TIDMCHG
RNS Number : 6150I
Chemring Group PLC
15 December 2020
15 DECEMBER 2020
CHEMRING GROUP PLC
("Chemring", "the Group" or "the Company")
RESULTS FOR THE YEARED 31 OCTOBER 2020
As reported At 2019 exchange
rates
2020 Change 2020 Change 2019
Continuing operations
Revenue (GBPm) 402.5 + 20% 406.4 + 21% 335.2
Underlying EBITDA(*) (GBPm)
(**) 74.6 + 22% 75.9 + 24% 61.2
Underlying operating profit(*)
(GBPm) 54.7 + 24% 55.7 + 27% 44.0
Underlying profit before tax(*)
(GBPm) 51.7 + 31% 52.7 + 34% 39.4
Underlying basic earnings per
share(*) (pence) 15.1 + 35% 15.4 + 38% 11.2
Statutory operating profit
(GBPm) 46.3 + 48% 31.3
Dividend per share (pence) 3.9 + 8% 3.6
Net debt at 31 October 2020
(GBPm) (**) 48.2 - 36% 75.7
Key points
-- 2020 performance was ahead of the Board's expectations with
strong performance in both segments
-- All businesses remained open and operational despite the challenges
caused by COVID-19
-- Safety remains a core value. Investment in the Group's manufacturing
infrastructure is driving improvements in safety, efficiency
and enhancing operational resilience
-- 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, the
US and Australia for the supply of global countermeasures,
including the receipt by Chemring Australia of a definitised
contract of $107m in support of the F-35
-- Continued progress on the US Programs of Record. Further orders
received in the year for the next phase of HMDS delivery, with
the IDIQ increased by $200m, and customer approval and contract
awarded for Low Rate Initial Production for the EMBD programme
-- Significant reduction in net debt from strong operational cash
generation, partially offset by scheduled capital expenditure
and the adoption of IFRS16
-- Board's expectations for 2021 are unchanged. Approximately
78% of expected 2021 revenue is covered by the order book
Michael Ord, Group Chief Executive, commented:
"Our focus in recent years has been on putting in place the
foundations on which to build a stronger, higher quality business.
The resilience of the Group in response to the coronavirus pandemic
is a consequence of the dedication and commitment of all our people
and clearly demonstrates the significant progress that we have
made. We set ourselves demanding goals and our teams across the
Group have risen to those challenges, delivering a financial
performance that was ahead of the Board's expectations.
"Trading since the start of the current financial year has been
in line with expectations. With 78% of 2021 expected revenue
covered by the order book, the Board's expectations for 2021
performance remain unchanged. 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. Chemring's
long-term prospects remain strong."
Notes:
* All profit and earnings per share figures in this news release
relate to underlying business performance (as defined below) unless
otherwise stated.
**The 2020 net debt balance reflects the initial recognition of
a GBP6.5m finance lease liability and GBP1.8m of the increase in
underlying EBITDA is as a result of applying IFRS 16 Leases
(effective 1 November 2019). The 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, the
amortisation of acquired intangibles and the associated tax impact
on these items. The Directors believe that these APMs improve the
comparability of information between reporting periods as well as
reflect the key performance indicators used within the business to
measure performance. The term underlying is not defined under IFRS
and may not be comparable with similarly titled measures used by
other companies.
A reconciliation of underlying measures to statutory measures is
provided below:
Group - continuing operations: Underlying Non-underlying Statutory
EBITDA (GBPm) 74.6 0.5 75.1
----------- --------------- ----------
Operating profit (GBPm) 54.7 (8.4) 46.3
----------- --------------- ----------
Profit before tax (GBPm) 51.7 (8.4) 43.3
----------- --------------- ----------
Tax charge (GBPm) (9.1) 0.5 (8.6)
----------- --------------- ----------
Profit after tax (GBPm) 42.6 (7.9) 34.7
----------- --------------- ----------
Basic earnings per share (pence) 15.1 12.3
----------- --------------- ----------
Diluted earnings per share (pence) 14.8 12.0
----------- --------------- ----------
Group - discontinued operations:
----------- --------------- ----------
(Loss)/profit after tax (GBPm) (0.1) 0.1 -
----------- --------------- ----------
Segments - continuing operations:
----------- --------------- ----------
Sensors & Information EBITDA (GBPm) 30.7 - 30.7
----------- --------------- ----------
Sensors & Information operating
profit (GBPm) 27.4 (6.4) 21.0
----------- --------------- ----------
Countermeasures & Energetics EBITDA
(GBPm) 56.5 - 56.5
----------- --------------- ----------
Countermeasures & Energetics operating
profit (GBPm) 39.9 (2.5) 37.4
----------- --------------- ----------
The adjustments to continuing operations comprise:
-- amortisation of acquired intangibles of GBP8.9m (2019: GBP12.1m)
-- gain on the movement in the fair value of derivative financial
instruments of GBP0.5m (2019: GBP0.6m loss)
The discontinued operations loss after tax primarily relates to
the businesses which were "held for sale" at 31 October 2018, which
have subsequently been divested from the Group or closed during the
last two years:
-- operating loss of GBP0.1m (2019: GBP3.5m loss)
-- exceptional items of GBP0.1m profit (2019: GBP3.8m loss)
-- tax credit on the above of GBPnil (2019: GBP6.1m credit)
Further details are provided in notes 3 and 4.
EBITDA is defined as profit before interest, tax, depreciation
and amortisation. Reference to constant currency relates to the
re-translation of 2020 financial information at the 2019 exchange
rates to reflect the movement excluding the impact of foreign
exchange. The exchange rates applied are disclosed in note 11.
For further information:
Group Director of Corporate Affairs, Chemring
Rupert Pittman Group PLC 01794 463380
Andrew Jaques MHP Communications 020 3128 8339
James Bavister
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 FTSE-250 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 2,300 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 sectors:
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, 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
Tuesday 15 December 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 8339.
COVID-19 UPDATE
The result of our focus on "Building a Stronger Business" over
the past two years has been demonstrated by the resilience of the
Group during the last nine months as the COVID-19 ("CV-19")
pandemic developed across the globe.
People
Our first priority throughout this crisis has been the health,
safety and wellbeing of our people, their families, our customers
and the communities in which we operate. From the outset we adopted
an agile approach which balanced risk mitigation with business
continuity and which was based on the latest government
recommendations in each of our home markets.
We have continued to monitor the situation closely, responding
to the crisis as it has evolved, providing our people with timely
guidance and support to maintain their wellbeing and ensuring that
we take appropriate action as required. The response of our people
has been outstanding. They have risen to the challenge, adapting
their behaviour and working practices in order to minimise the
spread of the virus, whilst continuing to focus on the needs of our
customers.
Operations
In the US, the UK and Norway, Chemring's operations were
designated as critical to the defence and national security
industrial base, and in Australia the risk of business interruption
was considered to be low. All our businesses have therefore
remained open throughout the pandemic. We continue to make every
effort to maintain delivery of essential services and manufacturing
production in support of our customers.
Customers
We have actively worked with our customer base to ensure the
delivery of timely testing and acceptance of products. At times
this has required innovative solutions including virtual product
inspections. In turn we are grateful to our customers for their
flexibility and support and the designation of our operations
as
critical to the defence and national security industrial
base.
The Group has a strong order book with order cover for 2021 of
78%. In 2020, order intake was GBP436m which was 6% up on last year
leaving the Group with an order book of GBP476m.
Liquidity
In addition to cash in hand of GBP14.7m, the Group has total
available undrawn facilities of GBP86.4m providing GBP101.1m of
immediately available liquidity. Year-end net debt of GBP48.2m,
which represents a Net debt: EBITDA ratio of 0.65x, leaves the
Group's balance sheet robust and supports its ongoing
development.
