TIDMCHG
RNS Number : 4003W
Chemring Group PLC
12 December 2023
12 December 2023
CHEMRING GROUP PLC
("Chemring", "the Group" or "the Company")
RESULTS FOR THE YEARED 31 OCTOBER 2023
Strong performance across the Group; record order intake and
order book; increasing demand across global defence market
As reported At 2022 exchange
rates
2023 Change 2023 Change 2022
Continuing operations
Order intake (GBPm) 756.4 +37% 772.7 +40% 551.5
Revenue (GBPm) 472.6 +18% 477.7 +19% 401.0
Underlying EBITDA(*) (GBPm) 88.5 +14% 91.2 +18% 77.3
Underlying operating profit(*)
(GBPm) 69.2 +16% 71.7 +21% 59.4
Underlying profit before tax(*)
(GBPm) 67.9 +17% 71.7 +24% 57.9
Underlying diluted earnings
per share(*) (pence) 20.0 +8% 20.7 +12% 18.5
Statutory operating profit (GBPm) 45.4 -8% 49.4
Dividend per share (pence) 6.9 +21% 5.7
Net debt at 31 October (GBPm) 14.4 +100% 14.1 +96% 7.2
Order book at 31 October (GBPm) 921.6 +42% 964.5 +48% 650.9
Key achievements
-- 2023 was slightly ahead of the Board's initial expectations
despite foreign exchange headwinds
-- Record order intake of GBP756m, with growth across both segments:
Ø Order intake for Countermeasures & Energetics was GBP541m,
up 52%, driven by strong demand at our niche Energetics businesses
where order intake was up 161%
Ø Order intake for Sensors & Information was GBP215m,
up 10%, with Roke continuing to execute its growth strategy
-- Closing order book at the highest level in over a decade at
GBP922m
-- Roke revenue was up 45% to GBP160m and order intake up 9% to
GBP183m with the business well positioned to continue its growth
trajectory in what continues to be a buoyant market
-- Net debt was GBP14.4m (2022: GBP7.2m), with strong operating
cash generation and cash conversion of 101% on a rolling 36
month basis (2022: 108%). Net debt to underlying EBITDA was
0.16 times (2022: 0.09 times)
-- GBP120m capacity expansion plan to 2026 initiated to capitalise
on growing demand in the energetics market, delivering expected
incremental revenue of GBP85m per annum from 2026/27
-- GBP9m deployed in Q4 into the GBP50m share buyback programme
announced on 1 August 2023
-- A buy-in contract was entered into with an insurer in respect
of the Group's defined benefit pension scheme on 28 November
2023, which will remove future risk associated with funding
of the scheme
-- Proposed final dividend per share of 4.6p, up 21%, giving a
total dividend of 6.9p (2.9 times cover)
-- The Board's expectations for 2024 are unchanged. Approximately
79% (2022: 86%) of expected 2024 revenue is covered by the
order book, with unprecedented cover in Countermeasures & Energetics
for 2025 and 2026 at 71% and 65% respectively of expected revenue.
Michael Ord, Group Chief Executive, commented:
" 2023 was another year of strong Group performance; and in an
environment of increasing global uncertainty demand continues to
grow for our mission-critical products and services. With record
order intake and an order book at the highest level in over a
decade the Group is well placed for continued delivery of
sustainable performance and growth.
Trading since the start of the current financial year has been
in-line with plans, and with 79% of expected revenue covered by the
order book the Board's expectations for 2024 performance are
unchanged.
The outlook for global defence markets is increasingly robust,
with continued growth expected over the next decade. This growing
visibility gives us the confidence to continue to invest for the
future, balancing near-term performance with longer-term growth and
value creation.
Chemring is well placed to deliver on its many opportunities.
"
Notes:
* All profit and earnings per share figures in this news release
relate to underlying business performance (as defined below) from
continuing operations unless otherwise stated. See note 4 for a
reconciliation of the reported comparative values to the
comparative values that have been re-presented on the basis of the
classification of operations as discontinued.
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, the amortisation of acquired
intangibles and the associated tax impact on these items. The
Directors believe that these APMs assist with the comparability of
information between reporting periods as well as reflect the key
performance indicators used within the business to measure
performance. The term underlying is not defined under IFRS and may
not be comparable with similarly titled measures used by other
companies.
A reconciliation of underlying measures to statutory measures is
provided below:
Group - continuing operations: Underlying Non-underlying Statutory
EBITDA (GBPm) 88.5 (20.8) 67.7
----------- --------------- ----------
Operating profit (GBPm) 69.2 (23.8) 45.4
----------- --------------- ----------
Profit before tax (GBPm) 67.9 (23.8) 44.1
----------- --------------- ----------
Tax charge (GBPm) (10.2) 3.8 (6.4)
----------- --------------- ----------
Profit after tax (GBPm) 57.7 (20.0) 37.7
----------- --------------- ----------
Basic earnings per share (pence) 20.5p (7.1) 13.4
----------- --------------- ----------
Diluted earnings per share (pence) 20.0p (6.9) 13.1
----------- --------------- ----------
Group - discontinued operations:
----------- --------------- ----------
Loss after tax (GBPm) (0.9) (31.4) (32.3)
----------- --------------- ----------
Segments - continuing operations:
----------- --------------- ----------
Sensors & Information EBITDA (GBPm) 38.5 (22.2) 16.3
----------- --------------- ----------
Sensors & Information operating
profit (GBPm) 34.2 (23.5) 10.7
----------- --------------- ----------
Countermeasures & Energetics EBITDA
(GBPm) 65.5 - 65.5
----------- --------------- ----------
Countermeasures & Energetics operating
profit (GBPm) 50.5 (1.7) 48.8
----------- --------------- ----------
The adjustments comprise:
-- amortisation of acquired intangibles of GBP3.0m (2022: GBP3.9m)
-- costs relating to acquisitions of GBP3.7m (2022: GBP2.0m)
-- impairment of Chemical Detection assets GBP18.5m (2022: GBPnil)
-- gain on the movement in the fair value of derivative financial
instruments of GBP1.4m (2022: GBP4.1m loss)
-- tax impact of the adjustments above: GBP3.8m credit (2022:
GBP1.1m credit); and
-- discontinued operations in respect of the explosive hazard
detection ("EHD") business in Sensors & Information, net of
tax, of GBP31.4m (2022: GBP0.5m) which includes an impairment
of goodwill and other assets.
Further details are provided in note 3.
EBITDA is defined as profit before interest, tax, depreciation
and amortisation. Reference to constant currency relates to the
re-translation of 2023 financial information at the 2022 exchange
rates to reflect the movement excluding the impact of foreign
exchange. The exchange rates applied are disclosed in note 10.
For further information:
Group Director of Corporate Affairs, Chemring
Rupert Pittman Group PLC 01794 463401
James McFarlane MHP 07584 142665
Ollie Hoare 07817 458804
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 2,600 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 12 December 2023.
Analyst meeting
An analyst meeting will take place at 09.00 (UK time) on Tuesday
12 December 2023 at the offices of Investec Bank plc, 30 Gresham
St, London EC2V 7QP. To confirm attendance please contact MHP:
chemringplc@mhpgroup.com /+44 (0)7711 191518.
