TIDMCHG
RNS Number : 7046B
Chemring Group PLC
06 June 2023
CHEMRING GROUP PLC 6 JUNE 2023
("Chemring" or "the Group" or "the Company")
INTERIM RESULTS FOR THE SIX MONTHS TO 30 APRIL 2023
Record order book, full year expectations unchanged, strong
long-term prospects
As reported At H1 2022
exchange rates
H1 2023 Change H1 2023 Change H1 2022
Order intake (GBPm) 338.2 +81% 338.6 +82% 186.4
Revenue (GBPm) 212.1 -4% 210.2 -5% 220.4
Underlying EBITDA(*) (GBPm) 35.7 -17% 35.9 -16% 42.8
Underlying operating profit(*)
(GBPm) 26.6 -21% 27.0 -19% 33.5
Underlying profit before tax(*)
(GBPm) 25.6 -23% 26.0 -21% 33.1
Underlying basic earnings per share(*)
(pence) 7.7 -29% 7.8 -28% 10.8
Statutory operating profit (GBPm) 23.0 -22% 23.4 -20% 29.3
Interim dividend per share (pence) 2.3 +21% 2.3 +21% 1.9
Net debt at 30 April (GBPm) 25.0 +35% 24.7 +34% 18.5
Order book (GBPm) 749.5 +54% 765.1 +57% 488.1
Highlights
* H1 2023 was in line with the Board's expectations. As
previously announced, delays to order intake in 2022
following the extended US Continuing Resolution have
resulted in a heavier weighting of trading
performance and cash generation expected in the
second half of the financial year for the
Countermeasures & Energetics sector
* Record H1 order intake and order book, at the highest
level in over a decade at GBP750m
* Order intake for Sensors & Information was GBP100m,
up 35%, with Roke continuing to execute its growth
strategy
* Order intake for Countermeasures & Energetics was
GBP238m, up 113%, driven by strong demand at our
niche energetics businesses including an order for
our Scottish facility of GBP43m for the delivery of
critical components used on the Next Generation Light
Anti-Tank Weapon system ("NLAW")
* Roke revenue in the first half was up 44% to GBP78m
and order intake up 41% to GBP82m with the business
well positioned to continue its growth trajectory in
what continues to be a buoyant market
* Sensors & Information underlying operating margin was
19.4% (H1 2022: 21.5%, 2022: 18.5%), the decrease on
H1 2022 driven by the Husky Mounted Detection System
("HMDS") program transition to sustainment in H2 2022
and continuation of operating expense investment at
Roke ahead of the revenue curve
* Countermeasures & Energetics underlying operating
margin was 13.3% (H1 2022: 16.4%, 2022: 17.4%), the
decrease reflecting the operational gearing impact of
revenue being weighted towards the second half of
2023 and increased energy costs
* Net debt was GBP25.0m (H1 2022: GBP18.5m), the
increase due to timing of working capital investment
required to deliver H2 revenue. Net debt to
underlying EBITDA of 0.33 times (H1 2022: 0.23
times). H2 cash generation is expected to improve
markedly
* GBP90m capacity expansion plan to 2026 initiated to
capitalise on growing demand in Energetics,
delivering incremental revenue of GBP60m per annum
* Interim dividend per share of 2.3p, up 21% (H1 2022:
1.9p)
* The Board's expectations for 2023 are unchanged.
Approximately 90% (H1 2022: 85%) of expected H2
revenue was in the order book at 30 April 2023. The
Group's longer-term prospects are strong, underpinned
by activity levels and our leading technological
offering
Michael Ord, Chemring Group Chief Executive, commented:
"It has been a period of heightened activity across the Group as
we adapt to changing customer spending priorities. In response to
increased global uncertainty and competition, demand for both
technology-driven solutions and a resurgent demand for traditional
defence capabilities, has resulted in record H1 order intake and an
order book at its highest level for over a decade.
"The outlook for the global defence market is increasingly
positive, with strong growth predicted over the next decade. This
growing visibility and the increasing desire of our customers to
move to long-term partnering agreements gives us the confidence to
continue to invest for the future, balancing short-term performance
with heightened long-term growth and value creation. Chemring is
well placed to capitalise on its many opportunities and with 90% of
expected H2 revenues covered by the order book, the Board's full
year expectations are unchanged."
Notes:
* All profit and earnings per share figures in this news release
relate to underlying business performance (as defined below) unless
otherwise stated.
The principal Alternative Performance Measures ("APMs")
presented are the underlying measures of earnings which exclude
exceptional items, gain or loss on the movement on the fair value
of derivative financial instruments, and the amortisation of
acquired intangibles. The directors believe that these APMs improve
the comparability of information between reporting periods as well
as reflect the key performance indicators used within the business
to measure performance. The term underlying is not defined under
IFRS and may not be comparable with similarly titled measures used
by other companies.
EBITDA is defined as operating profit before interest, tax,
depreciation and amortisation. Reference to constant currency
relates to the re-translation of H1 2023 financial information at
the H1 2022 exchange rates to reflect the movement excluding the
impact of foreign exchange. The exchange rates applied are
disclosed in note 12.
A reconciliation of underlying measures to statutory measures is
provided below:
Group: Underlying Non-underlying Statutory
EBITDA (GBPm) 35.7 (1.4) 34.3
----------- --------------- ----------
Operating profit (GBPm) 26.6 (3.6) 23.0
----------- --------------- ----------
Profit before tax (GBPm) 25.6 (3.6) 22.0
----------- --------------- ----------
Tax charge on profit (GBPm) (3.9) 0.6 (3.3)
----------- --------------- ----------
Profit after tax (GBPm) 21.7 (3.0) 18.7
----------- --------------- ----------
Basic earnings per share (pence) 7.7 6.6
----------- --------------- ----------
Diluted earnings per share (pence) 7.5 6.5
----------- --------------- ----------
Segments:
----------- --------------- ----------
Sensors & Information EBITDA (GBPm) 20.8 (1.8) 19.0
----------- --------------- ----------
Sensors & Information operating
profit (GBPm) 19.0 (2.9) 16.1
----------- --------------- ----------
Countermeasures & Energetics EBITDA
(GBPm) 22.3 - 22.3
----------- --------------- ----------
Countermeasures & Energetics operating
profit (GBPm) 15.2 (1.1) 14.1
----------- --------------- ----------
The non-underlying adjustments comprise:
* amortisation of acquired intangibles of GBP2.2m (H1
2022: GBP2.1m, 2022: GBP4.6m)
* gain on the movement in the fair value of derivative
financial instruments of GBP0.4m (H1 2022: GBP1.6m
loss, 2022: GBP4.1m loss)
* acquisition expenses of GBP1.8m (H1 2022: GBP0.5m,
2022: GBP2.0m) which includes GBP1.7m of deferred
consideration accounted for as a post-acquisition
expense under IFRS 2
* tax impact of adjustments of GBP0.6m credit (H1 2022:
GBP0.5m credit, 2022: GBP1.3m credit)
Further details are provided in note 3.
For further information:
Group Director of Corporate Affairs,
Rupert Pittman Chemring Group PLC +44 (0) 1794 463401
+44 (0) 20 3128
James McFarlane MHP Group 8100
Ollie Hoare
Cautionary statement
This announcement contains forward-looking statements that are
based on current expectations or beliefs, as well as assumptions
about future events. These forward-looking statements can be
identified by the fact that they do not relate only to historical
or current facts. Forward-looking statements often use words such
as anticipate, target, expect, estimate, intend, plan, goal,
believe, will, may, should, would, could, is confident, or other
words of similar meaning. Undue reliance should not be placed on
any such statements because they speak only as at the date of this
document and, by their very nature, they are subject to known and
unknown risks and uncertainties and can be affected by other
factors that could cause actual results, and Chemring's plans and
objectives, to differ materially from those expressed or implied in
the forward-looking statements. There are a number of factors which
could cause actual results to differ materially from those
expressed or implied in forward-looking statements. Among the
factors that could cause actual results to differ materially from
those described in the forward-looking statements are: increased
competition, the loss of or damage to one or more key customer
relationships, changes to customer ordering patterns, delays in
obtaining customer approvals for engineering or price level
changes, the failure of one or more key suppliers, the outcome of
business or industry restructuring, the outcome of any litigation,
changes in economic conditions, currency fluctuations, changes in
interest and tax rates, changes in raw material or energy market
prices, changes in laws, regulations or regulatory policies,
developments in legal or public policy doctrines, technological
developments, the failure to retain key management, or the key
timing and success of future acquisition opportunities or major
investment projects. Chemring undertakes no obligation to revise or
update any forward-looking statement contained within this
announcement, regardless of whether those statements are affected
as a result of new information, future events or otherwise, save as
required by law and regulations.
