TIDMCHG
RNS Number : 1410B
Chemring Group PLC
05 June 2019
5 JUNE 2019
CHEMRING GROUP PLC
("Chemring" or "the Group" or "the Company")
INTERIM RESULTS FOR THE SIX MONTHS TO 30 APRIL 2019
As reported At H1 2018
exchange rates
H1 2019 Change H1 2019 Change H1 2018
Continuing operations
Revenue (GBPm) 139.3 + 5% 135.3 + 2% 133.1
Underlying EBITDA(*) (GBPm) 20.3 - 6% 19.7 - 9% 21.7
Underlying operating profit(*)
(GBPm) 12.1 + 4% 11.6 0% 11.6
Underlying profit before tax(*)
(GBPm) 9.9 + 19% 9.6 + 16% 8.3
Statutory profit/(loss) before
tax (GBPm) 4.3 (1.1)
Underlying earnings per share(*)
(pence) 2.8p + 22% 2.7p + 17% 2.3p
Interim dividend per share (pence) 1.2p + 9% 1.1p
Net debt at 30 April (GBPm) 84.0 - 1% 80.9 - 4% 84.6
Highlights
-- Overall H1 performance in line with our expectations; strong
Sensors & Information sector performance, Countermeasures &
Energetics sector impacted by previously reported manufacturing
issues and planned site recommissioning. Phased restart programme
for the UK Countermeasures site remains on track. H1 results
included GBP13m of insurance recoveries, offsetting costs of
remediation and site operating costs.
-- Safety remains our key priority and together with enhancing
operational stability and efficiency is driving investment in the
Group's manufacturing infrastructure.
-- Australian subsidiary, which has been off-line to enable the change-over to F-35 Lightning II countermeasure manufacturing, received two significant countermeasures contracts, as previously announced.
-- Continued progress on various US Programs of Record. Further
delivery orders received for the next phase of the HMDS IDIQ,
valued at $27m, and a $9m order for the Enhanced Maritime
Biological Detector ("EMBD") program.
-- Sale of military trading business, Chemring Military Products
and closure of Chemring Prime Contracts completed in period. The
exit of remaining commoditised energetics businesses is
ongoing.
-- Board's full year expectations are unchanged, with a
significant second-half weighting to revenue, underlying operating
profit and cash. Approximately 95% of expected H2 revenue is in the
order book or has been delivered to date.
Michael Ord, Chemring Group Chief Executive, commented:
"Significant changes have been implemented in the period to
improve safety, strengthen leadership, corporate governance and
embed continuous improvement across the Group. Despite the
previously announced manufacturing issues that impacted first half
financial performance, I have been heartened by the manner in which
colleagues from across the entire Group have responded to the
challenge of building a stronger and improved business.
The Countermeasures market continues to see growth and
significant orders were received in the period; it is against this
market strength and our drive to improve safety and operational
performance that we will continue to invest to modernise and
automate our manufacturing facilities. The phased restart of the UK
Countermeasures site remains on track with the site scheduled to be
at steady state manufacturing by the end of the current financial
year.
Our Sensors & Information sector continues to perform
strongly, with US Programs of Record progressing as deliveries on
the HMDS IDIQ contract commenced. Elsewhere the sector continues to
focus on growth and expanding its product, services and capability
offerings.
With 95% of expected H2 revenue in the current order book or
delivered to date, the Board's expectations for the current
financial year are unchanged."
Notes:
* All profit and earnings per share figures in this news release
relate to underlying business performance (as defined below) unless
otherwise stated.
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 as well as reflect the key performance indicators
used within the business to measure performance. The term
underlying is not defined under IFRS and may not be comparable with
similarly titled measures used by other companies.
A reconciliation of underlying measures to statutory measures is
provided below:
Group - continuing operations: Underlying Non-underlying Statutory
EBITDA (GBPm) 20.3 - 20.3
----------- --------------- ----------
Operating profit (GBPm) 12.1 (5.6) 6.5
----------- --------------- ----------
Profit before taxation (GBPm) 9.9 (5.6) 4.3
----------- --------------- ----------
Tax charge (GBPm) (2.0) 1.2 (0.8)
----------- --------------- ----------
Profit after tax (GBPm) 7.9 (4.4) 3.5
----------- --------------- ----------
Basic earnings per share (pence) 2.8p (1.5p) 1.3p
----------- --------------- ----------
Diluted earnings per share (pence) 2.7p (1.5p) 1.2p
----------- --------------- ----------
Group - discontinued operations:
----------- --------------- ----------
Profit/(loss) after tax (GBPm) 1.0 (4.9) (3.9)
----------- --------------- ----------
Segments - continuing operations:
----------- --------------- ----------
Sensors & Information EBITDA (GBPm) 11.7 - 11.7
----------- --------------- ----------
Sensors & Information operating
profit (GBPm) 10.0 (3.1) 6.9
----------- --------------- ----------
Countermeasures & Energetics EBITDA
(GBPm) 13.6 - 13.6
----------- --------------- ----------
Countermeasures & Energetics operating
profit (GBPm) 7.1 (2.5) 4.6
----------- --------------- ----------
The adjustments to continuing operations comprise:
-- amortisation of acquired intangibles of GBP5.6m (H1 2018:
GBP5.7m, 2018: GBP11.6m)
-- gain on the movement in the fair value of derivative
financial instruments of GBPNil (H1 2018: GBP0.1m loss, 2018:
GBP0.4m loss)
-- tax impact of adjustments of GBP1.2m credit (H1 2018:
GBP16.1m charge, 2018: GBP13.1m charge)
Further details are provided in note 3.
The discontinued operations loss after tax comprises:
-- operating loss of GBP2.0m (H1 2018: GBP6.5m profit, 2018:
GBP8.0m profit)
-- exceptional items of GBP3.1m loss (H1 2018: GBP1.1m loss,
2018: GBP72.0m loss)
-- loss on disposal of a subsidiary of GBP1.8m (H1 2018: GBPNil,
2018: GBPNil)
-- tax credit on the above of GBP3.0m (H1 2018: GBP1.2m charge,
2018: GBP1.0m charge)
Further details are provided in note 9.
EBITDA is defined as operating profit before interest, tax,
depreciation and amortisation. Reference to constant currency
relates to the re-translation of FY19 financial information at the
FY18 exchange rates to reflect the movement excluding the impact of
foreign exchange. The exchange rates applied are disclosed in note
14.
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
Peter Hewer
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 2,500 people worldwide, and with
production facilities in four countries, Chemring meets the needs
of customers in more than fifty countries
-- Chemring is now organised under two strategic product
segments: Sensors & Information and Countermeasures &
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/investors/results-centre at 09.30
(UK time) on Wednesday 5 June 2019. The presentation can also be
listened to at that time by dialling +44 (0)20 3936 2999 and using
the participant access code: 06 14 27. 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.
INTERIM MANAGEMENT REPORT
Group overview
The Group has performed in line with the Board's expectations
despite the operational challenges experienced in the
Countermeasures & Energetics segment and expectations for the
full year remain unchanged. The Group's revenue was up 5% to
GBP139.3m (H1 2018: GBP133.1m, 2018: GBP297.4m). Underlying
operating profit was up 4% to GBP12.1m (H1 2018: GBP11.6m, 2018:
GBP31.0m). Underlying earnings per share was up 22% to 2.8p (H1
2018: 2.3p, 2018: 6.9p).