Group overview
2020 performance was ahead of the Board's expectations with
strong performance in both segments. The Group's revenue was up 20%
to GBP402.5m (2019: GBP335.2m). Underlying operating profit was up
24% to GBP54.7m (2019: GBP44.0m). Underlying earnings per share was
up 35% to 15.1p (2019: 11.2p).
In Countermeasures & Energetics, our Australian site
demonstrated its ability to manufacture F-35 countermeasures at
rate and secured a two-year order with the US Department of Defence
("US DoD") for $107m. Our Salisbury site achieved its revenue goals
in the year and became progressively more efficient. Demand for our
niche energetic devices continued to be strong with our Chicago
site's products supporting the manned US space missions. The
significant multi-year investment in our Tennessee site progressed
as planned, with commissioning due in the summer of 2021 and first
incremental revenues expected in 2022.
In Sensors & Information, the execution of the Husky Mounted
Detection System ("HMDS") Program of Record continued as planned
with a further $200m Indefinite Delivery Indefinite Quantity
("IDIQ") contract received. The Chem-Bio Programs of Record
continued to progress with Enhanced Maritime Biological Detector
("EMBD") moving into Low Rate Initial Production ("LRIP") slightly
ahead of expectation and Joint Biological Tactical Detection System
("JBTDS") and Aerosol and Vapor Chemical Agent Detector ("AVCAD")
continuing through the Engineering and Manufacturing Development
("EMD") and customer testing phases. Our Roke business enjoyed
another year of double-digit revenue growth, which included the
strategically important first electronic warfare ("EW") product
sale into the US.
Net debt was GBP48.2m at the end of the year (2019: GBP75.7m),
the decrease since 31 October 2019 being largely attributable to
strong operating cash generation offset by the investment in
capital projects in the year, in particular the capacity expansion
programme in Tennessee. Continuing underlying operating cash inflow
of GBP82.4m (2018: GBP63.9m) represented 110% (2019: 104%) of
EBITDA.
The Group's order book at 31 October 2020 was GBP476m (2019:
GBP449m), of which approximately GBP326m is scheduled for delivery
during 2021, representing cover of approximately 78% (2019: 76%) of
expected 2021 revenue. The increase since 31 October 2019 is
primarily attributable to contracts awarded in the countermeasures
businesses.
Health and safety
Safety is our core value, with the health, safety and wellbeing
of our colleagues, their families, our customers and the
communities in which we operate being our priority. This has been
particularly relevant this year. Our goal remains zero harm, which
will be achieved through establishing and embedding a proactive
safety culture which focuses on the control and interaction of
people, plant and process.
2020 has been an unprecedented year due to the CV-19 pandemic.
Whilst this created a need for special focus we have still
maintained progress in line with our HSE strategy, with an emphasis
on embedding the standards and processes we implemented last year
across the areas of control of major accident hazards, injury
reduction and HSE risk management. Despite the challenges of CV-19,
2020 has proven that we have developed and continue to build a
stronger safety culture.
In 2020 our lost time injury rate was 0.24 compared to 0.40 in
2019. This represents five injuries and reflects a 40% decrease in
lost time injuries and we are pleased to report there were no
fatalities or life-changing injuries. Our total recordable injury
frequency ("TRIF") rate was 0.85. The 2020 TRIF rate matches our
2019 performance.
Governance and ethics
During the last two years we have taken significant steps to
ensure that we have in place the necessary policies and procedures
across the business to operate with integrity, transparency and to
the highest ethical standards. This has been coupled with a focus
on creating an inclusive culture across the Group where everyone
does the right thing and takes responsibility for their
actions.
The bedrock of our governance is the Operational Framework and
the Code of Conduct, both of which bind our values, behaviour,
policies and our procedures, and provide the necessary governance
to enable us to operate in a safe, consistent and accountable
way.
We have maintained our focus in this area during 2020 and have
implemented further processes through which to manage our exposure
to potential risks. There were two notable developments during the
year. The first was the formation of a new Ethics and Compliance
Committee. This committee, which meets regularly throughout the
year and is chaired by Chemring Group's Chairman, has
responsibility for the oversight and monitoring of Chemring's
ethical business conduct and compliance. The second was the
appointment of a Security and Corporate Facility Security Officer
in the US with responsibility for ensuring that at all times we
operate in full compliance with our Special Security Agreement with
the US Government.
Good governance and ethical behaviour underpin our evolving
sustainability agenda, and ensures that we operate safely,
responsibly and in compliance with current legislation in all our
jurisdictions.
Group Chief Executive's review
Despite the challenging environment in which we have been
operating throughout most of 2020, a great deal has been achieved
this financial year. We set ourselves demanding goals and our teams
across the
Group have risen to those challenges.
The work that has been done in recent years to build a stronger,
higher quality and more sustainable business, based on our shared
values of safety, excellence and innovation, is delivering positive
returns for all stakeholders.
This would not have been possible without our greatest asset -
our people. I would like to thank all of my colleagues across
Chemring for their commitment, innovation and hard work in
exceptional circumstances.
The resilience that the business has shown as we have adapted to
the coronavirus pandemic, the solid demand and increased visibility
that we continue to see for our products and services, and the
innovation and dedication of our people, enables me to look to the
future with confidence.
Purpose and strategy
Chemring's purpose is innovating to protect people, platforms,
missions and information from constantly changing threats.
We achieve this through innovation, using our extensive science
and advanced engineering expertise to design, develop and
manufacture critical solutions that protect and safeguard in an
uncertain world.
The Group's strategy is to deliver profitable growth by
operating in markets where we have differentiators such as
intellectual property, niche technology, high barriers to entry and
deep long-term customer relationships.
On 7 May 2020 Chemring announced that we had completed the sale
of Chemring Ordnance, Inc. for $17m in cash and with it our
strategic exit from the commoditised energetics market. This has
reduced the Group's exposure to significant reputational and
operational risk, and enables greater focus on our growing and
differentiated positions in Sensors & Information and
Countermeasures & Energetics where we are already a market
leader.
We will maintain and grow our positions in Countermeasures &
Energetics, investing in modernisation and automation to improve
operational effectiveness and reliability and increase capacity. In
Sensors & Information our focus is on expanding the Group's
product, service and capability offerings in the areas of tactical
electronic warfare and cyber-security, and in building a
technology-based strategy for growth beyond current US DoD Programs
of Record.
We will continually review the portfolio, to ensure that we
maintain sustainable niche positions where technical and
qualification barriers to entry support our medium-term ambition of
generating mid-to-high teen margins at a sector level. As a Board
we remain open to acquisition opportunities but only if they meet a
strict set of criteria, enhance shareholder value and fit in with
our wider growth plans. To date, we have reviewed and declined to
proceed with a number of possible transactions.
In recent years, significant focus has been placed on building a
safe and resilient business that is able to deliver margin
progression through continuous improvement in operational
performance and execution. We shall continue to invest in both our
people and our infrastructure in order to deliver sustainable
growth into the future.
Environmental, Social and Governance
At Chemring we acknowledge our responsibility to contribute to a
sustainable future. We have a strong and recognised obligation to
ensure the responsible operation of our business and are fully
committed to being a socially and environmentally responsible
business.
Good progress has been made during 2020 as we manage our
sustainability agenda, and in particular our environmental, social
and governance ("ESG") related risks. During the year we concluded
the exit from the Group's commoditised energetics businesses and in
doing so we retired significant reputational risk and have improved
the quality of the Group and its future earnings. Chemring is now a
business with an evolving purpose of Innovating to Protect, and,
with that we are focused on protecting our customers, people,
platforms, missions and information.
The Group is actively seeking ways in which to reduce its
environmental impact. An environmental sustainability committee was
formed during the year and is currently finalizing our five-year
environmental strategy. However, notable progress was made during
the year with greenhouse gas emission intensity reducing by 11.5%,
energy usage intensity reducing by 14% and water usage intensity
reducing by 17%.
