28th Jun 2005 06:00
FOR IMMEDIATERELEASE 28 June 2005 CHEMRING GROUP PLC Interim Results for the Six Months to 30 April 2005 Chemring Group PLC today announces its interim results: Profit before tax and loss on disposal up 12% at ‚£6.5 million (2004: ‚£5.8million)Profit before tax up 27% at ‚£6.5 million (2004: ‚£5.1 million)Basic earnings per share up 20% at 15.14p (2004: 12.63p)Interim dividend per ordinary share up 14% at 3.20p (2004: 2.80p)Divisional HighlightsCountermeasuresRecord order book of ‚£106 million (2004: ‚£75 million)Record growth in turnover and profit at Alloy SurfacesAlloy Surfaces' second facility fully operationalContract appeal by Kilgore competitor on US multi-year procurement fullyrejectedEnergetic MaterialsCurrent order book of ‚£9 million (2004: ‚£6 million)Marine Pyrotechnics business now included within Energetic Materials divisionMarine Lights and ElectronicsRestructuring nearing successful completion Results for the Half Year to 30 April 2005 2005 2004 ‚£000 ‚£000 Turnover 54,321 57,441 Operating profit 7,801 7,463 Profit before tax and loss on disposal 6,472 5,803 Loss on disposal - (690) Profit before tax 6,472 5,113 Basic earnings per share 15.14p 12.63p Ken Scobie, Chemring Group Chairman, commented: "The results for the half year were satisfactory and would have been outstanding with a full contribution from Kilgore, PW Defence and the Marine division. The Countermeasures division, with its substantial order book, should perform well in the second half, and with a stronger performance from the Group's other businesses,we expect to achieve another year of excellent growth."Notes:All comparisons are for the half year to 30 April 2004.The interim dividend of 3.20p per ordinary share will be paid on 23 September2005 to holders on the register at 9 September 2005. The ex-dividend date willbe 7 September 2005. For further information: David Price Chief Executive, Chemring Group PLC 0207 930 0777 Paul Rayner Finance Director, Chemring Group PLC 0207 930 0777 Jonathan Rooper Cardew Group 0207 930 0777 STATEMENT BY THE CHAIRMAN Results for the Half Year to 30 April 2005 2005 2004 ‚£000 ‚£000 Turnover 54,321 57,441 Operating profit 7,801 7,463 Interest (1,329) (1,660) Profit before tax and loss on disposal 6,472 5,803 Loss on disposal - (690) Profit before tax 6,472 5,113 Basic earnings per share 15.14p 12.63p I am pleased to report a satisfactory increase in the overall Group results forthe six months to 30 April 2005. Operating profit increased to ‚£7.8 million(2004: ‚£7.5 million). Interest has reduced by 24% to ‚£1.3 million (2004: ‚£1.7million). Profit before tax increased by 27% to ‚£6.5 million (2004: ‚£5.1million) and basic earnings per share increased by 20% to 15.14p (2004:12.63p).In the Countermeasures division in the US, Alloy Surfaces' continuingexceptional performance made up for a disappointing, if understandable, resultfrom Kilgore. Kilgore's sales were significantly reduced as a result of atemporary "stop work" being placed on two major contracts, following an appealby a competitor, which was subsequently rejected by the US Department ofDefense (DoD). UK-based Chemring Countermeasures again generated a solidprofit. PW Defence and Pains Wessex Australia both had a quiet first half, asdid the Marine division, where significant changes have been made to ensureimproved profitability in the future.The directors have recommended an interim dividend of 3.20p per ordinary share(2004: 2.80p), an increase of 14%. The interim dividend will be paid on 23September 2005 to shareholders on the register at 9 September 2005.The depreciation of the US dollar against sterling from $1.80 in the first halfof 2004 to $1.90 in 2005 has reduced sales on translation by approximately ‚£1.5million. The adverse impact of this exchange rate movement has been offsetthrough forward sales of US dollars. In addition, in November 2004, the Groupconverted ‚£10 million of sterling overdraft into dollar overdraft, to protectagainst the possible fall in the US dollar, with its consequent impact on ourtranslated earnings, and to enjoy the benefit of lower interest rates. Theseactions proved exceedingly successful and further transactions havesubsequently been completed to protect the benefits secured in the first sixmonths.In my last statement, I referred to the settlement of the Kilgore insuranceclaim against Royal & Sun Alliance, and our pursuance of a claim against ourformer insurance broker, Willis, for an additional amount. Willis has nowagreed to a non-binding mediation in an attempt to resolve matters, which isprovisionally scheduled for September 2005.Alloy Surfaces' second facility was completed and commenced production inFebruary 2005. ‚£2.5 million of capital expenditure was incurred on the facilityduring the period, and ‚£4.5 million was invested in working capital. Workingcapital also increased by ‚£3 million at Kilgore, as production ramped up forsales in the second half following the release of the "stop work" order.Net debt at the end of the first half was ‚£39.7 million (2004: 41.7 million).ReportingThe Board has decided to restructure the Group's reporting to align more closelywith our various business activities. Accordingly, the Marine Pyrotechnics businessis now included within the Energetic Materials division. The Energetic Materials division currently comprises the following businesses:PW DefenceMarine PyrotechnicsKilgore PyrotechnicsPains Wessex AustraliaPirotƒ©cnia Oroquieta The Marine Lights and Electronics division now includes McMurdo and ICS Electronics, our marine systems businesses. CountermeasuresThe Group continues to benefit from strong demand for its countermeasuredecoys, with the order book for this division now standing at ‚£106 million.Alloy Surfaces is the only company in the world producing an advanced,patented, covert special material decoy. The business had an exceptional sixmonths, with turnover doubling and earnings increasing threefold. As morebranches of the armed services come to appreciate the advantages of deployingthese decoys, the order book continues to expand rapidly and has recently beenboosted by the receipt of a $20.3 million order from the US Army.To date, Alloy Surfaces' expansion has been partially restricted because it hasbeen able to supply only to immediate allies of the US. These restrictions arenow gradually being relaxed, and this should provide substantial exportopportunities in the longer term.Kilgore's production was seriously disrupted for most of the first half by atemporary "stop work" order placed against two of its major contracts by the USDoD, following an appeal against the award of these contracts by a newcomer tothe industrial base in the US. We did not believe that this protest was validor that it had any chance of success. In February, the appeal was rejected inits entirety, and in April, the DoD placed $22m of contract options for thesecond year of these five year contracts. Kilgore returned to full productionin April, and it is anticipated that the substantial shortfall in turnover inthe first half will be recovered in the second half.Chemring Countermeasures continues to provide products for the military in manyparts of the world, and has extensive research programmes in place to preserveits position at the forefront of the industry. During the first half, thebusiness performed well and met our expectations.I have referred in previous statements to the US Department of HomelandSecurity's (DHS) initiatives in relation to the protection of commercialaircraft. The Group continues to be involved in this area and we are stillhopeful of participating in the DHS project with Alloy Surfaces' specialmaterial decoys, particularly as funds have recently been made available foralternative solutions.Energetic MaterialsAfter a quiet 2004 at PW Defence, the expected improvement in orders in 2005has not yet materialised, either domestically or from overseas. The businesshas experienced similar market conditions previously, and continues to competevigorously for orders all around the world, whilst looking at new products toexpand the range.The separation of the Marine Pyrotechnics business from the rest of our Marine division continued during the first half, and will be completed by the year end. Whilst only a small profit was generated in the first half, sales in the Marine Pyrotechnics business are biased to the second half, and a sound performance for the year is anticipated.After an excellent 2004 Pains Wessex Australia predicted a quieter 2005, bothin its military and marine activities. The company now acts as an agent forboth Alloy Surfaces and Kilgore with the military in Australia, following theexpiry of the previous contract with an external agent. This should improve theprofitability of the business as sales to Australia are significant.Marine Lights and ElectronicsThe restructuring of the Marine division is proceeding satisfactorily, with costsof approximately ‚£0.35 million being incurred during the first half. Marine Lightsperformed well, although not at the same, excellent level that they did in 2004. With the exception of one updated product range, Electronics achieved its anticipated sales, with improvements expected in the second half from the seasonal business. Board of DirectorsAs referred to previously, on 4 April 2005, Dr David Price joined us as Chief Executiveand David Evans was appointed Non-Executive Deputy Chairman. Tim Hayter resigned as Chief Operating Officer on 10 March 2005. PensionsThe Board is obviously aware of all the changes currently affecting companypension schemes but in the absence of yet to be produced Governmentlegislation, finds it impossible to judge the best course of action for thefuture. On the basis of current information before the Board, and taking intoconsideration the actions that we have already taken to improve the funding ofour defined benefit schemes, we do not believe the Group is facing any materialproblem with long-term funding of the schemes.I will report more fully on pension issues in my next statement. ProspectsThe results for the half year were