It has been a busy period for the Group in which significant
changes have been implemented in addition to ongoing operational
management. These include the introduction of a new safety
strategic framework, a Group-wide safety review and strategic plan,
and the introduction of new frameworks to strengthen risk
management and corporate governance. The Group has also reviewed
the capability of its senior leadership team against its needs and
strategy over the next three years; there have been changes made to
the leadership at six of the Group's operating subsidiaries, and
the centralised role of Group Strategy Director has been assumed by
the Group Chief Executive.
The Group has also consolidated the electronic warfare
capabilities of Chemring Technology Solutions into Roke. This is
expected to provide operational and market facing alignment, as
well as cost savings.
Net debt was GBP84.0m at the end of the period (H1 2018:
GBP84.6m, 2018: GBP81.8m), the increase since 31 October 2018 being
largely attributable to the normal seasonality of the Group.
Underlying operating cash inflow of GBP21.9m (H1 2018: GBP19.1m,
2018: GBP44.7m) represented 108% (H1 2018: 88%, 2018: 89%) of
EBITDA.
The Group's order book at 30 April 2019 was GBP494m (H1 2018:
GBP363m, 2018: GBP394m), of which approximately GBP188m is
scheduled for delivery during H2 2019, representing cover of
approximately 95% of expected H2 revenue. The increase since 31
October 2018 is primarily attributable to the F-35 Countermeasures
order received by our Australian subsidiary and HDMS orders
received by our US Sensors & Information business.
Markets
Whilst global defence spending continues to grow, budget
priorities within NATO are shifting emphasis from asymmetric
operations to near-peer threats. Our strategy remains to target
those areas of the market where we have niche market positions and
sustainable competitive advantage.
The US remains the largest market for the Sensors &
Information sector. Strong positions in Counter Explosive Hazard
and Chemical and Biological Detection will be enhanced by market
share growth in Electronic Warfare ("EW") and Cyber, levering
existing capabilities in autonomy, machine learning, artificial
intelligence, cyber resilience and survivability.
The US is moving away from traditional acquisition paths in
pursuit of agility as they look to outpace threats, particularly in
the intelligence and surveillance domains. Changes in focus are
driven by urgent requirements from Europe and elsewhere to close
capability gaps; convergence of EW, Signals Intelligence, Cyber and
Space, new defence strategies that prioritise near-peer competition
and approval for rapid EW force structure growth.
This more agile approach to procurement and the need to pace
rapidly evolving, complex threats aligns well with our Sensors
& Information strategy.
The Countermeasures & Energetics sector remains robust and
Chemring continues to maintain its market leading position in the
available air countermeasures market. Growth in the sector over the
next five years is primarily being driven by the increasing US
requirements coupled with new technologies being developed in the
UK that will be shared across the Group's countermeasures
businesses.
Sole source positions on several products and platforms in
conjunction with high barriers to entry are evident in the strong
current and forecast order book. Despite the safety incidents in
the sector the forecast remains strong due to good customer
engagement and relationships where requirements have been
re-scheduled rather than cancelled or lost.
In Energetics the domestic military market in the UK continues
to be challenging. This is due to a declining UK defence budget for
energetic products and the protracted reorganisation between
Frontline Command and DE&S. We have also seen continued erosion
in the market for standard military energetic devices globally due
to cheaper and lower quality competition from Eastern Europe and
the Far East. This trend supports the Group's decision to exit its
commoditised energetics businesses in Derby and Florida. As a
result we have refocused our sales and marketing efforts into the
high value niche energetics sector.
Our commercial energetic component ranges for maritime,
aerospace and fire suppression usage continue to grow year on year
and a significant amount of focus and investment has gone into
manufacturing capacity, efficiency and product R&D.
Our unique position in supplying energetic components into many
of the world's military aircrew egress systems has continued to
provide strong returns, particularly with the hugely successful
F-35 Lightning II aircraft and the long-term global participation
programme to support this 5th generation fighter through life.
Health and safety
The introduction of the new three year Health and Safety
strategy and plan has progressed well, with all key milestones of
the plan having been met. Revised HSE standards and guidelines have
been implemented, as have our Fundamental Safety Rules which focus
on high risk behaviour. The new KPI of recordable injury rates,
which are more sensitive than the previous measure of lost time
injury rates, has shown a continuous reduction in injuries over the
past eight months with the rate dropping from 2.77 to 1.32. This
KPI monitors the number of recordable injuries per 200,000 man
hours worked over a rolling twelve month period. Our process safety
indicators, based on a leading indicator of upset conditions, are
driving improvement actions that reduce the potential for an
energetic event that could cause harm to our people and to our
business.
Over the coming months, and as part of the plan, we will be
introducing stronger HSE assurance processes that ensure compliance
to our standards and benchmarks the business against best practice.
This, in addition to our facility surveys, will ensure that we
design, maintain and operate our processes with the highest levels
of integrity.
Group financial performance
Order intake for continuing operations for H1 2019 was up 37% to
GBP248m (H1 2018: GBP181m, 2018: GBP360m), driven by the release of
further deliveries orders on the HMDS IDIQ contract as well as
orders in Australia for F-35 countermeasures.
Revenue from continuing operations for the period was up 5% to
GBP139.3m (H1 2018: GBP133.1m, 2018: GBP297.4m), driven by strong
performance in the Sensors & Information segment, as deliveries
commenced on the HMDS IDIQ contract.
The underlying operating profit from continuing operations of
GBP12.1m (H1 2018: GBP11.6m, 2018: GBP31.0m), resulted in an
underlying operating margin of 8.7% (H1 2018: 8.7%, 2018: 10.4%).
The flat margin compared to H1 2018 primarily reflects the
operational disruption in a number of the Countermeasures &
Energetics facilities, which offset the stronger period in Sensors
& Information as increased revenues on the HMDS IDIQ contract
drove growth.
Insurance recoveries of GBP13m are included within the result
for the period in relation to the incident in 2018 at the UK
Countermeasures site. This income offsets site operating costs and
the costs of remediation, leaving the UK Countermeasures business
approximately break-even for the period.
Foreign exchange translation has provided a minor tailwind on
revenue and profit versus the same period last year. While exchange
rates have been volatile in the period, there has been a
strengthening of the US Dollar against Sterling compared to the
equivalent period in 2018 with the average rate moving from $1.39
to $1.30. On a constant currency basis, restating the current
period at the H1 2018 average rate, revenue would have been lower
at GBP135.3m and underlying operating profit would have been
GBP11.6m.
Total finance expense was lower at GBP2.2m (H1 2018: GBP3.3m,
2018: GBP6.1m). This was driven by the continued focus on reducing
intra period working capital volatility, thus maintaining net debt
stability.
Underlying profit before tax from continuing operations was
GBP9.9m (H1 2018: GBP8.3m, 2018: GBP24.9m). The effective tax rate
on the underlying profit before tax from continuing operations was
20.2% (H1 2018: 21.7%, 2018: 22.9%). The underlying earnings from
continuing operations per share was 2.8p (H1 2018: 2.3p, 2018:
6.9p).
