following International Financial Reporting Committee
("IFRIC") interpretations, amendments to existing standards and new
standards were adopted in the period ending 30 April 2018 but have
not materially impacted the reported results or the financial
position:
-- Amendments to IAS 7 Statement of Cash Flows; and
-- Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses
ii) At the date of authorisation of this announcement, the
following standards and interpretations that are potentially
relevant to the Group and which have not yet been applied in these
reported results were in issue but not yet effective (and in some
cases had not yet been adopted by the European Union):
Effective for periods beginning on or after 1 January 2018
-- Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions;
-- IFRS 9 Financial Instruments Recognition and Measurement;
-- Annual Improvements to IFRSs 2014-2016 Cycle; and
-- IFRIC 22 Foreign Currency Transactions and Advance Consideration
Effective for periods beginning on or after 1 January 2019
-- IFRS 16 Leases
-- Annual Improvements to IFRSs 2015-2017 Cycle; and
-- IFRIC 23 Uncertainty over Income Tax Treatments
Effective for periods beginning on or after 1 January 2021
-- IFRS 17 Insurance Contracts
The Directors do not expect the adoption of these standards and
interpretations to have a material impact on the results of the
Group in future periods except as follows:
-- IFRS 16 Leases will impact the measurement, recognition,
presentation and disclosure of leases, particularly operating
leases where the term is longer than 12 months.
The impact of IFRS 16 Leases is currently being assessed. Under
IFRS 16 Leases, lessees will be required to apply a single model to
recognise a lease liability and asset for all leases, including
those classified as operating leases under current accounting
standards, unless the underlying asset has a low value or the lease
term is 12 months or less. The adoption of IFRS 16 will have a
significant impact on the results as each lease will give rise to a
right of use asset which will be depreciated on a straight line
basis, and a lease liability with a related interest charge. The
depreciation and interest will replace the operating lease payments
currently recognised as an expense. The impact will depend on the
transition approach and the contracts in effect at the time of the
adoption. At 31 April 2018, operating lease commitments were
GBP4.6m and operating lease payments in the period to 30 April 2018
were GBP0.5m.
Beyond this information, it is not practicable to provide a
reasonable estimate of the effect of these standards until a
detailed review has been conducted during the second half of the
year.
Critical accounting judgements and sources of estimation
uncertainty
When applying the Group's accounting policies, management must
make judgements, assumptions and estimates concerning the future
that affect the carrying amounts of assets and liabilities at the
balance sheet date and the amounts of revenue and expenses
recognised during the period. Such judgements, assumptions and
estimates are based upon factors including historical experience,
the observance of trends in the industries in which the Group
operates, and information available from the Group's customers and
other external sources.
Critical accounting judgements
Revenue recognition
IFRS 15 Revenue from Contracts with Customers recognises revenue
on the basis of the satisfaction of performance obligations. The
identification of these obligations requires management judgement,
particularly with respect to milestone contracts that contain
multiple obligations. Additionally, management has to consider
whether performance obligations should be recognised at a single
point in time, which is generally the case for the sale of products
by the Group, or over a period of time, which is more common for
certain service contracts.
Key sources of estimation uncertainty
Goodwill impairment
Determining whether goodwill is impaired requires an estimation
of the value-in-use of the cash-generating units to which goodwill
has been allocated. The value-in-use calculation requires the
entity to estimate the future cash flows expected to arise from the
cash-generating unit, and to determine a suitable discount rate in
order to calculate present value. In reviewing the carrying value
of goodwill of the Group's businesses, the Board considers the
separate plans and cash flows of these businesses consistent with
the requirements of IAS 36 Impairment of Assets. The plans and cash
flows of these businesses reflect current and anticipated
conditions in the defence industry.
Capitalised development costs
IAS 38 Intangible Assets requires that development costs,
arising from the application of research findings or other
technical knowledge to a plan or design of a new substantially
improved product, are capitalised, subject to certain criteria
being met. Determining the future cash flows generated by the
products in development requires estimates which may differ from
the actual outcome. In particular, this can depend on the
estimation applied to future milestone events to secure long-term
positions on production contracts.
Deferred tax assets on tax losses and US interest deductions
Applicable accounting standards permit the recognition of
deferred tax assets only to the extent that it is probable that
future taxable profits will be available to utilise the tax losses
carried forward. The assessment of future taxable profits involves
significant estimation uncertainty, principally relating to an
assessment of management's projections of future taxable income
based on business plans and ongoing tax planning strategies. These
projections include assumptions about the future strategy of the
Group, the economic and regulatory environment in which the Group
operates, future tax legislation, and customer behaviour, amongst
other variables.
