27th Jun 2006 07:00
FOR IMMEDIATE RELEASE 27 June 2006 CHEMRING GROUP PLC Interim Results for the Six Months to 30 April 2006 Chemring Group PLC today announces its interim results: * Profit before tax on continuing operations up 64% to ‚£11.8 million (2005*: ‚£7.2 million) * Strong cash inflow generated from operations of ‚£13.4 million (2005*: ‚£2.0 million outflow) * Basic earnings per share up 81% at 26.02p (2005*: 14.38p) * Adjusted earnings per share** up 90% at 27.74p (2005*: 14.62p) * Interim dividend per ordinary share up 50% at 4.80p (2005*: 3.20p) Divisional Highlights * Countermeasures * Current order book of ‚£121 million (2005: ‚£106 million) * Record growth in turnover and profit at Alloy Surfaces * Strong first half at Kilgore, meeting all our expectations * Energetics * New acquisitions performing well and exceeding management targets * Current order book of ‚£65 million (2005: ‚£9 million) * Marine * McMurdo lights business divested for ‚£2.85 million * Divestment plans for remaining businesses ongoing Results for the Half Year to 30 April 2006 2006 2005* % increase ‚£m ‚£m Continuing operations: Revenue 82.6 48.0 72 Operating profit 14.4 8.5 69 Finance expense (2.6) (1.3) Profit before tax 11.8 7.2 64 Basic earnings per share 26.02p 14.38p 81 Adjusted earnings per share** 27.74p 14.62p 90Ken Scobie, Chemring Group Chairman, commented:"In recent reports I have predicted buoyant prospects for the Group, which theexecutive management have successfully delivered. The Group's Countermeasuresdivision still commands more than 50% of the world market for expendablecountermeasures and has continued to see a considerable increase in profits.This, combined with the solid start to the year seen in the Energeticsdivision, has helped deliver very strong and encouraging operational andfinancial performances in the first half. I anticipate that the full yearresults will demonstrate further the Group's potential, our growing presence inthe defence industry worldwide, and our ability to generate value for ourshareholders."* See Note 1 below** See Note 3 belowNotes: 1. All comparisons are for the half year to 30 April 2005 as restated for IFRS. 2. The interim dividend of 4.80p per ordinary share will be paid on 15 August 2006 to holders on the register at 28 July 2006. The ex-dividend date will be 26 July 2006. 3. Adjusted earnings per share is reconciled to basic earnings per share in note 5 of the interim statement. For further information:David Price Chief Executive, Chemring Group PLC 0207 930 0777 Paul Rayner Finance Director, Chemring Group PLC 0207 930 0777 Rupert Pittman Cardew Group 0207 930 0777 STATEMENT BY THE CHAIRMANResults for the Half Year to 30 April 2006 2006 2005* ‚£m ‚£m Continuing operations: Revenue 82.6 48.0 Operating profit 14.4 8.5 Finance expense (2.6) (1.3) Profit before tax 11.8 7.2 Basic earnings per share 26.02p 14.38p Adjusted earnings per share** 27.74p 14.62pI am pleased to report that the Group has had an outstanding first half. Oncontinuing operations, operating profit increased by 69% to ‚£14.4 million (2005*: ‚£8.5 million) and profit before tax increased by 64% to ‚£11.8 million (2005*: ‚£7.2 million).Basic earnings per share increased by 81% to 26.02p (2005*: 14.38p). Adjustedearnings per share, which has been calculated to exclude the impact of non-cashsettled share-based payments and amortisation on acquired intangibles,increased by 90% to 27.74p (2005*: 14.62p).The Group generated positive operating cash flow from operations of ‚£13.4million, compared to an outflow of ‚£2.0 million in the first half of 2005. Theacquisitions in the period were partially funded by approximately ‚£29.5 millionof new debt, and hence net debt at the end of the first half increased to ‚£75.4million (2005*: ‚£39.7 million).Four acquisitions were completed during the period - Comet in Germany,Technical Ordnance in the US, and Leafield Engineering and Leafield Marine inthe UK. They contributed ‚£9.7 million of revenue and ‚£1.2 million of operatingprofit to the Group in the first half. The integration of these businesseswithin our Energetics division, together with Nobel Energetics acquired inSeptember 2005, is now well under way.The conditional sale of the non-core McMurdo marine lights business for ‚£2.85million cash was announced on 30 May 2006. The sale should be completed on 30June 2006.The Board wishes to continue with its progressive dividend policy, whilstbalancing the Group's debt/equity ratio and managing cash requirements to fundexpansion, including small acquisitions. Accordingly, the directors haverecommended an interim dividend of 4.80p per ordinary share (2005*: 3.20p), anincrease of 50%. The interim dividend will be paid on 15 August 2006 toshareholders on the register at 28 July 2006.Forward exchange currency contracts have been entered into to reduce theGroup's exposure to depreciation of the US dollar against sterling.As I reported in my last statement, the mediation with our former insurancebroker, Willis, was unsuccessful. We therefore continue to prepare forfull-scale litigation to recover the significant sums which we believe are dueto us.CountermeasuresThe Group's Countermeasures division, which still commands more than 50% of theworld market for expendable countermeasures, has continued its remarkableprofit growth, with Kilgore quadrupling its profits, Alloy Surfaces up 51%, andChemring Countermeasures up 32% over the first half of last year.Demand for Alloy Surfaces' special material decoys is unabated, and salesvolumes have increased by 72% compared with 2005. The extension to AlloySurfaces' second facility was completed in early June 2006, and the completionof the new third facility is on target to enable production to commence inNovember 2006. Our production build-up has, to date, met all of the US Armyproduction milestones.For the first time since it was acquired by the Group in 2001, Kilgoregenerated a strong first half performance on the back of consistent volumemanufacture. Production performance on its high volume decoys has improvedsignificantly, and production rates of over 8,000 units a day are beingachieved. A new large flare facility to supply additional flares to the US AirForce is being built, and production will commence in the second half of theyear.In the UK, Chemring Countermeasures had a solid performance, with a substantialincrease in demand from the UK Ministry of Defence to support peacekeepingoperations in Afghanistan. The company has also been successful in capturingseveral important NATO contracts for naval countermeasures.The Department of Homeland Security (DHS) in the US, to which I have referredin previous reports, is now searching for alternative solutions to the lasersystems initially selected as their preferred method of protecting commercialaircraft. Alloy Surfaces' special material decoys have been selected by severalsystems providers as an integral part of the alternative solutions which arenow being presented to the DHS.EnergeticsThis division had a solid start to its first full year of operation, with eachof the businesses in the division trading profitably. The majority ofbusinesses met expectations, and any shortfalls which arose were purelyattributable to timing issues, which are common with defence contracts, andwill be recovered in the second half of the year.PW Defence had an excellent start to 2006, with sales volumes up 41% comparedwith the first half of 2005, principally driven by the peacekeepingrequirements of several countries, including the UK. Several large NATOcontracts for battlefield simulation products were secured, and the start-up