Photography
Original high resolution photography is available to the media
by contacting Catherine Chapman, MHP Communications:
catherine.chapman@mhpgroup.com / tel: +44 (0)7711 191518.
Group overview
We delivered a result for 2023 that was slightly ahead of the
Board's initial expectations while working hard to adapt to
changing customer spending priorities driven by global uncertainty
and increased demand for both technology-driven solutions, and a
resurgent demand for traditional defence capabilities. This has
resulted in record order intake and provides a strong outlook in
the medium term.
Order intake for 2023 was exceptionally strong in both segments,
up 37% to GBP756m (2022: GBP551m), with increasing demand in our
niche Energetics businesses, where order intake was up 161% to
GBP358m (2022: GBP137m), and in Sensors & Information, where
Roke's total order intake was GBP183m (2022: GBP168m) as it
continues to win work in a buoyant market.
Revenue was up 18% to GBP472.6m (2022: GBP401.0m) reflecting
significant growth in Roke and improved operational execution
delivering strong output in our niche Energetics businesses.
On a constant currency basis the Group's revenue was up 19% to
GBP477.7m (2022: GBP401.0m), underlying operating profit was up 21%
to GBP71.7m (2022: GBP59.4m) and underlying diluted earnings per
share was up 12% to 20.7p (2022: 18.5p). Foreign exchange
translation has proved to be a headwind to revenue and operating
profit compared with last year. While exchange rates have been
volatile in the year, the US dollar, Australian dollar and
Norwegian krone have all weakened against sterling. A summary of
the impact of the exchange rate movements on the key metrics at a
Group and sector level is shown in the table below.
At constant currency As reported
2023 Change 2023 Change 2022
GBPm GBPm GBPm
Group:
Order intake 772.7 +40% 756.4 +37% 551.5
Order book 964.5 +48% 921.6 +42% 650.9
Revenue 477.7 +19% 472.6 +18% 401.0
Underlying EBITDA 91.2 +18% 88.5 +14% 77.3
Underlying operating profit 71.7 +21% 69.2 +16% 59.4
Underlying diluted earnings
per share (pence) 20.7 +12% 20.0 +8% 18.5
Sensors & Information:
Order intake 215.1 +10% 215.4 +10% 195.2
Order book 172.2 +12% 170.6 +11% 153.7
Revenue 187.3 +55% 187.0 +55% 120.5
Underlying EBITDA 38.6 +38% 38.5 +38% 28.0
Underlying operating profit 34.3 +35% 34.2 +35% 25.4
Countermeasures & Energetics:
Order intake 557.6 +56% 541.0 +52% 356.3
Order book 792.3 +59% 751.0 +51% 497.2
Revenue 290.4 +4% 285.6 +2% 280.5
Underlying EBITDA 68.1 +6% 65.5 +2% 64.2
Underlying operating profit 52.9 +8% 50.5 +3% 48.9
2022 comparatives have been re-presented reflecting the
explosive hazard detection business as discontinued in accordance
with IFRS 5, see note 4.
The Group's net debt at 31 October 2023 was GBP14.4m (2022:
GBP7.2m), representing a net debt to underlying EBITDA ratio of
0.16x (2022: 0.09x). The financial health of the Group has
continued to improve in a number of aspects during the year.
Disciplined working capital practices have been maintained to
reduce intra-period volatility, with working capital as a
percentage of revenue lower at 17% (2022: 21%). The Group is
working to achieve further improvements over the medium term.
The Group's order book at 31 October 2023 was GBP922m (2022:
GBP651m), of which approximately GBP403m is scheduled for delivery
during 2024, representing cover of approximately 79% (2022: 86%) of
expected 2024 revenue. On a constant currency basis, using the 2022
closing exchange rates, the order book would be GBP965m. The
increase since 31 October 2022 is attributable to strong order
intake at Roke and across the Countermeasures & Energetics
sector. This leaves GBP519m of the order book to be delivered in
2025 and beyond. At this stage, this provides approximately 71% of
2025 and 65% of 2026 revenue cover in Countermeasures &
Energetics.
Markets
The ongoing geopolitical turbulence has resulted in many
countries re-appraising their defence and national security
priorities, including increasing budgets, to specifically address
the security challenges posed by Russia and China. Against this
heightened threat environment, the role of multi-lateral
organisations such as the North Atlantic Treaty Organization
("NATO") and the European Union ("EU") is also becoming more
significant.
The Russia-Ukraine conflict has specifically refocused attention
on the broad spectrum of defence capabilities relevant to a
significant peer conflict. It has also brought a renewed focus on
modernisation and replacement of NATO capabilities, including those
being donated to assist Ukraine.
China's extensive military modernisation programme has in many
cases, generated a requirement for increasingly cutting-edge
solutions to protect against a continuum of threats. These range
from long-range hypersonic missiles through to sub-threshold
"grey-zone" activity, with the latter involving the extensive use
of digital-based threats such as cyber-attacks and disinformation
campaigns.
The Group's diverse and niche capabilities make it well placed
to support our customers' abilities to respond to this
deteriorating security environment.
Strategy
The Group's strategy is to deliver sustainable, profitable
growth by operating in niche markets with high barriers to entry,
and where we enjoy market leading, technology-differentiated,
positions. Our continued investment to develop intellectual
property in priority, growing areas of the defence and security
market has supported us in establishing deep long-term customer
relationships, often acting as a sole source supplier.
The Sensors & Information sector is a key area of focus for
Chemring, with our customers increasingly seeking advanced
technology solutions to address their threats and challenges. We
will continue to expand our product, service and capability
offerings to develop innovative solutions to support them with
achieving mission success in protecting their people, assets and
data.
The Countermeasures & Energetics sector strategy is
operationally driven, and we are investing to strengthen and grow
our focused, world-leading positions. Russia's invasion of Ukraine
in February 2022 has driven unprecedented levels of demand for our
specialist energetic capabilities, and we are investing to
modernise and expand our manufacturing capacity to respond to our
customers' needs. In Countermeasures we will continue the process
of modernisation and automation across our sites, sharing
technology and manufacturing excellence across the Group where
possible.
In recent years Chemring has been focused on building a
stronger, higher-quality and more resilient business. In doing so,
it has built a strong and deployable balance sheet which has
provided the Group with increased optionality. Our disciplined
approach to capital allocation prioritises organic and inorganic
investment, a growing and sustainable dividend, other returns to
shareholders and a prudent approach to leverage. Favourable market
conditions for our niche Energetics businesses underpinned the
Group's strategic decision to approve a 3 year GBP120m investment
to increase capacity by GBP85m per annum. In August 2023 we
announced the launch of a share buyback programme of up to GBP50m.
This provides us with additional flexibility to deliver value for
our shareholders and maintain our commitment to balance near-term
performance with longer-term growth and value creation.
As a Board we will continue to assess strategically aligned,
accretive acquisitions that can accelerate our growth strategy, and
for opportunities to leverage our capabilities into adjacent
markets. Beyond enhancing shareholder value and complementing our
broader growth plans, we have a well-defined set of criteria that
any target must meet. So far, our recent acquisition activity has
supplemented our Roke business; however, we are continuing to
explore inorganic growth opportunities in the US space and missiles
sector. Both these areas offer significant prospects for long-term
growth and are aligned to the Group's high technology
competencies.
