TIDMCHG
RNS Number : 7388O
Chemring Group PLC
03 June 2020
3 JUNE 2020
CHEMRING GROUP PLC
("Chemring" or "the Group" or "the Company")
INTERIM RESULTS FOR THE SIX MONTHS TO 30 APRIL 2020
As reported At H1 2019
exchange rates
H1 2020 Change H1 2020 Change H1 2019
Continuing operations
Revenue (GBPm) 191.0 +37% 191.7 +38% 139.3
Underlying EBITDA(*) (GBPm)(**) 35.2 +73% 35.0 +72% 20.3
Underlying operating profit(*)
(GBPm) 25.6 +112% 25.4 +110% 12.1
Underlying profit before tax(*)
(GBPm) 24.2 +144% 24.0 +142% 9.9
Underlying earnings per share(*)
(pence) 7.1 +154% 7.0 +150% 2.8
Statutory operating profit (GBPm) 20.4 +214% 6.5
Interim dividend per share (pence) 1.3 +8% 1.2
Net debt at 30 April (GBPm)(**) 60.6 -28% 58.6 -30% 84.0
Highlights
* H1 performance was ahead of our expectations
reflecting strong performance in both segments and
some positive timing differences.
* All our businesses have remained open despite the
challenges caused by COVID-19.
* Safety remains a core value and together with
enhancing operational resilience and efficiency is
driving investment in the Group's manufacturing
infrastructure.
* Continued progress on the US Programs of Record.
Further orders received in the period for the next
phase of HMDS delivery, valued at $32m, with the HMDS
IDIQ increased by a further $200m post period end
with an initial delivery order placed for $21m. In
May, we were pleased that the customer approved and
awarded the contract modification for Low Rate
Initial Production for the EMBD program.
* Strong growth in orders and revenue for Roke
including strategically important first Electronic
Warfare order for Resolve into the US DoD.
* Good progress made on securing new business in the UK,
US and Australia for the supply of global
countermeasures, including Chemring Australia
receiving a definitised contract of $107m in support
of the F-35.
* Sale of Chemring Ordnance, Inc., completed on 7 May
2020, concluding our strategic exit from commoditised
energetics.
* Significant reduction in net debt with strong
operational cash generation partially offset by
scheduled capital expenditure and the adoption of
IFRS16.
* Group's liquidity improved as a result of obtaining
an additional short term facility for GBP100m, of
which GBP50m has been drawn. Interest costs reduced
with repayment of $83.6m of 5.68% private placement
loan notes using the existing revolving credit
facility.
* Board's full year expectations are unchanged, despite
the challenging environment. Approximately 95% of
expected H2 revenue is in the order book or has been
delivered to date.
Michael Ord, Chemring Group Chief Executive, commented:
"As a global team we are working to build a stronger and higher
quality business, and the resilience the Group has demonstrated
during the coronavirus pandemic shows we are making solid progress.
Despite the changing and challenging environment in which we are
currently working, we have delivered a strong performance in the
first half of the year.
Our sites have remained open and we have made every effort to
sustain operations in support of our customers and their essential
defence and security missions.
Safety is our core value, with the health, safety and well-being
of our colleagues, their families, our customers and the
communities in which we operate being our priority throughout. The
response of our people has been outstanding. They have risen to and
exceeded the challenge, adapting working environments and practices
to minimise the spread of the virus. I would like to thank all of
my colleagues across the Group for their commitment, innovation and
hard work.
Noting the challenges presented by the coronavirus pandemic,
some positive timing differences which benefited the first half,
and with approximately 95% of expected H2 revenue already in the
order book or delivered to date, the Board's expectations for the
full 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 H1 2020 net debt balance reflects the initial recognition
of a GBP6.5m finance lease liability and GBP0.9m of the increase in
underlying EBITDA is as a result of applying IFRS 16 Leases
(effective 1 November 2019). The H1 2019 net debt balance and
underlying EBITDA have not been restated, in line with the modified
retrospective approach taken.
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.
EBITDA is defined as operating profit before interest, tax,
depreciation and amortisation. Reference to constant currency
relates to the re-translation of HY20 financial information at the
HY19 exchange rates to reflect the movement excluding the impact of
foreign exchange. The exchange rates applied are disclosed in note
14.
A reconciliation of underlying measures to statutory measures is
provided below:
Group - continuing operations: Underlying Non-underlying Statutory
EBITDA (GBPm) 35.2 - 35.2
----------- --------------- ----------
Operating profit (GBPm) 25.6 (5.2) 20.4
----------- --------------- ----------
Profit before taxation (GBPm) 24.2 (5.2) 19.0
----------- --------------- ----------
Tax charge (GBPm) (4.3) 1.6 (2.7)
----------- --------------- ----------
Profit after tax (GBPm) 19.9 (3.6) 16.3
----------- --------------- ----------
Basic earnings per share (pence) 7.1 (1.3) 5.8
----------- --------------- ----------
Diluted earnings per share (pence) 6.9 (1.2) 5.7
----------- --------------- ----------
Group - discontinued operations:
----------- --------------- ----------
Loss after tax (GBPm) (0.1) (0.1) (0.2)
----------- --------------- ----------
Segments - continuing operations:
----------- --------------- ----------
Sensors & Information EBITDA (GBPm) 15.1 - 15.1
----------- --------------- ----------
Sensors & Information operating
profit (GBPm) 13.3 (3.2) 10.1
----------- --------------- ----------
Countermeasures & Energetics EBITDA
(GBPm) 25.4 - 25.4
----------- --------------- ----------
Countermeasures & Energetics operating
profit (GBPm) 17.6 (1.2) 16.4
----------- --------------- ----------
The adjustments to continuing operations comprise:
-- amortisation of acquired intangibles of GBP4.4m (H1 2019: GBP5.6m,
2019: GBP12.1m)
-- loss on the movement in the fair value of derivative financial
instruments of GBP0.8m (H1 2019: GBPnil, 2019: GBP0.6m loss)
-- tax impact of adjustments of GBP1.6m credit (H1 2019: GBP1.2m
credit, 2019: GBP4.3m credit)
Further details are provided in note 3.
The discontinued operations loss after tax comprises:
-- operating loss of GBP0.1m (H1 2019: GBP2.0m loss, 2019: GBP3.5m
loss )
-- exceptional items of GBP0.1m loss (H1 2019: GBP3.1m loss, 2019:
GBP1.0m loss )
-- loss on disposal of a subsidiary of GBPnil (H1 2019: GBP1.8m
loss, 2019: GBP2.8m loss )
-- tax credit on the above of GBPnil (H1 2019: GBP3.0m credit,
2019: GBP6.1m credit)
Further details are provided in note 9.
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
Oliver Hughes
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 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
A video presentation and accompanying slides will be available
at the Chemring Group results centre
www.chemring.co.uk/investors/results-centre at 07.00 (UK time) on
Wednesday 3 June 2020.
Photography
Original high resolution photography is available to the media
by contacting Catherine Chapman, MHP Communications:
catherine.chapman@mhpc.com / tel: +44 (0) 20 3128 8100.
INTERIM MANAGEMENT REPORT
COVID-19 UPDATE
The result of our focus on "Building a Stronger Business" over
the past 18 months has been demonstrated by the resilience the
Group has shown during the last three months as the COVID-19
("CV-19") pandemic developed across the globe.
People
Our priority is the health, safety and well-being of our people,
their families, our customers and the communities in which we
operate. We continue to focus on risk mitigation and business
continuity, and are implementing the latest government and health
authority recommendations in each of our home markets.
Our people have risen to the challenge, adapting their working
practices to minimise the spread of the virus, whilst continuing to
focus on the critical needs of our customers.
Operations
In the US, the UK and Norway, Chemring's operations have been
designated as critical to the defence and national security
industrial base, and in Australia the risk of business interruption
is considered to be low. All our businesses remain open, with
business continuity plans mobilised at every location. We continue
to make every effort to maintain delivery of essential services and
manufacturing production in support of our customers.
Customers
We are proud of the essential contribution that Chemring makes
to the ongoing defence and national security missions of our
customers and we are committed to supporting them throughout this
crisis and beyond.