satisfactory and would have been outstandingwith a full contribution from Kilgore, PW Defence and the Marine division. TheCountermeasures division, with its substantial order book, should perform wellin the second half, and with a stronger performance from the Group's otherbusinesses, we expect to achieve another year of excellent growth. K C SCOBIE - Chairman28 June 2005 *All comparisons are for the half year to 30 April 2004.UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNTfor the half year to 30 April 2005 Unaudited Unaudited Audited Half year Half year to Year to to 30 April 2004 31 Oct 30 April 2004 2005 ‚£000 ‚£000 ‚£000 Turnover - continuing operations 54,321 57,441 125,580 Operating profit - continuing operations 7,801 7,463 16,927 Loss on disposal of subsidiary undertaking - (690) (690) Associated undertaking - - 151 Profit on ordinary activities before 7,801 6,773 16,388interest Interest payable (1,329) (1,660) (3,073) Profit on ordinary activities before 6,472 5,113 13,315taxation Tax on profit on ordinary activities (2,071) (1,616) (3,822) Profit on ordinary activities after taxation 4,401 3,497 9,493 Equity minority interest 13 (6) 15 Profit for financial period/year 4,395 3,510 9,508 Dividends (933) (811) (2,690) Retained profit 3,462 2,699 6,818 Basic earnings per ordinary share 15.14p 12.63p 33.32p Diluted earnings per ordinary share 15.09p 12.56p 33.14p Basic earnings per ordinary share - 15.14p 15.12p 35.02pcontinuing operations Dividend per ordinary share 3.20p 2.80p 9.00pSTATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES Unaudited Unaudited Audited Half year Half year Year to to to 31 Oct 30 April 30 April 2004 2005 2004 ‚£000 ‚£000 ‚£000 Profit for the financial period/year 4,395 3,510 9,508 Foreign currency translation differences on net (2,708) (696) (1,945)investments 1,687 2,814 7,563 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS Unaudited Unaudited Audited Half year Half year Year to to to 31 Oct 30 April 30 April 2004 2005 2004 ‚£000 ‚£000 ‚£000 Profit on ordinary activities after taxation 4,401 3,497 9,493 Equity minority interest (6) 13 15 Dividends (933) (811) (2,690) Retained profit 3,462 2,699 6,818 Ordinary shares issued 6 73 77 Share premium arising 230 5,752 5,984 Foreign currency translation differences on (2,708) (696) (1,945)net investment Net addition to shareholders' funds 990 7,828 10,934 Opening shareholders' funds 63,357 52,423 52,423 Closing shareholders' funds 64,347 60,251 63,357 UNAUDITED CONSOLIDATED BALANCE SHEETas at 30 April 2005 Unaudited Unaudited Audited As at As at As at 30 April 2005 30 April 2004 31 Oct 2004 ‚£000 ‚£000 ‚£000 Fixed assets Development costs 2,575 2,384 2,841 Goodwill 27,984 28,442 27,984 Tangible assets 42,236 41,525 41,810 Investments 1,073 1,063 1,073 73,868 73,414 75,708 Current assets Stock 31,123 24,456 25,090 Debtors 30,114 31,498 27,036 Cash at bank and in hand 327 4,093 9,933 61,564 60,047 62,059 Creditors due within one year Bank loans and overdrafts 16,825 24,021 20,493 Loan stock 40 40 40 Other 28,097 21,893 29,382 44,962 45,954 49,915 Net current assets 16,602 14,093 12,144 Total assets less current liabilities 90,470 87,507 85,852 Creditors due after more than one year (22,252) (21,638) (18,174) Provisions for liabilities and charges (3,601) (5,352) (4,057) Equity minority interest (270) (266) (264) 64,347 60,251 63,357 Capital and reserves Called-up share capital 1,517 1,507 1,511 Share premium account 26,940 26,478 26,710 Special capital reserve 12,939 12,939 12,939 Revaluation reserve 2,392 2,446 2,410 Revenue reserves 20,559 16,881 19,787 Shareholders' funds 64,347 60,251 63,357 UNAUDITED CONSOLIDATED CASH FLOW STATEMENTfor the half year to 30 April 2005 Unaudited Unaudited Audited Half year Half year to Year to to 30 April 31 Oct 30 April 2004 2004 2005 ‚£000 ‚£000 ‚£000 Net cash (outflow)/inflow from operating (2,460) (5,715) 14,462activities Returns on investments and servicing of (1,320) (1,276) (3,045)finance Taxation (2,856) (748) (2,291) Net capital expenditure (3,673) (2,323) (5,580) Acquisitions 242 645 485 Equity dividends paid - - (2,219) Cash (outflow)/inflow before use of liquid resources and financing (10,067) (9,417) 1,812 Financing -issue of 236 5,825 6,061 shares -increase/ 5,340 (1,688) (4,478) (decrease) in debt (Decrease)/increase in cash (4,491) (5,280) 3,395 Reconciliation of net cash flow to movement in net debt (Decrease)/increase in cash (4,491) (5,280) 3,395 Cash (inflow)/outflow from the (increase)/ decrease in debt and lease financing (5,340) 1,688 4,478 Change in net debt resulting from cash flows (9,831) (3,592) 7,873 New finance leases - (231) (354) Translation difference 219 808 1,157 Amortisation of debt finance costs (85) (48) - Cash disposed with subsidiary undertaking - - (3) (9,697) (3,063) 8,673 Reconciliation of operating profit to net cash flow from operating activities Operating profit 7,801 7,463 16,927 Amortisation charge 625 1,044 1,555 Depreciation charge 1,939 1,891 3,229 Loss on sale of tangible fixed assets 47 - 128 Increase in