Beyond this we will continue to focus on developing a safe,
sustainable, and resilient business that is able to deliver
progression through continuous improvement in operational
performance and execution. We shall continue to invest in both our
people and our infrastructure to deliver further growth into the
future.
Group financial performance
Order intake for 2023 was exceptionally strong in both segments,
up 37% to GBP756m (2022: GBP551m), with strong demand in our niche
Energetics businesses, where order intake was up 161% to GBP358m
(2022: GBP137m), and in Sensors & Information, where Roke's
total order intake was GBP183m (2022: GBP168m) as it continues to
win work in a buoyant market.
Revenue was up 18% to GBP472.6m (2022: GBP401.0m) reflecting
significant growth in Roke and improved operational execution
delivering strong performance in our niche Energetics
businesses.
The underlying operating profit of GBP69.2m (2022: GBP59.4m)
resulted in an underlying operating margin of 14.6% (2022: 14.8%).
The Group margin was flat, reflecting the continuing operating
expense investment in Roke to prepare it for further future growth,
which was partially offset by a richer mix of higher margin
Energetics business in Countermeasures & Energetics.
Total finance expense was lower at GBP1.3m (2022: GBP1.5m)
reflecting the continued focus on working capital management offset
by the increase in interest rates during 2023.
Underlying basic earnings per share from continuing operations
was 20.5p (2022: 19.0p) and diluted underlying earnings per share
from continuing operations was 20.0p (2022: 18.5p).
Statutory operating profit was GBP45.4m (2022: GBP49.4m) and
after statutory finance expenses of GBP1.3m (2022: GBP1.5m),
statutory profit before tax was GBP44.1m (2022: GBP47.9m). The
statutory profit after tax from continuing operations was GBP37.7m
(2022: GBP44.4m) giving a statutory basic earnings per share from
continuing operations of 13.4p (2022: 15.8p).
A reconciliation of underlying to statutory profit measures is
provided in note 3. The non-underlying costs relate to the
amortisation of acquired intangibles, impairment of Chemical
Detection assets, costs relating to acquisitions, gain on the
movement in the fair value of derivative financial instruments and
the tax credit associated with these.
As announced in November 2023, the explosive hazard detection
division of our US Sensors business has been treated as
discontinued under IFRS 5 in 2023 and as a result all 2022
comparatives have been re-presented. A full reconciliation of this
is provided in note 4.
Segmental review - Sensors & Information
Performance
Order intake in the year was up 10% to GBP215m (2022: GBP195m).
This was driven by a 9% increase in Roke's order intake, with a
growing number of multi-year contracts for products and services,
which include an element of "pass-through" (see table below for an
analysis of the impact of this), and the receipt of a US$15m
delivery order for the third year of EMBD full rate production. Our
US Sensors business also received a $15m low rate initial
production ("LRIP") contract for the JBTDS Program of Record in
September 2023.
Roke "pass-through" 2023 2022 Change
impact
GBPm GBPm
Order intake
Products and services 156 132 +18%
Pass-through 27 36 -25%
----- -----
As reported 183 168 +9%
----- -----
Revenue
Products and services 128 94 +36%
Pass-through 32 16 +100%
----- -----
As reported 160 110 +45%
----- -----
Revenue for Sensors & Information increased by 55% to
GBP187.0m (2022: GBP120.5m) and underlying operating profit
increased by 35% to GBP34.2m (2022: GBP25.4m), as underlying
operating profit margin declined to 18.3% (2022: 21.1%) driven by
the operating expense investment in Roke Academy, Roke Futures and
Roke USA, and the increase in margin dilutive "pass-through"
revenue as shown in the table above. Adjusting for the
"pass-through" revenue, the Sensors & Information underlying
operating profit margin would have been 22.1%. On a constant
currency basis revenue would have risen 55% to GBP187.3m and
underlying operating profit would have increased by 35% to
GBP34.3m. The statutory operating profit for the year was GBP10.7m
(2022: GBP22.4m), with the decrease driven by the non-cash
impairment of Chemical Detection assets.
In the UK, the markets for Electronic Warfare ("EW"), cyber and
data science capabilities, in which Roke is a leading participant,
have remained buoyant in the period. As shown above, Roke has
delivered strong growth in orders and revenue with double-digit
growth in underlying operating profit and has maintained strong
margins despite increased investment in people, infrastructure and
product development.
In the last five years, successful execution of its strategy has
seen Roke double in size. Its headcount has increased from c.400 at
the end of 2018 to c.1000 today, driven in part by the success of
its graduate and apprenticeship schemes, and the continued success
of the Roke Academy. During 2023 the Roke Academy welcomed its
second and third cohorts of engineers, with the first cohort, who
joined in July 2022, now operating as fee earners out of the new
Woking office. This year's two cohorts have brought in 50 new
engineers, of whom ten are female, all from a wide variety of
backgrounds.
In September 2023 Roke received a significant contract award
valued at GBP40m to deliver the next two years of Project ZODIAC
for the UK MOD. ZODIAC is the backbone of the British Army's Land
ISTAR Programme, and will deliver an integrated intelligence,
surveillance, target acquisition, and reconnaissance ("ISTAR")
system, which will transform how the Army undertakes data-led
decision making in the Land environment to gain operational
advantage.
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 EW products.
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 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, Vodafone and 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.
Our US Sensors business continued its transition away from
explosive hazard detection to focus on building winning solutions
to convert current US Programs of Record into low rate and full
rate production, and on exploiting a growing opportunity in
bio-security and surveillance. In a post-pandemic and contested
world, governments are becoming increasingly concerned by the risks
of both naturally occurring and engineered biological threats.
Advances in synthetic biology now give our national adversaries the
capability to deliberately engineer organisms to create hazards and
cause harm.
Following the successful completion of the engineering and
manufacturing development ("EMD") phase of the Joint Biological
Tactical Detection System ("JBTDS") program, a low rate initial
production ("LRIP") Production Readiness Review, with supporting
Manufacturing Readiness Assessment, took place in mid-May. In
August 2023 our US Sensors business was informed that the Milestone
C procurement decision in respect of the JBTDS program had been
approved and in September 2023 the business received a LRIP
contract, valued at $15m. Hardware deliveries under this contract
will be made over the next ten to 14 months, with a full rate
production contract expected to be awarded thereafter.
Deliveries under the full rate production phase of the Enhanced
Maritime Biological Detection System ("EMBD") program have
continued as planned. This fully automated sensor to rapidly
detect, collect, identify and sample airborne biological warfare
agents is supporting the US Navy. We received a third option
quantity exercised under the sole source $99m Indefinite
Delivery/Indefinite Quantity contract worth $15.3m, with deliveries
expected to be made through to 2024.
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, AI and machine learning, tactical
EW and information security, and securing positions on the US DoD
Programs of Record.
In the 2022 annual report, we stated that 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
have seen 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.
In our US Sensors business the EMBD program provides good
short-term visibility and following the LRIP award on JBTDS in 2023
we expect this program to enhance medium-term visibility but first
full rate production revenue is not expected until 2026.