The Group has a strong order book with order cover for the
remainder of the 2020 financial year of 95%. In the first half of
2020, order intake was GBP250m which was 1% up on the same period
last year leaving the Group with an order book of GBP504m.
Our manufacturing businesses continue to work closely with their
customer representatives to deliver timely testing and acceptance
of products. To date we have worked through some CV-19 related
disruptions where customer representatives have not been able to
complete product acceptance procedures on a timely basis and going
forward this presents a risk of some short-term revenue deferrals.
Our wide geographic and customer base provides some mitigation to
this potential short-term risk.
Liquidity
In addition to cash in hand of GBP104m, the Group has total
available undrawn facilities of GBP84m providing GBP188m of
immediately available liquidity. Period end net debt of GBP60.6m,
which represents a rolling 12 month Net debt: EBITDA ratio of 0.8x,
leaves the Group's balance sheet robust and supports its ongoing
development.
Forward guidance
The duration and impact of CV-19 across our home markets is at
this stage unknown, and we are clearly working in a changing and
more challenging environment. We will continue to work closely with
our customers, suppliers and other stakeholders, and will provide
further updates as appropriate.
In the longer term, Chemring is well placed, with a robust
strategy, market-leading positions across different geographies and
sectors, and with products and services that are critical to our
government and blue-chip customers. This, together with the Group's
strong balance sheet, gives the Board confidence that despite the
near-term uncertainty, Chemring's long-term prospects remain
strong.
Group overview
The Group has recorded a good first half performance and the
Board's expectations for the full year remain unchanged. The
Group's revenue was up 37% to GBP191.0m (H1 2019: GBP139.3m, 2019:
GBP335.2m) and underlying operating profit was up 112% to GBP25.6m
(H1 2019: GBP12.1m, 2019: GBP44.0m). Underlying earnings per share
was up 154% to 7.1p (H1 2019: 2.8p, 2019: 11.2p).
In the Sensors & Information segment, there has been
continued progress on the US Programs of Record with further
delivery orders received for the next phase of the Husky Mounted
Detection System ("HMDS") IDIQ, valued at $32m. Post period end a
contract modification was received which increased the existing
IDIQ by a further $200m with an initial delivery order placed for
$21m. Also in May, we were pleased that the customer approved and
awarded the contract modification for Low Rate Initial Production
("LRIP") for the EMBD program . In addition, Roke has recorded
double digit growth in revenues and operating profit, and received
a strategically important first Electronic Warfare ("EW") order for
Resolve into the US.
In Countermeasures & Energetics, order intake, albeit down
slightly by 4% as a result of our Norwegian business securing
multi-year orders in the prior year, was still strong at GBP163m.
This was driven by high levels of activity in the important US
market and our Australian subsidiary's undefinitised contract of
$60m has now been definitised at a value of $107m on the F-35
programme. In addition, Chemring Countermeasures USA was awarded
contracts totalling $77m to supply expendable countermeasures to
the US Air Force and US Navy. The significant capital investment
programmes are progressing as planned.
On 7 May 2020, Chemring announced that we had completed the
disposal of our US subsidiary Chemring Ordnance, Inc. ("COR") for
$17m in cash. This concludes our programme of disposals which has
reduced the Group's exposure to a significant amount of operational
and reputational risk, and enables greater focus on the niche
specialist energetic devices and materials businesses.
Net debt was GBP60.6m at the end of the period (H1 2019:
GBP84.0m, 2019: GBP75.7m). The current debt level reflects the
recognition of a GBP6.5m finance lease liability as a result of
applying IFRS 16 Leases (effective 1 November 2019), and the
previously announced high level of capital expenditure in 2020
which has been funded by continued strong operational cash
generation. Underlying operating cash inflow of GBP56.2m (H1 2019:
GBP21.9m, 2019: GBP63.9m) represented 160% (H1 2019: 108%, 2019:
104%) of EBITDA.
On 19 November 2019, the final tranche of 5.68% Private
Placement Loan Notes of $83.6m was repaid. This was funded from the
Group's GBP145m multi-currency Revolving Credit Bank facility. In
response to the emerging CV-19 pandemic and the risk of business
disruption, in April 2020 the Group obtained an additional
short-term GBP100m facility of which GBP50m has been drawn, to
further strengthen the Group's liquidity position.
The Group's continuing order book at 30 April 2020 was GBP504m
(H1 2019: GBP494m, 2019: GBP449m), of which approximately GBP179m
is scheduled for delivery during H2 2020. This represents cover of
approximately 95% of expected H2 revenue. The increase since 31
October 2019 is primarily attributable to the countermeasures
orders received by our US and Australian subsidiaries and HMDS IDIQ
orders.
Markets
Global defence spending remains focused on the shift from
asymmetric operations to near-peer threats, with customers
continuing to drive requirements across Chemring's
capabilities.
The impact of the CV-19 pandemic has yet to be fully evaluated.
While we expect the defence market to be relatively resilient, we
anticipate a slow-down in global defence budget growth, and the
potential for short-term reductions in acquisition budgets. We
continue to target those areas of the market that should show
resilience and where we have niche market positions, sustainable
competitive advantage and strong customer relationships.
In the Sensors & Information sector, our current strong
positions in Explosive Hazard Detection and Chemical and Biological
Detection is expected to be enhanced by market share growth in EW
and cyber security. Chemring is a key provider of capability to our
clients in defence and national security, and with a growing
concern about many national and international threats, our
customers are continuing to increase demand for our services. As
CV-19 changes how our customers protect and secure borders, monitor
threats and work to re-open global air travel, we see growing
interest in civil applications for some of our products and
services including our chemical and biological agent detection
portfolio that may convert to revenue opportunities over the medium
term.
The US remains the largest market for the Sensors &
Information sector, and will continue to follow traditional
acquisition paths in pursuit of agility as they look to outpace
threats, particularly in the intelligence and surveillance domains.
The FY21 President's Budget Request projects the US Department of
Defense's ("US DoD") five-year program to reach $747bn in FY24.
This provides growth to sustain personnel increases in all four
services, major equipment programmes such as the F-35, investments
in technology innovation in electronic warfare, the increased use
of unmanned systems and cyber capabilities, as well as renewed
emphasis on space-based surveillance systems.
Changes in focus are driven by new defence strategies that
prioritise near-peer competition and look to enhance the
technological effectiveness of systems through the convergence of
EW, Signals Intelligence ("SIGINT") and Cyber across domains, as
well as the development of new capabilities across the
electromagnetic spectrum. This more agile approach to procurement
and the need to keep pace with rapidly evolving and complex threats
aligns well with our Sensors & Information strategy.
The Countermeasures & Energetics sector remains robust.
Chemring continues to maintain its market leading position in the
addressable air countermeasures market; growth in the sector over
the next five years is primarily being driven by increased 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 order book.
In Energetics our focus remains on the high value niche areas of
the market where market conditions continue to strengthen. Demand
for our range of energetic devices, propellant and explosive
products continues to grow year on year. Increasingly customers are
signing long-term contracts in order to secure supply and this
improved visibility is enabling greater focus on our investment
into manufacturing capacity, efficiency and product R&D.
Health, safety and environment
CV-19 is an unprecedented global challenge that Chemring has
responded to in a controlled and rapid manner. In March 2020
Chemring commenced its response and began to introduce a number of
controls, with its Crisis Management Team being formally activated.
The controls included restriction on travel and visitors, enhanced
cleaning regimes, personal hygiene campaigns, action on presumptive
cases of CV-19 exposure, decontamination protocols, alternative
working arrangements and social distancing.
To date there have been four employees across the Group that
have tested positive for CV-19 which arose from non-work related
exposures. In all cases precautionary measures were taken to
prevent the risk of further exposure. Chemring continues to work to
Government guidelines and is adapting its controls in light of new
scientific and medical knowledge.
In the second half of the period, the implementation of the
three year strategic plan for this year has been adapted in light
of CV-19 restrictions. Our safety performance in terms of
recordable injury rates (Total Recordable Injury Frequency Rates)
is at 1.13 versus 1.32 for the same period last year. This is based
on Occupational Safety and Health Administration reporting, and
represents 27 versus 32 recordable injuries respectively. These
incidents have predominantly related to muscular injuries, slips,
trips and falls, the causes of which are currently being
addressed.