Culture
The realignment of the operating businesses under two sectors
and the changes in leadership that were enacted in 2019 and 2020
has created a strong foundation from which we are able to build a
culture and environment founded on inclusion, respect and
diversity. We are committed to implementing transparent policies
and procedures, and to fostering an inclusive culture across the
Group where everyone does the right thing and takes responsibility
for their actions. We want all of our colleagues to be able to
bring their whole self to work and then return home safely at the
end of every day. In doing so we will build a sustainable company
of which all our stakeholders can be proud, now and in the
future.
Particular areas of focus in 2020 have been around people
development, communication and wellbeing. Each of these are key to
developing the capability of all our colleagues and ensuring that
they are engaged with Chemring, enabling us to continue to build a
stronger business.
Chemring is its people and this means understanding how we can
make the Chemring community feel even more inclusive so that anyone
who lives our values and supports our purpose feels they can bring
their whole self to work without fear of judgement or
discrimination. Through the culture review undertaken in 2019, and
the ongoing engagement throughout 2020, we are determined to ensure
that all colleagues have a voice and are able to share their
thoughts regularly and know that the leadership team is
listening.
Innovation requires diversity of thought, education, background,
experience and personality type. We will continue to focus
throughout 2021 on developing an inclusive and dynamic work
environment for all our colleagues in support of our business goals
and to ensure that we continue to invest in our people.
Markets
The market outlook is positive with solid demand across our home
markets - the US, the UK, Europe, and Australia.
The US
The US is the world's largest defence market and our US
businesses are well positioned to benefit from this strong defence
budget.
The FY21 National Defense Authorization Act was passed in July
2020 with a base budget for FY21 of $636bn. The President's FY21
Budget Request also projected the US DoD five-year programme to
settle at a base budget level of $758bn in FY25, providing growth
to sustain personnel increases in all four services, major
equipment programmes such as the F-35 and 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 and warfighting options.
Since the beginning of the CV-19 global pandemic, the US passed
the Coronavirus Aid, Relief and Economic Security ("CARES") Act, in
March 2020, which provided $10.5bn of stimulus spending for the US
DoD. In July 2020, the US Senate also introduced the Coronavirus
Response Additional Supplemental Appropriations Act, which is
expected to provide additional short-term stimulus funding to the
US DoD, of which a large amount will be allocated to a "Defense
Industrial Base Resiliency Fund" to support the US defence
industry.
With 78% of 2021 expected revenue covered by the order book the
Group is safeguarded against any near-term disruption caused by the
US presidential transition.
The UK
Following the announcement by the UK Government in November 2020
that an extra GBP16.5bn will be spent on Defence over the next four
years, the UK will remain a leading European defence market. UK
Defence spending is expected to grow from around GBP41.5bn per
annum in 2020 through to over GBP50bn per annum by 2025. As the
sole source supplier of countermeasures to the UK's F-35 and
Typhoon fleets, and through its Roke business, Chemring is well
positioned to benefit from this increase, selling directly to the
MoD and security agencies, as well as to prime contractors.
New funding for defence comes on top of the Conservative party's
existing pledge to spend an additional 0.5% above inflation on
defence every year, and marks a welcome change to the slower growth
experienced since 2015. Over the past decade, budgets have been
squeezed by major programme commitments in armoured vehicles and
ships, but also the continued acquisition of new platforms
including the F-35 and the P-8 maritime patrol aircraft. These
commitments now provide a clearer funding path for the next
generation of UK military capability.
We still await the publication of the Integrated Defence
Spending Review, now expected in Q1 2021, which will lay out the
key priorities for defence over the next five years and beyond.
Whilst significant portions of the new funding may be required to
plug the pre-existing affordability gap, we may yet see legacy
capabilities and platforms retired in favour of investment in the
next generation. However, major committed programmes are now likely
to be protected, with investment focused on cyber, space, combat
air and naval platforms, as well as a significant boost to defence
R&D.
For Chemring, the UK MOD accounts for less than 5% of Group
revenues; however, it is an important partner for developing and
qualifying new products, a role that may gain increased
significance as the UK seeks to invest in innovation and
modernisation.
Europe
Europe combines modern, well-equipped forces with
budget-constrained NATO members on its Eastern borders. European
defence spending is returning to growth. In an attempt to minimise
the impact of the CV-19 global pandemic, equipment procurement has
been pulled forward into 2020 and 2021 to support industry in most
Western European and Nordic members, with Germany in particular
having agreed up to EUR10bn in stimulus to support its defence
industry through 2023/2024.
European defence spending currently falls short of NATO's 2% GDP
target, with only eight countries in Europe meeting this target in
2019. Major contributors to spend, such as Germany, have committed
to reaching 1.5% of GDP by 2024, though recent GDP reductions
caused by CV-19 have resulted in many countries achieving the goal
in 2020.
The outlook for the market is potentially more positive, and
there are some niche opportunities as new NATO members seek to
upgrade their capabilities and begin positioning for
next-generation development programmes.
Australia
Australia is Chemring's fourth home market and it aims to grow
its defence spend to 2% of GDP by 2021. Australia has a
well-equipped military, which draws on both US and UK products as
well as highly capable local suppliers. Australia is in the midst
of a large-scale equipment and capability refresh and, in 2020, the
Australian Government announced its intention to grow the defence
budget to AU$73.7bn by 2029-30, with total estimated funding of
AU$575bn over the decade.
Group financial performance
Order intake for continuing operations for 2020 was up 6% to
GBP436.6m (2019: GBP410.6m), 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.
Revenue from continuing operations for the year was up 20% to
GBP402.5m (2019: GBP335.2m), as the countermeasures facilities in
Salisbury and Australia were operational for the full year, as well
as strong performance in the Sensors & Information segment.
The underlying operating profit from continuing operations of
GBP54.7m (2019: GBP44.0m) resulted in an underlying operating
margin of 13.6% (2019: 13.1%). The increase in margin reflects the
improving operational execution in the Countermeasures &
Energetics segment.
Insurance recoveries of GBP5.2m (2019: GBP15.0m) are included
within the result for the year 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 headwind on
revenue and profit. While exchange rates have been volatile in the
year, there has been a weakening of the US dollar against sterling
compared to 2019 with the average rate moving from $1.26 to $1.28.
On a continuing constant currency basis, restating the current year
at the 2019 average exchange rate, revenue would have been
GBP406.4m and underlying operating profit would have been GBP55.7m,
being a headwind of GBP1.0m on 2020's underlying operating
profit.
Total finance expense fell significantly to GBP3.0m (2019:
GBP4.6m). This was driven by the repayment of the private placement
loan notes in November 2019 and the continued focus on reducing
intra-period working capital volatility, thus maintaining net debt
stability.
This resulted in an underlying profit before tax from continuing
operations of GBP51.7m (2019: GBP39.4m). The effective tax rate on
the underlying profit before tax from continuing operations was
17.6% (2019: 20.1%). The underlying earnings from continuing
operations per share was 15.1p (2019: 11.2p) and diluted underlying
earnings from continuing operations per share was 14.8p (2019:
11.0p).
Statutory operating profit from continuing operations was
GBP46.3m (2019: GBP31.3m) and after statutory finance expenses of
GBP3.0m (2019: GBP4.6m), statutory profit before tax from
continuing operations was GBP43.3m (2019: GBP26.7m), giving
statutory earnings per share from continuing operations of 12.3p
(2019: 8.2p). The statutory profit from discontinued operations was
GBPnil (2019: GBP1.2m loss) giving a statutory profit of GBP34.7m
(2019: GBP21.9m) from continuing and discontinued operations.
The non-underlying costs relate to the amortisation of acquired
intangibles, gains on the movement in the fair value of derivative
financial instruments and the tax credit associated with this.