2. SEGMENTAL ANALYSIS
Period to 30 April 2018 (unaudited)
Countermeasures Sensors Energetics Unallocated Group
GBPm GBPm GBPm GBPm GBPm
Revenue 55.9 44.5 128.9 - 229.3
Segment result before
depreciation, amortisation
and non-underlying items 12.6 8.8 11.3 (3.7) 29.0
Depreciation (4.3) (0.8) (2.7) (0.6) (8.4)
Amortisation (1.0) (1.2) (0.3) - (2.5)
----------------------------- ---------------- -------- ----------- ------------ ------
Segmental underlying
operating profit 7.3 6.8 8.3 (4.3) 18.1
Amortisation of acquired
intangibles (0.2) (3.3) (3.5) - (7.0)
Non-underlying items (1.6) (0.5) 0.2 (1.6) (3.5)
----------------------------- ---------------- -------- ----------- ------------ ------
Segmental operating profit 5.5 3.0 5.0 (5.9) 7.6
----------------------------- ---------------- -------- ----------- ------------ ------
Period to 30 April 2017 (unaudited)
Countermeasures Sensors Energetics Unallocated Group
GBPm GBPm GBPm GBPm GBPm
Revenue 53.4 40.3 155.9 - 249.6
Segment result before
depreciation, amortisation
and non-underlying items 7.0 7.5 19.9 (4.4) 30.0
Depreciation (4.9) (1.0) (2.7) (0.7) (9.3)
Amortisation (1.1) (2.0) (0.4) - (3.5)
----------------------------- ---------------- -------- ----------- ------------ -------
Segmental underlying
operating profit 1.0 4.5 16.8 (5.1) 17.2
Amortisation of acquired
intangibles (0.2) (3.6) (3.9) - (7.7)
Non-underlying items (1.8) (5.1) (3.0) (0.5) (10.4)
----------------------------- ---------------- -------- ----------- ------------ -------
Segmental operating loss (1.0) (4.2) 9.9 (5.6) (0.9)
----------------------------- ---------------- -------- ----------- ------------ -------
Year ended 31 October 2017 (audited)
Countermeasures Sensors Energetics Unallocated Group
GBPm GBPm GBPm GBPm GBPm
Revenue 134.8 94.5 318.2 - 547.5
Segment result before
depreciation, amortisation
and non-underlying items 29.8 20.2 41.2 (10.2) 81.0
Depreciation (10.8) (1.8) (5.8) (0.1) (18.5)
Amortisation (2.3) (4.1) (0.6) (0.1) (7.1)
----------------------------- ---------------- -------- ----------- ------------ --------
Segmental underlying
operating profit 16.7 14.3 34.8 (10.4) 55.4
Amortisation of acquired
intangibles (0.4) (7.0) (7.6) - (15.0)
Non-underlying items (3.6) (5.4) (16.2) 0.1 (25.1)
----------------------------- ---------------- -------- ----------- ------------ --------
Segmental operating profit 12.7 1.9 11.0 (10.3) 15.3
----------------------------- ---------------- -------- ----------- ------------ --------
3. ALTERNATIVE PERFORMANCE MEASURES AND DISCONTINUED
OPERATIONS
The principal Alternative Performance Measures ("APMs")
presented are the underlying measures of earnings which exclude
discontinued operations, exceptional items, gain or loss on the
movement on the fair value of derivative financial instruments, and
the amortisation of acquired intangibles. The Directors believe
that these APMs improve the comparability of information between
reporting periods. The term underlying is not defined under IFRS
and may not be comparable with similarly titled measures used by
other companies.