The order book for Sensors & Information at 31 October 2023
was GBP171m (2022: GBP154m) driven by strong order intake and an
increase in multi-year contracts in Roke and the award of JBTDS
LRIP in US Sensors. Of this, GBP122m is expected to be delivered in
2024, providing 61% cover of expected 2024 revenue. 2024 trading
performance for Sensors & Information is expected to show a
continuation of the momentum seen in 2023, with continued growing
demand for Roke's products and services. Medium-term growth
opportunities in the US are driven by the Group's sole source
positions on the biological detection Programs of Record moving
into full rate production.
Segmental review - Countermeasures & Energetics
Performance
Order intake in the year up 52% at GBP541m (2022: GBP356m),
driven by multi-year orders received across the sector.
In the Energetics sector we continue to see increased 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. As a result, our three niche Energetics businesses,
which design and manufacture high precision engineered devices and
specialist materials, have seen strong customer demand with order
intake up 161% to GBP358m (2022: GBP137m).
Our Norwegian-based subsidiary, Chemring Nobel, had a
particularly strong performance, finishing the year with a record
order book which provides significant visibility over the medium
term. Over GBP40m of orders were won in the final month of the
year, which included a GBP30m order to supply Dyno-Nobel with a
range of energetic materials over the next five years. Chemring
Nobel continues to work with other customers including Diehl
Defence, Rheinmetall and Nammo on similar long-term contracting
models.
Our Scottish facility received notable contract awards including
a GBP43m order for the delivery of critical components used on the
NLAW system.
In the US, our Chicago business received multiple orders in the
period including two contracts totalling $23m to supply critical
components to Lockheed Martin, and a $46m order to supply key parts
on the United Launch Alliance ("ULA") Vulcan launch system,
including flight-critical initiators, thrusters and cartridges. Our
Chicago business now has a record order book which is in excess of
$165m.
Revenue for Countermeasures & Energetics was up by 2% to
GBP285.6m (2022: GBP280.5m). The sector reported an underlying
operating profit of GBP50.5m (2022: GBP48.9m) as underlying
operating margin increased to 17.7% (2022: 17.4%), driven by the
richer margin mix in our Energetics businesses. On a constant
currency basis revenue would have been up 4% to GBP290.4m and
operating profit would have been up 8% to GBP52.9m.
Opportunities and outlook
The Countermeasures & Energetics sector 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 for 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 continue to 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. In June and
November 2023, we announced a three-year investment programme
through to 2026 at a cost of approximately GBP120m which, when
completed, is expected to generate incremental revenue of circa
GBP85m and incremental operating profit of circa GBP20m per
annum.
The Countermeasures & Energetics order book at 31 October
2023 was up 51% to GBP751m (2022: GBP497m). The increase compared
to the 2022 year-end closing order book is largely attributable to
the strong order intake across the Energetics businesses whose
customers are increasingly placing multi-year orders. Of the 31
October 2023 order book, approximately GBP281m is currently
expected to be delivered in 2024, representing 90% coverage of
expected 2024 revenue and approximately 71% of 2025 and 65% of 2026
expected revenue.
Net debt and cash flow
The Group's net debt at 31 October 2023 was GBP14.4m (2022:
GBP7.2m), representing a net debt to underlying EBITDA ratio of
0.16x (2022: 0.09x). The financial health of the Group has
continued to improve in a number of aspects during the year.
Disciplined working capital practices have been maintained to
reduce intra-period volatility. The Group is working to achieve
further improvements over the medium term.
Underlying operating activities generated cash of GBP80.0m
(2022: GBP85.1m). Underlying cash conversion was 90% (2022: 110%)
of underlying EBITDA, and an average of 101% on a rolling 36-month
basis (2022: 108%).
Working capital
Working capital was GBP82.3m (2022: GBP93.9m), a decrease of
GBP11.6m. As a percentage of revenue, working capital has decreased
to 17% (2022: 21%). We continued with our focus on commercial
contracting, inventory levels and cash management. Year-end trade
receivable days of 16 (2022: 17) and trade payable days of 18
(2022: 18) demonstrate that working capital has been managed in a
balanced and sustainable manner.
Tax
The underlying tax charge totalled GBP10.2m (2022: GBP4.6m) on
an underlying profit before tax of GBP67.9m (2022: GBP57.9m). The
effective tax rate on underlying profit before tax for the year was
a charge of 15.0% (2022: 7.9%).
The charge in the previous year was reduced by a credit for the
recognition of a deferred tax asset in respect of future US
interest deductions that were previously unrecognised, which was
not repeated in the current year. Looking forward into 2024 we
expect the Group effective tax rate to increase to approximately
20%, reflecting the full year effect of the increase in the UK
corporation tax rate and an increased weighting of UK profits as
Roke continues to grow. The statutory tax charge totalled GBP6.4m
(2022: GBP3.5m) on a statutory profit before tax of GBP44.1m (2022:
GBP47.9m).
Retirement benefit obligations
The surplus on the Group's defined benefit pension scheme was
GBP5.9m (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 updated to 31
October 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 included a liability driven investment
which hedged future interest rate and inflation risk, has protected
the Scheme's surplus position which represents 110% 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.
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.
On 28 November 2023 the trustees of the Group's legacy UK
defined benefit pension scheme, the Chemring Group Staff Pension
Scheme (the "Scheme"), entered into a buy-in contract with an
insurer, Pension Insurance Corporation ("PIC"). The Group has made
an initial payment to the Scheme of GBP1.6m and expects to pay
cGBP3m over the next two years as a contribution to the buy-in
premium, to provide funding for the rectification of certain
members' benefits and to meet the costs associated with the initial
buy-in and eventual buy-out of the Scheme. On completion of the
full buy-out of the Scheme, the defined benefit assets and matching
defined benefit liabilities will be derecognised from the Group
balance sheet.
Dividends
The Board continues to recognise that dividends are an important
component of total shareholder returns. The Board's objective is to
pay a growing and sustainable dividend and to continue to target a
medium-term dividend cover of c.2.5 times underlying earnings per
share, subject inter alia to maintaining a strong financial
position.
The Board is recommending a final dividend in respect of the
year ended 31 October 2023 of 4.6p (2022: 3.8p) per ordinary share.
With the interim dividend of 2.3p per share (2022: 1.9p), this
results in a total dividend of 6.9p (2022: 5.7p) per share, an
increase of 21% on the prior year. If approved, the final dividend
will be paid on 12 April 2024 to shareholders on the register on 22
March 2024. In accordance with accounting standards, this final
dividend has not been recorded as a liability as at 31 October
2023.
Current trading and outlook
Trading since the start of the current financial year has been
in line with expectations.
The Board's expectations for the Group's 2024 performance are
unchanged.
The Group order book as at 31 October 2023 was GBP922m, of which
GBP403m is currently expected to be recognised as revenue in 2024,
giving 79% order cover, which provides excellent visibility for the
full year. This leaves GBP519m of the order book to be delivered in
2025 and beyond, which provides approximately 71% of 2025 and 65%
of 2026 revenue cover in Countermeasures & Energetics.
With market-leading innovative technologies and services that
are critical to our customers, together with the flexibility
provided by the Group's strong balance sheet, the Board is
confident that Chemring will continue to deliver both organic and
inorganic growth, balancing near-term performance with longer-term
value creation. Chemring's longer-term prospects remain strong.