Statutory operating profit from continuing operations was
GBP6.5m (H1 2018: GBP2.2m profit, 2018: GBP15.9m loss) and after
statutory finance expenses of GBP2.2m (H1 2018 GBP3.3m, 2018:
GBP6.1m), statutory profit before tax was GBP4.3m (H1 2018: GBP1.1m
loss, 2018: GBP22.0m loss) giving a statutory earnings per share
from continuing operations of 1.3p (H1 2018: 6.8p loss, 2018: 14.6p
loss). The statutory loss from discontinued operations was GBP3.9m
(H1 2018: GBP4.2m profit, 2018: GBP65.0m loss) including a loss on
disposal of GBP1.8m relating to the sale of Chemring Military
Products Inc ("CMP"), giving a statutory loss of GBP0.4m (H1 2018:
GBP14.8m, 2018: GBP105.8m) from continuing and discontinued
operations. The impact of non-underlying items on statutory profit
measures is provided in note 3. The non-underlying costs in H1 2019
related to the amortisation of acquired intangibles and the tax
credit associated with this.
Revenue from discontinued operations fell to GBP32.2m (H1 2018:
GBP96.2m, 2018: GBP138.6m) and underlying operating loss fell to
GBP2.0m (H1 2018: GBP6.5m profit, 2018: GBP8.0m profit) primarily
as a result of the lower levels of activity on 40mm and NSA product
lines and the disposal of CMP prior to the period end.
Segmental Review - Sensors & Information
Performance
Order intake in the period of GBP79m (H1 2018: GBP34m, 2018:
GBP109m) has continued to be strong. This was driven by further
orders on the US Programs of Record and a strong period at Roke in
the UK.
Revenue for Sensors & Information increased by 27% to
GBP53.8m (H1 2018: GBP42.3m, 2018: GBP87.3m) and underlying
operating profit increased to GBP10.0m (H1 2018: GBP6.8m, 2018:
GBP15.3m), as underlying operating margin improved to 18.6% (H1
2018: 16.1%, 2018: 17.5%). The Sensors business in the US has moved
into the delivery phase of the HMDS Program of Record and continues
to focus on the engineering, manufacturing, and development ("EMD")
and testing phases of the biological and chemical detection
Programs of Record. Roke's information-security business continues
to grow. On a constant currency basis revenue would have risen 24%
to GBP52.3m and underlying operating profit would have been up 43%
to GBP9.7m.
Key developments in the period on the major US Programs of
Record are summarised below.
The US DoD's Explosive Hazard Detection ("EHD") program, through
the Husky Mounted Detection System ("HMDS") program, which is a
spiral development program, with concurrent development, trialling,
and manufacturing to be undertaken, continues to progress as
expected. Under the previously awarded IDIQ sole-source contract
vehicles, further delivery orders of $27m were received in the
period. The ramp-up to production progressed as planned and
customer deliveries were made on schedule in the first half of the
year.
We expect this program to run for the next decade providing a
recurring level of business as the US Army moves to its objective
of producing and fielding a fleet of 369 HMDS by mid-2021. The new
fleet will be comprised of both refurbished and new HMDS and this
activity will run alongside technology upgrade programs.
The Joint Biological Tactical Detection System ("JBTDS") program
moved into the Biological Point System Assessment phase in March
2018. The DoD will undertake testing of our product for the next
12-18 months, after which we expect a production decision in early
2020.
In 2018, we bid and won a second biological program, the
Enhanced Maritime Biological Detection System ("EMBD"), where the
customer is the US Navy. Our initial contract award for Engineering
Manufacturing Development ("EMD") and LRIP was in the form of a
$24m IDIQ, against which we received delivery orders of $5m in 2018
and a further delivery order in this period of $9m. The program is
expected to be worth up to $100m over 5-10 years once in full rate
production.
The Aerosol and Vapor Chemical Agent Detector ("AVCAD") is
progressing through the EMD phase as expected. The EMD and LRIP
phases are expected to be worth approximately $16m in the period to
2022. Following this the customer is expected to have a requirement
of approximately $800m. Chemring is one of two contractors selected
for this program.
The information-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.
Opportunities and outlook
The focus for Sensors & Information continues to be on
expanding the Group's product, service and capability offerings in
the areas of tactical electronic warfare and information-security,
and securing positions on the US DoD Programs of Record.
In the US, focus has turned to the execution phase on contracts.
Mobilisation has started, with strong initial deliveries in H1 2019
on the HMDS program and the focus continues to be ensuring the
Virginia and North Carolina facilities are mobilised and resourced
to deliver the AVCAD, EMBD, JBTDS and HMDS contracts.
Supporting the UK Government across National Security and
Defence, and non-governmental industries in high-value
manufacturing and infrastructure, Roke will continue to focus on
their customers' missions: to enable them to deliver competitive
advantage, defend their people, assets and secrets, and defeat
their adversaries. With a focus on emerging technologies in
connectivity, cyber, automation and data analytics, Roke will
deliver research, design, engineering and advisory services using
its high quality people and capabilities. Concurrently, Roke is
seeking to expand its capabilities into commercial and
international markets.
The order book for Sensors & Information at 30 April 2019
increased since the year end to GBP99m (H1 2018: GBP43m, October
2018: GBP75m). While the Roke business remains a short-cycle order
book business, the division has orders of approximately GBP52m for
delivery in the second half of the year.
Segmental Review - Countermeasures & Energetics
Performance - continuing operations
Order intake in the period of GBP169m (H1 2018: GBP147m, 2018:
GBP251m) has continued to be strong, particularly in the
significant US market.
As expected, revenue decreased by 6% to GBP85.5m (H1 2018:
GBP90.8m, 2018: GBP210.1m) and the segment reported an underlying
operating profit of GBP7.1m (H1 2018: GBP9.1m, 2018: GBP23.9m). On
a constant currency basis revenue would have decreased by 9% to
GBP83.0m and operating profit would have been GBP6.9m.
The phased restart of our UK Countermeasures site has progressed
as planned with chaff and naval decoy lines now operational.
Returning spectral and MTV lines to operation in the third quarter
is progressing as planned, with the overall site scheduled to be at
steady state manufacturing by the end of the current financial
year. All other areas of the facility are now operational and we
retain our assumption that the site will contribute approximately
GBP30m of revenue and break even after accounting for insurance
recoveries and remediation costs in 2019. To date, we have received
GBP13m of insurance proceeds which have offset site operating costs
and the costs of remediation, leaving the UK Countermeasures
business approximately break-even for the period.
Our Australian facility was closed in H1 2019 to be fitted and
qualified for F-35 production. The facility upgrade was completed
on schedule and to budget. We were pleased to announce that our
Australian subsidiary had been awarded two significant contracts:
an Undefinitised Contract Action with a Not To Exceed value of
US$60.4m and a further (Directed Sole Source) award for US$6.5m.
The contracts are from the US DoD to supply countermeasures to the
Royal Australian Air Force, US Navy and Foreign Military Sales in
support of the F-35 Joint Strike Fighter and other platforms. This
award follows a multi-year effort to establish Chemring Australia
as a qualified supplier for F-35 countermeasures.
Our Tennessee and Norway facilities experienced unplanned
operational disruption during the period, caused by equipment
failure. Rectification work has taken place at both sites, which
are both now operational, and plans to recover lost production are
in place for the second half. This has however adversely impacted
the financial performance of the segment in the first half.
A review of the Tennessee capacity expansion plan has been
completed in light of the findings of a Group-wide safety review.
As a result, the original plans and budgets have been revised and
we now expect the project to run over the next two years and cost
approximately GBP50m (previous guidance $50m).
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.
The Group's niche propellant and devices businesses in Scotland
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.
Countermeasures & Energetics' order book at 30 April 2019
was GBP395m (H1 2018: GBP320m, October 2018: GBP318m). The increase
is as a result of strong order intake in Australia for the F-35 as
well as the US and UK, and at constant currency the order book is
26% higher than at 31 October 2018. Of the 30 April 2019 order
book, approximately GBP136m is currently expected to be delivered
in the second half of 2019.