Whilst CV-19 has restricted the implementation of some of this
year's activities, work continues on the focus area of asset
integrity and process safety. All businesses in Countermeasures
& Energetics have undergone an external review in relation to
maintenance and more broadly, asset integrity. Assessments have
been completed and our businesses are developing roadmaps to
improve safety and reliability of assets that underpin strong
performance in the area of process safety. In addition two
sub-committees have been formed with experts from across the Group
focusing on process safety and environmental sustainability. The
remit of these committees is to ensure that best practices are
shared across the Group and to develop ongoing guidance and
standards. The Environmental Sustainability sub-committee is
working on the development of Chemring's long-term strategy to
reduce our carbon footprint as part of our commitment to reducing
climate change.
Financial performance and position
CV-19 financial management response
As the risk of CV-19 emerged in mid-March 2020, the Group
focused on three key financial areas:-
-- Ensuring available liquidity was maximised
-- Optimising commercial terms to positively impact cash flow
-- Carefully managing discretionary spend and capex
Liquidity
At the outset of the CV-19 pandemic, given the potential for
adverse trading conditions, the management team believed it was
important to increase available liquidity to ensure the Group had
access to sufficient funds
should there be a change in trading circumstances.
The Group drew a further GBP50m of its GBP145m RCF in March 2020
and secured an additional short-term facility of GBP100m, of which
GBP50m was drawn in April 2020.
This left the Group with GBP104m of cash in hand at the end of
the period, with a further GBP84m of facility available to draw if
required, providing the necessary immediately available liquidity
to respond flexibly to any reasonably foreseeable change in
circumstances.
Operating cash and net debt
Early engagement with our customers ensured cash was received on
time and in some cases early. This has resulted in approximately
GBP15m of receivables being pulled into the first half, which were
expected in the second half.
Governments in our jurisdictions have introduced revised payment
schedules for sales and payroll taxes and this has resulted in
approximately GBP3m of payments being deferred into the second
half.
Revenue and operating profit
We identified the risk of customer testing and acceptance of
goods as having the potential to adversely impact the timing of
revenue recognition. This did not materialise at the half year, in
fact in some cases we were able to accelerate delivery dates with
customers, including part-shipments, which contributed to the
strong revenue performance in the first half.
We have also reviewed the level of discretionary spend,
particularly in the area of travel, subsistence and marketing.
Given the timing, this has only had a marginal positive impact on
the half year.
All of these areas will be kept under review as the current
CV-19 situation evolves. The Group recognises that some of what
occurred in the half year represented timing differences that will
reverse in the second half.
Group financial performance
Order intake for continuing operations for H1 2020 was up 1% to
GBP250m (H1 2019: GBP248m, 2019: GBP411m), driven by the release of
further delivery orders on the HMDS IDIQ contract as well as orders
awarded to the Australian and US countermeasures businesses.
As expected, revenue from continuing operations for the period
was up 37% to GBP191.0m (H1 2019: GBP139.3m, 2019: GBP335.2m), as
the countermeasures facilities in Salisbury and Australia were
operational, as well as strong performance in the Sensors &
Information segment. While the CV-19 situation does present a risk
to short-term deliveries due to customer testing and acceptance
procedures, there was no evidence of this at 30 April 2020.
The underlying operating profit from continuing operations of
GBP25.6m (H1 2019: GBP12.1m, 2019 GBP44.0m) resulted in an
underlying operating margin of 13.4% (H1 2019: 8.7%, 2019: 13.1%).
The improved margin compared to H1 2019 primarily reflects the
improving operational execution in the Countermeasures &
Energetics segment.
Insurance recoveries of GBP5.2m (H1 2019: GBP13.0m, 2019:
GBP15.0m) are included within the result for the period in relation
to the incident in 2018 at the UK Countermeasures site. This
largely offset the additional costs of the phased restart, which
included some production inefficiencies as the site increased
volumes.
Foreign exchange translation has provided a minor tailwind to
operating 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 2019 with the average rate moving from $1.30
to $1.28. On a constant currency basis, restating the current
period at the H1 2019 average rate, revenue would have risen 38% to
GBP191.7m and underlying operating profit would have risen 110% to
GBP25.4m.
Total finance expense was lower at GBP1.4m (H1 2019: GBP2.2m,
2019: GBP4.6m). This was driven by the repayment of the final
tranche of 5.68% Private Placement Loan Notes early in the period
and the continued focus on the efficient management of working
capital.
Underlying profit before tax from continuing operations was
GBP24.2m (H1 2019: GBP9.9m, 2019: GBP39.4m). The effective tax rate
on the underlying profit before tax from continuing operations was
17.8% (H1 2019: 20.2%, 2019: 20.1%). The underlying earnings per
share from continuing operations was 7.1p (H1 2019: 2.8p, 2019:
11.2p).
Statutory operating profit from continuing operations was
GBP20.4m (H1 2019: GBP6.5m, 2019: GBP31.3m) and after statutory
finance expenses of GBP1.4m (H1 2019 GBP2.2m, 2019: GBP4.6m),
statutory profit before tax was GBP19.0m (H1 2019: GBP4.3m, 2019:
GBP26.7m) giving a statutory earnings per share from continuing
operations of 5.8p (H1 2019: 1.3p, 2019: 8.2p). The statutory loss
from discontinued operations was GBP0.2m (H1 2019: GBP3.9m, 2019:
GBP1.2m) giving a statutory profit of GBP16.1m (H1 2019: GBP0.4m
loss, 2019: GBP21.9m profit) 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 2020
related to the amortisation of acquired intangibles and the tax
credit associated with this as well as a loss on the movement in
the fair value of derivative financial instruments.
Revenue from discontinued operations fell to GBP8.5m (H1 2019:
GBP32.2m, 2019: GBP43.4m) and underlying operating loss fell to
GBP0.1m (H1 2019: GBP2.0m, 2019: GBP3.5m) primarily as a result of
the disposal of our commodity energetics businesses during
2019.
Segmental review - Sensors & Information
Performance
Order intake in the period of GBP87m (H1 2019: GBP79m, 2019:
GBP134m) 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 25% to
GBP67.3m (H1 2019: GBP53.8m, 2019: GBP131.9m) and underlying
operating profit increased to GBP13.3m (H1 2019: GBP10.0m, 2019:
GBP26.3m), as underlying operating margin improved to 19.8% (H1
2019: 18.6%, 2019: 19.9%). The Sensors business in the US has
continued with 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.
In the UK, the markets for electronic warfare, cyber-security
and data science capabilities, in which Roke is a leading
participant, have remained buoyant in the period. Roke delivered
double digit growth in revenue and underlying operating profit and
has maintained strong margins despite increased investment in
people, infrastructure and product development. In addition, Roke
secured a strategically important first EW order for Resolve into
the US DoD.
On a constant currency basis revenue would have risen 24% to
GBP66.9m and underlying operating profit would have been up 32% to
GBP13.2m.
Key developments in the period on the major US Programs of
Record are summarised below.
The US DoD's Explosive Hazard Detection HMDS program, which
encompasses concurrent development, trialling, and manufacturing,
continues to progress as expected. Under the previously awarded
IDIQ sole-source contract vehicles, further delivery orders of $32m
were received in the period, providing visibility on this Program
of Record well into FY21. The production phase is progressing as
planned and customer deliveries were made on schedule in the first
half of the year. Post period end a contract modification was
received which increased the existing IDIQ by a further $200m with
an initial delivery order placed for $21m.
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. The new fleet will
comprise both refurbished and new HMDS and this activity will run
alongside technology upgrade programs.
On the Joint Biological Tactical Detection System ("JBTDS")
program, following the Biological Point System Assessment in
FY19/20, we are making some customer requested technical changes
and enhancements and now expect a customer procurement decision in
FY22.
The second biological program is the Enhanced Maritime
Biological Detection System ("EMBD"), where the customer is the US
Navy. In May, we were pleased that the customer approved and
awarded the contract modification for LRIP for the EMBD program.