Notes to editors
-- Chemring is a global business that specialises in the
manufacture of high technology products and the provision of
services to the aerospace, defence and security markets
-- Employing approximately 2,500 people worldwide, and with
production facilities in four countries, Chemring meets the needs
of customers in more than fifty countries
-- Chemring is organised under two strategic product segments:
Sensors & Information and Countermeasures & Energetics
-- Chemring has a diverse portfolio of products that deliver
high reliability solutions to protect people, platforms, missions
and information against constantly changing threats
-- Operating in niche markets and with strong investment in
research and development ("R&D"), Chemring has the agility to
rapidly react to urgent customer needs
www.chemring.com
Presentation
A video presentation and accompanying slides will be available
at the Chemring Group results centre
www.chemring.com/investors/results-centre at 07.00 (UK time) on
Tuesday 6 June 2023.
Analyst meeting
An analyst meeting will take place at 09.00 (UK time) on Tuesday
6 June 2023 at the offices of Investec Bank plc, 30 Gresham St,
London EC2V 7QP. To confirm attendance please contact MHP Group:
chemringplc@mhpgroup.com.
Photography
Original high resolution photography is available to the media
by contacting Catherine Chapman, MHP Group:
catherine.chapman@mhpgroup.com / tel: +44 (0) 20 3128 8339.
INTERIM MANAGEMENT REPORT
Group overview
The Group's first half performance was in line with the Board's
expectations. As previously announced, delays to order intake in
2022 following the extended US Continuing Resolution have resulted
in a heavier weighting of trading performance and cash generation
expected in the second half of the financial year.
Order intake for H1 2023 was exceptionally strong in both
segments, up 81% to GBP338m (H1 2022: GBP186m, 2022: GBP551m).
Revenue was down 4% to GBP212.1m (H1 2022: GBP220.4m, 2022:
GBP442.8m) reflecting the expected bias of trading performance in
the second half of 2023.
Underlying operating profit was down 21% to GBP26.6m (H1 2022:
GBP33.5m, 2022 GBP64.0m) resulting in an underlying operating
margin of 12.5% (H1 2022: 15.2%, 2022: 14.5%). The decrease
compared to H1 2022 primarily reflects the operational gearing
impact of the second half bias of revenue in Countermeasures &
Energetics, and in Sensors & Information, HMDS moving to
sustainment offset by continued strong growth at Roke.
Total finance expense was higher at GBP1.0m (H1 2022: GBP0.4m,
2022: GBP1.5m) reflecting the significant increase in interest
rates during the second half of 2022 which has continued into
2023.
Underlying profit before tax was GBP25.6m (H1 2022: GBP33.1m,
2022: GBP62.5m). The effective tax rate on the underlying profit
before tax was 15.2% (H1 2022: 8.8%, 2022: 9.1%). The charge in the
previous period was reduced by a credit for the recognition of a
deferred tax asset in respect of future US interest deductions that
were previously unrecognised. The underlying earnings per share was
7.7p (H1 2022: 10.8p, 2022: 20.2p).
The bias in trading performance to the second half in FY23 has
resulted in a working capital investment timing difference
increasing net debt at the half year to GBP25.0m (H1 2022:
GBP18.5m, 2022: GBP7.2m). In addition, we have continued with our
capital investment activity, including the acquisition of
Geollect.
Underlying operating cash inflow of GBP22.9m (H1 2022: GBP43.3m,
2022: GBP90.1m) represented 64% (H1 2022: 101%, 2022: 109%) of
underlying EBITDA. Whilst the half year cash conversion has reduced
due to the timing difference mentioned above, our two-year rolling
average cash conversion has been 100%, showing the ongoing focus on
working capital improvements is delivering long-term, sustainable
positive results. We expect cash conversion for FY23 to return to
circa 90% which would result in the three-year rolling average cash
conversion being circa 100%.
The Group's order book at 30 April 2023 was GBP750m (H1 2022:
GBP488m, 2022: GBP651m). Approximately GBP232m of the order book is
scheduled for delivery during the second half of FY23. This
represents cover of approximately 90% (H1 2022: 85%) of expected
second half revenue. This leaves GBP518m of order book to be
delivered in FY24 and beyond. At this stage, this provides
approximately 78% (H1 2022: 66%) cover of expected FY24 revenue and
approximately 60% cover of expected FY25 revenue in Countermeasures
& Energetics. In Sensors & Information this provides
approximately 30% (H1 2022: 31%) cover of expected FY24
revenue.
Statutory operating profit was GBP23.0m (H1 2022: GBP29.3m,
2022: GBP53.3m) and after statutory finance expenses of GBP1.0m (H1
2022 GBP0.4m, 2022: GBP1.5m), statutory profit before tax was
GBP22.0m (H1 2022: GBP28.9m, 2022: GBP51.8m). The statutory profit
after tax was GBP18.7m (H1 2022: GBP26.5m, 2022: GBP47.4m) giving a
statutory basic earnings per share of 6.6p (H1 2022: 9.5p, 2022:
16.9p). The impact of non-underlying items on statutory profit
measures is provided in note 3. The non-underlying costs in H1 2023
related to the amortisation of acquired intangibles, costs relating
to acquisitions, gains on the movement in the fair value of
derivative financial instruments and the tax credit associated with
these .
Segmental review - Sensors & Information
Performance
Order intake in the period increased by 35% to GBP100m (H1 2022:
GBP74m, 2022: GBP195m) and revenue increased by 9% to GBP97.9m (H1
2022: GBP90.2m, 2022: GBP162.3m) with growth at Roke offset by the
fall in revenue at our US sensors business due to the reduction in
HMDS revenue, as it transitions to one predominantly now delivering
on biological detection programs.
Roke
Roke has continued its positive momentum into FY23 delivering
strong growth in orders and revenue, with order intake up 41% to
GBP82m, and revenue up 44% to GBP77.8m. It has also maintained its
track record of delivering double digit growth in underlying
operating profit and has maintained strong margins despite
increased investment in people, infrastructure and product
development.
Roke continues to win a number of contracts as the prime
contractor and therefore order intake and revenue contains an
element of "pass-through". The table below shows order intake for
Roke's products and service grew by 15% with revenue growth of
39%.
Roke "pass-through" H1 2023 H1 2022 Change
impact
GBPm GBPm
Order intake
Products and services 62 54 +15%
Pass-through 20 4 +400%
----------------------- -------- -------- -------
As reported 82 58 +41%
----------------------- -------- -------- -------
Revenue
Products and services 61 44 +39%
Pass-through 17 10 +70%
----------------------- -------- -------- -------
As reported 78 54 +44%
----------------------- -------- -------- -------
The Integrated Review Refresh 2023 of Defence, Security and
Foreign Policy ("IRR23") focused on the UK's ability to deter,
defend and compete across all domains, most notably in areas
including cyber, information advantage and the digitalisation of
defence, artificial intelligence, and multi-domain integration.
When matched with increasing budgets, this is expected to
accelerate the demand for Roke's market-leading skills and
technologies.
A key element of the IRR23 was the need to upgrade statecraft
for systemic competition. This is driving demand for Roke's
national security capabilities, particularly in active cyber
defence and technological mission support services to core
government customers.
In Roke's defence markets, the increasing importance of Cyber
and Electromagnetic Activity ("CEMA") in today's threat
environment, heightened further as a consequence of Russia's
invasion of Ukraine, has led to a growing number of enquiries for
Roke's suite of world-leading Electronics Warfare products. Roke
currently has requests for quotation in excess of GBP200m
outstanding, and is well positioned to win several multi-year
orders.