Performance - discontinued operations
Revenue for the discontinued commodity Energetics business
decreased by 66.5% to GBP32.2m (H1 2018: GBP96.2m, 2018:
GBP138.6m), generating an underlying operating loss of GBP2.0m (H1
2018: GBP6.5m profit, 2018: GBP8.0m profit), reflecting the
expected decline in 40mm ammunition and non-standard ammunition
("NSA") revenue and the disposal of CMP prior to the period
end.
Sales of procured NSA product fell 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 GBP3.7m (H1 2018:
GBP60.6m, 2018: GBP81.9m) to revenue in the period. In November
2018 the Group announced its intention to exit the commoditised
Energetics businesses, located in Derby and Florida, and to focus
on the niche specialist energetic devices and materials businesses
in Chicago, Scotland and Norway, where the Group has strong
intellectual property and high barriers to entry. In April the
Group concluded the sale of its military trading business Chemring
Military Products Inc. ("CMP") for a cash consideration of $4m.
Given the divestment of CMP prior to period end no further NSA
revenue is expected.
Net debt and cash flow
Net debt at 30 April 2019 was GBP84.0m (H1 2018: GBP84.6m, 2018:
GBP81.8m).
Underlying continuing operating activities generated cash of
GBP21.9m (H1 2018: GBP19.1m, 2018: GBP44.7m), reflecting the normal
seasonality of the Group's business and the collection of year end
receivables. Continuing cash conversion was 108% (H1 2018: 88%,
2018: 89%) of continuing underlying EBITDA showing focus on working
capital improvements is delivering positive results.
Working capital
Working capital relating to the continuing businesses was
GBP80.5m (H1 2018: GBP84.1m, 2018: GBP83.7m), a decrease of
GBP3.6m. The reduction compared to prior periods is mainly as a
result of the timing of activity in
the final quarter of the prior period resulting in higher trade
receivables.
Debt facilities
The Group's principal debt facilities comprise $83.6m of US
private placement loan notes, which are repayable in November 2019,
and a GBP136.7m revolving credit facility. The revolving credit
facility is with a syndicate of five banks and runs to October
2022. The Group had GBP117.3m (H1 2018: GBP67.6m, 2018: GBP68.1m)
of undrawn borrowing facilities at the half year.
Retirement benefit obligations
The surplus on the Group's defined benefit pension schemes was
GBP7.8m (H1 2018: GBP3.5m, 2018: GBP7.5m), measured in accordance
with IAS 19 (Revised) Employee Benefits.
The surplus relates to the Chemring Group Staff Pension Scheme
(the "Scheme"), a UK defined benefit scheme whose assets are held
in a separately administered fund. The Scheme was closed to future
accrual in April 2012. A full actuarial valuation for the Scheme as
at 6 April 2018 has been prepared and updated to 30 April 2019,
using the projected unit credit method. This valuation showed a
surplus of GBP7.8m (H1 2018: GBP3.5m, 2018: GBP7.5m).
The 6 April 2018 triennial valuation shows a technical
provisions deficit of GBP5.8m, which represents a funding level of
94% of liabilities. The Group has agreed with the trustees that
deficit recovery payments totalling GBP6.25m, which were the
contributions due to be made in the period to 30 June 2019 under
the previous deficit recovery plan, were made prior to 31 December
2018. Of this, GBP0.4m was paid in H1 2019. After this, no further
deficit recovery payments will be required and the Group was
released from the bank guarantee of GBP7.2m given to the scheme in
respect of future contributions. The next actuarial valuation is
due as at 6 April 2021 after which the future funding requirements
will be reassessed.
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.
In addition the following matters, as previously disclosed in
last year's annual report, remained open at period end:
-- A dispute between Alloy Surfaces Company, Inc. and the US Army
-- UK's Controlled Foreign Company ("CFC") Finance Company exemption
-- The Serious Fraud Office (the "SFO") investigation
-- The incident that occurred at the Group's Countermeasures
site in Salisbury on 10 August 2018.
Full details of these are included in note 15.
Dividends
At the Annual General Meeting on 21 March 2019 the shareholders
approved a final dividend in respect of the year ended 31 October
2018 of 2.2p per ordinary share. This was paid on 18 April 2019 to
shareholders on the register on 5 April 2019.
The Board has also declared an interim dividend in respect of
2019 of 1.2p per ordinary share which will be paid on 13 September
2019 to shareholders on the register on 30 August 2019. In
accordance with accounting standards this dividend has not been
recorded as a liability as at 30 April 2019.
Medium-term financial objectives
The Group has previously communicated certain medium-term
financial objectives and assumptions. The material elements of
these are:
-- Revenue
o In Sensors & Information mid single digit % growth, with
the potential for step changes as the US Programs of Record
commence full rate production
o In Countermeasures & Energetics a step up in 2020 of
cGBP20m as the UK Countermeasures and Australian sites are
recommissioned. Following that, mid single digit % growth driven by
the US market, including F-35
-- Operating margins - targeting mid to high teen return on sales % at a segmental level
-- Capital expenditure - GBP40-50m for the next three years as
investment in safety, automation and catch up capex is needed in
the main manufacturing facilities and the capacity expansion
project in Tennessee is completed.
Outlook
Approximately 95% 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.
The Board's full year expectations are unchanged, with a
significant second-half weighting to revenue, underlying operating
profit and cash. While there are a number of variables including
operational execution risk, Brexit and associated international
trade licensing, exchange rates and insurance recoveries in respect
of the UK Countermeasures incident which occurred in August 2018,
expected deliveries in the second half are well covered by the
Group's current order book.