Going concern
The directors believe that the Group is well placed to manage
its business risks successfully, despite the current uncertain
economic outlook. The Group's forecasts and projections, taking
account of reasonably possible changes in trading performance, show
that the Group should be able to operate within the level of its
current committed facilities.
Key financial metrics
2023 Covenant
Revolving credit facility and overdraft GBP158m
-------- ----------
Undrawn committed borrowing facilities GBP143m
-------- ----------
Leverage ratio 0.21x Less than
3x
-------- ----------
Interest cover ratio 30x Greater
than 4x
-------- ----------
The revolving credit facility of GBP150m runs to December 2025,
of which GBP130m has been extended to December 2026 with a
"one-year" option to extend to December 2027 at the lenders'
discretion. The $10m overdraft facility was increased to $20m in
November 2023. The Group was in compliance with the covenants
throughout the year.
Confirmation of going concern
After consideration of the above, the directors have a
reasonable expectation that the Group and Company will have
sufficient funds to continue to meet its liabilities as they fall
due for at least 12 months from the date of approval of the
financial statements and therefore have prepared the financial
statements on a going concern basis.
A detailed description of the Group's going concern and
long-term viability assessment, together with sensitivity analysis,
can be found on page 77 of the Group's 2023 annual report and
accounts.
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 and the 2023 interim report. A
detailed description of the Group's principal risks and
uncertainties and the ways they are mitigated can be found on pages
69 to 76 of the Group's 2023 annual report and accounts. In
summary, the principal risks relate to:
-- Occupational and process safety
-- Environmental laws and regulations
-- Climate change
-- Market
-- Political
-- Contracts
-- Technology
-- Financial
-- Operational
-- People
-- Cyber-security
-- Compliance and corruption
Management have detailed mitigation plans and assurance
processes to manage and monitor these risks.
RESPONSIBILITY STATEMENT OF THE DIRECTORS ON THE ANNUAL REPORT
AND ACCOUNTS
The responsibility statement below has been prepared in
connection with the Company's full annual report and accounts for
the year ended 31 October 2023. Certain parts thereof are not
included within this announcement.
We confirm to the best of our knowledge:
1. the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
2. the strategic report and directors' report includes a fair
review of the development and performance of the business
and the position of the issuer and the undertakings included
in the consolidation taken as a whole, together with a description
of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is
fair, balanced and understandable, and provides the information
necessary for shareholders to assess the Group's position and
performance, business model and strategy.
This responsibility statement was approved by the Board of
directors on 12 December 2023, and has been signed on its behalf by
Michael Ord and Sarah Ellard.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 October 2023
2023 2022**
Note
Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
GBPm GBPm GBPm GBPm GBPm GBPm
Continuing operations
Revenue 2 472.6 - 472.6 401.0 - 401.0
------------- --------------- ------- ------------- --------------- ------
Operating profit 2 69.2 (23.8) 45.4 59.4 (10.0) 49.4
Finance expense (1.3) - (1.3) (1.5) - (1.5)
------------- --------------- ------- ------------- --------------- ------
Profit before
tax 67.9 (23.8) 44.1 57.9 (10.0) 47.9
Taxation (10.2) 3.8 (6.4) (4.6) 1.1 (3.5)
------------- --------------- ------- ------------- --------------- ------
Profit after
tax 57.7 (20.0) 37.7 53.3 (8.9) 44.4
Discontinued
operations
(Loss)/profit
after tax from
discontinued operations 4 (0.9) (31.4) (32.3) 3.5 (0.5) 3.0
------------- --------------- ------- ------------- --------------- ------
Profit after
tax 56.8 (51.4) 5.4 56.8 (9.4) 47.4
------------- --------------- ------- ------------- --------------- ------
Earnings per
ordinary share
Continuing operations
Basic 5 20.5p 13.4p 19.0p 15.8p
Diluted 5 20.0p 13.1p 18.5p 15.4p
------------- --------------- ------- ------------- --------------- ------
Continuing operations
and discontinued
operations
Basic 5 20.2p 1.9p 20.2p 16.9p
Diluted 5 19.7p 1.9p 19.7p 16.4p
------------- --------------- ------- ------------- --------------- ------
* Further information about non-underlying items is set out in
note 3.
** 2022 comparative information has been re-presented due to a
change in classification for discontinued operations. See note 4
for further details.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 October 2023
2023 2022
GBPm GBPm
Profit after tax attributable to equity holders
of the parent as reported 5.4 47.4
Items that will not be reclassified subsequently
to profit or loss
Remeasurement of the defined benefit pension
scheme (4.7) (2.3)
Movement on deferred tax relating to the pension
scheme 1.6 0.8
------- ------
(3.1) (1.5)
------- ------
Items that may be reclassified subsequently
to profit or loss
Exchange differences on translation of foreign
operations (15.2) 35.0
Tax on exchange differences on translation
of foreign operations (1.1) (0.4)
------- ------
(16.3) 34.6
------- ------
Total comprehensive (loss) / income attributable
to equity holders of the parent (14.0) 80.5
------- ------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 October 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 - - - - 5.4 5.4
Other comprehensive
loss - - - (15.2) (4.7) (19.9)
Tax relating to
components of other
comprehensive loss - - - (1.1) 1.6 0.5
---------------------- -------- --------- --------- ------------ --------- -------
Total comprehensive
(loss)/income - - - (16.3) 2.3 (14.0)
Ordinary shares
issued - 1.0 - - - 1.0
Purchase of own
shares - - - - (16.9) (16.9)
Share-based payments
(net of settlement) - - - - 7.6 7.6
Dividends paid - - - - (17.3) (17.3)
At 31 October
2023 2.8 308.7 12.9 (8.8) 62.9 378.5
-------- --------- --------- ------------ --------- -------
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/(loss) - - - 35.0 (2.3) 32.7
Tax relating to
components of other
comprehensive income/(loss) - - - (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 own
shares - - - - (7.0) (7.0)
At 31 October 2022 2.8 307.7 12.9 7.5 87.2 418.1
-------- --------- --------- ------------ --------- -------
CONSOLIDATED BALANCE SHEET
as at 31 October 2023
2023 2022
GBPm GBPm GBPm GBPm
Non-current assets
Goodwill 100.5 118.1
Development costs 17.6 34.6
Other intangible assets 9.6 11.4
Property, plant and equipment 242.2 231.3
Retirement benefit surplus 5.9 11.2
Deferred tax 36.9 32.3
-------- -------- ------- --------
412.7 438.9
-------- -------- ------- --------
Current assets
Inventories 101.7 99.6
Trade and other receivables 74.8 61.1
Cash and cash equivalents 6.4 19.8
Derivative financial instruments 0.8 0.7
-------- -------- ------- --------
183.7 181.2
-------- -------- ------- --------
Total assets 596.4 620.1
-------- -------- ------- --------
Current liabilities
Lease liabilities (1.1) (1.8)
Trade and other payables (124.0) (98.2)
Provisions (5.6) (1.6)
Current tax (8.2) (7.9)
Derivative financial instruments (3.2) (4.2)
-------- -------- ------- --------
(142.1) (113.7)
-------- -------- ------- --------
Non-current liabilities
Borrowings (14.1) (20.9)
Lease liabilities (5.5) (4.2)