A notable highlight in the period has been the progress made in
the Roke Futures business area which has continued to make strong
progress in scaling its business activities in H1 2023. Roke
Futures delivers technology solutions to clients outside of
National Security and Defence markets and is gaining traction with
customers including Rolls Royce, Waygate Technologies, and
Vodafone. Roke Futures is also now supporting a new client, a FTSE
100 multinational mining company, through the development of
innovative technology solutions and approaches. Roke technologies
and capabilities, such as autonomy and intelligent sensing, can
fundamentally change the way in which minerals are processed,
unlocking production capacity through improvements in efficiency
and the reduction of waste.
US Sensors
Revenues from our US Sensors business decreased by GBP17.3m as
expected, as a result of the re-prioritisation of US DoD budgets
away from the HMDS in 2022, as previously highlighted. The Sensors
& Information H1 2022 comparator included GBP28.5m of revenue
and GBP4.3m of operating profit relating to HMDS.
FY23 represents a transitional period for our US Sensors
business from explosive hazard detection to biological detection.
Deliveries under the full rate production phase of the Enhanced
Maritime Biological Detection System ("EMBD") program have
continued as planned and we received a third option quantity
exercised under the sole source $99m Indefinite Delivery /
Indefinite Quantity contract of $15.3m with deliveries expected to
be made in FY23 and FY24. Following the expected completion of the
engineering and manufacturing development ("EMD") phase of the
Joint Biological Tactical Detection System ("JBTDS") program, we
anticipate being awarded a contract for low rate initial production
("LRIP") in the second half of the year. A LRIP Production
Readiness Review, with supporting Manufacturing Readiness
Assessment, took place in mid-May and the procurement decision
expected to follow shortly thereafter.
On the Aerosol and Vapor Chemical Agent Detector program, the
customer procurement decision has been further delayed and is now
expected in the second half of FY23. Chemring remains one of two
contractors currently competing on this program.
Sensors & Information operating profit
Underlying operating profit was flat at GBP19.0m (H1 2022:
GBP19.4m, 2022: GBP30.0m), as the underlying operating margin
declined to 19.4% (H1 2022: 21.5%, 2022: 18.5%). We continued to
invest in the Roke Academy and the graduate and apprentice
programmes, recruiting circa 150 fee earners in the last year,
positioning Roke well to deliver on its future growth ambition.
Excluding Roke pass-through revenue, the operating margin for
Sensors & Information would have been 23.4% (H1 2022: 24.1%,
2022: 20.5%). A bridge of revenue and operating profit from H1 2022
to H1 2023 is shown below.
GBPm Revenue Operating
profit
-------------------------------------- -------- ----------
H1 2022 90.2 19.4
-------------------------------------- -------- ----------
Increase in Roke products & services 17.2 4.3
Increase in Roke pass-through 6.7 -
Increase in Roke operating expense
investment - (1.8)
Decrease in US Sensors HMDS (28.5) (4.3)
Increase in US Sensors EMBD 11.2 1.3
Exchange effects 1.1 0.1
-------------------------------------- -------- ----------
H1 2023 97.9 19.0
-------------------------------------- -------- ----------
Constant currency
On a constant currency basis order intake would have risen by
32% to GBP98.2m, revenue would have risen 7% to GBP96.8m and
underlying operating profit would have been GBP18.9m.
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 national security, artificial intelligence and machine
learning, tactical electronic warfare, information security and
biological detection.
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. Driven by the needs of our national
security, defence and commercial customers to access open source
intelligence, Roke has created an Intelligence as a Service
business which combines proprietary datasets, AI, and customer
facing platforms to provide nation state level intelligence to both
government and commercial customers. Viewed as a key enabler of
tactical success, our expectations are that this business can grow
at 35% CAGR. Roke will continue to focus its efforts on growing
across all its business areas, delivering research, design,
engineering and advisory services using its high-quality people and
capabilities.
In our FY22 results in December 2022, we stated our vision for
the next five years was to maintain Roke's recent record of growth,
doubling annual revenue to greater than GBP200m organically, whilst
maintaining strong margins. With the increased activity that we are
seeing across all Roke's business areas we have revised that
vision, raising our ambitions to increase Roke's annual revenues to
greater than GBP250m organically by 2028, whilst maintaining strong
margins.
As demonstrated with the acquisition of Geollect in December
2022, the integration of which is progressing as planned, we will
continue to actively explore opportunities to expand and accelerate
the Sensors & Information sector capabilities and offerings,
both by leveraging opportunities in adjacent markets and through
further bolt-on acquisitions. However, any acquisition must meet a
strict set of criteria, enhance shareholder value and fit in with
our wider growth plans.
The order book for Sensors & Information at 30 April 2023
has increased since the year end to GBP153m (H1 2022: GBP102m,
2022: GBP154m). While the Roke business remains a relatively
shorter-cycle order book business, the segment has orders of
approximately GBP67m for delivery in the second half of the year,
representing 72% (H1 2022: 59%) coverage of expected H2
revenue.
Segmental review - Countermeasures & Energetics
Performance
In Countermeasures & Energetics, order intake was GBP238m,
up 113% (H1 2022: GBP112m, 2022: GBP331m) with notable contract
awards including a $39m order for the delivery of countermeasures
from our newly commissioned automated facility in Tennessee, and a
GBP43m order for the delivery of critical components used on the
NLAW system from our Scottish facility.
We are seeing increasing levels of activity and demand in the
propellants and energetic materials markets as customers
re--evaluate their operational usage and stockpile requirements
associated with traditional defence capabilities, with order intake
from our energetics businesses up 192% to GBP149m (H1 2022: GBP51m,
2022: GBP137m). Even prior to 2022 demand for these energetic
materials has exceeded global supply, and customers are now seeking
long-term strategic supply agreements, with corresponding orders,
in order to secure their place in our production schedules.
Revenue fell by 12% to GBP114.2m (H1 2022: GBP130.2m, 2022:
GBP280.5m) due to delays to order intake in 2022 following the
extended US Continuing Resolution, which has resulted in a greater
bias of trading performance and cash generation expected in the
second half of this financial year. The segment reported an
underlying operating profit of GBP15.2m (H1 2022: GBP21.3m, 2022:
GBP48.9m). The underlying operating margin decreased to 13.3% (H1
2022: 16.4%, 2022: 17.4%) driven by the operational gearing impact
of revenue being weighted towards the second half of FY23 together
with increased energy costs and wage inflation. On a constant
currency basis revenue would have been down 13% to GBP113.4m and
operating profit would have been down 27% to GBP15.6m.
Opportunities and outlook
The Countermeasures & Energetics segment focus remains on
maintaining and growing the Group's market-leading positions, in
particular in the growing markets for propellants and precision
engineered energetic devices, and in countermeasures on key
platforms such as the F-35.
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
significantly improved visibility.
As planned, we will complete the process of modernisation and
automation across our sites. This is now embedded in our
countermeasures sites and our future focus will be on our
energetics facilities. The improved market conditions for our
energetics businesses reflected in our order intake and order book
has presented a strong organic growth opportunity to expand
capacity at these sites in parallel with the planned modernisation
to capitalise on the long-term demand we are seeing. A three year
investment programme is planned through to FY26 at a cost of
approximately GBP90m which, when completed, is expected to generate
incremental revenue of circa GBP60m and incremental operating
profit of circa GBP13m per annum.
Countermeasures & Energetics' order book at 30 April 2023
was GBP597m (H1 2022: GBP386m, 2022: GBP497m) of which
approximately GBP165m is currently expected to be delivered in the
second half of FY23, representing 99% (H1 2022: 98%) coverage of
expected H2 revenue.
Retirement benefit obligations
The surplus on the Group's defined benefit pension scheme was
GBP10.3m (H1 2022: GBP18.1m, 2022: GBP11.2m), measured in
accordance with IAS 19 (Revised) Employee Benefits.