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 Ord Andrew Lewis
Group Chief Executive Group Finance Director
5 June 2019 5 June 2019
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2019
Unaudited Unaudited
Half year to Half year to
30 April 2019 30 April 2018
Note Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 139.3 - 139.3 133.1 - 133.1
-------------- --------------- ------- -------------- --------------- -------
Operating profit 12.1 (5.6) 6.5 11.6 (9.4) 2.2
Finance expense (2.2) - (2.2) (3.3) - (3.3)
-------------- --------------- ------- -------------- --------------- -------
Profit/(loss) before
tax 9.9 (5.6) 4.3 8.3 (9.4) (1.1)
Tax charge on
profit/(loss) 5 (2.0) 1.2 (0.8) (1.8) (16.1) (17.9)
-------------- --------------- ------- -------------- --------------- -------
Profit/(loss) after
tax 7.9 (4.4) 3.5 6.5 (25.5) (19.0)
Discontinued operations
Profit/(loss) after
tax from discontinued
operations 3,9 1.0 (4.9) (3.9) 5.0 (0.8) 4.2
Profit/(loss) after
tax for the period 8.9 (9.3) (0.4) 11.5 (26.3) (14.8)
-------------- --------------- ------- -------------- --------------- -------
Unaudited Unaudited
Half year to Half year to
30 April 2019 30 April 2018
Underlying Underlying
performance* Total performance* Total
Earnings/(loss) per
ordinary share
Continuing operations
Basic 6 2.8p 1.3p 2.3p (6.8)p
Diluted 6 2.7p 1.2p 2.3p (6.8)p
-------------- --------------- ------- -------------- --------------- -------
Continuing operations
and discontinued
operations
Basic 6 3.2p (0.1)p 4.1p (5.3)p
Diluted 6 3.1p (0.1)p 4.0p (5.3)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 2019
Audited
Year to
31 Oct 2018
Note Underlying Non-underlying
performance* items* Total
GBPm GBPm GBPm
Continuing operations
Revenue 297.4 - 297.4
-------------- --------------- --------
Operating profit/(loss) 31.0 (46.9) (15.9)
Finance expense (6.1) - (6.1)
-------------- --------------- --------
Profit/(loss) before tax 24.9 (46.9) (22.0)
Tax charge on profit/(loss) 5 (5.7) (13.1) (18.8)
-------------- --------------- --------
Profit/(loss) after tax 19.2 (60.0) (40.8)
Discontinued operations
Profit/(loss) after tax from discontinued
operations 3,9 6.2 (71.2) (65.0)
-------------- --------------- --------
Profit/(loss) after tax for the year 25.4 (131.2) (105.8)
-------------- --------------- --------
Audited
Year to
31 Oct 2018
Underlying Non-underlying
performance* items* Total
GBPm GBPm GBPm
Earnings/(loss) per ordinary share
Continuing operations
Basic 6 6.9p (14.6)p
Diluted 6 6.7p (14.6)p
-------------- --------------- --------
Continuing operations and discontinued
operations
Basic 6 9.1p (37.8)p
Diluted 6 8.9p (37.8)p
-------------- --------------- --------
* 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 2019
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2019 2018 2018
GBPm GBPm GBPm
Loss after tax attributable to equity holders
of the parent (0.4) (14.8) (105.8)
----------- ----------- ---------
Items that will not be reclassified subsequently
to profit or loss
Actuarial (losses)/gains on defined benefit
pension schemes (0.3) 1.5 0.9
Movement on deferred tax relating to pension
schemes 0.1 (0.1) (0.1)
----------- ----------- ---------
(0.2) 1.4 0.8
----------- ----------- ---------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations (5.3) (10.1) 5.2
Current tax on items taken directly to
equity - (0.6) -
Deferred tax on exchange differences on
translation of foreign operations 0.5 1.6 (0.5)
----------- ----------- ---------
(4.8) (9.1) 4.7
----------- ----------- ---------
Total comprehensive loss attributable to
equity holders of the parent (5.4) (22.5) (100.3)
----------- ----------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2019
Unaudited half year to 30 April 2019
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 2018 2.8 305.4 12.9 1.0 (27.2) 7.1 (7.8) 294.2
Loss after tax - - - - - (0.4) - (0.4)
Other comprehensive loss - - - - (3.7) (1.9) - (5.6)
Tax relating to components
of other comprehensive
loss - - - - - 0.6 0.6
Total comprehensive loss - - - - (3.7) (1.7) - (5.4)
Ordinary shares issued - 0.1 - - - - - 0.1
Share-based payments
(net of settlement) - - - - - 0.3 - 0.3
Dividends paid - - - - - (6.2) - (6.2)
At 30 April 2019 2.8 305.5 12.9 1.0 (30.9) (0.5) (7.8) 283.0
--------- --------- --------- ------------ ------------ ---------- -------- ------
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
--------- --------- --------- ------------ ------------ ---------- -------- -------
Audited year to 31 October 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 - - - - - (105.8) - (105.8)
Other comprehensive
(loss)/income - - - - (2.4) 8.5 - 6.1
Tax relating to
components
of other comprehensive
income - - - - - (0.6) - (0.6
Total comprehensive loss - - - - (2.4) (97.9) - (100.3)
Ordinary shares issued - 0.1 - - - - - 0.1
Share-based payments
(net of settlement) - - - - - 0.1 - 0.1
Dividend paid - - - - - (8.7) - (8.7)
Transactions in own
shares - - - - - - 1.8 1.8
Transfers between
reserves - - - (0.1) - 0.1 - -
At 31 October 2018 2.8 305.4 12.9 1.0 (27.2) 7.1 (7.8) 294.2
--------- --------- --------- ------------ ------------ ---------- -------- --------
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 April 2019
Note Unaudited Unaudited
As at As at Audited
30 April 30 April As at
2019 2018 31 Oct 2018
GBPm GBPm GBPm
Non-current assets
Goodwill 108.1 123.5 109.2
Development costs 24.6 31.6 24.0
Other intangible assets 31.3 47.9 37.6
Property, plant and equipment 160.5 156.7 148.1
Deferred tax 17.6 45.6 36.8
Retirement benefit surplus 10 7.8 3.5 7.5
---------- ---------- -------------
349.9 408.8 363.2
---------- ---------- -------------
Current assets
Inventories 78.2 95.6 71.4
Trade and other receivables 60.0 114.5 62.2
Cash and cash equivalents 13 6.4 0.5 9.6
Derivative financial instruments 8 0.1 0.4 0.1
144.7 211.0 143.3
---------- ---------- -------------
Assets classified as held for
sale 7.9 - 43.7
---------- ---------- -------------
Total assets 502.5 619.8 550.2
---------- ---------- -------------
Current liabilities
Borrowings 13 (64.1) - -
Trade and other payables (77.3) (89.5) (68.6)
Provisions (5.1) (7.3) (6.7)
Current tax (4.7) (5.4) (0.8)
Derivative financial instruments 8 (0.4) (0.3) (0.3)
(151.6) (102.5) (76.4)
---------- ---------- -------------
Liabilities directly associated
with assets classified as held
for sale (7.1) - (26.9)
---------- ---------- -------------
Non-current liabilities
Borrowings 13 (26.2) (85.0) (91.3)
Provisions (12.6) (6.9) (14.0)
Deferred tax (21.7) (50.2) (47.1)
Preference shares 13 (0.1) (0.1) (0.1)
Derivative financial instruments (0.2) - (0.2)
(60.8) (142.2) (152.7)
---------- ---------- -------------
Total liabilities (219.5) (244.7) (256.0)
---------- ---------- -------------
Net assets 283.0 375.1 294.2
---------- ---------- -------------
Equity
Share capital 2.8 2.8 2.8
Share premium account 305.5 305.4 305.4
Special capital reserve 12.9 12.9 12.9
Revaluation reserve 1.0 1.1 1.0
Translation reserve (30.9) (29.7) (27.2)
Retained earnings (0.5) 90.4 7.1
---------- ---------- -------------
290.8 382.9 302.0
Own shares (7.8) (7.8) (7.8)
---------- ---------- -------------
Total equity 283.0 375.1 294.2
---------- ---------- -------------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2019
Note Unaudited Unaudited
Half year Half year
to to Audited
30 April 30 April Year to
2019 2018 31 Oct 2018
GBPm GBPm GBPm
Cash flows from operating activities
------------------------------------------- ----- ----------- ----------- -------------
Cash generated from continuing underlying
operations 12 21.9 19.1 44.7
Cash generated from discontinued
underlying operations 12 9.4 2.3 12.2
Cash impact of non-underlying items (3.0) (1.7) (7.6)
------------------------------------------- ----- ----------- ----------- -------------
Cash flows from operating activities 28.3 19.7 49.3
Retirement benefit deficit recovery
contributions (0.4) (2.5) (7.9)
Tax paid (2.2) (4.1) (5.5)
----------- ----------- -------------
Net cash inflow from operating activities 25.7 13.1 35.9
----------- ----------- -------------
Cash flows from investing activities
Purchases of intangible assets (1.7) (1.5) (3.2)
Purchases of property, plant and
equipment (19.9) (7.7) (18.8)
Acquisition - deferred consideration - (0.7) (0.7)
Customer funding for capital programmes - - 2.6
Proceeds on disposal of property,
plant and equipment - 0.4 0.4
Proceeds on disposal of subsidiary 0.6 - -
Net cash outflow from investing
activities (21.0) (9.5) (19.7)
----------- ----------- -------------
Cash flows from financing activities
Dividends paid 7 (6.2) (5.6) (8.7)
Finance expense paid (1.6) (3.8) (6.0)
Capitalised facility fees paid (0.3) (0.2) (0.6)
Drawdown of borrowings 5.0 - 26.5
Repayments of borrowings (4.5) (26.5) (51.9)
Net cash outflow from financing
activities (7.6) (36.1) (40.7)
----------- ----------- -------------
Decrease in cash and cash equivalents (2.9) (32.5) (24.5)
Cash and cash equivalents at beginning
of period/year 9.6 33.6 33.6
Effect of foreign exchange rate
changes (0.3) (0.6) 0.5
----------- ----------- -------------
Cash and cash equivalents at end
of period/year 6.4 0.5 9.6
----------- ----------- -------------
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 5 June 2019. The
information for the year ended 31 October 2018 does not constitute
statutory accounts as defined in section 435 of the Companies Act
2006. Full accounts for the year ended 31 October 2018, 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;
-- material exceptional items, for example relating to
acquisitions and disposals, business restructuring costs and legal
costs;
-- material exceptional items from changes in legislation, for
example the GMP equalisation court ruling and the enactment of the
US Tax Cuts and Jobs Act;
-- 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
2018.