Provisions (12.0) (16.8)
Deferred tax (43.8) (45.2)
Derivative financial instruments (0.3) (1.1)
Preference shares (0.1) (0.1)
-------- -------- ------- --------
(75.8) (88.3)
-------- -------- ------- --------
Total liabilities (217.9) (202.0)
-------- -------- ------- --------
Net assets 378.5 418.1
-------- -------- ------- --------
Equity
Share capital 2.8 2.8
Share premium account 308.7 307.7
Special capital reserve 12.9 12.9
Translation reserve (8.8) 7.5
Retained earnings 62.9 87.2
-------- -------- ------- --------
Total equity 378.5 418.1
-------- -------- ------- --------
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2023
Note 2023 2022**
GBPm GBPm
Cash flows from operating activities
-------------------------------------------------- ----- ------- -------
Cash generated from continuing underlying
operations 6 80.0 85.1
Cash impact of continuing non-underlying
items (2.1) (1.1)
Cash (utilised in)/generated from discontinued
underlying operations 6 (0.8) 5.0
Cash impact of discontinued non-underlying (1.9) -
items
-------------------------------------------------- ----- ------- -------
Cash flows from operating activities 75.2 89.0
Tax paid (9.3) (8.5)
------- -------
Net cash inflow from operating activities 65.9 80.5
------- -------
Cash flows from investing activities
Purchases of intangible assets (1.5) (3.0)
Purchases of property, plant and equipment (32.7) (31.5)
Acquisition of subsidiary net of cash acquired (7.2) -
Short-term funding to defined benefit pension
scheme 2.0 (2.0)
Proceeds on disposal of property, plant
and equipment - 6.0
------- -------
Net cash outflow from investing activities (39.4) (30.5)
------- -------
Cash flows from financing activities
Dividends paid (17.3) (14.4)
Purchase of own shares (14.0) (7.0)
Net proceeds for transactions in own shares 0.6 0.1
Finance expense paid (0.7) (1.3)
Capitalised facility fees paid (0.3) -
Drawdown of borrowings 60.1 30.0
Repayments of borrowings (66.8) (41.0)
Payments of lease liabilities (1.8) (2.2)
Net cash outflow from financing activities (40.2) (35.8)
------- -------
(Decrease)/increase in cash and cash equivalents (13.7) 14.2
Cash and cash equivalents at beginning
of the year* 19.8 5.4
Effect of foreign exchange rate changes 0.3 0.2
------- -------
Cash and cash equivalents at end of the
year 6.4 19.8
------- -------
* Cash and cash equivalents of GBP5.4m at the beginning of 2022
includes a bank overdraft
** 2022 comparative information has been re-presented due to a
change in classification for discontinued operations. See note 4
for further details.
Notes
1. ACCOUNTS AND AUDITOR'S REPORT
The financial information set out above does not constitute the
Company's statutory accounts for the year ended 31 October 2023 or
31 October 2022 but is derived from those accounts. Statutory
accounts for 2022 have been delivered to the Registrar of
Companies, and those for 2023 will be delivered following the
Company's Annual General Meeting. The auditor has reported on these
accounts; their reports were unqualified, did not draw attention to
any matters by way of emphasis without qualifying their report, and
did not contain any statements required under either section 498(2)
or section 498(3) of the Companies Act 2006.
This announcement has been prepared on the basis of the
accounting policies set out in the Company's financial statements
for the year ended 31 October 2023.
Whilst the financial information included in this announcement
has been computed in accordance with UK-adopted International
Financial Reporting Standards ("UK-adopted IFRSs"), this
announcement does not itself contain sufficient information to
comply with UK-adopted IFRSs. The Company expects to post full
financial statements that comply with UK-adopted IFRSs on its
website on 12 December 2023 (see note 14 below).
Recent accounting developments
The following International Financial Reporting Committee
("IFRIC") interpretations, amendments to existing standards and new
standards were adopted in the year ended 31 October 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); and
-- Annual Improvements to IFRS Standards 2018-2020.
2. SEGMENTAL ANALYSIS - CONTINUING OPERATIONS
Year ended 31 October 2023
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 187.0 285.6 - 472.6
Segment result before depreciation,
amortisation and non-underlying
items and discontinued operations 38.5 65.5 (15.5) 88.5
Depreciation (3.6) (15.0) - (18.6)
Amortisation (0.7) - - (0.7)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental underlying operating
profit 34.2 50.5 (15.5) 69.2
Amortisation of acquired intangibles (1.3) (1.7) - (3.0)
Non-underlying items (22.2) - 1.4 (20.8)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental operating profit 10.7 48.8 (14.1) 45.4
-------------------------------------- --------------- ---------------- ------------ -------
Year ended 31 October 2022
Sensors Countermeasures Unallocated Group
& Information & Energetics
GBPm GBPm GBPm GBPm
Revenue 120.5 280.5 - 401.0
Segment result before depreciation,
amortisation and non-underlying
items and discontinued operations 28.0 64.2 (14.9) 77.3
Depreciation (2.6) (15.1) - (17.7)
Amortisation - (0.2) - (0.2)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental underlying operating
profit 25.4 48.9 (14.9) 59.4
Amortisation of acquired intangibles (1.8) (2.1) - (3.9)
Non-underlying items (1.2) - (4.9) (6.1)
-------------------------------------- --------------- ---------------- ------------ -------
Segmental operating profit 22.4 46.8 (19.8) 49.4
-------------------------------------- --------------- ---------------- ------------ -------
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 assist
with 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.
2023 2022
GBPm GBPm
Gain/(loss) on movements in the fair value
of derivative financial instruments 1.4 (4.1)
Acquisition expenses (3.7) (2.0)
------- -------
Impairment of Chemical Detection assets (18.5) -
------- -------
Release of disposal provisions 3.2 -
------- -------
Increase in legal and disposal provisions (3.2) -
------- -------
Impact of non-underlying items on EBITDA (20.8) (6.1)
Intangible amortisation arising from business
combinations (3.0) (3.9)
------- -------
Impact of non-underlying items on profit before
tax (23.8) (10.0)
Tax impact of non-underlying items 3.8 1.1
------- -------
Impact of non-underlying items on continuing
profit after tax (20.0) (8.9)
Non-underlying discontinued operations after
tax (31.4) (0.5)
------- -------
Impact of non-underlying items on profit after
tax (51.4) (9.4)
Underlying profit after tax 56.8 56.8
------- -------
Statutory profit after tax 5.4 47.4
------- -------
Derivative financial instruments
Included in non-underlying items is a GBP1.4m gain (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 GBP3.7m (2022: GBP2.0m) of
acquisition related expenses. This includes GBP3.4m (2022: GBP1.0m)
relating to deferred consideration contingent on continued
employment of the former owners of Geollect and Cubica, 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 is a non-recurring cost relating to
acquisitions. The remaining expense of GBP0.3m (2022: GBP1.0m)
primarily includes professional fees incurred in relation to the
Group's mergers and acquisitions activity during the year. The
acquisition related 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.
Impairment of Chemical Detection assets
Included in non-underlying items is GBP18.5m (2022: GBPnil) of
non-cash impairment expenses, of which GBP15.6m relates to
capitalised development costs and GBP2.9m relates to other assets.