oflow-cost manufacturing in Estonia was successfully completed.Comet also had a very good start, with orders from the US Army for battlefieldsimulation products and from the French Army for its PEMBS minefield clearancesystem. There is considerable interest in this system from other nationsinvolved in peacekeeping operations for dealing with either deployed mines orImprovised Explosive Devices.Two key development programmes completed major milestones in the last fewmonths. Nobel Energetics completed the final development of the rocket motorsfor the NLAW anti-armour missile. Kilgore also completed the update of itsmarine location marker, with successful qualification trials from both F/A-18and helicopter platforms, and full scale production will get underway in thesecond half of the year.Marine ElectronicsIn line with our stated strategy to divest the marine division, we announcedthe conditional sale of the McMurdo marine lights business for ‚£2.85 million inMay. I hope that, when I report to you next, I will be able to confirm that wehave disposed of the residual marine electronics business at a satisfactoryvaluation.Board of DirectorsIn May, the Board was delighted to welcome the Rt Hon Lord Freeman as anon-executive director, completing, for the moment, the restructuring of theBoard. Lord Freeman has a wealth of experience in Government, the defenceindustry, business and finance, and we consider ourselves fortunate to havesecured his services. He will assume the Chairmanship of the Audit Committee inJuly.International Financial Reporting StandardsWe have adopted International Financial Reporting Standards ("IFRS") in thefirst half of 2006 and have consequently restated the prior period accounts.Full details of the restatements upon adoption of IFRS have been published innotes 8 and 9 with my statement today.PensionsIn earlier reports, I have referred to the work being done by the Group toprovide satisfactory, modern pension arrangements for its UK employees, and toeliminate any actual or theoretical gap which might exist between the asset andliability valuations of our defined benefit schemes. I repeat my previousassertions that any assessment of a deficit in the funding positions of theseschemes, taking into consideration the additional contributions being made bythe Group every year, would be minimal and not material in the context of theGroup. The strength of the Group's covenant is recognised by virtue of the factthat we have been assessed at the lowest risk level by the Pension ProtectionsFund in collecting its levy this year.The Board has however been considering all aspects of the current pensionsdebate, including possible corporate governance implications, where we haveconcerns at the apparent contradictions which now exist between the variousparties' responsibilities for pension schemes. The Board has a responsibilityto ensure that the defined benefit schemes are properly funded, and followingthe adoption of IFRS, to manage the liability representing the deficit on theGroup's balance sheet. We are in discussions with all interested parties todevelop a satisfactory solution to this issue.ProspectsYour directors are very conscious of the current political-military scenario,not only in Iraq and Afghanistan but also in other disturbed areas of theworld, and its potential impact on the growth of the Group. To the extent thatanyone can predict world events, the Board takes soundings in the appropriatequarters on its judgment for future strategy and the anticipated rate ofexpansion of the Group. In our predominant niche of countermeasures, the Boardis confident that our expansion will continue for several years, both inconventional magnesium- based decoys and in Alloy Surfaces' special materialdecoys. The commissioning of the extension to Alloy Surfaces' second facilityearlier this month, and the opening of the third facility in November 2006,will provide the additional capacity to meet the current strong order book.In our Energetics activities, we are convinced that there are significantopportunities for expansion, consolidation and rationalisation, with theresultant improvements in efficiency and global marketing capabilities. Thesecond half will benefit from a full six months' contribution from Comet,Technical Ordnance and Leafield.In recent reports I have predicted buoyant prospects for the Group, which theexecutive management have successfully delivered. I anticipate that the fullyear results will demonstrate further the Group's potential, our growingpresence in the defence industry worldwide, and our ability to generate valuefor our shareholders.K C SCOBIE - Chairman27 June 2006*All comparisons are for the half year to 30 April 2005 restated for IFRS.** See note 5 of interim statement.UNAUDITED CONSOLIDATED INCOME STATEMENTfor the half year to 30 April 2006 Unaudited Unaudited Unaudited Half year Half year Year to to 30 April to 30 April 31 Oct 2006 2005 2005 As As restated restated Note ‚£000 ‚£000 ‚£000 Continuing operations Revenue 2 82,584 47,977 120,963 Operating profit 2 14,351 8,522 22,050 Share of results of associate - - 197 Finance expense (2,587) (1,329) (2,964) Profit before taxation 4 11,764 7,193 19,283 Tax (3,830) (2,295) (5,724) Profit after taxation for the period/year from continuing operations 2 7,934 4,898 13,559 Discontinued operations Loss after taxation for the period/year from discontinued operations 2 (129) (720) (4,790) Profit after taxation for the 7,805 4,178 8,769period/year Attributable to: Equity shareholders 7,803 4,172 8,756 Minority interests 2 6 13 Basic earnings per ordinary 5 26.02p 14.38p 29.88pshare Diluted earnings per ordinary 5 25.81p 14.33p 29.75pshare Dividend per ordinary share 4.80p 3.20p 10.50pCONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSEfor the half year to 30 April 2006 Unaudited Unaudited Unaudited Half year Half year Year to to to 30 April 30 April 31 October 2006 2005 2005 As As restated restated ‚£000 ‚£000 ‚£000 Foreign currency translation (2,529) (2,708) 67differences on net investments Actuarial gain/(loss) on retirement 4,420 (1,887) (4,074)benefit scheme assets Hedging reserve 619 - - Tax on items taken directly to equity (1,512) 572 1,348 998 (4,023) (2,659) Profit after taxation for the period/ 7,803 4,172 8,756year attributable to equity shareholders Total recognised income and expense 8,801 149 6,097UNAUDITED CONSOLIDATED BALANCE SHEETas at 30 April 2006 Unaudited Unaudited Unaudited As at As at As at 30 April 30 April 31 Oct 2006 2005 2005 As As restated restated Note ‚£000 ‚£000 ‚£000 Non-current assets 8,366 - 2,929 Intangible assets 676 2,575 541 Development costs 69,305 27,984 34,680 Goodwill 56,632 42,236 50,698 Property, plant and equipment 1,065 1,073 1,068 Investment in associate 6,432 6,674 7,440 Deferred tax asset 142,476 80,542 97,356 Current assets Inventories 37,518 31,123 27,821 Trade and other receivables 35,013 29,927 27,168 Derivative financial instruments 470 - - Cash and cash equivalents 10,023 327 7,774 Assets classified as held for sale 15,154 - 14,646 98,178 61,377 77,409 Current liabilities Loans (6,396) (4,388) (1,957) Obligations under finance leases (874) (915) (925) Bank overdrafts (7,456) (12,477) (10,744) Trade and other payables (35,570) (25,155) (25,248) Corporation tax (1,363) (1,932) (1,150) Liabilities classified as held for (1,813) - (1,776)sale (53,472) (44,867) (41,800) Non-current liabilities Loans (70,271) (21,519) (46,320) Obligations under finance leases (458) (733) (602) Other payables (209) (81) (163) Deferred tax liabilities (9,846) (5,288) (8,958) Long-term provisions - (170) (170) Preference