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 2019 but have
not materially impacted the reported results or the financial
position:
-- 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
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 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. We have assessed the impact of the new standard as at 31
October 2018 assuming a modified retrospective approach and
calculated that the finance lease asset and liability coming on
balance sheet would be GBP4.6m.
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 2019 (unaudited)
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 53.8 85.5 - 139.3
Segment result before depreciation,
amortisation and non-underlying
items 11.7 13.6 (5.0) 20.3
Depreciation (1.3) (6.3) - (7.6)
Amortisation (0.4) (0.2) - (0.6)
-------------------------------------- --------------- ---------------- ------------ ------
Segmental underlying operating
profit 10.0 7.1 (5.0) 12.1
Amortisation of acquired intangibles (3.1) (2.5) - (5.6)
-------------------------------------- --------------- ---------------- ------------ ------
Segmental operating profit 6.9 4.6 (5.0) 6.5
-------------------------------------- --------------- ---------------- ------------ ------
Period to 30 April 2018 (unaudited)
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 42.3 90.8 - 133.1
Segment result before depreciation,
amortisation and non-underlying
items 8.8 17.1 (4.2) 21.7
Depreciation (0.8) (6.7) (0.1) (7.6)
Amortisation (1.2) (1.3) - (2.5)
-------------------------------------- --------------- ---------------- ------------ ------
Segmental underlying operating
profit 6.8 9.1 (4.3) 11.6
Amortisation of acquired intangibles (3.2) (2.5) - (5.7)
Non-underlying items (0.6) (1.5) (1.6) (3.7)
-------------------------------------- --------------- ---------------- ------------ ------
Segmental operating profit 3.0 5.1 (5.9) 2.2
-------------------------------------- --------------- ---------------- ------------ ------
Year ended 31 October 2018 (audited)
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 87.3 210.1 - 297.4
Segment result before depreciation,
amortisation and non-underlying
items 18.5 39.6 (8.1) 50.0
Depreciation (1.7) (13.5) (0.1) (15.3)
Amortisation (1.5) (2.2) - (3.7)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental underlying operating
profit 15.3 23.9 (8.2) 31.0
Amortisation of acquired intangibles (6.4) (5.2) - (11.6)
Non-underlying items (3.7) (15.9) (15.7) (35.3)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental operating profit/(loss) 5.2 2.8 (23.9) (15.9)
-------------------------------------- --------------- ---------------- ------------ -------
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
2019 2018 2018
GBPm GBPm GBPm
Acquisition and disposal related costs - (0.5) (4.1)
Business restructuring costs - (1.6) (8.1)
Less non-underlying depreciation in business
restructuring costs - 0.7 0.7
Legal costs - (1.5) (12.8)
Change of Chief Executive - - (1.7)
Pension scheme charge in respect of GMP
equalisation court ruling - - (0.8)
Loss on the movement in the fair value
of derivative financial instruments - (0.1) (0.4)
----------- ----------- ------------
Impact of non-underlying items on EBITDA - (3.0) (27.2)
Non-underlying depreciation in business
restructuring costs - (0.7) (0.7)
Impairment of capitalised development
costs - - (7.4)
Intangible amortisation arising from
business combinations (5.6) (5.7) (11.6)
----------- ----------- ------------
Impact of non-underlying items on operating
profit and profit before tax (5.6) (9.4) (46.9)
Tax impact of non-underlying items 1.2 (16.1) (13.1)
----------- ----------- ------------
Impact of non-underlying items on continuing
profit after tax (4.4) (25.5) (60.0)
Discontinued operations after tax (4.9) (0.8) (71.2)
Impact of non-underlying items on profit
after tax (9.3) (26.3) (131.2)
----------- ----------- ------------
Acquisition and disposal-related costs
In the year to 31 October 2018, acquisition and disposal-related
costs of GBP4.1m (H1 2018: GBP0.5m) related to transaction 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 year to 31 October 2018, business restructuring costs of
GBP8.1m (H1 2018: GBP1.6m) related to the non-capital costs/asset
write offs and demolition element of the Tennessee capacity
expansion project.
Legal costs
In the year to 31 October 2018, legal costs of GBP12.8m (H1
2018: GBP1.5m) were in relation to ongoing investigations.
Change of Chief Executive
In the year to 31 October 2018, the costs associated with the
change of Chief Executive were GBP1.7m (H1 2018: GBPnil). As
disclosed in the directors' report contained in the Annual Report
and Accounts 2018, Michael Flowers stepped down as Group Chief
Executive on 30 June 2018 and Michael Ord was appointed as Group
Chief Executive on 1 July 2018.
Pension scheme charge in respect of GMP equalisation court
ruling
On 26 October 2018, the High Court handed down a judgement
involving the Lloyds Banking Group's defined benefit pension
schemes. The judgement concluded that pension schemes should be
amended to equalise pension benefits for men and women in relation
to guaranteed minimum pension benefits. We are working with our
actuarial advisers to understand the extent to which the judgement
crystallises any additional liabilities for the Group UK defined
benefit pension scheme. We are early in the evaluation process, but
we estimate that the additional liability could be in the region of
GBP0.4m and GBP1.2m, therefore we recognised GBP0.8m (H1 2018:
GBPnil) in our 2018 results.
Derivative financial instruments
Included in non-underlying items is a GBPnil (H1 2018: GBP0.1m
loss, 2018: GBP0.4m loss) on the movement in fair value of
derivative financial instruments. This is excluded from underlying
earnings to ensure the recognition of the gain or loss on the
derivative matches the timing of the underlying transaction.
Impairment of capitalised development costs
In the year to 31 October 2018, an impairment of capitalised
product development costs of GBP7.4m (H1 2018: GBPnil) was
recognised following the appointment of a new Chief Executive who
conducted a strategic review of the Group's product portfolio to
rationalise future resources on areas where the Group had a niche
position and competitive advantage. The carrying value of the
products for which an impairment charge was recognised exceeded the
expected future value, hence an impairment charge was recognised in
the year.