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 program ("AVCAD")
is progressing through the EMD phase as expected. The EMD and LRIP
phases are expected to be worth approximately $18m in the period to
2022. Following this, the customer is expected to have a
requirement of up to $800m. Chemring is currently one of two
contractors selected for this competitive program. In October 2019,
following a successful critical design review, we received an order
for a further 75 units under the EMD phase of the program which we
expect to deliver during 2020. The next customer procurement
decision point is expected to be at the conclusion of the EMD phase
in 2021.
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, HMDS program deliveries are on schedule with good
medium-term visibility and the focus continues to be ensuring the
Virginia and North Carolina facilities are mobilised and resourced
to maximise Chemring's opportunity on chemical and biological
Programs of Record.
The UK National Security and Defence markets continue to grow
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.
We have started to focus on how we monetise our knowhow and
intellectual property in the commercial market with initial
successes in the transport and medical markets, although the recent
impact of CV-19 is likely to put commercial customers' budgets
under pressure in some areas, which may result in some short-term
challenges in this small but growing niche.
Following a strategic focus and collaboration between Roke and
our US Sensors business, Roke has secured its first order in the
potentially significant US electronic warfare market. We will
support the customer through product trials and evaluation with a
view to securing further orders to meet their operational
deployment requirements. Establishing a foothold in the electronic
warfare market in the US was a key strategic objective for the
Sensors & Information sector in FY20.
The order book for Sensors & Information at 30 April 2020
increased since the year end to GBP97m (H1 2019: GBP99m, 2019:
GBP80m). While the Roke business remains a short-cycle order book
business, the segment has orders of approximately GBP57m for
delivery in the second half of the year, representing 89% coverage
of expected H2 revenue.
Segmental review - Countermeasures & Energetics
Performance
Order intake in the period of GBP163m (H1 2019: GBP169m, 2019:
GBP277m) has continued to be strong, particularly in the
significant US market. Chemring Countermeasures USA was awarded
contracts totalling $77m to supply expendable countermeasures to
the US Air Force and US Navy. Deliveries under these contracts will
be made in FY20 and FY21.
As expected, revenue increased by 45% to GBP123.7m (H1 2019:
GBP85.5m, 2019: GBP203.3m) as the Australian and Salisbury
facilities were operational after the F-35 fit-out and phased
restart in 2019. The segment reported an underlying operating
profit of GBP17.6m (H1 2019: GBP7.1m, 2019: GBP27.5m) as underlying
operating margin improved to 14.2% (H1 2019: 8.3%, 2019: 13.5%)
driven by improved operational execution. On a constant currency
basis revenue would have increased by 46% to GBP124.8m and
operating profit would have been up 146% to GBP17.5m.
Insurance recoveries of GBP5.2m (H1 2019: GBP13.0m, 2019:
GBP15.0m) are included within the result for the period in relation
to the incident in 2018 at the UK Countermeasures site. This
largely offset the additional costs of the phased restart, which
included some production inefficiencies as the site increased
volumes.
The Tennessee capacity expansion programme, designed to address
the expected F-35 demand from the US Government, continues to
progress on schedule. During the period GBP11m was spent on the
facility, bringing the total spend to date to GBP25m. The expected
total cost of the programme is approximately GBP50m with the first
incremental revenues from this facility expected in FY22.
Our Australian facility, which was closed for the majority of
FY19 to be refitted and qualified for F-35 production, is now fully
operational and deliveries of F-35 countermeasures have commenced.
Its undefinitised contract with the US DoD of $60m, announced in
May 2019, has now been definitised at a value of $107m on the F-35
programme.
Our niche energetics devices businesses enjoyed another strong
period driven by favourable market conditions and improving
operational execution.
Chemring Countermeasures UK and Chemring Energetics UK both
signed long-term framework contract agreements with the UK MOD
covering the next five years, with a further two year option.
Initial delivery orders under these frameworks are expected later
this year.
Opportunities and outlook
The 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 2020
was GBP407m (H1 2019: GBP395m, 2019: GBP369m). The increase is a
result of strong order intake in the US and Australia on the F-35
programme. Of the 30 April 2020 order book, approximately GBP122m
is currently expected to be delivered in the second half of 2020,
representing 98% coverage of expected H2 revenue.
Discontinued operations
Revenue for the discontinued commodity Energetics business
decreased by 74% to GBP8.5m (H1 2019: GBP32.2m, 2019: GBP43.4m),
generating an underlying operating loss of GBP0.1m (H1 2019:
GBP2.0m, 2019: GBP3.5m).
As announced, on 7 May 2020, Chemring sold its US subsidiary
Chemring Ordnance, Inc. ("COR") after the period end, completing
the Group's exit from its commoditised energetics businesses.
Net debt and cash flow
Net debt at 30 April 2020 was GBP60.6m (H1 2019: GBP84.0m, 2019:
GBP75.7m). The net debt level reflects the initial recognition of a
GBP6.5m finance lease liability as a result of applying IFRS 16
Leases (effective 1 November 2019). The strengthening of the US
Dollar from $1.29 as at 31 October 2019 to $1.26 as at 30 April
2020 has resulted in an increase in reported net debt of
GBP2.3m.
Underlying continuing operating activities generated cash of
GBP56.2m (H1 2019: GBP21.9m, 2019: GBP63.9m), reflecting the
short-term actions taken in light of the CV-19 pandemic to
strengthen the Group's liquidity position, customer receipts being
pulled into the first half and the continued focus on the efficient
management of working capital. It is not known at this stage at
what point these timing differences will reverse. Continuing cash
conversion was 160% (H1 2019: 108%, 2019: 104%) of continuing
underlying EBITDA, showing the continued focus on working capital
improvements, in addition to the CV-19 actions, is delivering
positive results.
Working capital
Working capital relating to the continuing businesses was
GBP70.6m (H1 2019: GBP80.5m, 2019: GBP90.5m), a decrease of
GBP19.9m since year end. The reduction compared to prior periods is
mainly as a result of the timing differences created by the
management actions taken in response to CV-19.
Debt facilities
On 19 November 2019, the final tranche of the 5.68% Private
Placement Loan Notes of $83.6m was repaid. This was funded from the
Group's GBP145m multi-currency Revolving Credit Bank facility. The
revolving credit facility is with a syndicate of five banks and
runs to October 2022, with an option to extend by two years.
In April 2020, the Group obtained a facility of GBP100m from the
Bank of England's COVID Corporate Financing Facility to further
strengthen the Group's financial position. Of this GBP50m was
drawn.
The Group had GBP83.6m (H1 2019: GBP117.3m, 2019: GBP130.2m) of
undrawn borrowing facilities at the half year. These undrawn
facilities, together with the cash in hand of GBP104.2m, provide
the Group with GBP187.8m of immediately available liquidity.
Retirement benefit obligations
The surplus on the Group's defined benefit pension scheme was
GBP4.8m (H1 2019: GBP7.8m, 2019: GBP9.6m), 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 2020,
using the projected unit credit method. This valuation showed a
surplus of GBP4.8m (H1 2019: GBP7.8m, 2019: GBP9.6m). The fall in
the surplus has been driven by market movements in the second half
of the period following the CV-19 impact on equity and bond
markets. The resilience of the Scheme's investment strategy has
limited this impact.
The 6 April 2018 triennial valuation showed a technical
provisions deficit of GBP5.8m, which represented a funding level of
94% of liabilities. Subsequently, GBP6.25m has been paid and no
further deficit payments are required. 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 4 March 2020 the shareholders
approved a final dividend in respect of the year ended 31 October
2019 of 2.4p per ordinary share. This was paid on 24 April 2020 to
shareholders on the register on 3 April 2020.
The Board has declared an interim dividend in respect of the
2020 financial year of 1.3p per ordinary share which will be paid
on 11 September 2020 to shareholders on the register on 21 August
2020. In accordance with accounting standards this dividend has not
been recorded as a liability as at 30 April 2020. The Board will
continue to keep dividends under review during the current Covid-19
situation. The Board's intention remains to pay a sustainable
dividend.