shares (62) (62) (62) Retirement benefit obligations (16,762) (18,051) (20,189) (97,608) (45,904) (76,464) Net assets 89,574 51,148 56,501 Equity Share capital 1,611 1,455 1,459 Share premium account 53,524 26,940 27,274 Special capital reserve 12,939 12,939 12,939 Hedging reserve 433 - - Revaluation reserve 1,640 1,669 1,640 Retained earnings 19,148 7,875 12,912 Equity attributable to equity holders 89,295 50,878 56,224of the parent Minority interest 279 270 277 Total equity 6 89,574 51,148 56,501UNAUDITED CONSOLIDATED CASH FLOW STATEMENTfor the half year to 30 April 2006 Unaudited Unaudited Unaudited Half year Half year Year to to to 30 April 30 April 31 October 2006 2005 2005 As As restated restated Note ‚£000 ‚£000 ‚£000 Cash flows from operating activities Cash generated from/(used in) operations 13,397 (1,956) 21,134 Tax paid (3,626) (2,856) (7,612) Net cash from operating activities 9,771 (4,812) 13,522 Cash flows from investing activities Dividends received from associate 107 - 108 Purchase of property, plant and (4,882) (3,353) (6,898)equipment Purchases of intangible assets (922) (320) (1,063) Proceeds on disposal of investment in - 242 242subsidiary Sales of property, plant and equipment - - 8 Acquisition of subsidiaries (net of cash 7 (51,650) (503) (22,009)acquired) Net cash outflow from investing (57,347) (3,934) (29,612)activities Cash flows from financing activities Dividends paid - - (2,726) Interest paid (2,372) (1,321) (3,239) Repayments of obligations under finance (354) (538) (965)leases Proceeds on issue of shares 26,402 236 572 New bank loans raised 29,549 5,878 26,931 Net cash inflow from financing 53,225 4,255 20,573activities Increase/(decrease) in cash and cash 5,649 (4,491) 4,483equivalents during the period/year Cash and cash equivalents at start of (2,970) (7,530) (7,530)period/year Effect of foreign exchange rate changes (112) (129) 77 Cash and cash equivalents at end of 2,567 (12,150) (2,970)period/year Reconciliation of operating profit to net cash flow generated from/(used in) operating activities Operating profit from continuing 14,351 8,522 22,050operations Operating loss from discontinued (177) (1,028) (5,557)operations Adjustment for: Depreciation of property, plant and 3,006 1,939 4,103equipment Amortisation of intangible assets 659 625 4,678 Loss on disposal of property, plant and 50 47 8equipment Decrease in provisions (170) (456) (456) Operating cash flows before movements in 17,719 9,649 24,826working capital Increase in inventories (2,860) (6,033) (5,696) Increase in trade and other receivables (2,469) (3,627) (1,073) Increase/(decrease) in trade and other 1,007 (1,945) 3,077payables Cash generated from/(used in) operations 13,397 (1,956) 21,134 Unaudited Unaudited Unaudited Half year Half year Year to to to 30 April 30 April 31 Oct 2006 2005 2005 As As restated restated ‚£000 ‚£000 ‚£000 Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash 5,649 (4,491) 4,483 Cash inflow from the increase in debt (29,195) (5,340) (25,967)and lease financing Change in net debt resulting from cash (23,546) (9,831) (21,484)flows New finance leases (202) - (103) Translation difference 1,117 219 (1,109) Amortisation of debt finance costs (27) (85) (70) Movement in net debt in the period/year (22,658) (9,697) (22,766) Net debt at start of period/year (52,774) (30,008) (30,008) Net debt at end of period/year (75,432) (39,705) (52,774) Analysis of net debt As at Cash Non-cash Exchange As at flow changes movement 1 Nov 30 April 2005 2006 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Cash at bank and in hand 7,774 2,361 - (112) 10,023 Overdrafts (10,744) 3,288 - - (7,456) (2,970) 5,649 - (112) 2,567 Debt due within one year (1,957) 2,538 (6,977) - (6,396) Debt due after one year (46,320) (32,087) 6,950 1,186 (70,271) Finance leases (1,527) 354 (202) 43 (1,332) (52,774) (23,546) (229) 1,117 (75,432)INDEPENDENT REVIEW REPORT TO CHEMRING GROUP PLCIntroductionWe have been instructed by the Company to review the financial information forthe six months ended 30 April 2006 which comprises the consolidated incomestatement, the consolidated statement of recognised income and expense, theconsolidated balance sheet, the consolidated cash flow statement and associatednotes, and the related notes 1 to 10. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information.This report is made solely to the Company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the Company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone otherthan the Company, for our review work, for this report, or for the conclusionswe have formed.Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed.International Financial Reporting StandardsAs disclosed in note 1, the next annual financial statements of the Group willbe prepared in accordance with International Financial Reporting Standards(IFRS) as adopted for use in the EU. Accordingly, the interim report has beenprepared in accordance with the recognition and measurement criteria of IFRSand the disclosure requirements of the Listing Rules. The accounting policiesare consistent with those that the directors intend to use in the annualfinancial statements.Review work performedWe conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of Group management andapplying analytical procedures to the financial information and underlyingfinancial data and based thereon, assessing whether the accounting policies andpresentation have been consistently applied unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit performed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information.Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 April 2006.Emphasis of matter - insurance claimIn arriving at our review conclusion, we have considered the adequacy of thedisclosure made in note 3 concerning the amounts recognised under a claimagainst the Group's former insurance brokers concerning the insurance forKilgore Flares Company LLC and their subsequent handling of an insurance claim.The future settlement of the claim against the brokers could result in ashortfall, or a surplus, when compared with the recorded debtor at 30 April2006. It is not possible to quantify the effect, if any, of this uncertainty.Details of the circumstances relating to this uncertainty and the amount of therelated debtor recorded at 30 April 2006 are disclosed in note 3.DELOITTE & TOUCHE LLP, Chartered Accountants, 27 June 2006SouthamptonNOTES TO THE INTERIM STATEMENT1. ACCOUNTING POLICIESBasis of preparationPrior to 2006 the Group prepared its annual financial statements in accordancewith UK Generally Accepted Accounting Practices (UK GAAP). For the interimaccounts to 30 April 2006 and continuing, the Group is required to prepare itsconsolidated financial statements in accordance with International FinancialReporting Standards (IFRS). Accordingly these financial statements have beenprepared in accordance with IFRS adopted for use in the European Union. Thesewill be those IAS, IFRS and related Interpretations (Standing InterpretationsCommittee (SIC)/International Financial Reporting Interpretations Committee(IFRIC) interpretations), subsequent amendments to those standards and relatedinterpretations, future standards and related interpretations issued or adoptedby the International Accounting Standards Board (IASB) that have been endorsedby the European Commission (collectively referred to as IFRS). These aresubject to ongoing review and endorsement by the European Commission orpossible amendment by interpretive guidance from the IASB and the IFRIC and aretherefore still subject to change. The restated information in