The surplus relates to the Chemring Group Staff Pension Scheme
(the "Scheme"), a UK defined benefit scheme whose assets are held
in a separately administered fund. The Scheme was closed to future
accrual in April 2012. A full actuarial valuation for the Scheme
was completed as at 6 April 2021, and has been prepared and updated
to 30 April 2023, using the projected unit credit method. Despite
the volatility in equity and bond markets throughout the period and
increased inflation expectations, the resilience of the Scheme's
investment strategy, which includes a liability driven investment
which hedges future interest rate and inflation risk, has protected
the Scheme's surplus position which represents 117% of scheme
liabilities.
The 6 April 2021 triennial valuation showed a technical
provisions surplus of GBP3.8m, which represented a funding level of
104% of liabilities. The Group agreed with the trustees that no
further deficit recovery payments are required. The next actuarial
valuation is due as at 6 April 2024 after which the future funding
requirements will be reassessed.
As at 31 October 2022, GBP2.0m was due from the Chemring Group
Staff Pension Scheme representing a short-term loan to fund margin
calls on liability driven investments which was repaid in November
2022.
Dividends
At the Annual General Meeting on 15 March 2023 the shareholders
approved a final dividend in respect of the year ended 31 October
2022 of 3.8p per ordinary share. This was paid on 14 April 2023 to
shareholders on the register on 24 March 2023.
The Board continues to recognise that dividends are an important
component of total shareholder returns. The Board's objective is
for a growing and sustainable dividend and continues to target a
medium-term dividend cover of c.2.5 times underlying EPS, subject
inter alia to maintaining a strong financial position. Therefore,
the Board has declared an interim dividend in respect of the 2023
financial year of 2.3p per ordinary share which will be paid on 8
September 2023 to shareholders on the register on 18 August
2023.
Board of Directors
On 23 January 2023 the Group announced that after six years as
Chief Financial Officer and a director of the Company, Andrew Lewis
had informed the Board of his intention to retire following the
completion of his 12 months notice period. A process to find a
successor was immediately launched.
On 24 May 2023, the Group announced the appointment of James
Mortensen as Chief Financial Officer. He has held various senior
roles at Smiths Group PLC, the FTSE 100 diversified engineering
business, including having been Chief Financial Officer of Smith
Medical Division. His current role at Smiths is Group Head of
Corporate Development. The Group is working with James to agree the
date on which he will join Chemring. A further announcement will be
made in due course.
Markets
Russia's illegal invasion of Ukraine has reset the defence and
security environment in Europe with several European countries
renewing their defence spending commitments and announcing budget
increases of varying degrees. The perceived threat from China is
driving a strong US defence modernisation programme as well as the
strengthening of US military alliances across the Asia-Pacific
region.
The US continues to be the largest defence and security market
in the world and remains opportunity-rich for the Group's
capabilities. The FY24 Budget Request from the Biden-Harris
Administration for the US Department of Defense ("US DoD") is
US$842bn and has a strong focus on strengthened cooperation with
allies, modernisation procurements to maintain full spectrum
dominance and the largest ever investment in Research and
Development ("R&D"). Group capabilities in cyber, space,
hypersonics and advanced weapons, electronic warfare ("EW") and
chem/bio security give us the opportunity to address many of these
needs. International sales of the F-35 stealth multirole combat
aircraft continue to be strong, with Germany placing an order for
35 F-35A in December 2022 and Canada ordering 88 of the same
aircraft in January 2023. As a provider of countermeasures for this
fifth-generation fighter, these programmes will contribute to us
sustaining our leadership position in the addressable air
countermeasures market.
In the UK, the March 2023 Integrated Review Refresh ("IRR23")
reconfirmed the strong foundations of our market position that was
described in the 2021 Integrated Review of Defence, Security and
Foreign Policy ("IR21"). IRR23 addresses the rapid and unexpected
intensification of the threat environment following Russia's
illegal invasion of Ukraine, and our broad-based business portfolio
with differentiated capabilities in Countermeasures &
Energetics, and Sensors & Information position us well to
respond to the confirmed customer demands. National resilience in
product areas such as countermeasures, munitions, and complex
weapons - all of which require energetic components, will be
achieved through new customer investment in enlarged stockpiles and
industrial capacity. The digitalisation of defence, the crucial
role of deterring, defending and competing in cyberspace, as well
as the focus on artificial intelligence as a priority technology
area will drive ever increasing demand for Roke's world-class
expertise.
European allies (both NATO and non-NATO members) have plans in
place to boost defence investment to address the replacement of
defence capabilities provided to Ukraine (circa EUR30 billion),
remove capability gaps, and enhance stockpile and readiness levels.
Chemring is well placed to benefit from elements of this
demand.
Outlook
The Board's full year expectations are unchanged, supported by
order coverage at 30 April 2023 of 90% of the expected H2
revenue.
The market backdrop for defence is increasingly positive. With
customers needing to re-equip and modernise their defence
capabilities, and with the increasing trend of customers looking
for long-term partnering agreements providing increased visibility,
Chemring's long-term prospects remain strong. The Group will
continue to focus on cash generation and maintaining a robust and
deployable balance sheet to enable opportunities for further
growth.
With market-leading innovative technologies and services that
are critical to our customers the Board is confident that Chemring
will continue to deliver both robust organic and inorganic growth,
balancing near-term performance with long-term value creation.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for the maintenance and integrity
of the Company website.
Legislation in the United Kingdom governing the preparation and
dissemination of financial information differs from legislation in
other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge:
a) the Condensed Set of Financial Statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as
adopted for use in the UK;
b) the Interim Management Report includes a fair review of the
information required by:
* DTR 4.2.7R of the Disclosure Guidance and
Transparency Rules, being an indication of important
events that have occurred during the first six months
of the financial year and their impact on the
condensed set of financial statements; and a
description of the principal risks and uncertainties
for the remaining six months of the year; and
* DTR 4.2.8R of the Disclosure Guidance and
Transparency Rules, being related party transactions
that have taken place in the first six months of the
current financial year and that have materially
affected the financial position or performance of the
entity during that period; and any changes in the
related party transactions described in the last
annual report that could do so.