After having undertaken a wider strategic review of the US Sensors
business we have concluded that the prospect of securing a Program
of Record in the Chemical Detection part of the business is no
longer probable and therefore we have chosen to record a non-cash
impairment of development costs and other related assets in our
Chemical Detection line of business. The impairment 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 non-recurring asset impairments, these costs have been excluded
from the underlying measures.
Legal and disposal provisions
GBP3.2m of provisions, where the original charge was treated as
exceptional, were released in the year as the risk of economic
outflow is no longer considered probable. Other legal and disposal
provisions, which were originally treated as exceptional, were
increased by GBP3.2m in the year as the value of liabilities was
reassessed.
Amortisation of acquired intangibles
Included in non-underlying items is the amortisation charge
arising from business combinations of GBP3.0m (2022: GBP3.9m).
Amortisation of acquired intangibles arising from business
combinations is associated with acquisition accounting under IFRS 3
Business Combinations. IFRS requires intangibles to be recognised
on acquisition that would not have been capitalised had the
business grown organically under Chemring's ownership. As such,
these costs are not reflective of the underlying costs of the Group
and therefore, in order to provide an explanation of results that
is not distorted by the history of business units being acquired
rather than organically developed, have been excluded from the
underlying measures.
Tax
The tax impact of non-underlying items comprises a GBP3.8m tax
credit (2022: GBP1.1m credit) on the above non-underlying
items.
We present the underlying effective tax rate for the Group,
excluding non-underlying items, that is comparable over time. This
is the taxation expense for the Group, excluding any non-underlying
tax charge or credit, as a percentage of underlying profit before
taxation.
Net debt
A reconciliation and analysis of net debt is presented in notes
7 and 8. This APM allows management to monitor the indebtedness of
the Group.
Discontinued operations
Further details on the results of discontinued operations are
presented in note 4.
4. DISCONTINUED OPERATIONS
Following the US DoD's decision in 2022 to transition the HMDS
Program of Record to sustainment earlier than they had previously
indicated, we evaluated the potential sustainment program and
determined that in the short to medium term there is insufficient
DoD funding to make it economically viable for Chemring to continue
to operate the business. The decision has therefore been taken that
the explosive hazard detection ("EHD") business will not continue
to operate and it has therefore been treated as a discontinued
operation in 2023. Prior to the decision to discontinue the EHD
business, it was presented as part of the Sensors & Information
segment.
2023 2022
GBPm GBPm
Revenue 9.3 41.8
Underlying operating (loss)/profit from discontinued
operations (1.2) 4.6
Tax on underlying operating (loss)/profit from
discontinued operations 0.3 (1.1)
------- ------
(Loss)/profit after tax from underlying discontinued
operations (0.9) 3.5
(Loss)/profit after tax is analysed as:
Before non-underlying items (0.9) 3.5
------------------------------------------------------ ------- ------
Non-underlying items (33.6) (0.7)
Tax on non-underlying items 2.2 0.2
------------------------------------------------------ ------- ------
(31.4) (0.5)
------------------------------------------------------ ------- ------
(Loss)/profit for the year from discontinued
operations (32.3) 3.0
------- ------
In 2023 the non-underlying items include a non-cash impairment
of GBP31.2m (of which GBP20.5m relates to the goodwill associated
with the acquisition of the EHD business in 2009 and GBP10.7m
relates to other assets), site rationalisation costs of GBP1.7m and
the amortisation of acquired intangibles of GBP0.7m. Amortisation
of acquired intangibles arising from business combinations is
associated with acquisition costs under IFRS 3 Business
Combinations . As such, these costs are not reflective of the
underlying activities of the discontinued operations and therefore
have been treated as non-underlying items. The impairment expenses
and site rationalisation 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 non-recurring asset
impairments or expenses, these costs have been excluded from the
underlying measures.
In 2022 the non-underlying items were the amortisation of
acquired intangibles of GBP0.7m.
The cash flows from discontinued operations are presented in
note 6.
The comparative income statement and cash flow information has
been re-presented on the basis of the classification of operations
as discontinued:
Underlying Non-underlying
Reported Re-presented Reported Re-presented
2022 Adjustment 2022 2022 Adjustment 2022
GBPm GBPm GBPm GBPm GBPm GBPm
CONSOLIDATED INCOME
STATEMENT
Continuing operations
Revenue 442.8 (41.8) 401.0 - - -
Operating profit 64.0 (4.6) 59.4 (10.7) 0.7 (10.0)
Finance expense (1.5) - (1.5) - - -
------------------------- --------- ----------- ------------- --------- ----------- -------------
Profit before tax 62.5 (4.6) 57.9 (10.7) 0.7 (10.0)
Taxation (5.7) 1.1 (4.6) 1.3 (0.2) 1.1
------------------------- --------- ----------- ------------- --------- ----------- -------------
Profit after tax 56.8 (3.5) 53.3 (9.4) 0.5 (8.9)
------------------------- --------- ----------- ------------- --------- ----------- -------------
Discontinued operations
Profit after tax - 3.5 3.5 - (0.5) (0.5)
Total profit after
tax 56.8 - 56.8 (9.4) - (9.4)
------------------------- --------- ----------- ------------- --------- ----------- -------------
CONSOLIDATED CASH
FLOW STATEMENT
Continuing operations
Cash flows from
operating activities 90.1 (5.0) 85.1 (1.1) - (1.1)
Discontinued operations
Cash flows from
operating activities - 5.0 5.0 - - -
---------------------------- ----- ------ ----- ------ ------
Total cash flows
from operating activities 90.1 - 90.1 (1.1) - (1.1)
---------------------------- ----- ------ ----- ------ ------
5. EARNINGS PER SHARE
Earnings per share is based on the average number of shares in
issue, excluding own shares held, of 281,655,927 (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 288,780,153 (2022: 288,218,004).