this report willbe updated for any changes which arise before 31 October 2006.Moreover, under IFRS, only a complete set of financial statements comprising abalance sheet, income statement, statement of changes in equity, cash flowstatement, together with comparative financial information and explanatorynotes can provide a fair presentation of the Group's financial position,results of operations and cash flow. Accordingly, the financial information inthis report cannot be described as compliant with IFRS but has been prepared inaccordance with the policies expected to be in place at 31 October 2006.Comparative data for 2005 has been restated to conform to the new accountingpolicies and where appropriate these new policies reflect the exemptions fromrestating certain financial information as permitted under IFRS1 First TimeAdoption of International Financial Reporting Standards. Note 8 "Explanation ofTransition to IFRS" details the exemptions taken by the Group.The unaudited consolidated income statement for each of the six month periodsand the unaudited consolidated balance sheet as at 30 April 2006 do not amountto full accounts within the meaning of section 240 of the Companies Act 1985and have not been delivered to the Registrar of Companies. The interim reportwas approved by the Board of Directors on 27 June 2006.The unaudited comparative figures for the twelve months to 31 October 2005 havebeen prepared under IFRS. They do not constitute statutory accounts within themeaning of section 240 of the Companies Act 1985. The unqualified auditedaccounts for the twelve months ended 31 October 2005, under previous UK GAAP,have been filed with the Registrar of Companies and did not contain statementsunder section 237(2) or (3) of the Companies Act 1985.Basis of accountingThe interim statement has been prepared in accordance with IFRS for the firsttime. The disclosures required by IFRS1 concerning the transition frompreviously reported UK GAAP to IFRS are given in notes 8 and 9.Accounting conventionThe financial statements are prepared under the historical cost convention,except for the revaluation of certain properties and financial instruments.Basis of consolidationThe Group financial statements consolidate those of the Company and all of itssubsidiaries. A subsidiary is an entity over which the Group has the power togovern the financial and operating policies of an entity so as to obtainbenefits from its activities. The results of subsidiaries acquired areconsolidated from the date on which control passes to the Group and the resultsof disposed subsidiaries are consolidated up to the date on which controlpasses from the Group.All companies within the Group make up their financial statements to the samedate. All intra group transactions, balances, income and expenses areeliminated on consolidation.Operating profitOperating profit is stated before the share of results of the associate andbefore investment income and finance expense. Operating profit excludes theresults of discontinued operations.Revenue recognitionSales comprise the fair value of the consideration received or receivable fordeliveries made, work completed or services rendered during the year, net ofdiscounts, VAT and other sales related taxes. Sales are recognised when titlepasses, or when the right to consideration, in exchange for performance, hasbeen completed. For bill and hold arrangements revenue is recognised when therisks and rewards are transferred to the customer, typically on formalacceptance. An appropriate proportion of total long term contract value, basedon the fair value of work performed, is included in revenue and an appropriatelevel of profit is taken based on the percentage completion method when thefinal outcome can be reliably assessed. Provision is made in full forforeseeable losses as soon as they are identified.AcquisitionsOn acquisition of a subsidiary the cost is measured as the fair value of theconsideration given plus any directly attributable costs. The assets,liabilities and contingent liabilities of a subsidiary that meet the IFRS3Business Combinations recognition criteria are measured at the fair value atthe date of acquisition. Where cost exceeds fair value of the net assetsacquired the difference is recorded as goodwill.Where the fair value of the net assets exceeds the cost, the difference isrecorded directly in the income statement. The accounting policies ofsubsidiaries are changed where necessary to be consistent with those of theGroup.Intangible assetsThe purchased goodwill of the Group is regarded as having an indefinite usefuleconomic life and, in accordance with IAS36 Impairment of Assets, is notamortised but is subject to annual tests for impairment. In reviewing thecarrying value of goodwill of the various businesses, the Board has consideredthe separate plans and cash flows of these businesses consistent with therequirements of IAS36, and is satisfied that these demonstrate that noimpairment has occurred. Goodwill arising on acquisition before the date oftransition to IFRS has been retained at the previous UK GAAP amounts subject tobeing tested for impairment at that date.Expenditure on research activities is recognised as an expense in the period inwhich it is incurred. Costs incurred in development where the relatedexpenditure is separately identifiable, measurable and management are satisfiedas to the ultimate technical and commercial viability of the project, and thatit is probable that the asset will generate future economic benefits, arerecognised as an intangible asset and amortised on a straight line basis overtypically three years from the date that commercial production commences.Development costs not meeting the criteria for capitalisation are expensed asincurred.Patent and trademarks are measured initially at purchase cost and are amortisedon a straight-line basis over their estimated useful lives.For acquisitions after 1 November 2004 the Group recognises separately fromgoodwill intangible assets that are separable or arise from contractual orother legal rights and whose fair value can be measured reliably. Theseintangible assets have finite lives and are amortised on a straight-line basisover those lives, typically seven years.Property, plant and equipmentOther than revalued land and buildings, property, plant and equipment are heldat cost less accumulated depreciation and any recognised impairment loss. Nodepreciation is provided on freehold land. On other assets depreciation isprovided at rates calculated to write down their cost or valuation to theirestimated residual values by equal instalments over their estimated usefuleconomic lives, which are considered to be:Freehold buildings - up to 50 yearsLeasehold buildings - the period of the leasePlant and equipment - up to 10 yearsImpairment of non-current assetsAssets that have indefinite lives are tested for impairment annually. Assetsthat are subject to depreciation or amortisation are reviewed for impairmentwhenever changes in circumstances indicate that the carrying value may not berecoverable. To the extent that the carrying value exceeds the recoverableamount an impairment loss is recorded for the difference as an expense in theincome statement. The recoverable amount used for impairment testing is thehigher of the value in use and its fair value less costs of disposal. For thepurpose of impairment testing assets are grouped at the lowest levels for whichthere are separately identifiable cash flows.Non-current assets held for saleNon-current assets and disposal groups classified as held for sale are measuredat the lower of carrying amount and fair value