Unaudited Unaudited Audited
period to period to year ended
30 April 30 April 31 October
2018 2017 2017
GBPm GBPm GBPm
Acquisition and disposal related costs 0.5 - 2.3
Business restructuring costs 1.6 11.1 14.3
Claim related costs 1.5 0.2 0.4
Impairment of business - - 9.8
Gain on the movement in the fair value
of derivative financial instruments (0.1) (0.9) (1.7)
----------- ----------- ------------
Non-underlying items 3.5 10.4 25.1
----------- ----------- ------------
Less non-underlying depreciation in business
restructuring costs (0.7) (1.0) (1.0)
----------- ----------- ------------
Impact of non-underlying items on EBITDA 2.8 9.4 24.1
Non-underlying depreciation in business
restructuring costs 0.7 1.0 1.0
Intangible amortisation arising from
business combinations 7.0 7.7 15.0
----------- ----------- ------------
Impact of non-underlying items on operating
profit and profit before tax 10.5 18.1 40.1
Tax impact of non-underlying items (1.6) (5.8) (7.2)
----------- ----------- ------------
Non-underlying deferred tax write-off 17.4 - -
----------- ----------- ------------
Impact of non-underlying items on continuing
profit after tax 26.3 12.3 32.9
Discontinued operations - (1.2) (3.5)
Impact of non-underlying items on profit
after tax 26.3 11.1 29.4
----------- ----------- ------------
Acquisition and disposal related costs
In the period to 30 April 2018, the Group disposed of its
Norwegian subsidiary 3d-Radar resulting in a loss on disposal of
GBP0.5m.
Acquisition and disposal related costs of GBP2.3m in the year
ended 31 October 2017 related to transactions costs and an earnout
payment on the acquisition of Wallop Defence Systems' assets for
which no provision was made at the time of acquisition.
Business restructuring costs
In the period to 30 April 2018, restructuring costs were GBP1.6m
relating to the initial stages of the transformation programme at
our Tennessee facility. These costs comprised a non-cash write-off
of demolished assets of GBP1.1m and the costs of demolition and
site remediation of GBP0.5m.
In the year to 31 October 2017, business restructuring costs of
GBP14.3m (H1 2017: GBP11.1m) principally comprise of restructuring
costs in relation to the site closures/consolidations at facilities
in California, Philadelphia and Virginia.
Claim related costs
In the period to 30 April 2018, claim related costs of GBP1.5m
relate to the legal costs of the ongoing Serious Fraud Office
investigation.
In the year ended 31 October 2017, claim related costs of
GBP0.4m (H1 2017: GBP0.2m) related to the legal costs of the
ongoing Serious Fraud Office investigation, offset by the final
settlement of claims regarding the manufacture of certain
components for the Next Generation Light Anti-Tank Weapon ("NLAW")
by Chemring Energetics UK.
Impairment of business
In 2017 the Group recognised a total impairment loss of GBP10.6m
which included GBP0.8m relating to taxation, in respect of the
Chemring Defence UK business. This was based on the prevailing
market conditions in the military and law enforcement pyrotechnics
market.
4. SEASONALITY OF REVENUE
Revenue for all three of the business segments is more weighted
towards the second half of the financial year. This second half
weighting arises due to customer behaviours in the defence
marketplace, the timing of expected contract activity and planned
facility maintenance work programmes, and the acceptance testing of
product by customers.
5. TAX
Unaudited Unaudited Audited
period to period to year ended
30 April 30 April 31 October
2018 2017 2017
GBPm GBPm GBPm
Underlying tax charge 3.3 2.4 8.1
Tax credit on non-underlying items (1.6) (5.8) (7.2)
Non-underlying deferred tax write-off 17.4 - -
----------- ----------- ------------
Total statutory tax charge/(credit) 19.1 (3.4) 0.9
----------- ----------- ------------
The continuing statutory tax charge totalled GBP19.1m (H1 2017:
GBP3.4m credit, 2017: GBP0.9m) on a continuing statutory profit
before tax of GBP4.3m (H1 2017: GBP6.8m loss, 2017: GBP4.0m). The
increase in the continuing effective rate of tax on the results of
the Group is primarily due to recently enacted US tax legislation
which reduces the US corporate tax rate and changes the rules
regarding US interest tax deduction limitations. In addition, the
rate is impacted by the geographic mix of profits, changes to the
amounts of deferred tax assets considered recoverable in respect of
both tax losses and prior year adjustments.
The effective tax rate on underlying profit before tax for the
period is a charge of 22.3% (H1 2017: 21.2%, 2017: 18.4%) and is
based on the estimated effective tax rate on underlying profit
before tax for the full year.
The US Tax Cuts and Jobs Act ("TCJA") was substantively enacted
on 22 December 2017. The TCJA provides for a reduction in the main
rate of US federal corporate income tax from 35% to 21% for
accounting periods beginning on or after 1 January 2018, thus first
impacting Chemring for its 2019 financial year, however the impact
on the deferred tax asset has been recognised in 2018.