Board of Directors
On 16 December 2019 the Group announced that Nigel Young had
indicated his intention to retire from his role as a non-executive
director when his current appointment came to an end. Nigel
formally stood down from the Board on 30 April 2020. Nigel served
as a non-executive director since 1 May 2013 following his
appointment as Interim Chief Financial Officer in August 2012 and
was the Senior Independent Director from March 2016. During his
tenure the Group has been through a period of significant
transformation and the Group is grateful for his guidance and
commitment to Chemring. Nigel's role as Senior Independent Director
was assumed by Andrew Davies on 1 May 2020.
Separately the Group has announced today the appointment of
Fiona MacAulay as a non-executive director. Fiona is currently a
non-executive director and Chair of the Remuneration Committee at
Ferrexpo plc; Chairman and Chair of the Remuneration Committee at
Independent Oil & Gas plc; and a non-executive director and
Chair of the Health & Safety Committee at Coro Energy plc. She
joins the Board of Chemring with immediate effect.
Medium-term financial objectives
The Group has previously (March 2019) 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 per annum for FY19, FY20 and FY21
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
The Board notes the positive timing differences which benefited
the first half's results and having regard to the fact that
approximately 95% of expected H2 revenue is in the current order
book or has been delivered to date, the Board's full year
expectations are currently unchanged.
The duration and impact of CV-19 across our home markets is at
this stage unknown, and we are clearly working in a changing and
more challenging environment. The ability of our customers to test
and accept goods remains a short-term risk to revenue recognition.
We will continue to work closely with our customers, suppliers and
other stakeholders, and will provide further updates as
appropriate.
In the longer term, Chemring is well placed, with a robust
strategy, market-leading positions across different geographies and
sectors, and with products and services that are critical to our
government and blue-chip customers. This, together with the Group's
strong balance sheet, gives the Board confidence that despite the
near-term uncertainty, Chemring's long-term prospects remain
strong.
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
3 June 2020 3 June 2020
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2020
Unaudited Unaudited
Half year to Half year to
30 April 2020 30 April 2019
Note Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 2 191.0 - 191.0 139.3 - 139.3
-------------- --------------- ------ -------------- --------------- -------
Operating profit 2 25.6 (5.2) 20.4 12.1 (5.6) 6.5
Finance expense (1.4) - (1.4) (2.2) - (2.2)
-------------- --------------- ------ -------------- --------------- -------
Profit before tax 24.2 (5.2) 19.0 9.9 (5.6) 4.3
Tax charge on profit 5 (4.3) 1.6 (2.7) (2.0) 1.2 (0.8)
-------------- --------------- ------ -------------- --------------- -------
Profit after tax 19.9 (3.6) 16.3 7.9 (4.4) 3.5
Discontinued operations
(Loss)/profit after
tax from discontinued
operations 3,9 (0.1) (0.1) (0.2) 1.0 (4.9) (3.9)
Profit/(loss) after
tax for the period 19.8 (3.7) 16.1 8.9 (9.3) (0.4)
-------------- --------------- ------ -------------- --------------- -------
Unaudited Unaudited
Half year to Half year to
30 April 2020 30 April 2019
Underlying Underlying
performance* Total performance* Total
Earnings/(loss) per
ordinary share
Continuing operations
Basic 6 7.1p 5.8p 2.8p 1.3p
Diluted 6 6.9p 5.7p 2.7p 1.2p
-------------- --------------- ------ -------------- --------------- -------
Continuing operations
and discontinued operations
Basic 6 7.0p 5.7p 3.2p (0.1)p
Diluted 6 6.9p 5.6p 3.1p (0.1)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 2020
Audited
Year to
31 Oct 2019
Note Underlying Non-underlying
performance* items* Total
GBPm GBPm GBPm
Continuing operations
Revenue 2 335.2 - 335.2
-------------- --------------- ------
Operating profit 2 44.0 (12.7) 31.3
Finance expense (4.6) - (4.6)
-------------- --------------- ------
Profit before tax 39.4 (12.7) 26.7
Tax charge on profit 5 (7.9) 4.3 (3.6)
-------------- --------------- ------
Profit after tax 31.5 (8.4) 23.1
Discontinued operations
Profit/(loss) after tax from discontinued
operations 3,9 2.7 (3.9) (1.2)
-------------- --------------- ------
Profit after tax for the year 34.2 (12.3) 21.9
-------------- --------------- ------
Audited
Year to
31 Oct 2019
Underlying
performance* Total
GBPm GBPm
Earnings per ordinary share
Continuing operations
Basic 6 11.2p 8.2p
Diluted 6 11.0p 8.1p
-------------- --------------- ------
Continuing operations and discontinued
operations
Basic 6 12.2p 7.8p
Diluted 6 12.0p 7.7p
-------------- --------------- ------
* 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 2020
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2020 2019 2019
GBPm GBPm GBPm
Profit/(loss) after tax attributable to
equity holders of the parent 16.1 (0.4) 21.9
----------- ----------- ---------
Items that will not be reclassified subsequently
to profit or loss
Actuarial (losses)/gains on defined benefit
pension schemes (4.8) (0.3) 1.6
Movement on deferred tax relating to pension
schemes 1.7 0.1 (0.7)
----------- ----------- ---------
(3.1) (0.2) 0.9
----------- ----------- ---------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations 2.7 (5.3) (5.2)
Tax on exchange differences on translation
of foreign operations (0.6) 0.5 0.2
----------- ----------- ---------
2.1 (4.8) (5.0)
----------- ----------- ---------
Total comprehensive profit/(loss) attributable
to equity holders of the parent 15.1 (5.4) 17.8
----------- ----------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2020
Unaudited half year to 30 April 2020
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 2019 2.8 306.2 12.9 1.0 (17.8) 8.5 (7.8) 305.8
--------- --------- --------- ------------ ------------ ---------- -------- ------
Profit after tax - - - - - 16.1 - 16.1
Other comprehensive
income/(loss) - - - - 2.7 (4.8) - (2.1)
Tax relating to components
of other comprehensive
income - - - - (0.6) 1.7 - 1.1
Total comprehensive income - - - - 2.1 13.0 - 15.1
Share-based payments
(net of settlement) - - - - - 1.8 - 1.8
Dividends paid - - - - - (6.8) - (6.8)
Transactions in own shares - - - - - (6.1) 4.9 (1.2)
At 30 April 2020 2.8 306.2 12.9 1.0 (15.7) 10.4 (2.9) 314.7
--------- --------- --------- ------------ ------------ ---------- -------- ------
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
--------- --------- --------- ------------ ------------ ---------- -------- ------
Audited year to 31 October 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
--------------------------- --------- --------- --------- ------------ ------------ ---------- -------- ------
Profit after tax - - - - - 21.9 - 21.9
Other comprehensive
income/(loss) - - - - 1.4 (5.0) - (3.6)
Tax relating to components
of other comprehensive
income - - - - - (0.5) - (0.5)
Total comprehensive income - - - - 1.4 16.4 - 17.8
Ordinary shares issued - 0.8 - - - - - 0.8
Share-based payments
(net of settlement) - - - - - 2.5 - 2.5
Dividend paid - - - - - (9.5) - (9.5)
Transfers between reserves - - - - 8.0 (8.0) - -
At 31 October 2019 2.8 306.2 12.9 1.0 (17.8) 8.5 (7.8) 305.8
--------- --------- --------- ------------ ------------ ---------- -------- ------
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 April 2020
Note Unaudited Unaudited
As at As at Audited
30 April 30 April As at
2020 2019 31 Oct 2019
GBPm GBPm GBPm
Non-current assets
Goodwill 109.8 108.1 108.5
Development costs 28.6 24.6 26.1
Other intangible assets 21.3 31.3 25.3
Property, plant and equipment 186.5 160.5 170.0
Deferred tax 19.8 17.6 18.5
Retirement benefit surplus 10 4.8 7.8 9.6
---------- ---------- -------------
370.8 349.9 358.0
---------- ---------- -------------
Current assets
Inventories 91.1 78.2 78.1
Trade and other receivables 60.4 60.0 53.7
Cash and cash equivalents 13 104.2 6.4 1.3
Derivative financial instruments 8 0.4 0.1 0.2
256.1 144.7 133.3
---------- ---------- -------------
Assets classified as held for
sale 10.4 7.9 7.0
---------- ---------- -------------
Total assets 637.3 502.5 498.3
---------- ---------- -------------
Current liabilities
Borrowings 13 (49.7) (64.1) (69.2)