The earnings used in the calculations of the various measures of
earnings per share are as follows:
2023 2022
Basic Diluted Basic Diluted
GBPm EPS (Pence) EPS (Pence) GBPm EPS (Pence) EPS (Pence)
Underlying profit after
tax 57.7 20.5 20.0 53.3 19.0 18.5
Non-underlying items (20.0) (8.9)
------- ------------- ------------- ------ -------------- -------------
Profit from continuing operations 37.7 13.4 13.1 44.4 15.8 15.4
(Loss)/profit from discontinued
operations (32.3) (11.5) (11.2) 3.0 1.1 1.0
------- ------------- ------------- ------ -------------- -------------
Total profit after tax 5.4 1.9 1.9 47.4 16.9 16.4
------- ------------- ------------- ------ -------------- -------------
6. CASH GENERATED FROM OPERATING ACTIVITIES
2023 2022
GBPm GBPm
Operating profit from continuing operations 45.4 49.4
Amortisation of development costs 0.7 0.1
Amortisation of intangible assets arising from
business combinations 3.0 3.9
Amortisation of patents and licenses - 0.1
Impairment of development costs 15.6 2.2
Profit on disposal of non-current assets - (1.9)
Depreciation of property, plant and equipment 18.6 17.7
Non-underlying items 5.2 6.1
Share-based payment expense 4.4 6.4
------- ------
Operating cash flows before movements in working
capital 92.9 84.0
Increase in inventories (18.2) (6.4)
(Increase)/decrease in trade and other receivables (18.7) 4.5
Increase in trade and other payables 23.7 2.9
Increase in provisions 0.3 0.1
------- ------
Operating cash flow from continuing underlying
operations 80.0 85.1
------- ------
Discontinued operations:
Operating cash flow from discontinued underlying
operations (0.8) 5.0
Cash impact of non-underlying items from discontinued (1.9) -
operations
Net cash (outflow)/inflow from discontinued operating
activities (2.7) 5.0
Net cash (outflow)/inflow from discontinued
operations (2.7) 5.0
------- ------
7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2023 2022
GBPm GBPm
(Decrease)/increase in cash and cash equivalents (13.7) 14.2
------- -------
Decrease in debt and lease financing due to cash
flows 8.8 13.2
------- -------
(Increase)/decrease in net debt resulting from
cash flows (4.9) 27.4
Effect of foreign exchange rate changes 0.3 (4.2)
Acquired debt (0.1) -
New leases entered into, lease interest and other
non-cash movements (2.1) (3.5)
Amortisation of debt finance costs (0.4) (0.3)
------- -------
Movement in net debt (7.2) 19.4
Net debt at beginning of the year (7.2) (26.6)
------- -------
Net debt at end of the year (14.4) (7.2)
------- -------
8. ANALYSIS OF NET DEBT
As at As at
1 Nov Cash Non-cash Exchange 31 Oct
2022 flows changes rate effects 2023
GBPm GBPm GBPm GBPm GBPm
Cash and cash equivalents
(including bank overdraft) 19.8 (13.7) - 0.3 6.4
Debt due after one year (20.9) 7.0 (0.3) 0.1 (14.1)
Preference shares (0.1) - - - (0.1)
------- ------- --------- -------------- --------
(1.2) (6.7) (0.3) 0.4 (7.8)
Lease liabilities (6.0) 1.8 (2.3) (0.1) (6.6)
------- ------- --------- -------------- --------
(7.2) (4.9) (2.6) 0.3 (14.4)
------- ------- --------- -------------- --------
The revolving credit facility of GBP150m runs to December 2025,
of which GBP130m has been extended to December 2026 with a
"one-year" option to extend to December 2027 at the lenders'
discretion. The $10m overdraft facility was increased to $20m in
November 2023.
The Group had GBP142.9m (2022: GBP136.7m) of undrawn borrowing
facilities as at 31 October 2023.
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 and includes liabilities on foreign exchange forward
contracts within its definition of net debt. Therefore the leverage
ratio of 0.21 times differs to the ratio of 0.16 times that is
disclosed elsewhere in this document, which is calculated using the
closing rates of exchange and does not include liabilities on
foreign exchange forward contracts within its definition of net
debt. The Group was in compliance with the covenants throughout the
year. The year end leverage ratio was 0.21 times (covenant limit of
3 times) and the year-end interest cover ratio was 30.01 times
(covenant floor of 4 times).
9. DIVID
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 (year ended 31 October 2021: 3.2p).
This was paid on 14 April 2023 to shareholders on the register on
24 March 2023 and totalled GBP10.8m (2022: GBP9.1m).
An interim dividend in respect of 2023 of 2.3p (2022: 1.9p) per
ordinary share was paid on 8 September 2023 to shareholders on the
register on 18 August 2023. The cash value of this dividend was
GBP6.5m (2022: GBP5.3m).
The Board is recommending a final dividend in respect of the
year to 31 October 2023 of 4.6p (2022: 3.8p) per ordinary share.
The estimated cash value of this dividend is GBP12.9m. With the
interim dividend of 2.3p per share (2022: 1.9p), this results in a
total dividend of 6.9p (2022: 5.7p) per ordinary share. If
approved, the final dividend will be paid on 12 April 2024 to
shareholders on the register on 22 March 2024. In accordance with
accounting standards, this final dividend has not been recorded as
a liability as at 31 October 2023.
10. EXCHANGE RATES
The following exchange rates applied during the year:
Average Closing Average Closing
rate rate rate rate
2023 2023 2022 2022
US dollar 1.24 1.21 1.23 1.15
AU dollar 1.91 1.92 1.75 1.80
Norwegian krone 13.10 13.56 11.82 11.97
-------- -------- -------- --------
For the year ended 31 October 2023 a 10% weakening of Sterling
against the US dollar, AU dollar and Norwegian krone would have
increased reported revenue by GBP22.0m (2022: GBP24.2m) and
reported underlying operating profit by GBP3.3m (2022:
GBP2.9m).
11. CONTINGENT LIABILITIES
The Group is, from time to time, party to legal proceedings and
claims, and is involved in correspondence relating to potential
claims, which arise in the ordinary course of business. In
addition, the following matter remains open at year end:
On 10 August 2018, an incident occurred at our Countermeasures
facility in Salisbury. The Group responded to support those who
were injured and all related claims by employees have now been
settled under our employers' liability insurance. We also fully
supported the UK Health and Safety Executive ("HSE") with its
investigation, which has been concluded. Whilst provisions have
been recorded for costs that have been identified (included within
"legal provisions"), it is possible that additional uninsured costs
and financial penalties may be incurred as a result of the HSE
investigation. At this stage these costs are not anticipated to be
material in the context of the Group's financial statements.
12. EVENTS AFTER THE BALANCE SHEET DATE
Subsequent to the year-end, on 28 November 2023 the trustees of
the Group's legacy UK defined benefit scheme, the Chemring Group
Staff Pension Scheme ("the Scheme"), entered into an agreement with
an insurer, Pension Insurance Corporation ("PIC"), to purchase a
bulk annuity insurance policy that operates as an investment asset.
Such arrangements are commonly referred to as a "buy-in". The
buy-in removes future risk associated with funding of the Scheme
from the balance sheet, while ensuring the security of benefits for
the Scheme members. The buy-in premium has initially been funded
through the transfer of the majority of the Scheme's assets to PIC,
as well as by an upfront contribution from the Group of
approximately GBP1.6m. The upfront contribution from the Group will
be funded from the Group's existing bank facilities.
The Scheme will now have protection against longevity risk and
market risk for the material obligations of all deferred and
pensioner members. As a result, the pension surplus, calculated on
an IAS19 basis, included in the balance sheet at 31 October 2023 of
GBP3.7m net of tax, is expected to be largely removed as the fair
value of this insurance policy, held as an asset of the Scheme,
will be set equal to the value of defined benefit obligations
covered under IAS 19.
The legal responsibility for the Scheme will transfer through a
subsequent "buy-out" transaction, expected to be completed in the
next 12-24 months. On completion of the full buy-out of the scheme,
the defined benefit assets and matching defined benefit liabilities
will be derecognised from the Group balance sheet.
13. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed. The directors of the Company had no material
transactions with the Company during the year, other than in
connection with their service agreements.
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. The amount receivable was classified in other receivables in
the consolidated balance sheet.
14. 2023 ANNUAL REPORT AND ACCOUNTS
The annual report and accounts for the year ended 31 October
2023 will be posted on the Company's website, www.chemring.com , on
12 December 2023 and a copy will be posted to shareholders, as
required, in advance of the Company's Annual General Meeting on 23
February 2024.
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END
FR TBBRTMTIBBAJ
(END) Dow Jones Newswires
December 12, 2023 02:00 ET (07:00 GMT)
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