Amortisation of acquired intangibles
Also included is the amortisation charge arising from business
combinations of GBP5.6m (H1 2018: GBP5.7m, 2018: GBP11.6m).
Amortisation of acquired intangibles arising from business
combinations is associated with acquisition costs under IFRS 3
Business Combinations. As such, these costs are not reflective of
the underlying activities of the Group and therefore have been
excluded from the underlying measures.
Tax
In the period to 30 April 2019, the tax impact of continuing
non-underlying items comprises a GBP1.2m tax credit (H1 2018:
GBP1.3m credit, 2018: GBP4.3m credit) on the above non-underlying
items. In the year to 31 October 2018, the tax impact of
non-underlying items also comprised a GBP17.4m charge (H1 2018:
GBP17.4m charge) in respect of the enactment of the US Tax Cuts and
Jobs Act on 22 December 2017. These significant one-off tax
charges/credits have arisen from a change in legislation, and as
such have been removed from underlying results to aid comparability
and understanding of the Group's performance.
Discontinued operations
Further details on the results of discontinued operations is
presented in note 9.
4. SEASONALITY OF REVENUE
Revenue for both of the two 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
2019 2018 2018
GBPm GBPm GBPm
Underlying tax charge (2.0) (1.8) (5.7)
Tax impact of non-underlying items 1.2 (16.1) (13.1)
Total statutory tax charge (0.8) (17.9) (18.8)
----------- ----------- ------------
The continuing statutory tax charge totalled GBP0.8m (H1 2018:
GBP17.9m, 2018: GBP18.8m) on a continuing statutory profit before
tax of GBP4.3m (H1 2018: GBP1.1m loss, 2018: GBP22.0m loss).
The effective tax rate on underlying profit before tax for the
period is a charge of 20.2% (H1 2018: 21.7%, 2018: 22.9%). This is
lower than the estimated effective tax rate on underlying profit
before tax expected for the full year of 21.5% due to prior year
tax adjustments.
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 was recognised in 2018 hence the
significant charge to non-underlying in prior periods.
6. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in
issue, excluding own shares held, of 279,999,500 (H1 2018:
279,642,267, 2018: 279,768,360). Diluted earnings per share has
been calculated using a diluted average number of shares in issue,
excluding own shares held, of 284,800,433 (H1 2018: 285,755,048,
2018: 285,993,316).
No dilution has been recognised for the purposes of basic
earnings per share from continuing operations in April 2018 and 31
October 2018 due to there being a loss per share for the period to
30 April 2018 and 31 October 2018.
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
2019 2018
GBPm Basic EPS Diluted GBPm Basic EPS Diluted
(pence) EPS (pence) (pence) EPS (pence)
Underlying profit after
tax 7.9 2.8 2.7 6.5 2.3 2.3
Non-underlying items (4.4) (25.5)
------- --------- ------------ ------ --------- ------------
Profit/(loss) from continuing
operations 3.5 1.2 1.2 (19.0) (6.8) (6.8)
------- --------- ------------ ------ --------- ------------
Profit/(loss) from discontinued
operations (3.9) (1.3) (1.3) 4.2 1.5 1.5
------- --------- ------------ ------ --------- ------------
Total loss after tax (0.4) (0.1) (0.1) (14.8) (5.3) (5.3)
------- --------- ------------ ------ --------- ------------
Audited
year to
31 October
2018
GBPm Basic EPS Diluted
(pence) EPS (pence)
Underlying profit after tax 19.2 6.9 6.7
Non-underlying items (60.0)
------- --------- ------------
Loss from continuing operations (40.8) (14.6) (14.6)
------- --------- ------------
Loss from discontinued operations (65.0) (23.2) (23.2)
------- --------- ------------
Total loss after tax (105.8) (37.8) (37.8)
------- --------- ------------
7. DIVIDS
On 20 April 2018 a dividend of 2.0p per ordinary share was paid
to shareholders on the register on 6 April 2018 and an interim
dividend of 1.1p per ordinary share was paid on 14 September 2018
to shareholders on the register on 31 August 2018.
At the Annual General Meeting on 21 March 2019 the shareholders
approved a final dividend in respect of the year ended 31 October
2018 of 2.2p per ordinary share. This was paid on 18 April 2019 to
shareholders on the register on 5 April 2019.
The Board also declared an interim dividend in respect of 2019
of 1.2p per ordinary share which will be paid on 13 September 2019
to shareholders on the register on 30 August 2019. In accordance
with accounting standards this dividend has not been recorded as a
liability as at 30 April 2019.
8. FINANCIAL INSTRUMENTS
As at 30 April 2019, 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 2019, the total fair value of forward
foreign exchange contracts recognised in the condensed consolidated
balance sheet were an asset of GBP0.1m (H1 2018: GBP0.4m, 2018:
GBP0.1m), a current liability of GBP0.4m (H1 2018: GBP0.3m, 2018:
GBP0.3m), and a non-current liability of GBP0.2m (H1 2018: GBPnil,
2018: GBP0.2m).
9. DISCONTINUED OPERATIONS
A strategic review of the Group's Energetics portfolio was
conducted during the year ended 31 October 2018. The Board
concluded that the future focus within the Energetics segment
should be on the Energetics Devices businesses. It therefore made
the decision to exit the commodity Energetics businesses.
Unaudited Unaudited Audited
Half year Half year Year to
to to 31 Oct
30 April 30 April 2018
2019 2018
GBPm GBPm GBPm
Revenue 32.2 96.2 138.6
Underlying operating (loss)/profit from discontinued
operations (2.0) 6.5 8.0
Tax on underlying operating (loss)/profit
from discontinued operations 3.0 (1.5) (1.8)
----------- ----------- ---------
Profit after tax from underlying discontinued
operations 1.0 5.0 6.2
Profit after tax is analysed as:
Before exceptional items 1.0 5.0 6.2
------------------------------------------------------ ----------- ----------- ---------
Exceptional items (3.1) (1.1) (72.0)
Tax on exceptional items - 0.3 0.8
------------------------------------------------------ ----------- ----------- ---------
(3.1) (0.8) (71.2)
(Loss)/profit after tax from discontinued
operations (2.1) 4.2 (65.0)
Loss on disposal of the subsidiary after (1.8) - -
tax - exceptional item
----------- ----------- ---------
(Loss)/profit from discontinued operations (3.9) 4.2 (65.0)
----------- ----------- ---------
In the period to 30 April 2019 the exceptional items include an
impairment loss of GBP3.1m in respect of the carrying value of
Chemring Defence UK Limited.
In the year to 31 October 2018 the exceptional items include the
amortisation of acquired intangibles of GBP2.7m (H1 2018: GBP1.1m)
and an impairment loss of GBP69.3m (H1 2018: GBPnil) in respect of
the carrying values of Chemring Defence UK Limited, Chemring
Ordnance Inc., B.D.L. Systems Limited and Richmond Electronics and
Engineering Limited was recorded.
Amortisation of acquired intangibles arising from business
combinations is associated with acquisition costs under IFRS 3
Business Combinations. As such, these costs are not reflective of
the underlying activities of the discontinued operations and
therefore have been treated as exceptional items. Impairment losses
have been removed from underlying measures for improved
comparability between reporting periods. This is in line with the
Group's accounting policy.