Revenue from discontinued operations fell to GBP9.5m (2019:
GBP43.4m) and underlying operating loss fell to GBP0.1m (2019:
GBP3.5m) primarily as a result of the disposals made in the last
two years.
Segmental review - Sensors & Information
Performance
Revenue for Sensors & Information increased by 4% to
GBP137.2m (2019: GBP131.9m) and underlying operating profit
increased by 4% to GBP27.4m (2019: GBP26.3m). Underlying operating
margin improved to 20.0% (2019: 19.9%). The Sensors &
Information business in the US has seen continued progress on the
US Programs of Record and Roke's information security business has
continued to grow.
On a constant currency basis revenue would have risen 4% to
GBP137.6m and underlying operating profit would have been up 6% to
GBP27.8m.
The statutory operating profit for the year was GBP21.0m (2019:
GBP19.7m).
Key developments in the year on the major US Programs of Record
are summarised below.
The US DoD's Explosive Hazard Detection HMDS program, which
encompasses concurrent development, trialing and manufacturing,
continues to progress as expected. Under the previously awarded
IDIQ sole-source contract vehicle, further delivery orders of $62m
were received in the year, providing visibility on this Program of
Record well into 2021. The production phase is progressing as
planned and customer deliveries were made on schedule throughout
the year. Early into the second half of the year a contract
modification was received which increased the existing IDIQ by a
further $200m. This gives good visibility on the program out to
2024.
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 JBTDS program, following the Biological Point System
Assessment in 2019/20, we are making some customer requested
technical changes and enhancements and now expect a customer
procurement decision in 2022.
The second biological program is the 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 which is expected to commence in
2022.
Across the two biological programs, in 2020, revenue was $10m
lower than 2019 due to the phase of the program being heavily
weighted to customer testing, the funded development work having
been completed in 2019.
The AVCAD program 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. Throughout 2020 we have continued to deliver the 75 test
and evaluation units that were ordered in October 2019. The next
customer procurement decision point is expected to be at the
conclusion of the EMD phase in 2021.
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 year. The increasing
threat to information security, together with the proliferation of
autonomous systems and artificial intelligence, is resulting in
customer budgets for Roke's services continuing to improve.
Continued investment in capability in this area is ongoing to
optimise the opportunity for Chemring.
Roke delivered double digit growth in revenue and has maintained
strong margins despite increased investment in people,
infrastructure and product development. In addition, Roke secured
an important first EW order for Resolve into the US DoD. This was a
key strategic objective for 2020 and provides a platform from which
to explore further opportunities to penetrate the EW market in the
US.
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 on ensuring
that the Virginia and North Carolina facilities are mobilised and
resourced to maximise Chemring's opportunity to convert current and
potential chemical and biological detection Programs of Record. We
will also invest in next generation product development and in
modifying existing technologies to enable them to be deployed on a
wider number of platforms including autonomous systems and
UAV's.
In the UK, the 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.
Roke will focus its efforts on continuing to grow across all its
business areas in the UK, increasing in scale both organically and
through potential bolt-on acquisitions, however any acquisition
must meet a strict set of criteria, enhance shareholder value and
fit in with our wider growth plans. To date, we have reviewed and
declined to proceed with a number of possible transactions.
Roke is increasingly exploring partnering agreements with other
leading organisations to access further market opportunities. An
example of this is Charlie Charlie One ("CC1"), a Dismounted
Situational
Awareness system that Roke has developed in partnership with
Samsung SDS Europe. This ongoing relationship focuses on product
development, sales and marketing, management and joint customer
engagement. Some initial sales of CC1 have now been made and
successful demonstrations and trials conducted in 2020 with several
European militaries may culminate in future orders in 2021.
We continue 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 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.
The strategic focus and collaboration between Roke and our US
Sensors business has secured our first EW order into the US DoD. We
will continue to support the customer through product trials and
evaluation with a view to securing further orders to meet their
operational deployment requirements in this potentially significant
market.
The order book for Sensors & Information at 31 October 2020
was GBP87.3m (2019: GBP80.0m), of which GBP76m is expected to be
delivered in 2021, providing 53% cover of expected 2021 revenue.
2021 trading performance for Sensors & Information is expected
to show a continuation of the levels of business seen in 2020 with
medium-term growth opportunities driven by the chemical &
biological programs of record moving into full rate production.
Segmental review - Countermeasures & Energetics
Performance
Order intake in the year increased to GBP287.8m (2019:
GBP276.5m), driven by high levels of activity in the important US
market. Chemring Countermeasures USA was awarded contracts
totalling $136m during the year to supply expendable
countermeasures to the US Air Force and US Navy including winning a
competitive tender for MJU 32/38 flares worth $50m over five years.
As the second qualified source of global F-35 countermeasures, our
Australian subsidiary's undefinitised contract of $60m, announced
in May 2019, was definitised at a value of $107m on the F-35
programme. With deliveries under these contracts being made in 2020
to 2022, these contracts give improved visibility and strengthen
our leading position in the global countermeasures market.
In the UK, Chemring Countermeasures UK and Chemring Energetics
UK both signed long-term framework agreements with the UK MOD
covering the next five years, with a further two year option.
Initial delivery orders valued at GBP32m were received with
deliveries to be made during 2021 and 2022.
In the final month of the financial year, Chemring
Countermeasures UK was awarded contracts worth GBP25.8m from the UK
MOD to develop and supply naval countermeasures in support of the
Royal Navy, and a further GBP5.5m contract from the UK MOD to
manufacture air countermeasures in support of the UK armed forces.
Deliveries under these contracts will be made in 2021 through to
2023.
Revenue for Countermeasures & Energetics increased
significantly by 30% to GBP265.3m (2019: GBP203.3m), driven
primarily by the Australian and Salisbury countermeasures
facilities being operational after the F-35 fit-out and phased
restart that took place during 2019. Our niche energetic devices
businesses enjoyed another strong period driven by favourable
market conditions.
Underlying operating profit increased by 45% to GBP39.9m (2019:
GBP27.5m), as underlying operating margin improved to 15.0% (2019:
13.5%) driven by improved operational execution.
The statutory operating profit for the year was GBP37.4m (2019:
GBP22.0m).
Our global Countermeasures business has continued to perform
well throughout the year with delivery targets across all product
lines being met. The Australian business made excellent progress in
the delivery of countermeasures for the US F-35 program, further
strengthening our reputation with the US DoD. Following its phased
re-start during 2019, the UK countermeasures business has
successfully achieved its manufacturing volume objectives. As this
business progresses on its modernisation programme, driving
improved operational efficiency will be a key area of focus for
2021. The two US businesses continue to work through some CV-19
related challenges associated with the timely completion of
customer acceptance tests and staffing levels, but to date these
have not had a material impact on our ability to deliver and had no
impact at year-end.
The Tennessee capacity expansion programme, designed to address
the expected F-35 demand from the US Government, continues to
progress on schedule. During the year GBP22m was spent on the
facility, bringing the total spend to date to GBP37m. The expected
total cost of the programme remains approximately GBP50m, with the
first incremental revenues from this facility expected in 2022.
Our niche energetic devices and materials businesses have
continued to perform well, with order intake and deliveries
remaining robust. Our specialist devices business in Chicago has
strengthened its position in the space market and saw its products
play critical roles on both the SpaceX NASA Crew Dragon mission to
the International Space Station and NASA's latest mission to Mars,
where we have a number of mission critical devices on NASA's Atlas
V Launch Vehicle and Perseverance Rover.
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.
In 2021 we will continue the process of modernisation and
automation across our sites, and in improving our competitiveness
through investment in lean manufacturing capabilities. We will
invest in new product development to ensure that our product
portfolio remains highly relevant to our customers, and will
continue the process of operational alignment to share technology
and manufacturing excellence.