The impact on Chemring has been two-fold; the reduction in the
main rate of US federal corporate income tax has resulted in a
write-off of deferred tax of GBP8.6m associated with tax losses and
interest restrictions, offset by a GBP3.9m credit on the
revaluation of the deferred tax liabilities associated with US
related acquired intangibles. This has resulted in a net write-off
of GBP4.7m in respect of the rate change. In addition, and the
introduction of restrictions on the availability of interest
deductions has resulted in a write-off of deferred tax of
GBP12.7m.
Deferred tax balances are analysed on the balance sheet as
follows:
Unaudited Unaudited Audited
Half year Half year Year to
to to 31 Oct
30 April 30 April 2017
2018 2017
GBPm GBPm GBPm
Non-current assets 45.6 59.5 63.2
Non-current liabilities (50.2) (51.4) (53.5)
----------- ----------- ---------
(4.6) 8.1 9.7
----------- ----------- ---------
The following are the principal deferred tax
assets/(liabilities) recognised by the Group and movements
thereon:
Accelerated
tax US Interest Tax Acquired
depreciation Pensions deductions losses intangibles Other Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------------ -------- ----------- ------ ----------- ----- ------
At 1 November 2017 (12.3) 0.1 22.6 1.5 (10.3) 8.1 9.7
(Charge)/credit to income (0.1) - (21.3) - 5.6 - (15.8)
Credit/(charge) to equity 0.4 (0.1) - - 1.5 (0.3) 1.5
-------------------------- ------------ -------- ----------- ------ ----------- ----- ------
At 30 April 2018 (12.0) - 1.3 1.5 (3.2) 7.8 (4.6)
-------------------------- ------------ -------- ----------- ------ ----------- ----- ------
6. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in
issue, excluding own shares held, of 279,642,267 (H1 2017:
279,229,427, 2017: 279,244,616). Diluted earnings per share has
been calculated using a diluted average number of shares in issue,
excluding own shares held, of 285,755,048 (H1 2017: 285,517,552,
2017: 285,023,906).
No dilution has been recognised for the purposes of basic
earnings per share from continuing operations in April 2018 and
April 2017 due to there being a loss per share for the period to 30
April 2018 and 30 April 2017.
The earnings used in the calculations of the various measures of
earnings per share are as follows:
Unaudited Unaudited
Half year Half year
to to
30 April 30 April
2018 2017
GBPm Basic eps Diluted GBPm Basic eps Diluted
(pence) eps (pence) (pence) eps (pence)
Underlying profit after
tax 11.5 4.1 4.0 8.9 3.2 3.1
Non-underlying items (26.3) (9.4) (9.3) (12.3) (4.4) (4.3)
------ --------- ------------ ------- --------- ------------
Loss from continuing
operations (14.8) (5.3) (5.3) (3.4) (1.2) (1.2)
------ --------- ------------ ------- --------- ------------
Profit from discontinued
operations - - - 1.2 0.4 0.4
------ --------- ------------ ------- --------- ------------
Total loss after tax (14.8) (5.3) (5.3) (2.2) (0.8) (0.8)
------ --------- ------------ ------- --------- ------------
Audited
year to
31 October
2017
GBPm Basic eps Diluted
(pence) eps (pence)
Underlying profit after tax 36.0 12.9 12.6
Non-underlying items (32.9) (11.8) (11.5)
------ --------- ------------
Profit from continuing operations 3.1 1.1 1.1
------ --------- ------------
Profit from discontinued operations 3.5 1.3 1.2
------ --------- ------------
Total profit after tax 6.6 2.4 2.3
------ --------- ------------
7. DIVIDS
On 18 May 2017 a dividend of 1.3p per ordinary share was paid to
shareholders on the register on 28 April 2017 and an interim
dividend of 1.0p per ordinary share was paid on 15 September 2017
to shareholders on the register on 1 September 2017.
At the Annual General Meeting on 20 March 2018 the shareholders
approved a final dividend in respect of the year ended 31 October
2017 of 2.0p per ordinary share. This was paid on 20 April 2018 to
shareholders on the register on 6 April 2018.
The Board also declared an interim dividend in respect of 2018
of 1.1p per ordinary share which will be paid on 14 September 2018
to shareholders on the register on 31 August 2018. In accordance
with accounting standards this dividend has not been recorded as a
liability as at 30 April 2018.
8. FINANCIAL INSTRUMENTS
As at 30 April 2018, there were no significant differences
between the book value and fair value (as determined by market
value) of the Group's derivative financial instruments.