By order of the Board
Michael Ord Andrew Lewis
Group Chief Executive Group Chief Financial Officer
6 June 2023 6 June 2023
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2023
Unaudited Unaudited
Half year to Half year to
30 April 2023 30 April 2022
Note Underlying Non-underlying Underlying Non-underlying
performance items* Total performance items* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 2 212.1 - 212.1 220.4 - 220.4
------------- --------------- ------ ------------- --------------- ------
Operating profit 2 26.6 (3.6) 23.0 33.5 (4.2) 29.3
Finance expense (1.0) - (1.0) (0.4) - (0.4)
------------- --------------- ------ ------------- --------------- ------
Profit before tax 25.6 (3.6) 22.0 33.1 (4.2) 28.9
Tax charge on profit 5 (3.9) 0.6 (3.3) (2.9) 0.5 (2.4)
------------- --------------- ------ ------------- --------------- ------
Profit after tax
for the period 21.7 (3.0) 18.7 30.2 (3.7) 26.5
------------- --------------- ------ ------------- --------------- ------
Earnings per ordinary
share
Basic 6 7.7p 6.6p 10.8p 9.5p
Diluted 6 7.5p 6.5p 10.5p 9.2p
------------- --------------- ------ ------------- --------------- ------
Audited
Year to
31 Oct 2022
Note Underlying Non-underlying
performance items* Total
GBPm GBPm GBPm
Revenue 2 442.8 - 442.8
------------- --------------- ------
Operating profit 2 64.0 (10.7) 53.3
Finance expense (1.5) - (1.5)
------------- --------------- ------
Profit before tax 62.5 (10.7) 51.8
Tax charge on profit 5 (5.7) 1.3 (4.4)
------------- --------------- ------
Profit after tax
for the year 56.8 (9.4) 47.4
------------- --------------- ------
Earnings per ordinary
share
Basic 6 20.2p 16.9p
Diluted 6 19.7p 16.4p
------------- --------------- ------
* Further information about non-underlying items is set out in
note 3.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year to 30 April 2023
Unaudited Unaudited
Half year Half year Audited
to to Year to
30 April 30 April 31 Oct
2023 2022 2022
GBPm GBPm GBPm
Profit after tax attributable to equity
holders of the parent 18.7 26.5 47.4
----------- ----------- ---------
Items that will not be reclassified subsequently
to profit or loss
Remeasurement of the defined benefit pension
schemes (1.1) 4.5 (2.3)
Movement on deferred tax relating to pension
schemes 0.3 (1.5) 0.8
----------- ----------- ---------
(0.8) 3.0 (1.5)
----------- ----------- ---------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of
foreign operations (23.1) 17.8 35.0
Tax on exchange differences on translation
of foreign operations (1.2) (0.2) (0.4)
----------- ----------- ---------
(24.3) 17.6 34.6
----------- ----------- ---------
Total comprehensive (loss)/income attributable
to equity holders of the parent (6.4) 47.1 80.5
----------- ----------- ---------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2023
Unaudited half year to 30 April 2023
Share Special
Share premium capital Translation Retained
capital account reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November 2022 2.8 307.7 12.9 7.5 87.2 418.1
--------- --------- --------- ------------ ---------- -------
Profit after tax - - - - 18.7 18.7
Other comprehensive
loss - - - (23.1) (1.1) (24.2)
Tax relating to components
of other comprehensive
loss - - - (1.2) 0.3 (0.9)
Total comprehensive
loss - - - (24.3) 17.9 (6.4)
Ordinary shares issued - 0.1 - - - 0.1
Share-based payments
(net of settlement) - - - - 4.0 4.0
Dividends paid - - - - (10.8) (10.8)
Purchase of shares by
employee share ownership
plan trust - - - - (5.4) (5.4)
At 30 April 2023 2.8 307.8 12.9 (16.8) 92.9 399.6
--------- --------- --------- ------------ ---------- -------
Unaudited half year to 30 April 2022
Share Special
Share premium capital Translation Retained
capital account reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November 2021 2.8 307.1 12.9 (27.1) 57.1 352.8
--------- --------- --------- ------------ ---------- ------
Profit after tax - - - - 26.5 26.5
Other comprehensive
income - - - 17.8 4.5 22.3
Tax relating to components
of other comprehensive
income - - - (0.2) (1.5) (1.7)
Total comprehensive
income - - - 17.6 29.5 47.1
Ordinary shares issued 0.1 - - - - 0.1
Share-based payments
(net of settlement) - - - - 4.3 4.3
Dividends paid - - - - (9.1) (9.1)
Purchase of shares by
employee share ownership
plan trust - - - - (7.0) (7.0)
At 30 April 2022 2.9 307.1 12.9 (9.5) 74.8 388.2
--------- --------- --------- ------------ ---------- ------
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2023
Audited year to 31 October 2022
Share Special
Share premium capital Translation Retained
capital account reserve reserve earnings Total
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 November 2021 2.8 307.1 12.9 (27.1) 57.1 352.8
--------- --------- --------- ------------ ---------- -------
Profit after tax - - - - 47.4 47.4
Other comprehensive
income - - - 35.0 (2.3) 32.7
Tax relating to components
of other comprehensive
income - - - (0.4) 0.8 0.4
Total comprehensive
income - - - 34.6 45.9 80.5
Ordinary shares issued - 0.6 - - - 0.6
Share-based payments
(net of settlement) - - - - 5.6 5.6
Dividends paid - - - - (14.4) (14.4)
Purchase of shares by
employee share ownership
plan trust - - - - (7.0) (7.0)
At 31 October 2022 2.8 307.7 12.9 7.5 87.2 418.1
--------- --------- --------- ------------ ---------- -------
CONDENSED CONSOLIDATED BALANCE SHEET as at 30 April 2023
Note Unaudited Unaudited
As at As at Audited
30 April 30 April As at
2023 2022 31 Oct 2022
GBPm GBPm GBPm
Non-current assets
Goodwill 119.1 113.2 118.1
Development costs 32.7 31.8 34.6
Other intangible assets 11.2 13.1 11.4
Property, plant and equipment 222.3 210.2 231.3
Retirement benefit surplus 10.3 18.1 11.2
Deferred tax 35.8 20.1 32.3
431.4 406.5 438.9
---------- ---------- -------------
Current assets
Inventories 116.2 96.3 99.6
Trade and other receivables 72.9 82.5 61.1
Cash and cash equivalents 11 6.9 9.9 19.8
Derivative financial instruments 8 0.8 1.0 0.7
196.8 189.7 181.2
---------- ---------- -------------
Total assets 628.2 596.2 620.1
---------- ---------- -------------
Current liabilities
Borrowings 11 (1.0) - -
Lease liabilities 11 (1.5) (1.6) (1.8)
Trade and other payables (120.1) (115.6) (98.2)
Provisions (1.1) (2.6) (1.6)
Current tax (5.0) (8.9) (7.9)
Derivative financial instruments 8 (3.2) (2.3) (4.2)
(131.9) (131.0) (113.7)
---------- ---------- -------------
Non-current liabilities
Borrowings 11 (25.6) (24.9) (20.9)
Lease liabilities 11 (3.7) (1.8) (4.2)
Provisions (16.1) (15.3) (16.8)
Deferred tax (51.1) (34.7) (45.2)
Derivative financial instruments 8 (0.1) (0.2) (1.1)
Preference shares 11 (0.1) (0.1) (0.1)
(96.7) (77.0) (88.3)
---------- ---------- -------------
Total liabilities (228.6) (208.0) (202.0)
---------- ---------- -------------
Net assets 399.6 388.2 418.1
---------- ---------- -------------
Equity
Share capital 2.8 2.9 2.8
Share premium account 307.8 307.1 307.7
Special capital reserve 12.9 12.9 12.9
Translation reserve (16.8) (9.5) 7.5
Retained earnings 92.9 74.8 87.2
---------- ---------- -------------
Total equity 399.6 388.2 418.1
---------- ---------- -------------
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2023
Note Unaudited Unaudited
Half year Half year
to to Audited
30 April 30 April Year to
2023 2022 31 Oct 2022
GBPm GBPm GBPm
Cash flows from operating activities
-------------------------------------------- ----- ----------- ----------- -------------
Cash generated from underlying operations 10 22.9 43.3 90.1
Cash impact of non-underlying items (1.0) (0.2) (1.1)
-------------------------------------------- ----- ----------- ----------- -------------
Cash flows from operating activities 21.9 43.1 89.0
Tax paid (4.9) (4.7) (8.5)
----------- ----------- -------------
Net cash inflow from operating
activities 17.0 38.4 80.5
----------- ----------- -------------
Cash flows from investing activities
Purchases of intangible assets (0.6) (2.3) (3.0)
Purchases of property, plant and
equipment (11.6) (15.3) (31.5)
Proceeds on disposal of property
plant and equipment - 6.0 6.0
Acquisition of subsidiary net of -
cash acquired (7.2) -
Short-term funding to defined benefit
pension scheme 2.0 - (2.0)
Net cash outflow from investing
activities (17.4) (11.6) (30.5)
----------- ----------- -------------
Cash flows from financing activities
Dividends paid 7 (10.8) (9.1) (14.4)
Purchase of own shares (5.4) (7.0) (7.0)
Proceeds from issue of shares 0.1 - 0.1
Finance expense paid (1.1) (0.4) (1.3)
Drawdown of borrowings 26.5 16.0 30.0
Repayments of borrowings (22.1) (21.0) (41.0)
Payment of lease liabilities (0.5) (1.0) (2.2)
Net cash outflow from financing
activities (13.3) (22.5) (35.8)
----------- ----------- -------------
(Decrease)/increase in cash and
cash equivalents (13.7) 4.3 14.2
Cash and cash equivalents at beginning
of period/year 19.8 5.4 5.4
Effect of foreign exchange rate
changes (0.2) 0.2 0.2
----------- ----------- -------------
Cash and cash equivalents at end
of period/year (including bank overdraft) 11 5.9 9.9 19.8
----------- ----------- -------------
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation
The condensed set of financial statements do not constitute
statutory accounts as defined by section 434 of the Companies Act
2006 and were approved by the Board of Directors on 6 June
2023.