Countermeasures & Energetics' order book at 31 October 2020
was GBP388.7m (2019: GBP368.7m). The increase is a result of strong
order intake in the US and Australia on the F-35 programme. Of the
31 October 2020 order book, approximately GBP250m is currently
expected to be delivered in 2021, representing 92% coverage of
expected 2021 revenue.
Performance - discontinued operations
Revenue from discontinued operations fell to GBP9.5m (2019:
GBP43.4m) and underlying operating loss was GBP0.1m (2019: GBP3.5m)
primarily as a result of the disposals made in the last two
years.
Net debt and cash flow
The Group's net debt at 31 October 2020 was GBP48.2m (2019:
GBP75.7m), representing a net debt to underlying EBITDA
(continuing) ratio of 0.65x (2019: 1.24x). IFRS16 Leases has been
adopted in 2020, adding GBP6.5m to opening net debt. Comparators
have not been restated.
The financial health of the Group has continued to improve in a
number of aspects during the year. Disciplined working capital
practices have been maintained to reduce intra-period volatility.
No defined benefit pension contributions were required in the year
and none are expected in 2021. The Group is working to achieve
further improvements over the medium term.
Continuing underlying operating activities generated cash of
GBP82.4m (2019: GBP63.9m). Continuing cash conversion was 110%
(2019: 104%) of continuing underlying EBITDA.
In November 2019 the Group repaid the remaining $83.6m of
private placement loan notes via the use of the GBP136.7m revolving
credit facility which runs to October 2022, which reduced interest
costs in 2020.
Working capital
Working capital relating to the continuing businesses was
GBP85.1m (2019: GBP90.5m), a decrease of GBP5.4m in a year where
revenue has grown by 20%. As a percentage of revenue, working
capital has decreased by
6% to 21% at 31 October 2020. The improvement reflects our
continued focus on commercial contracting, inventory levels and
cash management.
In absolute terms all areas of inventory, trade receivables and
trade payables have increased as the business has grown. Our focus
has been on ensuring this has been executed in a managed and
balanced manner and year end trade receivable days of 30 and trade
payable days of 26 demonstrate this has been successfully
achieved.
Tax
The continuing underlying tax charge totalled GBP9.1m (2019:
GBP7.9m) on a continuing underlying profit before tax of GBP51.7m
(2019: GBP39.4m). The effective tax rate on underlying profit
before tax for the year was a charge of 17.6% (2019: 20.1%). The
decrease in the continuing effective rate of tax on the results of
the Group is due to prior year tax adjustments and the geographic
mix of profits. We expect the future effective tax rate to return
to the low twenties.
The continuing statutory tax charge totalled GBP8.6m (2019:
GBP3.6m) on a continuing statutory profit before tax of GBP43.3m
(2019: GBP26.7m). The discontinued underlying tax was GBPnil (2019:
GBP6.2m credit) on an underlying loss before tax of GBP0.1m (2019:
GBP3.5m loss).
Retirement benefit obligations
The surplus on the Group's defined benefit pension schemes was
GBP7.6m (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.
The reduction 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. Deficit recovery payments totalling GBP6.25m
were made prior to 31 December 2018. The Group agreed with the
trustees that no further deficit recovery payments are required and
the Group was released from the bank guarantee of GBP7.2m given to
the scheme in respect of future contributions. The next actuarial
valuation is due as at 6 April 2021 after which the future funding
requirements will be reassessed.
Contingent liabilities
The Group is, from time to time, party to legal proceedings and
claims, and is involved in correspondence relating to potential
claims, which arise in the ordinary course of business.
In addition the following matters, as previously disclosed in
earlier annual reports, remained open at year-end:
-- 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 12.
Dividends
The Board is recommending a final dividend in respect of the
year ended 31 October 2020 of 2.6p (2019: 2.4p) per ordinary share.
With the interim dividend of 1.3p per share (2019: 1.2p), this
results in a total dividend of 3.9p (2019: 3.6p) per share.
If approved, the final dividend will be paid on 23 April 2021 to
shareholders on the register on 6 April 2021. In accordance with
accounting standards, this final dividend has not been recorded as
a liability as at 31 October 2020.
Board of directors
On 16 December 2019, we announced that Nigel Young had indicated
his intention to retire as a non-executive director when his
current appointment came to an end and Nigel therefore stood down
from the Board on 30 April 2020. Nigel served as a non-executive
director from 1 May 2013 and was the Senior Independent Director
from March 2016. During his tenure the Group progressed through a
period of significant transformation and the Group is extremely
grateful for his guidance and commitment. Nigel's role as Senior
Independent Director was assumed by Andrew Davies on 1 May
2020.
Laurie Bowen, non-executive director, assumed the role of
Chairman of the Remuneration Committee on 4 March 2020.
With the appointment of Fiona MacAulay as a non-executive
director on 3 June 2020 we were able to add to our Board, amongst
other attributes, significant experience in operating safely in
hazardous environments.
Current trading and outlook
Trading since the start of the current financial year has been
in line with expectations.
The Board's expectations for the Group's 2021 performance remain
unchanged.
A great deal of work has been done in recent years to produce a
more balanced delivery of revenue and profit across the year. The
Group expects the balance of its trading performance in 2021 to be
similar to
2020 with a slight bias towards the second half of the financial
year.
The order book of continuing businesses as at 31 October 2020
was GBP476m, of which GBP326m is currently expected to be
recognised as revenue in 2021, giving excellent visibility for the
full year.
In the longer term, Chemring is well placed, with a robust
strategy, market-leading positions across different geographies and
sectors, and 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 any
near-term CV-19 related uncertainty, Chemring's long-term prospects
remain strong.
Going concern
The Group's business activities, key performance indicators, and
principal risks and uncertainties are described within the 2020
annual report and accounts.
The directors believe that 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 a 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 2022, 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 current economic conditions in the
defence market, particularly in relation to government budgets
and expenditure;
-- the impact of macro-economic factors, particularly interest
rates and foreign exchange rates;
-- the status of the Group's existing financial arrangements and
associated covenant requirements;
-- progress made in developing and implementing cost reduction
programmes and operational improvements;
-- the availability of mitigating actions should business activities
fall behind current expectations, including the deferral of
discretionary overheads and restricting cash flows; 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. 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
financial statements.
Long-term viability statement
The directors have assessed the Group's viability over a
three-year period to October 2023 based on the above assessment,
combined with the Group's strategic planning process, which gives
greater certainty over the forecasting assumptions used. Based on
this assessment, the directors have a reasonable expectation that
the Group will be able to continue in operation and meet all its
liabilities as they fall due up to October 2023.
The directors have chosen a three year period to assess
viability to reflect the characteristics of the Group's end
markets. These range from multi-year contracts such as the US
programs of record to shorter term orders, such as those awarded to
Roke.
In considering our viability statements we have considered the
principal risks and uncertainties discussed in the strategic report
and assessed the impact. The impact of CV-19 on viability is
clearly a consideration for all companies at this time. Chemring's
operations have been designated as critical to the defence and
national security industrial base in all territories that we
operate. All our businesses remain open with business continuity
plans mobilised at every location.
Sensitivity analyses were run to model the financial and
operational impact of plausible downside scenarios of these risk
events occurring individually or in combination. These included the
impacts of a further deterioration in the macroeconomic environment
including how CV-19 may impact the economy and future government
policy and spending, underperformance in executing the Group's
strategy, failure to achieve operational improvement and material
movements in foreign exchange rates. Consideration was also given
to the plausibility of the occurrence of other individual events
that in their own right could have a material impact on the Group's
viability.
Based on the consolidated financial impact of the sensitivity
analyses, including the CV-19 scenario above, and associated
mitigating internal controls and risk management actions that are
either now in place or could be implemented, the Board has been
able to conclude that the Group will be able to maintain sufficient
bank facilities to meet its funding needs over the three-year
period and those forecasts show compliance with covenants under the
revolving credit facility.