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 2018, the total fair value of forward
foreign exchange contracts recognised in the condensed consolidated
balance sheet were an asset of GBP0.4m (H1 2017: GBP0.6m, 2017:
GBP0.4m) and a liability of GBP0.3m (H1 2017: GBP0.4m, 2017:
GBP0.4m).
9. DISCONTINUED OPERATIONS
In the period to 30 April 2018 there was a non-underlying credit
of GBPnil (H1 2017: GBP1.3m, 2017: GBP3.5m) resulting from the
retranslation of provisions established on the disposal of
businesses in prior years and the expiry of certain tax
liabilities, with an associated non-underlying tax charge of GBPnil
(H1 2017: GBP0.1m, 2017: GBPnil).
10. RETIREMENT BENEFIT SURPLUS/(OBLIGATIONS)
The defined benefit surplus/(obligations) are calculated using
an actuarial valuation as at 30 April 2018. In the period to 30
April 2018, retirement benefit surplus/(obligations) improved to a
GBP3.5m surplus (H1 2017: GBP11.3m obligation, 2017: GBP0.6m
obligation), 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 2015 and actuarial gains in
the period, primarily arising from higher than expected returns on
assets.
11. RELATED PARTY TRANSACTIONS
The Group had no related party transactions during the period
requiring disclosure.
12. CASH FLOWS FROM UNDERLYING OPERATIONS
Unaudited Unaudited Audited
Half year Half year Year to
to to 31 Oct 2017
30 April 30 April GBPm
2018 2017
GBPm GBPm
Operating profit/(loss) from continuing
operations 7.6 (0.9) 15.3
Amortisation of development costs 2.4 3.4 6.9
Amortisation of intangible assets arising
from business combinations 7.0 7.7 15.0
Amortisation of patents and licenses 0.1 0.1 0.2
Loss on disposal of non-current assets - - 0.3
Depreciation of property, plant and equipment 8.4 9.3 18.5
Non-cash movement of non-underlying items 1.9 8.5 20.5
Gain on the fair value of derivative financial
instruments (0.1) (0.9) (1.7)
Share-based payment expense 1.3 0.6 1.9
------------------------------------------------ ----------- ----------- -------------
Operating cash flows before movements in
working capital 28.6 27.8 76.9
Increase in inventories (0.9) (16.0) (6.0)
Decrease/(increase) in trade and other
receivables 17.8 (19.0) (32.3)
(Decrease)/increase in trade and other
payables (25.7) (3.4) 2.3
Decrease in provisions (0.1) (0.1) (0.1)
Operating cash flow from continuing operations 19.7 (10.7) 40.8
------------------------------------------------ ----------- ----------- -------------
Analysed as:-
Operating cash flow before the impact of
non-underlying items 21.4 (7.9) 47.1
Cash impact of non-underlying items (1.7) (2.8) (6.3)
------------------------------------------------ ----------- ----------- -------------
Operating cash flow from continuing operations 19.7 (10.7) 40.8
------------------------------------------------ ----------- ----------- -------------
Discontinued operations
Profit for the period - 1.2 3.5
Decrease in payables / provisions - (1.2) (3.5)
------------------------------------------------ ----------- ----------- -------------
Cash flow from discontinued operations - - -
------------------------------------------------ ----------- ----------- -------------
13. ANALYSIS OF NET DEBT
As at As at
1 Nov Cash Non-cash Exchange 30 April
2017 flows changes rate effects 2018
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 33.6 (32.5) - (0.6) 0.5
Debt due within one year (51.6) 26.7 21.3 3.6 -
Debt due after one year (61.9) - (21.8) (1.3) (85.0)
Preference shares (0.1) - - - (0.1)
------- ------- --------- -------------- ----------
(80.0) (5.8) (0.5) 1.7 (84.6)
------- ------- --------- -------------- ----------
The Group has a GBP100m revolving credit facility with a
syndicate of three banks expiring in July 2019. The Group had
GBP67.6m (H1 2017: GBP105.0m, 2017: GBP106.0m) of undrawn borrowing
facilities at the half year.
The Group is subject to two key financial covenants, which are
tested quarterly. These covenants relate to the leverage ratio
between "underlying EBITDA" and debt; and the interest cover ratio
between underlying EBITDA and finance costs. The calculation of
these ratios involves the translation of non-Sterling denominated
debt using average, rather than closing, rates of exchange. The
revolving credit facility and the loan notes have differing
covenant compliance calculations. The Group was in compliance with
the covenants throughout the period.