less costs to sell. These itemsare so classified if their carrying amount will be recovered through a saletransaction rather than through continuing use.InventoriesInventories are recorded at the lower of cost and net realisable value. Costrepresents materials, direct labour, other direct costs and related productionoverheads and is determined using the first-in first-out (FIFO) method. Netrealisable value is based on estimated selling price, less further costsexpected to be incurred to completion and disposal.Provision is made for slow moving, obsolete and defective items whereappropriate.TaxationCurrent tax, including UK corporation tax and foreign tax, is provided for atamounts expected to be paid (or recovered) using the tax rates and laws thathave been enacted or substantively enacted by the balance sheet date.Deferred tax is accounted for using the balance sheet liability method inrespect of temporary differences arising between the tax bases of assets andliabilities and their carrying values in the financial statements. In principledeferred tax liabilities are recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporarydifferences can be utilised.Deferred tax is calculated at the tax rates that are expected to apply to theperiod in which the asset is realised or the liability settled. Deferred tax ischarged or credited to the income statement except where it relates to itemscharged or credited direct to equity, in which case the deferred tax is alsocredited or charged to equity.Special capital reserveThe special capital reserve was created as part of a capital reduction schemeinvolving the cancellation of the share premium account which was approved bythe Court in 1986 and is in accordance with the requirements of the CompaniesAct 1985.Foreign currenciesThe individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statements,the results and financial position of each Group company are expressed inpounds sterling, which is the functional currency of the Company, and thepresentation currency for the consolidated financial statements.In preparing the financial statements of the individual companies, transactionsin currencies other than the entity's functional currency (foreign currencies)are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities thatare denominated in foreign currencies are retranslated at the rates prevailingon the balance sheet date. Non-monetary items carried at fair value that aredenominated in foreign currencies are translated at the rates prevailing at thedate when the fair value was determined. Non-monetary items that are measuredin terms of historical cost in a foreign currency are not retranslated.Exchange differences arising on the settlement of monetary items, and on theretranslation of monetary items, are included in profit or loss for the period.In order to hedge its exposure to certain foreign exchange risks, the Groupenters into forward contracts and options which are accounted for as derivativefinancial instruments (see below for details of the Group's accounting policiesin respect of such derivative financial instruments).For the purpose of presenting consolidated financial statements, the assets andliabilities of the Group's foreign operations are translated at exchange ratesprevailing on the balance sheet date. Income and expense items are translatedat the average exchange rates for the period.Derivative financial instrumentsThe Group's activities expose it primarily to the financial risks of interestrate and foreign currency transactions, and it uses derivative financialinstruments to hedge its exposure to these transactional risks. The Group usesinterest rate swap contracts and foreign exchange forward contracts to reducethese exposures and does not use derivative financial instruments forspeculative purposes.As IAS32 and IAS39 are only applied from 1 November 2005, as permitted, thecomparative information to 31 October 2005 for derivative financial instrumentsis presented under UK GAAP FRS13. Under UK GAAP, changes in the fair value offorward foreign exchange contracts were recognised through the incomestatement. However the difference between fair value and book value of theGroup's interest rate swaps was not recognised.From 1 November 2005, under IFRS derivative financial instruments arerecognised at fair value at the date the derivative contract is entered intoand are revalued at fair value at each balance sheet date. The method by whichany gain or loss is recognised depends on whether the instrument is designateda hedging instrument or not. To be designated as a hedging instrument theinstrument must be documented as such at inception and must be assessed atinception and on an ongoing basis to be highly effective in offsetting changesin fair values or cash flows of hedged items.Hedge accounting principles are used for interest rate swaps and net investmenthedges where movements in fair value are held in equity until such time as theunderlying amounts of the contract mature. At maturity the amounts held inequity will be recycled to the income statement. Changes in fair value of anyineffective portion of net investment hedges and interest rate swaps arerecognised in the income statement immediately.Where derivatives do not meet the criteria for hedge accounting the changes infair value are immediately recognised in the income statement. The Group doesnot apply hedge accounting to the foreign currency forward contracts tomitigate against currency fluctuations. Accordingly gains and losses arisingfrom measuring the contracts at fair value are recognised immediately in theincome statement.Embedded derivatives that are not closely related to the host contract aretreated as separate derivatives with unrealised gains and losses reported inthe income statement.Retirement benefit costsPayments to defined contribution retirement benefit schemes are charged as anexpense as they fall due. For defined benefit schemes, the cost of providingbenefits is determined using the Projected Unit Credit Method, with actuarialvaluations being carried out at each balance sheet date. Actuarial gains andlosses are recognised in full in the period in which they occur. They arerecognised outside profit or loss and presented in the statement of recognisedincome and expense (SORIE).Past service cost is recognised immediately to the extent that the benefits arealready vested, and otherwise is amortised on a straight-line basis over theaverage period until the benefits become vested.The retirement benefit obligation recognised in the balance sheet representsthe present value of the defined benefit obligation as adjusted forunrecognised past service cost, and as reduced by the fair value of schemeassets. Any asset resulting from this calculation is limited to past servicecost, plus the present value of available refunds and reductions in futurecontributions to the scheme.Leased assetsWhere the Group enters into a lease which entails taking substantially all therisks and rewards of ownership of an asset, the lease is treated as a financelease. The asset is recorded in the balance sheet as property, plant andequipment and is depreciated over the shorter of the estimated useful economiclife and the lease term. Future instalments under such leases, net of financecharges, are included in creditors. The finance element of the instalments ischarged to the income statement at a constant rate of charge on the remainingbalance of the obligation.All other leases are operating leases and the rental charges are taken to theincome statement on a straight line basis over the life of the lease.Share-based compensationThe Group