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, except for the inclusion of CV-19, not changed significantly
from those set out in the Group's 2019 annual report and accounts
and the 2020 interim report. A detailed description of the Group's
principal risks and uncertainties and the ways they are mitigated
can be found on pages 38 to 44 of the Group's 2020 annual report
and accounts. In summary, the principal risks relate to:
-- Health, safety, security and environmental risks
-- Strategic risks
-- Financial risks
-- Operational risks
-- People risks
-- Legal and compliance risks
-- Reputational risks
Management have detailed mitigation plans and assurance
processes to manage and monitor these risks.
RESPONSIBILITY STATEMENT OF THE DIRECTORS ON THE ANNUAL REPORT
AND ACCOUNTS
The responsibility statement below has been prepared in
connection with the Company's full annual report and accounts for
the year ended 31 October 2020. Certain parts thereof are not
included within this announcement.
We confirm to the best of our knowledge:
1. the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
2. the strategic report and directors' report includes a fair
review of the development and performance of the business
and the position of the issuer and the undertakings included
in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable, and provides the information
necessary for shareholders to assess the Group's performance,
business model and strategy.
This responsibility statement was approved by the Board of
directors on 15 December 2020, and has been signed on its behalf by
Michael Ord and Andrew Lewis.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 October 2020
2020 2019
Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 402.5 - 402.5 335.2 - 335.2
------------- --------------- ------- ------------- --------------- ------
Operating profit 54.7 (8.4) 46.3 44.0 (12.7) 31.3
Finance expense (3.0) - (3.0) (4.6) - (4.6)
------------- --------------- ------- ------------- --------------- ------
Profit before tax 51.7 (8.4) 43.3 39.4 (12.7) 26.7
Taxation (9.1) 0.5 (8.6) (7.9) 4.3 (3.6)
------------- --------------- ------- ------------- --------------- ------
Profit after tax 42.6 (7.9) 34.7 31.5 (8.4) 23.1
Discontinued operations
(Loss)/profit after
tax from discontinued
operations (note 4) (0.1) 0.1 - 2.7 (3.9) (1.2)
------------- --------------- ------- ------------- --------------- ------
Profit after tax 42.5 (7.8) 34.7 34.2 (12.3) 21.9
------------- --------------- ------- ------------- --------------- ------
Earnings per ordinary share
Continuing operations
Basic 15.1p 12.3p 11.2p 8.2p
Diluted 14.8p 12.0p 11.0p 8.1p
------------- --------------- ------- ------------- --------------- ------
Continuing operations and discontinued
operations
Basic 15.1p 12.3p 12.2p 7.8p
Diluted 14.7p 12.0p 12.0p 7.7p
------------- --------------- ------- ------------- --------------- ------
* Further information about continuing non-underlying items is
set out in note 3.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 October 2020
2020 2019
GBPm GBPm
Profit after tax attributable to equity holders
of the parent as reported 34.7 21.9
Items that will not be reclassified subsequently
to profit or loss
Actuarial (losses)/gains on defined benefit
pension schemes (1.9) 1.6
Movement on deferred tax relating to pension
schemes 0.7 (0.7)
------ ------
(1.2) 0.9
------ ------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of foreign
operations (0.2) (5.2)
Exchange difference reclassified to income
statement on disposal of foreign operation (1.4) -
Tax on exchange differences on translation
of foreign operations 0.5 0.2
------ ------
(1.1) (5.0)
------ ------
Total comprehensive income attributable to
equity holders of the parent 32.4 17.8
------ ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 October 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 - - - - - 34.7 - 34.7
Other comprehensive
loss - - - - (1.6) (1.9) - (3.5)
Tax relating to
components of other
comprehensive loss - - - - 0.5 0.7 - 1.2
---------------------- -------- --------- --------- ------------ ------------ --------- ------- -------
Total comprehensive
(loss)/income - - - - (1.1) 33.5 - 32.4
Ordinary shares
issued - 0.5 - - - - - 0.5
Share-based payments
(net of settlement) - - - - - 3.6 - 3.6
Dividends paid - - - - - (10.4) - (10.4)
Purchase of shares
by employee share
ownership plan
trust - - - - - (2.3) - (2.3)
Transactions in
own shares - - - - - (4.9) 4.9 -
At 31 October 2020 2.8 306.7 12.9 1.0 (18.9) 28.0 (2.9) 329.6
-------- --------- --------- ------------ ------------ --------- ------- -------
Share Special
Share premium capital Revaluation Translation Retained Own
capital account reserve reserve reserve earnings shares Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November 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/(loss) - - - - - (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
Dividends 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
-------- --------- --------- ------------ ------------ --------- ------- ------
* Transfer to reclassify exchange differences on translation of
foreign subsidiaries included in retained earnings to the
translation reserve.
CONSOLIDATED BALANCE SHEET
as at 31 October 2020
2020 2019
GBPm GBPm GBPm GBPm
Non-current assets
Goodwill 108.5 108.5
Development costs 29.8 26.1
Other intangible assets 16.6 25.3
Property, plant and equipment 194.0 170.0
Retirement benefit surplus 7.6 9.6
Deferred tax 15.7 18.5
------- -------- ------- --------
372.2 358.0
------- -------- ------- --------
Current assets
Inventories 91.3 78.1
Trade and other receivables 62.8 53.7
Cash and cash equivalents 14.7 1.3
Derivative financial instruments 0.4 0.2
------- -------- ------- --------
169.2 133.3
------- -------- ------- --------
Assets classified as held
for sale - 7.0
------- -------- ------- --------
Total assets 541.4 498.3
------- -------- ------- --------
Current liabilities
Borrowings - (69.2)
Lease liabilities (1.5) -
Trade and other payables (97.2) (68.3)
Provisions (3.3) (4.8)
Current tax (9.1) (4.0)
Derivative financial instruments (0.7) (0.9)
------- -------- ------- --------
(111.8) (147.2)
------- -------- ------- --------
Liabilities directly associated
with assets classified as
held for sale - (1.8)
Non-current liabilities
Borrowings (57.5) (7.7)
Lease liabilities (3.8) -
Provisions (15.7) (12.4)
Deferred tax (22.9) (23.0)
Preference shares (0.1) (0.1)
Derivative financial instruments - (0.3)
------- -------- ------- --------
(100.0) (43.5)
------- -------- ------- --------
Total liabilities (211.8) (192.5)
------- -------- ------- --------
Net assets 329.6 305.8
------- -------- ------- --------
Equity
Share capital 2.8 2.8
Share premium account 306.7 306.2
Special capital reserve 12.9 12.9
Revaluation reserve 1.0 1.0
Translation reserve (18.9) (17.8)
Retained earnings 28.0 8.5
------- -------- ------- --------
332.5 313.6
Own shares (2.9) (7.8)
------- -------- ------- --------
Total equity 329.6 305.8
------- -------- ------- --------
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2020
2020 2019
GBPm GBPm
Cash flows from operating activities
--------------------------------------------------------- -------- -------
Cash generated from continuing underlying operations 82.4 63.9
Cash impact of continuing non-underlying items (3.6) (5.3)
Cash (utilised in)/generated from discontinued
underlying operations (2.6) 13.7
Cash impact of discontinued non-underlying items (1.3) (7.1)
--------------------------------------------------------- -------- -------
Cash flows from operating activities 74.9 65.2
Retirement benefit deficit recovery contributions - (0.4)
Tax received/(paid) 1.0 (2.9)
-------- -------
Net cash inflow from operating activities 75.9 61.9
-------- -------
Cash flows from investing activities
Purchases of intangible assets (5.2) (3.8)
Purchases of property, plant and equipment (35.6) (41.0)
Customer funding for capital programmes 0.9 2.4
Proceeds on disposal of subsidiary 14.5 0.7
-------- -------
Net cash outflow from investing activities (25.4) (41.7)
-------- -------
Cash flows from financing activities
Dividends paid (10.4) (9.5)
Purchase of own shares (2.4) -
Proceeds on issue of shares 0.5 -
Finance expense paid (3.0) (4.9)
Capitalised facility fees paid - (0.3)
Drawdown of borrowings 108.0 -
Repayments of borrowings (123.1) (18.1)
Repayments of lease liabilities (1.7) -
Net cash outflow from financing activities (32.1) (32.8)
-------- -------
Increase/(decrease) in cash and cash equivalents 18.4 (12.6)
Cash and cash equivalents at beginning of the
year (3.3) 9.6
Effect of foreign exchange rate changes (0.4) (0.3)
-------- -------
Cash and cash equivalents at end of the year (including
bank overdraft) 14.7 (3.3)
-------- -------
Notes
1. ACCOUNTS AND AUDITOR'S REPORT
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 October 2020 or
31 October 2019 but is derived from those accounts. Statutory
accounts for 2019 have been delivered to the Registrar of
Companies, and those for 2020 will be delivered following the
Company's Annual General Meeting. The auditor has reported on these
accounts; their reports were unqualified, did not draw attention to
any matters by way of emphasis without qualifying their report, and
did not contain any statements required under either section 498(2)
or section 498(3) of the Companies Act 2006.