stock (6,033) (535) (1,169) (Increase)/decrease in debtors (3,320) (3,347) 1,116 Decrease in creditors (3,519) (12,231) (7,324) Net cash (outflow)/inflow from operating (2,460) (5,715) 14,462activities Analysis of net debt As at Cash Non cash Exchange As at 1 Nov flow changes movement 30 April 2004 2005 ‚£000 ‚£000 ‚£000 ‚£000 ‚£000 Cash at bank and in 9,933 (9,477) - (129) 327hand Overdrafts (17,463) 4,986 - - (12,477) (7,530) (4,491) - (129) (12,150) Debt due within one (3,070) 1,254 (2,753) 181 (4,388)year Debt due after one (17,055) (7,132) 2,668 - (21,519)year Finance leases (2,353) 538 - 167 (1,648) (30,008) (9,831) (85) 219 (39,705) INDEPENDENT REVIEW REPORT BY THE AUDITORSTo Chemring Group PLCIntroductionWe have been instructed by the Company to review the financial information forthe six months ended 30 April 2005 which comprises the consolidated profit andloss account, statement of total recognised gains and losses, reconciliation ofmovements in shareholders' funds, consolidated balance sheet, consolidated cashflow statement and associated notes, and the related notes 1 to 7. We haveread the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe 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 thatwe might state to the Company those matters we are required to state to them inan independent 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 should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed.Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board. A review consists principallyof making enquiries of Group management and applying analytical procedures tothe financial information and underlying financial data and based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilitiesand transactions. It is substantially less in scope than an audit performed inaccordance with United Kingdom Auditing Standards and therefore provides alower level of assurance than an audit. Accordingly, we do not express anaudit opinion on the financial information. Uncertainty relating to 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 April2005. 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 2005 are disclosed in note 3.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 2005.DELOITTE & TOUCHE LLP, Chartered Accountants, 28 June 2005SouthamptonNOTES TO THE INTERIM STATEMENT 1. BASIS OF PREPARATIONThe interim accounts to 30 April 2005 have been prepared on thebasis of the accounting policies set out in the audited full year accounts to31 October 2004.The unaudited consolidated profit and loss account for each ofthe six month periods and the unaudited consolidated balance sheet as at 30April 2005 do not amount to full accounts within the meaning of section 240 ofthe Companies Act 1985 and have not been delivered to the Registrar ofCompanies. The interim report was approved by the Board of Directors on 28June 2005.2. SEGMENTAL ANALYSIS OF TURNOVERAs discussed in the Chairman's Statement, segmental analysis of turnover hasbeen amended and prior period results restated to reflect more accurately thecurrent structure and management of the Group. Unaudited Unaudited Audited Half year to Half year to Year to 30 April 2005 30 April 2004 31 Oct 2004 ‚£000 ‚£000 ‚£000 Countermeasures 34,050 34,303 78,724 Energetic materials 13,927 15,564 31,360 Marine lights and electronics 6,344 7,574 15,496 Total 54,231 57,441 125,580 All turnover is derived from continuing operations. 3. INSURANCE CLAIMThe Group is pursuing a claim against its former insurancebrokers, concerning the insurance cover for Kilgore Flares Company LLC and thebroker's subsequent handling of a claim, following the manufacturing incidentat Kilgore Flares Company LLC on 18 April 2001.At 31 October 2004 a balance of ‚£2,689,000 was recognised withother debtors. This outstanding balance has been reduced by ‚£98,000, to ‚£2,591,000 at 30 April 2005, as a result of exchange rate movement against theUS dollar. All further legal and professional costs incurred in the half yearto 30 April 2005 have been taken to the profit and loss account. 4. 2004 RESULTSThe figures for the year to 31 October 2004 are abridged from the Group's fullFinancial Statements for that period which carry an unqualified Auditors'Report and have been filed with the Registrar of Companies.5. TAXATIONThe estimated tax rate for the Group for the year ending 31 October 2005 is 32%(2004: 32%). 6. EARNINGS PER SHAREEarnings per share are based on the average number of shares inissue of 29,013,854 (2004: 27,765,886) and profit on ordinary activities aftertaxation, minority interests and preference dividends of ‚£4,393,000 (2004: ‚£3,508,000). Diluted earnings per share has been calculated using a dilutedaverage number of shares in issue of 29,119,379 (2004: 27,922,564) and profiton ordinary activities after taxation, minority interests and preferencedividends of ‚£4,393,000 (2004: ‚£3,508,000).7. CORPORATE WEBSITEFurther information on the Group and its activities can be found on thecorporate website at www.chemring.co.uk.ENDCHEMRING GROUP PLCRelated Shares:
Chemring