Obligations under finance leases 13 (1.6) - -
Trade and other payables (106.8) (77.3) (68.3)
Provisions (4.9) (5.1) (4.8)
Current tax (5.6) (4.7) (4.0)
Derivative financial instruments 8 (2.4) (0.4) (0.9)
(171.0) (151.6) (147.2)
---------- ---------- -------------
Liabilities directly associated
with assets classified as held
for sale (2.8) (7.1) (1.8)
---------- ---------- -------------
Non-current liabilities
Borrowings 13 (108.8) (26.2) (7.7)
Obligations under finance leases 13 (4.6) - -
Provisions (11.0) (12.6) (12.4)
Deferred tax (24.3) (21.7) (23.0)
Preference shares 13 (0.1) (0.1) (0.1)
Derivative financial instruments - (0.2) (0.3)
(148.8) (60.8) (43.5)
---------- ---------- -------------
Total liabilities (322.6) (219.5) (192.5)
---------- ---------- -------------
Net assets 314.7 283.0 305.8
---------- ---------- -------------
Equity
Share capital 2.8 2.8 2.8
Share premium account 306.2 305.5 306.2
Special capital reserve 12.9 12.9 12.9
Revaluation reserve 1.0 1.0 1.0
Translation reserve (15.7) (30.9) (17.8)
Retained earnings 10.4 (0.5) 8.5
---------- ---------- -------------
317.6 290.8 313.6
Own shares (2.9) (7.8) (7.8)
---------- ---------- -------------
Total equity 314.7 283.0 305.8
---------- ---------- -------------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2020
Note Unaudited Unaudited
Half year Half year
to to Audited
30 April 30 April Year to
2020 2019 31 Oct 2019
GBPm GBPm GBPm
Cash flows from operating activities
-------------------------------------------- ----- ----------- ----------- -------------
Cash generated from continuing underlying
operations 12 56.2 21.9 63.9
Cash impact of continuing non-underlying
items (2.2) (2.8) (5.3)
Cash impact of discontinued underlying
operations 12 (0.4) 9.4 13.7
Cash impact of discontinued non-underlying
items 12 (0.6) (0.2) (7.1)
-------------------------------------------- ----- ----------- ----------- -------------
Cash flows from operating activities 53.0 28.3 65.2
Retirement benefit deficit recovery
contributions - (0.4) (0.4)
Tax paid (0.3) (2.2) (2.9)
----------- ----------- -------------
Net cash inflow from operating activities 52.7 25.7 61.9
----------- ----------- -------------
Cash flows from investing activities
Purchases of intangible assets (2.6) (1.7) (3.8)
Purchases of property, plant and
equipment (17.3) (19.9) (41.0)
Customer funding for capital programmes - - 2.4
Proceeds on disposal of subsidiary 0.8 0.6 0.7
Net cash outflow from investing
activities (19.1) (21.0) (41.7)
----------- ----------- -------------
Cash flows from financing activities
Dividends paid 7 (6.8) (6.2) (9.5)
Purchase of own shares (0.3) - -
Finance expense paid (2.3) (1.6) (4.9)
Capitalised facility fees paid - (0.3) (0.3)
Drawdown of borrowings 157.6 5.0 -
Repayments of borrowings (73.1) (4.5) (18.1)
Repayment of finance leases (0.8) - -
Net cash inflow/(outflow) from financing
activities 74.3 (7.6) (32.8)
----------- ----------- -------------
Increase/(decrease) in cash and
cash equivalents 107.9 (2.9) (12.6)
Cash and cash equivalents at beginning
of period/year (3.3) 9.6 9.6
Effect of foreign exchange rate
changes (0.4) (0.3) (0.3)
----------- ----------- -------------
Cash and cash equivalents at end
of period/year (including bank overdraft) 104.2 6.4 (3.3)
----------- ----------- -------------
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 3 June 2020. The
information for the year ended 31 October 2019 does not constitute
statutory accounts as defined in section 435 of the Companies Act
2006. Full accounts for the year ended 31 October 2019, 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 the Group's working
capital and financing position, the Directors have prepared a
detailed bottom-up two-year trading budget and cash flow forecast
for the period through to October 2021, being at least twelve
months after the date of approval of the financial statements. This
is in addition to the Group's longer-term strategic planning
process. 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 expenditure;
-- 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;
-- the availability of 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.
Additional detailed sensitivity analysis has been performed on
the forecasts to consider the impact of severe, but plausible,
reasonable worst case scenarios on the covenant requirements. These
scenarios, which sensitised the forecasts for specific identified
risks, modelled the reduction in anticipated levels of underlying
EBITDA and the associated increase in net debt. These scenarios
included significant delays to major contracts. These sensitised
scenarios show headroom on all covenant test dates for the
foreseeable future.
In addition to the above, the Directors continue to monitor
developments with, and potential impact of, CV-19 in the short and
medium term and are in particular focussed on the key risks of
delays by customers in testing and acceptance of products,
disruption to production capacity and efficiency as a result of
Government legislation on social distancing measures and the impact
of the current situation on the Group's supply chain. In April 2020
the Group obtained an additional short-term GBP100m facility of
which GBP50m has been drawn, to further strengthen the Group's
liquidity position. The Directors have modelled a severe but
plausible downside scenario for CV-19, whereby the Group
experiences a 25% reduction in production capacity for a six month
period. Throughout this severe but plausible downside scenario, the
Group continues to have significant liquidity headroom on existing
facilities and against the RCF financial covenants. The CV-19
outbreak is not currently having any material impact in relation to
these risks or any other potential
impacts, however, the Directors are monitoring the situation
closely.
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;
-- 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
2019 except in respect of the adoption of IFRS16 as described
below. In addition, there have been no significant changes in
accounting judgements or key sources of estimation uncertainty as
disclosed in the consolidated financial statements for the year
ended 31 October 2019.
Recent accounting developments
The following International Financial Reporting Committee
("IFRIC") interpretations, amendments to existing standards and new
standards were adopted in the period ending 30 April 2020 but have
not materially impacted the reported results or the financial
position:
-- Amendments to IAS19 Employee Benefits;
-- Annual Improvements to IFRSs 2015-2017 Cycle; and
-- IFRIC 23 Uncertainty over Income Tax Treatments.
In the period to 30 April 2020, the following standard was
adopted and has affected the amounts reported in this half-yearly
financial report:
-- IFRS 16 Leases (effective for periods on or after 1 January
2019).
The Group adopted IFRS 16 Leases with effect from 1 November
2019. The standard fundamentally changed the accounting treatment
of leased assets, requiring that all material lease liabilities and
corresponding 'right of use' assets are recognised on the balance
sheet. The operating lease rental expense previously charged to
operating profit in the income statement has been replaced by a
depreciation charge for the 'right of use' assets recognised in
operating profit and an interest charge on the lease liabilities
recognised in finance costs and shown in financing activity within
the cash flow. Other than these changes and the practical
expedients discussed below, our policy wording for leased assets
disclosed in the 31 October 2019 financial statements remains
unchanged.
The Group has adopted IFRS 16 using the modified retrospective
transition approach, which does not require the restatement of
comparative figures. Adoption of IFRS 16 resulted in right of use
assets and lease liabilities of GBP6.5m being recognised on the
balance sheet. The weighted average incremental borrowing rate
applied to lease liabilities at the date of initial application was
3%. The difference between the lease liability recognised on
transition and the operating lease commitments disclosed under IAS
17 at 31 October 2019, discounted using the incremental borrowing
rate at the date of initial application is due to the exclusion of
leases relating to low value assets.
The right of use asset is included within property, plant and
equipment on the balance sheet. At 30 April 2020, the right of use
assets were GBP5.8m.