This announcement has been prepared on the basis of the
accounting policies set out in the Company's financial statements
for the year ended 31 October 2020.
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 Company
expects to post full financial statements that comply with IFRSs on
its website on 15 December 2020 (see note 15 below).
Recent accounting developments
The following International Financial Reporting Committee
("IFRIC") interpretations, amendments to existing standards and new
standards were adopted in the year ended 31 October 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.
The following IFRIC interpretations, amendments to existing
standards and new standards were adopted in the year ended 31
October 2020 and have materially impacted the reported results or
the financial position:
-- IFRS 16 Leases
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 of GBP6.3m
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.
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); and
- the exclusion of short-term leases, being those with a lease term of 12 months or less.
2. SEGMENTAL ANALYSIS - CONTINUING OPERATIONS
Year ended 31 October 2020
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 137.2 265.3 - 402.5
Segment result before depreciation,
amortisation, non-underlying
items and discontinued operations 30.7 56.5 (12.6) 74.6
Depreciation (2.8) (15.7) - (18.5)
Amortisation (0.5) (0.9) - (1.4)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental underlying operating
profit 27.4 39.9 (12.6) 54.7
Amortisation of acquired intangibles (6.4) (2.5) - (8.9)
Non-underlying items - - 0.5 0.5
-------------------------------------- --------------- ---------------- ------------ -------
Segmental operating profit 21.0 37.4 (12.1) 46.3
-------------------------------------- --------------- ---------------- ------------ -------
Year ended 31 October 2019
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 131.9 203.3 - 335.2
Segment result before depreciation,
amortisation, non-underlying
items and discontinued operations 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 - - (0.6) (0.6)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental operating profit 19.7 22.0 (10.4) 31.3
-------------------------------------- --------------- ---------------- ------------ -------
3. ALTERNATIVE PERFORMANCE MEASURES
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.
2020 2019
GBPm GBPm
Gain/(loss) on the movement in the fair value
of derivative financial instruments 0.5 (0.6)
------ -------
Impact of non-underlying items on EBITDA 0.5 (0.6)
Intangible amortisation arising from business
combinations (8.9) (12.1)
------ -------
Impact of non-underlying items on profit before
tax (8.4) (12.7)
Tax impact of non-underlying items 0.5 4.3
------ -------
Impact of non-underlying items on continuing
profit after tax (7.9) (8.4)
Non-underlying discontinued operations after
tax 0.1 (3.9)
------ -------
Impact of non-underlying items on profit after
tax (7.8) (12.3)
Underlying profit after tax 42.5 34.2
------ -------
Statutory profit after tax 34.7 21.9
------ -------
Amortisation of acquired intangibles
Included in non-underlying items is the amortisation charge
arising from business combinations of GBP8.9m (2019: GBP12.1m).
Amortisation of acquired intangibles arising from business
combinations is associated with acquisition accounting 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.
Derivative financial instruments
Included in non-underlying items is a GBP0.5m gain (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.
Tax
In the year ended 31 October 2020, the tax impact of continuing
non-underlying items comprises a GBP0.5m credit (2019: GBP4.3m
credit) on the above non-underlying items.
Discontinued operations
Further details on the results of discontinued operations are
presented in note 4.
4. 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 energetic devices businesses. It therefore made
the decision to exit the commoditised energetics businesses.
2020 2019
GBPm GBPm
Revenue 9.5 43.4
Underlying operating loss from discontinued
operations (0.1) (3.5)
Tax on underlying operating loss from discontinued
operations - 6.2
------ ------
(Loss)/profit after tax from underlying discontinued
operations (0.1) 2.7
(Loss)/profit after tax is analysed as:
Before exceptional items (0.1) 2.7
------------------------------------------------------ ------ ------
Exceptional items 0.1 (3.8)
Tax on exceptional items - (0.1)
------------------------------------------------------ ------ ------
0.1 (3.9)
------ ------
Loss for the year from discontinued operations - (1.2)
------ ------
In the year ended 31 October 2020, the loss related to the
continued trading activity of Chemring Ordnance, Inc. On 7 May 2020
the Group sold its US subsidiary Chemring Ordnance, Inc. to Nammo
Defense Systems Inc., 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.
In 2020 the exceptional items include a gain on disposal of
GBP3.5m relating to the sale of Chemring Ordnance, Inc., an
increase to the disposal provision in respect of the disposal of
the European Munitions businesses in 2014 of GBP1.3m and a GBP2.1m
increase to the disposal provisions relating to the exit of the
commoditised energetics businesses announced in 2018.
In the year ended 31 October 2019, the sale of Chemring Military
Products, Inc. and Chemring Defence UK Limited were completed and
Chemring Prime Contracts Limited was closed. 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.
Details of the sale of the subsidiaries
The Group completed the sale of the entire issued stock capital
of Chemring Ordnance, Inc. to Nammo Defense Systems, Inc. on 7 May
2020. Under the terms of the agreement, the Group received $17m
upon completion of the transaction.
The Group completed the sale of the entire issued stock capital
of Chemring Military Products, Inc. to Global Ordnance LLC on 5
April 2019. Under the terms of the agreement, the Group received
GBP1.7m upon completion of the transaction. Deferred consideration
of GBP0.7m was received on the first anniversary of the
transaction. A further deferred consideration amount of GBP0.4m is
payable on the second anniversary of the transaction. The Group is
entitled to further contingent consideration following the sale of
up to GBP0.8m if certain performance-related and event-driven
milestones are achieved by Chemring Military Products, Inc. No
value has been assigned to this consideration based on the
probability assessment of the associated milestones being
reached.
The Group completed the sale of the entire issued share capital
of Chemring Defence UK Limited to PWD Group Limited on 24 June
2019. Under the terms of the agreement, the Group received GBP0.0m
upon completion of the transaction. Contingent consideration is
payable if certain performance-related and event-driven milestones
are achieved by Chemring Defence UK Limited. No value has been
assigned to this consideration based on the
probability assessment of the associated milestones being
reached.
2020 2020 2019 2019 2019
GBPm GBPm GBPm GBPm GBPm
Chemring Total Chemring Chemring Total
Ordnance, Military Defence
Inc. Products, UK Limited
Inc.