Full accounts for the year ended 31 October 2022, which include
an unqualified audit report, did not include a reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying the report and did not contain statements under
section 498(2) or (3) of the Companies Act 2006, have been
delivered to the Registrar of Companies. These were prepared in
accordance with UK-adopted international accounting standards
("UK-adopted IFRS") in conformity with the requirements of the
Companies Act 2006.
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. This condensed
set of financial statements has been prepared in accordance with
IAS 34 Interim Financial Reporting as adopted for use in the
UK.
As required by the Disclosure Guidance and Transparency Rules of
the Financial Conduct Authority, the condensed set of financial
statements has been prepared applying the accounting policies and
presentation that were applied in the preparation of the company's
published consolidated financial statements for the year ended 31
October 2022 except for income tax and any new and amended
standards as set out below.
The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Although these estimates are based on management's best
knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates.
Going concern
The directors believe the Group is well placed to manage its
business risks successfully, despite the current uncertain economic
outlook. The Group's forecasts and projections, taking account of
reasonably possible changes in trading performance, show that the
Group should be able to operate within the level of its current
committed facilities.
As part of their regular assessment of the Group's working
capital and financing position, the directors have prepared a
detailed bottom-up two-year trading budget and cash flow forecast
for the period through to October 2024, being at least twelve
months after the date of approval of the financial statements. This
is in addition to the Group's longer-term strategic planning
process. In assessing the forecast, the directors have
considered:
* trading risks presented by the current economic
conditions in the defence market, particularly in
relation to government budgets and expenditure;
* the impact of macroeconomic factors, particularly
inflationary pressures, supply chain challenges,
interest rates and foreign exchange rates;
* the status of the Group's financial arrangements and
associated covenant requirements;
* progress made in developing and implementing
operational improvements;
* the availability of mitigating actions available
should business activities fall behind current
expectations, including the deferral of discretionary
overheads and restricting cash outflows; and
* the long-term nature of the Group's business which,
taken together with the Group's order book, provides
a satisfactory level of confidence to the Board in
respect of trading.
Additional detailed sensitivity analysis has been performed on
the forecasts to consider the impact of severe, but plausible,
reasonable worst case scenarios on the covenant requirements. These
scenarios, which sensitised the forecasts for specific identified
risks, modelled the reduction in anticipated levels of underlying
EBITDA and the associated increase in net debt. These scenarios
included significant delays to major contracts and considered the
principal risks and uncertainties referred to in note 16. These
sensitised scenarios show headroom on all covenant test dates for
the foreseeable future.
After consideration of the above, the directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future. Thus,
they continue to adopt the going concern basis in preparing the
half-yearly condensed financial statements.
Alternative Performance Measures ("APMs")
In the analysis of the Group's financial performance and
position, operating results and cash flows, APMs are presented to
provide readers with additional information. The principal APMs
presented are underlying measures of earnings including underlying
operating profit, underlying profit before tax, underlying profit
after tax, underlying EBITDA, underlying earnings per share, and
underlying operating cash flow. In addition, EBITDA, net debt, and
constant currency are presented which are also considered to be
non-IFRS measures. These measures are consistent with information
regularly reviewed by management to run the business, including
planning, budgeting and reporting purposes and for its internal
assessment of the operational performance of individual
businesses.
The directors believe that the use of these APMs assist in
providing additional information on the underlying trends,
performance and position of the Group. APMs are used to improve the
comparability of information between reporting periods by adjusting
for items that are non-recurring or otherwise non-underlying.
Management consider non-underlying items to be:
* amortisation of acquired intangibles;
* material exceptional items, for example relating to
acquisitions and disposals, business restructuring
costs, impairments and legal costs;
* material exceptional items from changes in
legislation;
* gains or losses on the movement in the fair value of
derivative financial instruments; and
* the tax impact of all of the above.
Our use of APMs is consistent with the prior year and we provide
comparatives alongside all current period figures.
Accounting policies
The accounting policies applied by the Group in this half-yearly
financial report are the same as those applied by the Group in its
consolidated financial statements for the year ended 31 October
2022 with the exception of income tax which is detailed below. In
addition, there have been no significant changes in accounting
judgements or key sources of estimation uncertainty as disclosed in
the consolidated financial statements for the year ended 31 October
2022.
Income tax expense is recognised at an amount determined by
multiplying the profit before tax for the interim reporting period
by management's best estimate of the weighted-average annual income
tax rate expected for the full financial year.
Recent accounting developments
The following International Financial Reporting Committee
("IFRIC") interpretations, amendments to existing standards and new
standards were adopted in the period ending 30 April 2023 but have
not materially impacted the reported results or the financial
position:
-- Reference to the Conceptual Framework (Amendments to IFRS 3)
-- Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16)
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
-- Annual Improvements to IFRS Standards 2018-2020
2. SEGMENTAL ANALYSIS
Period to 30 April 2023 (unaudited)
Sensors Countermeasures
& Information & Energetics Unallocated* Group
GBPm GBPm GBPm GBPm
Revenue 97.9 114.2 - 212.1
Segment result before depreciation,
amortisation and non-underlying
items 20.8 22.3 (7.4) 35.7
Depreciation (1.8) (7.1) (0.2) (9.1)
Amortisation - - - -
-------------------------------------- --------------- ---------------- ------------- ------
Segmental underlying operating
profit 19.0 15.2 (7.6) 26.6
Amortisation of acquired intangibles (1.1) (1.1) - (2.2)
Non-underlying items (1.8) - 0.4 (1.4)
-------------------------------------- --------------- ---------------- ------------- ------
Segmental operating profit 16.1 14.1 (7.2) 23.0
-------------------------------------- --------------- ---------------- ------------- ------
Period to 30 April 2022 (unaudited)
Sensors Countermeasures
& Information & Energetics Unallocated* Group
GBPm GBPm GBPm GBPm
Revenue 90.2 130.2 - 220.4
Segment result before depreciation,
amortisation and non-underlying
items 20.7 29.3 (7.2) 42.8
Depreciation (1.3) (8.0) - (9.3)
Amortisation - - - -
-------------------------------------- --------------- ---------------- ------------- ------
Segmental underlying operating
profit 19.4 21.3 (7.2) 33.5
Amortisation of acquired intangibles (1.1) (1.0) - (2.1)
Non-underlying items (0.5) - (1.6) (2.1)
-------------------------------------- --------------- ---------------- ------------- ------
Segmental operating profit 17.8 20.3 (8.8) 29.3
-------------------------------------- --------------- ---------------- ------------- ------
Year ended 31 October 2022 (audited)
Sensors Countermeasures
& Information & Energetics Unallocated* Group
GBPm GBPm GBPm GBPm
Revenue 162.3 280.5 - 442.8
Segment result before depreciation,
amortisation and non-underlying
items 33.0 64.2 (14.9) 82.3
Depreciation (3.0) (15.1) - (18.1)
Amortisation - (0.2) - (0.2)
-------------------------------------- --------------- ---------------- ------------- -------
Segmental underlying operating
profit 30.0 48.9 (14.9) 64.0
Amortisation of acquired intangibles (2.5) (2.1) - (4.6)
Non-underlying items (1.2) - (4.9) (6.1)
-------------------------------------- --------------- ---------------- ------------- -------
Segmental operating profit 26.3 46.8 (19.8) 53.3
-------------------------------------- --------------- ---------------- ------------- -------
* Unallocated items are specific corporate level costs that
cannot be allocated to a business segment.
3. ALTERNATIVE PERFORMANCE MEASURES
The principal Alternative Performance Measures ("APMs")
presented are the underlying measures of earnings which exclude
exceptional items, gain or loss on the movement on the fair value
of derivative financial instruments, and the amortisation of
acquired intangibles. The directors believe that these APMs improve
the comparability of information between reporting periods. The
term underlying is not defined under IFRS and may not be comparable
with similarly titled measures used by other companies.