operates equity settled and cash settled share-based compensationschemes.For grants made under the Group's share-based compensation schemes theliability is remeasured at each balance sheet date with changes in the fairvalue recognised in the income statement on a straight line basis over thevesting period, based on the Group's estimate of shares that will eventuallyvest. The valuation of the options utilises a methodology based on theBlack-Scholes model.For equity settled share-based grants the total amount recognised is based onthe fair value of the equity instrument measured at the date the award is made.At each balance sheet date the impact of any revision to vesting estimates isrecognised in the income statement over the vesting period. Proceeds received,net of any directly attributable transaction costs, are credited to sharecapital and share premium.For cash settled share-based grants the total amount recognised is based on thefair value of the liability incurred. The fair value of the liability isremeasured at each balance sheet date with changes in the fair value recognisedin the income statement for the period.2. SEGMENTAL ANALYSISA segmental analysis of revenue and profit is set out below:Continuing operations: Unaudited Unaudited Unaudited Half year Half year Year to to to 30 April 30 April 31 Oct 2006 2005 2005 As As restated restated ‚£000 ‚£000 ‚£000 Revenue Countermeasures 55,588 34,050 90,768 Energetics 26,996 13,927 30,195 Total 82,584 47,977 120,963 Operating profit Countermeasures 15,610 9,608 24,508 Energetics 2,337 163 2,031 Non-cash settled share-based (433) (101) (477)payments Amortisation of acquired intangibles (332) - (71) Unallocated head office costs (2,831) (1,148) (3,941) Total 14,351 8,522 22,050 Share of results of associate - - 197 Finance expense (2,587) (1,329) (2,964) Profit before tax 11,764 7,193 19,283 Tax (3,830) (2,295) (5,724) Profit after tax 7,934 4,898 13,559 Discontinued operations: Unaudited Unaudited Unaudited Half year Half year Year to to to 31 Oct 30 April 30 April 2005 As 2006 2005 As restated restated ‚£000 ‚£000 ‚£000 Revenue 5,104 6,344 11,495 Operating loss before impairment of (177) (1,028) (2,557)goodwill Impairment of goodwill - - (3,000) Loss before tax (177) (1,028) (5,557) Tax 48 308 767 Loss after tax (129) (720) (4,790) The Marine Lights and Electronics business became a discontinued business on 31October 2005. The results for the year ended 31 October 2005 include animpairment charge of ‚£3,000,000 to write down the value of the business to itsrecoverable amount. The net amount included on the balance sheet as assets heldfor sale at 30 April 2006 is ‚£13,341,000 (31 October 2005: ‚£12,870,000).On 30 May 2006, the Group announced the conditional sale of its McMurdo marinelights business (which forms part of the above discontinued business) toDaniamant Limited for a cash consideration of ‚£2,850,000. The sale should becompleted on 30 June 2006. 3. INSURANCE CLAIM The Group is pursuing a claim against its former insurance brokers, concerningthe insurance cover for Kilgore Flares Company LLC and the broker's subsequenthandling of a claim, following a manufacturing incident at Kilgore FlaresCompany LLC on 18 April 2001.At 31 October 2005 a balance of ‚£2,796,000 was recognised within other debtors.This outstanding balance has been reduced by ‚£84,000, to ‚£2,712,000 at 30 April2006, as a result of exchange rate movement against the US dollar. All furtherlegal and professional costs incurred in the half year to 30 April 2006 havebeen recognised in the income statement. 4. TAXATION The estimated tax rate for the Group for the year ending 31 October 2006 is 33%(2005: 32%). 5. EARNINGS PER SHARE Earnings per share are based on the average number of shares in issue of29,990,590 (2005: 29,013,854) and profit on ordinary activities after taxationand minority interests of ‚£7,803,000 (2005: ‚£4,172,000). Diluted earnings pershare has been calculated using a diluted average number of shares in issue of30,233,031 (2005: 29,119,379) and profit on ordinary activities after taxationand minority interests of ‚£7,803,000 (2005: ‚£4,172,000).The earnings and shares used in the calculations are as follows: 2006 2005 Ordinary Ordinary Shares Shares Earnings Number EPS Earnings Number EPS ‚£000 000s Pence ‚£000 000s Pence Basic 7,803 29,991 26.02 4,172 29,014 14.38 Additional shares issuable other than at fair value in - 242 (0.21) - 105 (0.05)respect of options outstanding Diluted 7,803 30,233 25.81 4,172 29,119 14.33Reconciliation from basic earnings per share to adjusted earnings per share:Adjusted earnings has been defined as earnings before amortisation ofintangible assets arising on acquisition and the impact of non-cash settledshare-based payments. The directors consider this measure of earnings allows amore meaningful comparison of earnings trends. 2006 2005 Ordinary Ordinary Shares Shares Earnings Number EPS Earnings Number EPS ‚£000 000s Pence ‚£000 000s Pence Basic 7,803 29,991 26.02 4,172 29,014 14.38 Amortisation of 224 - 0.75 - - -acquired intangibles (after tax) IFRS 2 - non-cash 292 - 0.97 69 - 0.24settled share-based payments (after tax) Adjusted 8,319 29,991 27.74 4,241 29,014 14.62 6. RECONCILIATION OF CHANGES IN EQUITY 7. Unaudited Unaudited Unaudited Half year Half year Year to to to 30 April 30 April 31 Oct 2006 2005 2005 As As restated restated ‚£000 ‚£000 ‚£000 Profit on ordinary activities 7,805 4,178 8,769after taxation for the period/ year Equity minority interest (2) (6) (13) Dividends (2,130) (1,797) (2,730) Retained profit for the period/ 5,673 2,375 6,026year Other recognised gains/(losses) 998 (4,023) (2,659) Ordinary share issued 152 6 10 Share premium arising 26,250 230 564 Net addition to/(reduction from) 33,073 (1,412) 3,941shareholders' funds Opening shareholders' funds 56,501 52,560 52,560 Closing shareholders' funds 89,574 51,148 56,501 7. ACQUISITIONS On 30 November 2005 the Group acquired the entire share capital of Comet GmbHfor a cash consideration of ‚£6,600,000, subject to a working capitaladjustment.On 1 February 2006 the Group acquired the entire share capital of LeafieldEngineering Limited and Leafield Marine Limited for a combined cashconsideration of ‚£4,370,000, subject to a working capital adjustment and theassumption of ‚£570,000 of bank overdrafts.On 13 March 2006 the Group completed the acquisition of the entire capitalstock of Technical Ordnance Inc. for a cash consideration of $70,000,000(approximately ‚£40,500,000), subject to a working capital adjustment.A summary of the assets acquired and consideration paid in respect of thesefour acquisitions is set out below: ‚£000 Intangible assets 6,071 Property, plant and equipment 4,892 Working capital 7,049 Cash 1,363 Deferred tax (710) 18,665 Goodwill 36,283 54,948 Consideration: Cash 53,013 Cash payable in future 1,935 periods 54,948 Cash payable in future periods relates to working capital adjustments and ispayable within twelve months.At 30 April 2006 the estimated fair value of assets and liabilities areprovisional and will be updated as necessary within the twelve month periodfollowing the acquisitions.Summary of cash flows: ‚£000 Cash paid (53,013) Cash acquired 1,363 Net cash outflow (51,650) The above acquisitions were funded by additional medium term loans and by theissue of 2,900,000 new ordinary shares 8. EXPLANATION OF TRANSITION TO IFRS IFRS1 - First Time Adoption of International Financial Reporting StandardsThe Group has applied IFRS1 First Time Adoption of International FinancialReporting Standards as a starting point for reporting under IFRS. The Group'sdate of transition