Consideration received or
receivable:
Cash 13.8 13.8 1.7 - 1.7
Fair value of deferred consideration - - 1.1 - 1.1
----------- ------ ----------- ------------ ------
Total disposal consideration 13.8 13.8 2.8 - 2.8
Net working capital adjustment (0.8) (0.8) - - -
Net assets and liabilities
disposed of (9.3) (9.3) (3.6) (0.4) (4.0)
Disposal costs (1.6) (1.6) (1.1) (0.5) (1.6)
----------- ------ ----------- ------------ ------
Profit/(loss) on disposal
before tax 2.1 2.1 (1.9) (0.9) (2.8)
Reclassification of foreign
currency translation reserve 1.4 1.4 - - -
Income tax on profit/(loss) - - - - -
on disposal
----------- ------ ----------- ------------ ------
Profit/(loss) on disposal
after tax 3.5 3.5 (1.9) (0.9) (2.8)
----------- ------ ----------- ------------ ------
The carrying amounts of assets and liabilities as at the date of
sale were:
Chemring Total Chemring Chemring Total
Ordnance, Military Defence
Inc. Products, UK Limited
Inc.
7 May 2020 5 April 24 June
2019 2019
GBPm GBPm GBPm GBPm GBPm
Trade and other receivables 10.5 10.5 14.3 3.6 17.9
------------ ------ ----------- ------------ -------
Total assets 10.5 10.5 14.3 3.6 17.9
------------ ------ ----------- ------------ -------
Trade and other payables (0.4) (0.4) (10.7) (3.2) (13.9)
------------ ------ ----------- ------------ -------
Total liabilities (0.4) (0.4) (10.7) (3.2) (13.9)
------------ ------ ----------- ------------ -------
Net assets 10.1 10.1 3.6 0.4 4.0
------------ ------ ----------- ------------ -------
5. HELD FOR SALE
In the year ended 31 October 2020, the Group sold its US
subsidiary Chemring Ordnance, Inc. to Nammo Defense Systems Inc,
concluding the Group's exit from its commoditised energetics
businesses. The Group therefore had no assets or liabilities
classified as held for sale as at 31 October 2020.
6. EARNINGS PER SHARE
Earnings per share is based on the average number of shares in
issue, excluding own shares held, of 281,447,284 (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 288,416,915 (2019: 286,092,818).
The earnings used in the calculations of the various measures of
earnings per share are as follows:
2020 2019
Basic Diluted Basic Diluted
GBPm EPS (pence) EPS (pence) GBPm EPS (pence) EPS (pence)
Underlying profit after
tax 42.6 15.1 14.8 31.5 11.2 11.0
Non-underlying items (7.9) (8.4)
------ ------------- ------------- ------ -------------- -------------
Profit from continuing
operations 34.7 12.3 12.0 23.1 8.2 8.1
Loss from discontinued
operations - - - (1.2) (0.4) (0.4)
------ ------------- ------------- ------ -------------- -------------
Total profit after tax 34.7 12.3 12.0 21.9 7.8 7.7
------ ------------- ------------- ------ -------------- -------------
7. CASH GENERATED FROM OPERATING ACTIVITIES
2020 2019
GBPm GBPm
Operating profit from continuing operations 46.3 31.3
Amortisation of development costs 1.4 1.3
Amortisation of intangible assets arising from
business combinations 8.9 12.1
Amortisation of patents and licenses - 0.1
Loss on disposal of non-current assets 0.3 0.7
Depreciation of property, plant and equipment 18.5 15.8
Non-cash movement of non-underlying items (0.5) 0.6
Share-based payment expense 4.0 2.5
------- ------
Operating cash flows before movements in working
capital 78.9 64.4
Increase in inventories (12.2) (7.9)
(Increase)/decrease in trade and other receivables (9.9) 10.4
Increase/(decrease) in trade and other payables 25.2 (2.7)
Increase/(decrease) in provisions 0.4 (0.3)
------- ------
Operating cash flow from continuing underlying
operations 82.4 63.9
------- ------
Discontinued operations:
Operating cash flow from discontinued underlying
operations (2.6) 13.7
Cash impact of non-underlying items from discontinued
operations (1.3) (7.1)
Tax paid - (0.7)
------- ------
Net cash (outflow)/inflow from discontinued operating
activities (3.9) 5.9
Net cash inflow from discontinued investing activities 14.0 0.5
------- ------
Net cash inflow from discontinued operations 10.1 6.4
------- ------
8. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2020 2019
GBPm GBPm
Increase/(decrease) in cash and cash equivalents
during the year 18.4 (12.6)
------- -------
Decrease in debt and lease financing due to cash
flows 16.8 18.4
------- -------
Decrease in net debt resulting from cash flows 35.2 5.8
Effect of foreign exchange rate changes (0.6) 0.5
Lease interest and other non-cash movements (0.4) -
Amortisation of debt finance costs (0.2) (0.2)
------- -------
Movement in net debt 34.0 6.1
Adoption of IFRS 16 Leases (6.5) -
Net debt at beginning of the year (75.7) (81.8)
------- -------
Net debt at end of the year (48.2) (75.7)
------- -------
9. ANALYSIS OF NET DEBT
As at Adoption Exchange As at
1 Nov of IFRS Cash Non-cash rate 31 Oct
2019 16 Leases flows changes effects 2020
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents
(including bank overdraft) (3.3) - 18.4 - (0.4) 14.7
Debt due within one year
(excluding bank overdraft) (64.6) - 64.6 - - -
Debt due after one year (7.7) - (49.5) (0.2) (0.1) (57.5)
Lease liabilities - (6.5) 1.7 (0.4) (0.1) (5.3)
Preference shares (0.1) - - - - (0.1)
------- ----------- ------- --------- --------- --------
(75.7) (6.5) 35.2 (0.6) (0.6) (48.2)
------- ----------- ------- --------- --------- --------
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.
The Group had GBP86.4m (2019: GBP130.2m) of undrawn borrowing
facilities as at 31 October 2020.
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.
10. DIVID
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.
An interim dividend in respect of 2020 of 1.3p per ordinary
share was paid on 11 September 2020 to shareholders on the register
on 21 August 2020.
The Board is recommending a final dividend in respect of the
year to 31 October 2020 of 2.6p (2019: 2.4p) per ordinary share.
With the interim dividend of 1.3p (2019: 1.2p), this results in a
total dividend of 3.9p (2019: 3.6p) per ordinary share. If
approved, the final dividend will be paid on 23 April 2021 to
shareholders on the register on 6 April 2021. In accordance with
accounting standards, this final dividend has not been recorded as
a liability as at 31 October 2020.
11. EXCHANGE RATES
The following exchange rates applied during the year:
Average Closing Average Closing
rate rate rate rate
2020 2020 2019 2019
US dollar 1.28 1.29 1.26 1.29
AU dollar 1.84 1.84 1.82 1.88
-------- -------- -------- --------
For the year ended 31 October 2020 a 10 cent strengthening in
the US dollar exchange rate would have increased reported net debt
by approximately GBP4.5m (2019: GBP5.7m).
12. 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 remain open at year end:
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, with 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.
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. During the year, ASBCA issued its decision
in relation to this matter in favour of Alloy Surfaces Company,
Inc. As a result the contingent liability no longer exists as at 31
October 2020.
At 31 October 2019 a provision of GBP1.0m existed to cover
estimated legal costs for the Group with regards to this issue.
13. EVENTS AFTER THE BALANCE SHEET DATE
There were no events after the balance sheet date requiring
disclosure.
14. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed. The directors of the Company had no material
transactions with the Company during the year, other than in
connection with their service agreements.
15. 2020 ANNUAL REPORT AND ACCOUNTS
The annual report and accounts for the year ended 31 October
2020 will be posted on the Company's website, www.chemring.co.uk ,
on 15 December 2020 and a copy will be posted to shareholders, as
required, in advance of the Company's Annual General Meeting on 4
March 2021.
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