Unaudited Unaudited
Half year Half year Audited
to 30 April to year ended
2023 30 April 31 October
2022 2022
GBPm GBPm GBPm
Gain/(loss) on the movement in the fair
value of derivative financial instruments 0.4 (1.6) (4.1)
Acquisition expenses (1.8) (0.5) (2.0)
------------- ----------- ------------
Impact of non-underlying items on EBITDA (1.4) (2.1) (6.1)
Intangible amortisation arising from business
combinations (2.2) (2.1) (4.6)
------------- ----------- ------------
Impact of non-underlying items on operating
profit and profit before tax (3.6) (4.2) (10.7)
Tax impact of non-underlying items 0.6 0.5 1.3
------------- ----------- ------------
Impact of non-underlying items on profit
after tax (3.0) (3.7) (9.4)
------------- ----------- ------------
Derivative financial instruments
Included in non-underlying items is a GBP0.4m gain (H1 2022:
GBP1.6m loss, 2022: GBP4.1m 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.
Acquisition expenses
Included in non-underlying items is GBP1.8m (H1 2022: GBP0.5m,
2022: GBP2.0m) of acquisition expenses. This includes GBP1.7m (H1
2022: GBP0.5m, 2022: GBP1.0m) relating to deferred consideration
contingent on continued employment of the former owners of Cubica,
and in FY23 only, Geollect, which has been accounted for as
equity-settled share-based payments under IFRS 2 Share-based
Payments. We have classified this cost as a non-underlying item as
it relates to the cost of acquiring the respective businesses as
opposed to representing a market rate cost for ongoing employment
of the former owners. The remaining expense of GBP0.1m (H1 2022:
GBPnil, 2022: GBP1.0m) primarily includes professional fees
incurred in relation to the Group's mergers and acquisitions
activity during the period. The acquisition expenses 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 costs of acquiring a business rather than organically
developed, these costs have been excluded from the underlying
measures.
Amortisation of acquired intangibles
Included in non-underlying items is the amortisation charge
arising from business combinations of GBP2.2m (H1 2022: GBP2.1m,
2022: GBP4.6m). Amortisation of acquired intangibles arising from
business combinations is associated with acquisition costs under
IFRS 3 Business Combinations. IFRS requires intangibles to be
recognised on acquisition that would not have been capitalised had
the business grown organically under Chemring's ownership. As such,
these costs are not reflective of the underlying costs of the Group
and therefore, in order to provide an explanation of results that
is not distorted by the history of business units being acquired
rather than organically developed, have been excluded from the
underlying measures.
Tax
In the period to 30 April 2023, the tax impact of non-underlying
items comprises a GBP0.6m tax credit (H1 2022: GBP0.5m credit,
2022: GBP1.3m credit) on the above non-underlying items.
4. SEASONALITY OF REVENUE
Revenue in the Countermeasures & Energetics segment is
expected to be weighted towards the second half of the financial
year. This second half weighting arises due to customer behaviours
in the defence marketplace, the timing of expected contract
activity, public holidays, planned facility maintenance work
programmes, and the acceptance testing of products by
customers.
Revenue in the Sensors & Information segment normally has a
slight first half bias, with revenue at Roke driven by the UK
Government budget year.
5. TAX
Unaudited Unaudited Audited
period to period to year ended
30 April 30 April 31 October
2023 2022 2022
GBPm GBPm GBPm
Underlying tax charge 3.9 2.9 5.7
Tax impact of non-underlying items (0.6) (0.5) (1.3)
Total statutory tax charge 3.3 2.4 4.4
----------- ----------- ------------
Income tax charge is recognised at an amount determined by
multiplying the profit before tax for the interim reporting period
by management's best estimate of the weighted-average annual income
tax rate expected for the full financial year.
The effective tax rate on underlying profit before tax for the
period is a charge of 15.2% (H1 2022: 8.8%, 2022: 9.1%). The
effective tax rate is higher than the 2022 effective tax rate as
the charge in the previous period was reduced by a credit for the
recognition of a deferred tax asset in respect of future US
interest deductions that were previously unrecognised.
6. EARNINGS PER SHARE
Earnings per share is based on the average number of shares in
issue, excluding own shares held, of 281,708,913 (H1 2022:
280,228,972, 2022: 280,506,245). Diluted earnings per share has
been calculated using a diluted average number of shares in issue,
excluding own shares held, of 288,618,553 (H1 2022: 287,754,943,
2022: 288,218,004).
The earnings used in the calculations of the various measures of
earnings per share are as follows:
Unaudited Unaudited
Half year Half year
to to
30 April 30 April
2023 2022
Basic Diluted Basic EPS Diluted
GBPm EPS (pence) EPS (pence) GBPm (pence) EPS (pence)
Underlying profit after
tax 21.7 7.7 7.5 30.2 10.8 10.5
Non-underlying items (3.0) (3.7)
----- ------------ ------------ ----- --------- ------------
Total profit after tax 18.7 6.6 6.5 26.5 9.5 9.2
----- ------------ ------------ ----- --------- ------------
Audited
year to
31 October
2022
Basic EPS Diluted
GBPm (pence) EPS (pence)
Underlying profit after tax 56.8 20.2 19.7
Non-underlying items (9.4)
----- --------- ------------
Total profit after tax 47.4 16.9 16.4
----- --------- ------------
7. DIVIDS
At the Annual General Meeting on 15 March 2023 the shareholders
approved a final dividend in respect of the year ended 31 October
2022 of 3.8p per ordinary share (2022: 3.2p). This was paid on 14
April 2023 to shareholders on the register on 24 March 2023 and
totalled GBP10.8m (H1 2022: GBP9.1m).
The Board also declared an interim dividend in respect of FY23
of 2.3p per ordinary share (2022: 1.9p) which will be paid on 8
September 2023 to shareholders on the register on 18 August 2023.
The estimated cash value of this dividend is GBP6.5m (2022:
GBP5.3m).
8. FINANCIAL INSTRUMENTS
As at 30 April 2023, there were no significant differences
between the book value and fair value (as determined by market
value) of the Group's derivative financial instruments.
The fair value of derivative financial instruments is estimated
by discounting the future contracted cash flow using readily
available market data and represents a Level 2 measurement in the
fair value hierarchy under IFRS 7 Financial Instruments:
Disclosures. As at 30 April 2023, the total fair value of forward
foreign exchange contracts recognised in the condensed consolidated
balance sheet were an asset of GBP0.8m (H1 2022: GBP1.0m, 2022:
GBP0.7m), a current liability of GBP3.2m (H1 2022: GBP2.3m, 2022:
GBP4.2m) and a non-current liability of GBP0.1m (H1 2022: GBP0.2m,
2022: GBP1.1m).
9. RELATED PARTY TRANSACTIONS
Past transactions with related parties are shown on page 151 of
the 2022 Annual Report. There were no significant related party
transactions during the current period requiring disclosure.
As at 31 October 2022, GBP2.0m was due from the Chemring Group
Staff Pension Scheme representing a short-term loan to fund margin
calls on liability driven investments which was repaid in November
2022.
10. CASH FLOWS FROM UNDERLYING OPERATIONS
Unaudited Unaudited
Half Half year
year to to Audited
30 April 30 April Year to
2023 2022 31 Oct 2022
GBPm GBPm GBPm
Operating profit 23.0 29.3 53.3
Amortisation of development costs - - 0.1
Amortisation of intangible assets arising
from business combinations 2.2 2.1 4.6
Amortisation of patents and licenses - - 0.1
Impairment of development costs - - 2.2
Loss on disposal of non-current assets - - (1.9)
Depreciation of property, plant and equipment 9.1 9.3 18.1
Non-cash movement of non-underlying items 1.4 2.1 6.1
Share-based payment expense 1.5 4.8 6.4
------------------------------------------------ ---------- ----------- -------------
Operating cash flows before movements in
working capital 37.2 47.6 89.0
Increase in inventories (23.9) (9.4) (6.4)
(Increase)/decrease in trade and other
receivables (14.6) (20.3) 4.5
Increase in trade and other payables 24.2 25.3 2.9
Increase in provisions - 0.1 0.1
Operating cash flow from underlying operations 22.9 43.3 90.1
------------------------------------------------ ---------- ----------- -------------
11. ANALYSIS OF NET DEBT
As at
As at Cash Non-cash Exchange 30 April
1 Nov 2022 flows changes rate effects 2023
GBPm GBPm GBPm GBPm GBPm
Cash and cash
equivalents (*) 19.8 (13.7) - (0.2) 5.9
Debt due after
one year (20.9) (4.4) (0.3) - (25.6)
Lease liabilities (6.0) 0.5 (0.3) 0.6 (5.2)
Preference shares (0.1) - - - (0.1)
------------ ------- --------- -------------- ----------
(7.2) (17.6) (0.6) 0.4 (25.0)
------------ ------- --------- -------------- ----------
The revolving credit facility is with a syndicate of six banks
and was established in July 2021 and runs until December 2025 with
two "one-year" options to extend at the lenders' discretion.