14. EXCHANGE RATES
The following exchange rates applied during the year:
Average Closing Average Closing Average Closing
rate rate rate rate rate rate
H1 2018 H1 2018 H1 2017 H1 2017 2017 2017
----------- --------- --------- --------- --------- -------- --------
AU Dollar 1.78 1.82 1.66 1.73 1.68 1.73
US Dollar 1.39 1.38 1.26 1.29 1.30 1.33
----------- --------- --------- --------- --------- -------- --------
The translation of foreign currency items in the financial
statements are dependent on the prevailing foreign exchange rates.
For the period ended 30 April 2018, a 10 cent increase in the US
dollar exchange rate would have decreased reported underlying
operating profit for the first half of 2018 by approximately
GBP1.0m and decreased reported net debt at 30 April 2018 by
approximately GBP3.2m.
15. 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.
A dispute between Alloy Surfaces Company, Inc. and the US Army,
in relation to disputed pricing of a certain historic contract
fulfilled by Alloy Surfaces Company, Inc., proceeded to a hearing
in front of the US Armed Services Board of Contract Appeals
("ASBCA") in April 2017. ASBCA is expected to take approximately
two years to issue its decision in relation to this matter. The
range of possible outcomes is between GBPnil to GBP12.0m. A
provision of GBP1.0m (H1 2017: GBP1.3m, 2017: GBP1.1m) exists to
cover estimated legal costs for the Group with regards to this
issue.
The Group has benefited from the UK's Controlled Foreign Company
(CFC) Finance Company exemption in recent years. The European
Commission has launched an investigation into whether the UK's CFC
Finance Company exemption breaches state aid rules. No timescale
has been set for the review and this could take several years to
conclude. If, at the end of the investigation, the regime is
considered to be in contravention of the State Aid provisions, the
UK government will be required to seek repayment of the lost tax
from the relevant tax payers. Given the early stage of the
investigation it is too early to determine whether a tax liability
is probable.
The Serious Fraud Office (the "SFO") is currently undertaking a
formal investigation into concerns about bribery, corruption and
money laundering involving intermediaries who previously
represented one of the Group's UK-based subsidiaries, Chemring
Technology Solutions Limited ("CTSL") and its predecessor
companies.
The investigation commenced following a voluntary report made by
CTSL relating to two specific historic contracts, the first of
which was awarded prior to the Group's ownership of the business
concerned and the second in 2011, neither of which are considered
to be material in the context of the Group. It is too early to
predict the outcome of the SFO's investigation and therefore the
timings and amounts of the outcome cannot be estimated reliably.
The Group continues to co-operate fully with the SFO in its
investigation, and will provide a further update as and when
appropriate.
16. EVENTS AFTER THE BALANCE SHEET DATE
There are no material post balance sheet events.
17. 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
2017 Annual Report and Accounts. A detailed description of the
Group's principal risks and uncertainties and the ways they are
mitigated can be found on pages 26 to 33 of the 2017 Annual Report
and Accounts. These risks can be summarised as:
-- health and safety risks;
-- environmental laws and regulations;
-- possible defence budget cuts;
-- timing and value of orders;
-- contract-related risks;
-- political risks;
-- management resource;
-- manufacturing risks;
-- technology risks;
-- product liability and other customer claims;
-- compliance and corruption risks;
-- cyber-related risks; and
-- financial risks.
Management have detailed mitigation plans and assurance
processes to manage and monitor these risks.
18. CORPORATE WEBSITE
Further information on the Group and its activities can be found
on the corporate website at www.chemring.co.uk.
INDEPENDENT REVIEW REPORT TO CHEMRING GROUP PLC
Conclusion
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 2018 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 the related
explanatory notes.
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 2018 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted by the EU and
the Disclosure Guidance and Transparency Rules ("the DTR") of the
UK's Financial Conduct Authority ("the UK FCA").
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
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly financial report and consider whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) 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.
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 DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with International Financial
Reporting Standards as adopted by the EU. The directors are
responsible for preparing the condensed set of financial statements
included in the half-yearly financial report in accordance with IAS
34 as adopted by the EU.
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.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this 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
reached.
Andrew Campbell-Orde
for and on behalf of KPMG LLP
Chartered Accountants
Gateway House
Tollgate
Chandlers Ford
Southampton
SO53 3TG
21 June 2018
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SEEFMSFASEIM
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June 21, 2018 02:00 ET (06:00 GMT)
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