The Group completed the sale of the entire issued share capital
of Chemring Military Products, Inc., to Global Ordnance LLC on 5
April 2019. Under the terms of the agreement, the Group received
GBP1.7m upon completion of the transaction on 5 April 2019.
Deferred consideration of GBP0.7m is payable on the first
anniversary of the transaction. A further deferred consideration
amount of GBP0.4m is payable on the second anniversary of the
transaction.
The Group is entitled to further contingent consideration
following the sale of up to GBP0.8m if certain performance related
and event driven milestones are achieved by Chemring Military
Products, Inc. No value has been assigned to this consideration
based on the probability assessment of the associated milestones
being reached.
Unaudited
Half year
to
30 April
2019
GBPm
Consideration received or receivable:
Cash 1.7
Fair value of deferred consideration 1.1
-----------
Total disposal consideration 2.8
Net assets and liabilities disposed of (3.6)
Disposal costs (1.0)
-----------
Loss on disposal before tax and reclassification
of foreign currency translation reserve (1.8)
Reclassification of foreign currency translation -
reserve
Income tax on loss -
-----------
Loss on disposal after tax (1.8)
-----------
The carrying amounts of assets and liabilities as at the date of
sale were:
5 April 2019
GBPm
Trade and other receivables 14.3
-------------
Total assets 14.3
-------------
Trade and other payables (10.7)
Total liabilities (10.7)
-------------
Net assets 3.6
-------------
10. RETIREMENT BENEFIT SURPLUS
The defined benefit surplus are calculated using an actuarial
valuation as at 30 April 2019. In the period to 30 April 2019,
retirement benefit surplus improved to a GBP7.8m surplus (H1 2018:
GBP3.5m, 2018: GBP7.5m), 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.
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 2018
30 April 30 April GBPm
2019 2018
GBPm GBPm
Operating profit/(loss) from continuing
operations 6.5 2.2 (15.9)
Amortisation of development costs 0.5 2.4 3.6
Amortisation of intangible assets arising
from business combinations 5.6 5.7 11.6
Amortisation of patents and licenses 0.1 0.1 0.1
Loss on disposal of non-current assets 0.6 - 0.2
Depreciation of property, plant and equipment 7.6 7.6 15.3
Non-cash movement of non-underlying items - 3.6 35.3
Loss on the fair value of derivative financial
instruments 0.1 0.1 -
Share-based payment expense 0.2 1.3 1.1
-------------------------------------------------- ----------- ----------- -------------
Operating cash flows before movements in
working capital 21.2 23.0 51.3
(Increase)/decrease in inventories (8.3) (1.6) 1.6
Decrease/(increase) in trade and other
receivables 2.6 (0.4) 0.2
Increase/(decrease) in trade and other
payables 6.4 (1.8) (8.3)
Decrease in provisions - (0.1) (0.1)
Operating cash flow from continuing underlying
operations 21.9 19.1 44.7
-------------------------------------------------- ----------- ----------- -------------
Discontinued operations
Operating cash flow from discontinued underlying
operations 9.4 2.3 12.2
Cash impact of non-underlying items from
discontinued operations (0.2) - (0.1)
-------------------------------------------------- ----------- ----------- -------------
Net cash inflow from discontinued operating
activities 9.2 2.3 12.1
-------------------------------------------------- ----------- ----------- -------------
Net cash inflow/(outflow) from discontinued
investing activities 0.6 (0.9) (1.2)
-------------------------------------------------- ----------- ----------- -------------
Net cash inflow from discontinued operations 9.8 1.4 10.9
-------------------------------------------------- ----------- ----------- -------------
13. ANALYSIS OF NET DEBT
As at
1 Nov Cash Non-cash Exchange As at 30
2018 flows changes rate effects April 2019
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents 9.6 (2.9) - (0.3) 6.4
Debt due within one year - - (65.4) 1.3 (64.1)
Debt due after one year (91.3) (0.2) 65.4 (0.1) (26.2)
Preference shares (0.1) - - - (0.1)
------- ------- --------- -------------- ------------
(81.8) (3.1) - 0.9 (84.0)
------- ------- --------- -------------- ------------
The Group increased its existing revolving credit facility to
GBP136.7m during the period. The revolving credit facility was
first established in October 2018 and has a four-year initial term
with options to extend by a further two years.
The Group had GBP117.3m (H1 2018: GBP67.6m, 2018: GBP68.1m) 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 2019 H1 2019 H1 2018 H1 2018 2018 2018
----------- --------- --------- --------- --------- -------- --------
AU Dollar 1.80 1.85 1.78 1.82 1.74 1.80
US Dollar 1.30 1.30 1.39 1.38 1.34 1.28
----------- --------- --------- --------- --------- -------- --------
The translation of foreign currency items in the financial
statements are dependent on the prevailing foreign exchange rates.
For the period ended 30 April 2019, a 10 cent increase in the US
dollar exchange rate would have decreased reported underlying
operating profit for the first half of 2019 by approximately
GBP0.6m and decreased reported net debt at 30 April 2019 by
approximately GBP4.2m.
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 at least two
years to issue its decision in relation to this matter, and
therefore it is too early to predict the outcome of the hearing.
The range of possible outcomes is between GBPnil to GBP12.0m. A
provision of GBP1.1m (H1 2018: GBP1.0m, 2018: GBP1.0m) exists to
cover estimated legal costs for the Group with regards to this
issue.
Since 2013, the Group has benefited from the UK's Controlled
Foreign Company ("CFC") Finance Company exemption. 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. On 2 April 2019 the European Commission delivered a
judgement which concluded in some circumstances the UK's CFC
exemption may breach state aid rules. The UK Government is working
to understand the circumstances where it is required to seek
repayment of the lost tax from the relevant taxpayers. Given the
early stage of this process, it is too early to determine whether a
tax liability is probable. The range of possible outcomes is
between GBPnil and GBP15m, plus interest.
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, in which the Group
continues to co-operate fully.
On 10 August 2018 an incident occurred at the Group's
Countermeasures facility in Salisbury. The Group responded
immediately to support those who were injured, and maintains
appropriate employee liability insurance that we expect will
provide full compensation in due course. We continue to fully
support the Health and Safety Executive ("HSE") as it undertakes
its investigation. Whilst provisions have been recorded for costs
that have been identified, it is possible that additional uninsured
costs and, depending on the outcome of the HSE investigation,
financial penalties may be incurred. At this stage, these costs are
not anticipated to be material in the context of the Group's
financial statements.
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
2018 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 34 to 41 of the 2018 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;
-- manufacturing risks;
-- technology risks;
-- Brexit;
-- people risks;
-- product liability and other customer claims;
-- compliance and corruption risks;
-- product-related 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 2019 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 2019 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.
The impact of uncertainties due to the UK exiting the European
Union on our review
Uncertainties related to the effects of Brexit are relevant to
understanding our review of the condensed consolidated financial
statements. Brexit is one of the most significant economic events
for the UK, and at the date of this report its effects are subject
to unprecedented levels of uncertainty of outcomes, with the full
range of possible effects unknown. An interim review cannot be
expected to predict the unknowable factors or all possible future
implications for a company and this is particularly the case in
relation to Brexit.
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
5 June 2019
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 SSWFMLFUSEDM
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June 05, 2019 02:00 ET (06:00 GMT)
Chemring (LSE:CHG)
과거 데이터 주식 차트
부터 6월(6) 2024 으로 7월(7) 2024
Chemring (LSE:CHG)
과거 데이터 주식 차트
부터 7월(7) 2023 으로 7월(7) 2024