The Group had GBP130.2m (H1 2022: GBP132.0m, 2022: GBP136.7m) of
undrawn borrowing facilities at the half year.
The Group is subject to two key financial covenants, which are
tested quarterly. These covenants relate to the leverage ratio
between "underlying EBITDA" and net debt; and the interest cover
ratio between underlying EBITDA and finance costs. The calculation
of these ratios involves the translation of non-Sterling
denominated debt using average, rather than closing, rates of
exchange. The Group was in compliance with the covenants throughout
the period. The half year leverage ratio was 0.33 times (covenant
limit of 3 times) and the half year interest cover ratio was 36
times (covenant floor of 4 times).
*Cash and cash equivalents in the table above includes the bank
overdraft classified within current borrowings on the balance
sheet.
12. EXCHANGE RATES
The following exchange rates applied during the period:
Average Closing Average Closing Average Closing
rate rate rate rate rate rate
H1 2023 H1 2023 H1 2022 H1 2022 2022 2022
----------- --------- --------- --------- --------- -------- --------
US dollar 1.24 1.26 1.31 1.26 1.23 1.15
AU dollar 1.85 1.90 1.79 1.77 1.75 1.80
NOR krone 12.71 13.44 11.66 11.70 11.82 11.97
----------- --------- --------- --------- --------- -------- --------
The translation of foreign currency items in the financial
statements are dependent on the prevailing foreign exchange rates.
For the period ended 30 April 2023, a 10 cent increase in the US
dollar exchange rate would have decreased reported underlying
operating profit for the first half of FY23 by approximately
GBP0.2m.
13. ACQUISITIONS
On 7 December 2022, Chemring Group PLC acquired 100% of the
issued shares in Geollect Limited ("Geollect"). Geollect is an
international provider of geospatial intelligence consultancy and
subscription services. The acquisition has strong synergies to Roke
and will expand the Group's existing capabilities and product
offerings. The operating results and assets and liabilities of the
acquired company have been consolidated from 7 December 2022.
The acquisition has been completed for an initial purchase
consideration of GBP7.3m, funded from Chemring's existing bank
facilities.
Deferred consideration of up to GBP7.5m is payable in Chemring
1p ordinary shares in two tranches (subject to the former owners
remaining employed in the Chemring Group) on the second and third
anniversary of completion. In accordance with IFRS 3 these costs
will be treated as post acquisition expenses and accounted for as
equity settled share based payments under IFRS 2. See note 3 for
further details. Acquisition-related costs of GBP0.1m have been
classified as non-underlying costs in the statement of profit or
loss in the reporting period ending 30 April 2023.
Since acquisition to 30 April 2023, Geollect contributed revenue
of GBP0.5m and an adjusted operating profit of GBP0.1m to the
Group's results. If the acquisition had occurred on 1 November
2022, we estimate that its revenue would have been GBP0.6m, and
adjusted operating profit for the year would have been GBP0.1m. In
determining these amounts, we have assumed that the fair value
adjustments, determined provisionally, that arose on the date of
acquisition would have been the same if the acquisition had
occurred on 1 November 2022.
Details of the purchase consideration are:
GBPm
Cash paid 7.2
Loans assumed 0.1
-----
Total purchase consideration 7.3
-----
T he provisionally determined fair values of the assets and
liabilities of Geollect as at the date of acquisition are as
follows:
Provisional
fair value
GBPm
Trade and other receivables 0.1
Trade and other payables (0.7)
Loans (0.1)
Intangible assets: customer relationships 1.2
Intangible assets: technology 1.4
Deferred tax liability (0.6)
Net identifiable assets 1.3
------------
Add: goodwill 6.0
------------
Net assets acquired 7.3
------------
Goodwill is attributable to the skills and technical talent of
the assembled workforce and synergies expected to arise after the
Group's acquisition of the new subsidiary. None of the goodwill is
expected to be deductible for tax purposes. If new information
obtained within one year of the date of acquisition about facts and
circumstances that existed at the date of acquisition identifies
adjustments to the above amounts, or any additional provisions that
existed at the date of acquisition, then the accounting for the
acquisition will be revised.
14. 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.
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.
15. EVENTS AFTER THE BALANCE SHEET DATE
There were no events after the balance sheet date requiring
disclosure.
16. PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties which could have a
material impact on the Group's performance and could cause actual
results to differ materially from expected and historical results
have not changed significantly from those set out in the Group's
2022 Annual Report and Accounts. A detailed description of the
Group's principal risks and uncertainties and the ways they are
mitigated can be found on pages 66 to 73 of the 2022 Annual Report
and Accounts. These risks can be summarised as:
* occupational and process safety risks;
* environmental laws and regulations risks;
* market-related risks;
* political risks;
* contract-related risks;
* technology risks;
* financial risks;
* operational risks;
* people risks;
* compliance and corruption risks;
* cyber-related risks.
Management have detailed mitigation plans and assurance
processes to manage and monitor these risks.
17. CORPORATE WEBSITE
Further information on the Group and its activities can be found
on the corporate website at www.chemring.com .
INDEPENDENT REVIEW REPORT TO CHEMRING GROUP PLC
Conclusion
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 April 2023 which comprises the Condensed
Consolidated Income Statement, the Condensed Consolidated Statement
of Comprehensive Income, the Condensed Consolidated Statement of
Changes in Equity, the Condensed Consolidated Balance Sheet, the
Condensed Consolidated Cash Flow Statement and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
April 2023 is not prepared, in all material respects, in accordance
with IAS 34 Interim Financial Reporting as adopted for use in the
UK and the Disclosure Guidance and Transparency Rules ("the DTR")
of the UK's Financial Conduct Authority ("the UK FCA").
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410 Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity ("ISRE (UK) 2410") issued for use in the UK. A review of
interim financial information consists of making enquiries,
primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. We
read the other information contained in the half-yearly financial
report and consider whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed
set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and
consequently does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention that causes us to believe that the directors have
inappropriately adopted the going concern basis of accounting, or
that the directors have identified material uncertainties relating
to going concern that have not been appropriately disclosed.
This conclusion is based on the review procedures performed in
accordance with ISRE (UK) 2410. However, future events or
conditions may cause the group to cease to continue as a going
concern, and the above conclusions are not a guarantee that the
group will continue in operation.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the DTR of the UK FCA.
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with UK-adopted international
accounting standards.
The directors are responsible for preparing the condensed set of
financial statements included in the half-yearly financial report
in accordance with IAS 34 as adopted for use in the UK.
In preparing the condensed set of financial statements, the
directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the
group or to cease operations, or have no realistic alternative but
to do so.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review. Our conclusion, including our
conclusions relating to going concern, are based on procedures that
are less extensive than audit procedures, as described in the Basis
for conclusion section of this report.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the company in accordance with the
terms of our engagement to assist the company in meeting the
requirements of the DTR of the UK FCA. Our review has been
undertaken so that we might state to the company those matters we
are required to state to it in this report and for no other
purpose. To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the company for our
review work, for this report, or for the conclusions we have
reached.
James Childs-Clarke
for and on behalf of KPMG LLP
Chartered Accountants
Gateway House
Tollgate
Chandlers Ford
Southampton
SO53 3TG
6 June 2023
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