to IFRS is 1 November 2004 and comparative information hasbeen restated to reflect the Group's adoption of IFRS except where otherwiserequired or permitted by IFRS1.IFRS1 requires an entity to comply with each IFRS and IAS effective at thereporting date for its first financial statements prepared under IFRS. As ageneral rule IFRS1 requires such standards to be applied retrospectively todetermine the IFRS opening balance sheet at the date of transition, 1 November2004. IFRS1 provides a number of optional exemptions to this general principle.The most significant of these are set out below, together with a description,in each case, of the exemption adopted by the Group.IFRS3 - Business CombinationsAs permitted the Group has elected not to restate business combinationsoccurring before the date of transition on 1 November 2004.IFRS2 - Share-Based PaymentsThe Group has elected to take advantage of the exemptions allowed in IFRS1regarding IFRS2 Share-Based Payments for share-based payments granted on orbefore 7 November 2002. This means that only equity instruments granted after 7November 2002 that vest after the effective date of IFRS2 on 1 January 2005have been valued.IAS19 - Employee BenefitsUnder IAS19 accounting for defined benefit plans retrospectively is expected tobe particularly onerous or impractical. The Group has therefore elected toutilise the optional exemption under IFRS1 allowing non-retrospectiveapplication of the actuarial gains and losses approach to valuation of thedefined benefit plans. The initial recognition of the defined benefit schemes'deficits is recorded on the face of the Group balance sheet as at 1 November2004 (date of transition).IAS21 - The Effects of Changes in Foreign Exchange RatesThe Group has elected to take advantage of the exemption in IFRS1 regardingtranslation differences. Accordingly the Group has not separately disclosed theamount of cumulative translation differences for its overseas operationsincluded within retained earnings at 1 November 2004.IAS16 - Property, Plant and EquipmentA first time adopter may elect to measure individual items of property, plantand equipment at fair value or a revalued amount as deemed cost at the date oftransition to IFRS. No adjustments have been made in this respect for thepurposes of transition. Tangible assets have continued to be reported on thebasis of depreciated historical cost, as under UK GAAP.IAS32 - Financial Instruments: Disclosure and Presentation and IAS39 - Financial Instruments: Recognition and MeasurementAs permitted by IFRS1, the Group adopted IAS32 Financial Instruments:Disclosure and Presentation and IAS39 Financial Instruments: Recognition andMeasurement, prospectively from 1 November 2005. Therefore until 31 October2005, the Group continued to account for financial instruments in accordancewith UK GAAP, and hence the comparative financial statements exclude the impactof these standards. 9. DETAIL ON IFRS CHANGES IMPACTING PUBLISHED RESULTS Significant changes to previously reported UK GAAP figures have been made inthe following areas to comply with IFRS: A. IFRS3 - Business Combinations Under IFRS3 there is a specific requirement to recognise separatelyindentifiable intangible assets that meet the IFRS3 criteria including acquiredorder back log, customer relationships and technology assets at fair value onacquisition and to amortise these over an appropriate period. This reduces theamount of residual goodwill recognised.As stated above, under IFRS1 business combinations prior to the date oftransition are not required to be restated. The adjustment is therefore limitedto the five acquisitions completed since 1 November 2004. Specific intangibleassets with a fair value of ‚£8,769,000 were identified out of a total UK GAAPgoodwill addition of ‚£56,371,000. As at 31 October 2005 specific intangibles,net of amortisation, of ‚£2,929,000 were identified from acquisitions at thatdate. A further ‚£5,437,000, net of amortisation, was added in the six months to30 April 2006.Total amortisation of ‚£403,000 has been charged since the date of transition,of which ‚£71,000 was in the period to 31 October 2005 and ‚£332,000 in theperiod to 30 April 2006. B. IFRS2 - Share-Based Payments Under IFRS2 charges are required for all share based remuneration schemes.These charges reflect the fair value of the shares at the date of the grant.The operating profit charge for the year to 31 October 2005 for all relevantschemes under this standard was ‚£477,000, with an additional operating profitcharge for the six months to 30 April 2006 of ‚£433,000. The opening IFRSbalance sheet net assets are reduced by ‚£76,000. Net assets at 31 October 2005are reduced by ‚£328,000 and by a further ‚£357,000 to 30 April 2006. C. IAS19 - Employee Benefits and Retirement Benefit Schemes Under IAS19 there is a requirement to recognise the monetary value of employeebenefits accruing to employees but not yet settled; typically holiday pay.There is a requirement to present the value of the liability for employeebenefits to be paid in the future for services provided up to the reportingdate. A review of employee benefits across the Group identified an openingbalance sheet adjustment of ‚£518,000. A charge of ‚£256,000 arose in the periodended 30 April 2006 (April 2005: ‚£222,000).Under UK GAAP the Group accounted for defined benefit pension schemes inaccordance with SSAP24, with disclosure as required under FRS17. Under IAS19there is a requirement to value defined benefit scheme assets at bid pricerather than mid market price, and to disclose the retirement benefit asset/obligation on the face of the balance sheet, with movement in the valuation ofactuarial gains and losses through the statement of recognised income andexpenditure (SORIE). At the date of transition, 1 November 2004, the initialincrease in non-current liabilities is ‚£16,115,000, with a correspondingdeferred tax asset of ‚£4,835,000 reported in non-current assets. In addition,the previous SSAP24 prepayment of ‚£252,000 has been reversed. The impact at 30April 2006 is to show an increase in non-current liabilities, due to retirementbenefit obligations of ‚£16,762,000 (April 2005: ‚£18,051,000). The charge to theincome statement under IAS19 for retirement benefits includes three components,a service cost, the expected return on pension scheme assets and the unwindingcost of interest on the pension scheme liabilities. D. IAS10 - Events after the Balance Sheet Date There is a requirement under IFRS to only recognise the liability for dividendsthat have been proposed and approved at the balance sheet date. E. IAS21 - The Effects of Changes in Foreign Exchange Rates Under IAS21 all foreign currency transactions and balances must be converted tothe reporting entity currency at the rate applicable on the last day of thereporting period, i.e. at the spot rate. UK GAAP permitted the use of anapplicable forward currency contract rate instead of the spot rate. F. IAS12 - Income Tax Under UK GAAP deferred tax liabilities were discounted; under IFRS discountingis not permitted. The impact as at 1 November 2004 was to increase deferred taxliabilities by ‚£824,000. The tax in the income statement for the year ended 31October 2005 is ‚£61,000 higher than it would have been under UK GAAP.Under UK GAAP deferred tax liabilities on revaluation reserves were notprovided for unless the Group entered into a binding contract to sell therevalued assets. Under IAS12 deferred tax must be provided for. The impact isto increase deferred tax liabilities as at 1 November 2004 by ‚£1,081,000. TheGroup has available capital losses to offset against