Within continuing operations during the period, lease interest
of GBP0.1m has been recognised within finance costs and GBP0.8m of
depreciation has been charged to the income statement. In total,
payments of GBP0.9m were made under leasing contracts, of which
GBP0.8m was made to repay the principal portion of the lease.
Additionally, administrative expenses include GBP0.3m in respect of
variable lease payments for short term and low value leases which
are not included in the lease liabilities and payments disclosed
above.
On transition the Group applied the following available
practical expedients permitted by the standard:
- the exclusion of leases relating to low-value assets (less than GBP50,000 when new);
- the exclusion of short-term leases, being those with a lease term of 12 months or less; and
- applying the new definition of a lease only to contracts
entered into after the transition date.
2. SEGMENTAL ANALYSIS
Period to 30 April 2020 (unaudited)
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 67.3 123.7 - 191.0
Segment result before depreciation,
amortisation and non-underlying
items 15.1 25.4 (5.3) 35.2
Depreciation (1.5) (7.3) - (8.8)
Amortisation (0.3) (0.5) - (0.8)
-------------------------------------- --------------- ---------------- ------------ ------
Segmental underlying operating
profit 13.3 17.6 (5.3) 25.6
Amortisation of acquired intangibles (3.2) (1.2) - (4.4)
Non-underlying items: mark-to-market
foreign exchange loss - - (0.8) (0.8)
-------------------------------------- --------------- ---------------- ------------ ------
Segmental operating profit 10.1 16.4 (6.1) 20.4
-------------------------------------- --------------- ---------------- ------------ ------
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
-------------------------------------- --------------- ---------------- ------------ ------
Year ended 31 October 2019 (audited)
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 131.9 203.3 - 335.2
Segment result before depreciation,
amortisation and non-underlying
items 29.3 41.7 (9.8) 61.2
Depreciation (2.3) (13.5) - (15.8)
Amortisation (0.7) (0.7) - (1.4)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental underlying operating
profit 26.3 27.5 (9.8) 44.0
Amortisation of acquired intangibles (6.6) (5.5) - (12.1)
Non-underlying items: mark-to-market
foreign exchange loss - - (0.6) (0.6)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental operating profit 19.7 22.0 (10.4) 31.3
-------------------------------------- --------------- ---------------- ------------ -------
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
2020 2019 2019
GBPm GBPm GBPm
Loss on the movement in the fair value
of derivative financial instruments (0.8) - (0.6)
----------- ----------- ------------
Impact of non-underlying items on EBITDA (0.8) - (0.6)
Intangible amortisation arising from
business combinations (4.4) (5.6) (12.1)
----------- ----------- ------------
Impact of non-underlying items on operating
profit and profit before tax (5.2) (5.6) (12.7)
Tax impact of non-underlying items 1.6 1.2 4.3
----------- ----------- ------------
Impact of non-underlying items on continuing
profit after tax (3.6) (4.4) (8.4)
Discontinued operations after tax (0.1) (4.9) (3.9)
Impact of non-underlying items on profit
after tax (3.7) (9.3) (12.3)
----------- ----------- ------------
Derivative financial instruments
Included in non-underlying items is a GBP0.8m loss (H1 2019:
GBPnil, 2019: GBP0.6m 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.
Amortisation of acquired intangibles
Included in non-underlying items is the amortisation charge
arising from business combinations of GBP4.4m (H1 2019: GBP5.6m,
2019: GBP12.1m). Amortisation of acquired intangibles arising from
business combinations is associated with acquisition costs under
IFRS 3 Business Combinations. IFRS requires intangibles to be
recognised on acquisition that would not have been capitalised had
the business grown organically under Chemring's ownership. As such,
these costs are not reflective of the underlying costs of the Group
and therefore, in order to provide an explanation of results that
is not distorted by the history of business units being acquired
rather than organically developed, have been excluded from the
underlying measures.
Tax
In the period to 30 April 2020, the tax impact of continuing
non-underlying items comprises a GBP1.6m tax credit (H1 2019:
GBP1.2m credit, 2019: GBP4.3m credit) on the above non-underlying
items.
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 normally 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
2020 2019 2019
GBPm GBPm GBPm
Underlying tax charge (4.3) (2.0) (7.9)
Tax impact of non-underlying items 1.6 1.2 4.3
Total statutory tax charge (2.7) (0.8) (3.6)
----------- ----------- ------------
The continuing statutory tax charge totalled GBP2.7m (H1 2019:
GBP0.8m, 2019: GBP3.6m) on a continuing statutory profit before tax
of GBP19.0m (H1 2019: GBP4.3m, 2019: GBP26.7m).
The effective tax rate on underlying profit before tax for the
period is a charge of 17.8% (H1 2019: 20.2%, 2019: 20.1%) which is
in line with the estimated effective tax rate on underlying profit
before tax expected for the full year. This is lower than the 2019
effective tax rate due to prior year tax adjustments.
6. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in
issue, excluding own shares held, of 280,966,749 (H1 2019:
279,999,500, 2019: 280,061,053). Diluted earnings per share has
been calculated using a diluted average number of shares in issue,
excluding own shares held, of 288,374,089 (H1 2019: 284,800,433,
2019: 286,092,818).
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
2020 2019
GBPm Basic EPS Diluted GBPm Basic EPS Diluted
(pence) EPS (pence) (pence) EPS (pence)
Underlying profit after
tax 19.9 7.1 6.9 7.9 2.8 2.7
Non-underlying items (3.6) (4.4)
------- --------- ------------ ------- --------- ------------
Profit from continuing
operations 16.3 5.8 5.7 3.5 1.3 1.2
------- --------- ------------ ------- --------- ------------
Loss from discontinued
operations (0.2) (0.1) (0.1) (3.9) (1.4) (1.3)
------- --------- ------------ ------- --------- ------------
Total profit /(loss)
after tax 16.1 5.7 5.6 (0.4) (0.1) (0.1)
------- --------- ------------ ------- --------- ------------
Audited
year to
31 October
2019
GBPm Basic EPS Diluted
(pence) EPS (pence)
Underlying profit after tax 31.5 11.2 11.0
Non-underlying items (8.4)
----- --------- ------------
Profit from continuing operations 23.1 8.2 8.1
----- --------- ------------
Loss from discontinued operations (1.2) (0.4) (0.4)
----- --------- ------------
Total profit after tax 21.9 7.8 7.7
----- --------- ------------
7. DIVIDS
At the Annual General Meeting on 4 March 2020 the shareholders
approved a final dividend in respect of the year ended 31 October
2019 of 2.4p per ordinary share. This was paid on 24 April 2020 to
shareholders on the register on 3 April 2020.
The Board also declared an interim dividend in respect of 2020
of 1.3p per ordinary share which will be paid on 11 September 2020
to shareholders on the register on 21 August 2020. In accordance
with accounting standards this dividend has not been recorded as a
liability as at 30 April 2020.
8. FINANCIAL INSTRUMENTS
As at 30 April 2020, 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 2020, the total fair value of forward
foreign exchange contracts recognised in the condensed consolidated
balance sheet were an asset of GBP0.4m (H1 2019: GBP0.1m, 2019:
GBP0.2m), a current liability of GBP2.4m (H1 2019: GBP0.4m, 2019:
GBP0.9m), and a non-current liability of GBPnil (H1 2019: GBP0.2m,
2019: GBP0.3m).
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 2019
2020 2019
GBPm GBPm GBPm
Revenue 8.5 32.2 43.4
Underlying operating loss from discontinued
operations (0.1) (2.0) (3.5)
Tax on underlying operating loss from discontinued
operations - 3.0 6.2
----------- ----------- ---------
(Loss)/profit after tax from underlying discontinued
operations (0.1) 1.0 2.7
(Loss)/profit after tax is analysed as:
Before exceptional items (0.1) 1.0 2.7
------------------------------------------------------ ----------- ----------- ---------
Exceptional items (0.1) (4.9) (3.8)
Tax on exceptional items - - (0.1)
------------------------------------------------------ ----------- ----------- ---------
(0.1) (4.9) (3.9)
Loss from discontinued operations (0.2) (3.9) (1.2)
----------- ----------- ---------
In the period to 30 April 2020, the loss related to the
continued trading activity of Chemring Ordnance, Inc. On 21
November 2019, the Group announced that a conditional agreement had
been entered into for the sale of its US subsidiary Chemring
Ordnance, Inc. to Nammo Defense Systems Inc. On 7 May 2020 the sale
was completed, concluding the Group's exit from its commoditised
energetics businesses. The consideration of $17m was paid in cash
on completion, subject to normal working capital and other closing
adjustments. Chemring Ordnance, Inc. was treated as discontinued
and held for sale in these financial statements.
In the period to 30 April 2019 the exceptional items included an
impairment loss of GBP3.1m in respect of the carrying value of
Chemring Defence UK Limited and a loss of GBP1.8m on disposal
relating to the sale of Chemring Military Products, Inc.
In the year ended 31 October 2019 the exceptional items included
a loss on disposal of GBP2.8m relating to the sale of Chemring
Military Products, Inc. and Chemring Defence UK Limited, an
increase to the disposal provision in respect of the disposal of
the European Munitions businesses in 2014 of GBP1.1m, business
restructuring costs of GBP0.8m and a GBP0.9m exceptional credit
relating to the realisation of working capital that was previously
impaired in respect of Chemring Ordnance, Inc.
10. RETIREMENT BENEFIT SURPLUS
The defined benefit surplus is calculated using an actuarial
valuation as at 30 April 2020. In the period to 30 April 2020, the
retirement benefit surplus reduced to GBP4.8m (H1 2019: GBP7.8m,
2019: GBP9.6m), principally as a result of a fall in the value of
the scheme's equity portfolio following the CV-19 impact on global
equity markets.
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 2019
30 April 30 April GBPm
2020 2019
GBPm GBPm
Operating profit from continuing operations 20.4 6.5 31.3
Amortisation of development costs 0.7 0.5 1.3
Amortisation of intangible assets arising
from business combinations 4.4 5.6 12.1
Amortisation of patents and licenses 0.1 0.1 0.1
Loss on disposal of non-current assets - 0.6 0.7
Depreciation of property, plant and equipment 8.8 7.6 15.8
Non-cash movement of non-underlying items 0.8 0.1 0.6
Share-based payment expense 2.0 0.2 2.5
-------------------------------------------------- ----------- ----------- -------------
Operating cash flows before movements in
working capital 37.2 21.2 64.4
(Increase) in inventories (11.8) (8.3) (7.9)
(Increase)/decrease in trade and other
receivables (7.5) 2.6 10.4
Increase/(decrease) in trade and other
payables 38.4 6.4 (2.7)
(Decrease) in provisions (0.1) - (0.3)
Operating cash flow from continuing underlying
operations 56.2 21.9 63.9
-------------------------------------------------- ----------- ----------- -------------
Discontinued operations
Operating cash flow from discontinued underlying
operations (0.4) 9.4 13.7
Cash impact of non-underlying items from
discontinued operations (0.6) (0.2) (7.1)
Tax paid - - (0.7)
-------------------------------------------------- ----------- ----------- -------------
Net cash (outflow)/inflow from discontinued
operating activities (1.0) 9.2 5.9
-------------------------------------------------- ----------- ----------- -------------
Net cash inflow from discontinued investing
activities 0.3 0.6 0.5
-------------------------------------------------- ----------- ----------- -------------
Net cash (outflow)/inflow from discontinued
operations (0.7) 9.8 6.4
-------------------------------------------------- ----------- ----------- -------------
13. ANALYSIS OF NET DEBT
Adoption
As at of IFRS Cash Non-cash Exchange As at 30
1 Nov 2019 16 Leases flows changes rate effects April 2020
GBPm GBPm GBPm GBPm GBPm GBPm
Cash and cash
equivalents (3.3) - 107.9 - (0.4) 104.2
Debt due within
one year (64.6) - 14.9 - - (49.7)
Debt due after
one year (7.7) - (99.5) (0.1) (1.5) (108.8)
Finance Leases - (6.5) 0.8 (0.1) (0.4) (6.2)
Preference shares (0.1) - - - - (0.1)
------------ ----------- ------- --------- -------------- ------------
(75.7) (6.5) 24.1 (0.2) (2.3) (60.6)
------------ ----------- ------- --------- -------------- ------------
The Group has adopted IFRS 16 Leases using the modified
retrospective transition approach, which does not require the
restatement of comparative figures. Adoption of IFRS 16 resulted in
lease liabilities of GBP6.5m being recognised.
On 19 November 2019, the final tranche of 5.68% Private
Placement Loan Notes of $83.6m was repaid. This was funded from the
Group's GBP145m multi-currency Revolving Credit Bank facility. The
revolving credit facility is with a syndicate of five banks and was
first established in October 2018 and has a four-year initial term
with options to extend by a further two years.
In April 2020, the Group obtained an additional short-term
facility of GBP100m to further strengthen its available liquidity
and financial position.
The Group had GBP83.6m (H1 2019: GBP117.3m, 2019: GBP130.2m) 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 net 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 Group was in compliance with the covenants throughout
the period.
14. EXCHANGE RATES
The following exchange rates applied during the period:
Average Closing Average Closing Average Closing
rate rate rate rate rate rate
H1 2020 H1 2020 H1 2019 H1 2019 2019 2019
----------- --------- --------- --------- --------- -------- --------
AU Dollar 2.06 1.93 1.80 1.85 1.82 1.88
US Dollar 1.28 1.26 1.30 1.30 1.26 1.29
----------- --------- --------- --------- --------- -------- --------
The translation of foreign currency items in the financial
statements are dependent on the prevailing foreign exchange rates.
For the period ended 30 April 2020, a 10 cent increase in the US
dollar exchange rate would have decreased reported underlying
operating profit for the first half of 2020 by approximately
GBP1.5m and decreased reported net debt at 30 April 2020 by
approximately GBP4.1m.
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. In April 2020, the ASBCA issued a
judgement in favour of Alloy Surfaces Company, Inc. however the US
Army has 120 days to appeal and therefore the risk remains as at
the half year. The range of possible outcomes is between GBPnil to
GBP12.0m. A provision of GBP1.0m (H1 2019: GBP1.1m, 2019: 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. 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 disagrees with the conclusion that the
UK's CFC rules were partially in breach of EU law, and has
therefore applied to the EU courts for annulment of the
Commission's decision. 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.
In accordance with the Serious Fraud Office ("SFO") News Release
dated 18 January 2018, an investigation was opened by the SFO into
Chemring Group PLC ("CHG") and its subsidiary, Chemring Technology
Solutions Limited ("CTSL"), following a self-report made by CTSL.
The investigation relates to bribery, corruption and money
laundering arising from the conduct of business by CHG and CTSL
including any officers, employees, agents and persons associated
with them. 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 our countermeasures
facility in Salisbury. The Group responded immediately to support
those who were injured, and maintains appropriate employers'
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
As announced on 7 May 2020, Chemring sold its US subsidiary
Chemring Ordnance, Inc. ("COR") after the period end, completing
the Group's exit from its commoditised energetics businesses. The
consideration of $17m was paid in cash on completion, subject to
normal working capital and other closing adjustments. Chemring
Ordnance, Inc. was treated as discontinued and held for sale in
these financial statements.
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
2019 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 30 to 36 of the 2019 Annual Report
and Accounts. These risks can be summarised as:
-- occupational and process safety risks;
-- health and security risks;
-- environmental laws and regulations;
-- market-related risks;
-- political risks;
-- contract-related risks;
-- technology risks;
-- Brexit;
-- financial risks;
-- operational risks;
-- people risks;
-- compliance and corruption risks;
-- product liability and other customer claims; and
-- cyber-related risks.
Management have detailed mitigation plans and assurance
processes to manage and monitor these risks.
In addition, the Group is closely monitoring the CV-19 pandemic
and taking steps to follow relevant Government guidance to mitigate
any potential impacts to the health and safety of employees. We are
reviewing the impact on customers and suppliers, reducing
discretionary costs and conserving cash.
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 2020 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 2020 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
3 June 2020
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 SSIFMEESSEDM
(END) Dow Jones Newswires
June 03, 2020 02:00 ET (06:00 GMT)
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