any potential gain arisingon these assets. The impact as at 1 November 2004 is to recognise a deferredtax asset of ‚£1,081,000. Netting-off of assets and liabilities is not permittedunder IAS12.The reconciliation of equity at 1 November 2004 (date of transition to IFRS)and at 31 October 2005 (date of last UK GAAP financial statements) and thereconciliation of profit for the year ended 31 October 2005, as required byIFRS1, are given below.The reconciliation of equity at 30 April 2005 and the reconciliation of profitfor the six months ended 30 April 2005 have also been included below to enablea comparison of the 2006 interim figures with the corresponding period of theprevious financial year.References to UK GAAP for the periods ended 30 April 2005 and 31 October 2005are to the Group's policies as applied in its financial statements for the yearended 31 October 2005.Reconciliation of equity at 1 November 2004 (date of transition to IFRS) UK GAAP Unaudited IFRS Effect of transition to IFRS Note ‚£000 ‚£000 ‚£000 Non-current assets Development costs 2,841 - 2,841 Goodwill 27,984 - 27,984 Tangible assets 41,810 - 41,810 Investment in associate 1,073 - 1,073 Deferred tax asset B,C,F - 6,004 6,004 Total non-current assets 73,708 6,004 79,712 Current assets Inventories 25,090 - 25,090 Trade and other receivables C 27,036 (252) 26,784 Cash and cash equivalents 9,933 - 9,933 Total current assets 62,059 (252) 61,807 Current liabilities Loans (3,070) - (3,070) Obligations under finance (1,234) - (1,234)leases Bank overdrafts (17,463) - (17,463) Trade and other payables B,C,D,E (25,208) 1,269 (23,939) Corporation tax (2,940) - (2,940) (49,915) 1,269 (48,646) Non-current liabilities Loans (17,055) - (17,055) Obligations under finance (1,119) - (1,119)leases Other payables B - (68) (68) Deferred tax liabilities C,E,F (3,431) (1,837) (5,268) Long-term provisions (626) - (626) Preference shares (62) - (62) Retirement benefit C - (16,115) (16,115)obligations (22,293) (18,020) (40,313) Net assets 63,559 (10,999) 52,560 Equity Share capital 1,449 - 1,449 Share premium account 26,710 - 26,710 Special capital reserve 12,939 - 12,939 Revaluation reserve F 2,410 (723) 1,687 Retained earnings 19,787 (10,276) 9,511 Equity attributable to 63,295 (10,999) 52,296equity holders of the parent Equity attributable to 264 - 264minority interests Total equity 63,559 (10,999) 52,560 Reconciliation of equity at 31 October 2005 (date of last UK GAAP FinancialStatements) UK GAAP Unaudited IFRS Effect of transition to IFRS Note ‚£000 ‚£000 ‚£000 Non-current assets Intangible assets A - 2,929 2,929 Development costs 541 - 541 Goodwill A 35,058 (378) 34,680 Tangible assets 50,698 - 50,698 Investment in associate 1,068 - 1,068 Deferred tax assets B,C,F - 7,440 7,440 Total non-current assets 87,365 9,991 97,356 Current assets Inventories 27,821 - 27,821 Trade and other receivables C,E 27,450 (282) 27,168 Cash and cash equivalents 7,774 - 7,774 Assets classified as held 14,646 - 14,646for sale Total current assets 77,691 (282) 77,409 Current liabilities Loans (1,957) - (1,957) Obligations under finance (925) - (925)leases Overdrafts (10,744) - (10,744) Trade and other payables B,C,D,E (26,474) 1,226 (25,248) Corporation tax (1,150) - (1,150) Liabilities classified as (1,776) - (1,776)held for sale (43,026) 1,226 (41,800) Non-current liabilities Loans (46,320) - (46,320) Obligations under finance (602) - (602)leases Other payables B - (163) (163) Deferred tax liabilities A,C,E,F (4,457) (4,501) (8,958) Long-term provisions (170) - (170) Preference shares (62) - (62) Retirement benefit C - (20,189) (20,189)obligations (51,611) (24,853) (76,464) Net assets 70,419 (13,918) 56,501 Equity Share capital 1,459 - 1,459 Share premium account 27,274 - 27,274 Special capital reserve 12,939 - 12,939 Revaluation reserve F 2,374 (734) 1,640 Retained earnings 26,096 (13,184) 12,912 Equity attributable to 70,142 (13,918) 56,224equity holders of the parent Equity minority interest 277 - 277 Total equity 70,419 (13,918) 56,501 Reconciliation of profit for the year ended 31 October 2005 UK GAAP Unaudited IFRS Effect of transition to IFRS ‚£000 ‚£000 ‚£000 Continuing operations: Revenue 120,963 - 120,963 Operating profit 22,623 (573) 22,050 Share of results of associate 197 - 197 Finance expense (2,964) - (2,964) Profit before taxation 19,856 (573) 19,283 Tax (5,778) 54 (5,724) Profit for the year from 14,078 (519) 13,559continuing operations Discontinued operations Loss for the year from (4,790) - (4,790)discontinued operations Profit for the year 9,288 (519) 8,769 Analysis of movement due to IFRS Operating Profit Profit/ profit (loss) before for the tax period Note ‚£000 ‚£000 ‚£000 UK GAAP 22,623 19,856 14,078 Amortisation of acquired A (71) (71) (71)intangible assets Share-based payments B (477) (477) (382) Retirement benefit scheme C 17 17 12fair value adjustment Translation of foreign E (48) (48) (34)currency transactions Accrued employee benefit C 6 6 6adjustment Income tax adjustment F - - (50) (573) (573) (519) IFRS 22,050 19,283 13,559 Reconciliation of equity at 30 April 2005 (six month comparative figures) UK GAAP Unaudited IFRS Effect of transition to IFRS Note ‚£000 ‚£000 ‚£000 Non-current assets Development costs 2,575 - 2,575 Goodwill 27,984 - 27,984 Tangible assets 42,236 - 42,236 Investment in associate 1,073 - 1,073 Deferred tax assets B,C,F - 6,674 6,674 Total non-current assets 73,868 6,674 80,542 Current assets Inventories 31,123 - 31,123 Trade and other receivables C,E 30,114 (187) 29,927 Cash and cash equivalents 327 - 327 Total current assets 61,564 (187) 61,377 Current liabilities Loans (4,388) - (4,388) Obligations under finance (915) - (915)leases Bank overdrafts (12,477) - (12,477) Trade and other payables B,C,D,E (25,250) 95 (25,155) Corporation tax (1,932) - (1,932) (44,962) 95 (44,867) Non-current liabilities Loans (21,519) - (21,519) Obligations under finance (733) - (733)leases Other payables B - (81) (81) Deferred tax liabilities C,E,F (3,431) (1,857) (5,288) Long-term provisions (170) - (170) Preference shares (62) - (62) Retirement benefit C - (18,051) (18,051)obligations (25,915) (19,989) (45,904) Net assets 64,555 (13,407) 51,148 Equity Share capital 1,455 - 1,455 Share premium account 26,940 - 26,940 Special capital reserve 12,939 - 12,939 Revaluation reserve F 2,392 (723) 1,669 Retained earnings 20,559 (12,684) 7,875 Equity attributable to 64,285 (13,407) 50,878equity holders of the parent Equity minority interest 270 - 270 Total equity 64,555 (13,407) 51,148 Reconciliation of profit for period ended 30 April 2005 (six month comparativefigures) UK GAAP Unaudited IFRS Effect of transition to IFRS ‚£000 ‚£000 ‚£000 Continuing operations Revenue 47,977 - 47,977 Operating profit 8,829 (307) 8,522 Finance expense (1,329) - (1,329) Profit before taxation 7,500 (307) 7,193 Tax (2,379) 84 (2,295) Profit for the year from 5,121 (223) 4,898continuing operations Discontinued operations Loss for the year from (720) - (720)discontinued operations Profit for the year 4,401 (223) 4,178 Analysis of movement due to IFRS Operating Unaudited Profit/ profit (loss) Profit for the period before tax Note ‚£000 ‚£000 ‚£000 UK GAAP 8,829 7,500 4,401 Share-based payments B (101) (101) (79) Retirement benefit scheme C (40) (40) (28)fair value adjustment Translation of foreign E 56 56 39currency transactions Accrued employee benefit C (222) (222) (155)adjustment (307) (307) (223) IFRS 8,522 7,193 4,178 10. CORPORATE WEBSITE Further information on the Group and its activities can be found on thecorporate website at www.chemring.co.uk.ENDCHEMRING GROUP PLCRelated Shares:
Chemring