REG - Chemring Group PLC - Half-year Report
04/06/2024 07:00
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RNS Number : 9389Q Chemring Group PLC 04 June 2024
CHEMRING GROUP PLC
4 JUNE
2024
("Chemring" or "the Group" or "the Company")
INTERIM RESULTS FOR THE SIX MONTHS TO 30 APRIL 2024
Record order book, full year expectations unchanged, strong long-term
prospects
As reported At H1 2023 exchange rates
H1 2024 Change H1 2024 Change H1 2023(*)
Continuing operations
Order book (£m) 1,040.6 +39% 1,046.7 +40% 749.5
Order intake (£m) 344.5 +2% 351.0 +4% 338.2
Revenue (£m) 223.4 +8% 226.1 +10% 206.3
Underlying EBITDA(**)(£m) 35.5 +1% 35.7 +1% 35.2
Underlying operating profit(**) (£m) 25.0 -5% 25.1 -5% 26.3
Underlying profit before tax(**) (£m) 22.7 -10% 22.8 -10% 25.3
Underlying diluted earnings per share(**) (pence) 6.6 -11% 6.6 -11% 7.4
Statutory operating profit (£m) 17.5 -24% 17.5 -24% 23.1
Interim dividend per share (pence) 2.6 +13% 2.3
Net debt at 30 April (£m) 75.3 +201% 75.2 +201% 25.0
Key highlights
· Record H1 order intake of £345m and order book of £1,041m, the highest
in Chemring's history, providing excellent medium-term revenue coverage
· H1 2024 was in line with the Board's expectations:
- Revenue growth of 8%, driven by strong performance at Roke, up 19%, and
growth in our specialist energetic materials businesses offset by a weaker
period for Countermeasures
- Underlying operating profit margin of 11.2% (H1 2023: 12.7%) primarily
reflecting the impact of operational challenges at our Tennessee
Countermeasures business in the period
- Improved cash conversion of 83% (H1 2023: 64%) as focus on working capital
management maintained
· Awarded £90m of grant funding in support of our capex investment to
increase the capacity of our Norwegian site, amid unprecedented levels of
demand for its products
· Strategy to increase overall investment in our Energetics capacity
expansion plan from £120m to £200m, excluding grant funding. Targeting
increased revenues (£100m p.a.) and operating profit (£30m p.a.) in 2028
· Good progress made on capital projects to date, with £34m of capex
spent in total during the period, and customers increasingly moving to
long-term partnering agreements
· A further £28m deployed into the £50m share buyback programme
announced on 1 August 2023
· Net debt was £75.3m (H1 2023: £25.0m), with the increase as expected
due to our decision to invest in capex. Net debt to underlying EBITDA of 0.85
times (H1 2023: 0.36 times) remains below the Group's internal target of less
than 1.5 times cover
· Interim dividend per share of 2.6p, up 13% (H1 2023: 2.3p)
· The Board's expectations for 2024 are unchanged, with heavier H2
weighting of operating profit as previously communicated in February 2024.
Approximately 93% (H1 2023: 90%) of expected H2 revenue was in the order book
at 30 April 2024
· The Group has the ambition to increase annual revenue to c.£1bn by 2030
· The Group's longer-term growth prospects are strong, underpinned by
robust activity levels, our leading technological offerings, our people, high
barriers to entry, and the investments we continue to make in our strong,
high-quality business
Michael Ord, Chemring Group Chief Executive, commented:
"The momentum seen in 2023 has continued with another period of record order
intake and an order book of over £1bn, the highest in Chemring's history.
This strong order intake across both sectors has further increased our order
cover for the second half of 2024 to 93% and the Board's expectations for the
full year are unchanged.
"The increase in geo-political tensions around the world is driving a
fundamental rearmament upcycle which is expected to last for at least the next
decade. This visibility, together with the support of grant funding and our
customers' desire to move to long-term partnering agreements, gives us the
confidence to invest further in capacity and capability, reinforcing
Chemring's position as a key supplier to NATO, and positioning the Group well
for the future. We now have the ambition to increase annual revenue to c.£1bn
by 2030."
Notes:
* H1 2023 comparative values have been re-presented on the basis of the
classification of operations as discontinued. See note 13 for a reconciliation
of the reported comparative values to the re-presented comparative values.
** 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.
The principal Alternative Performance Measures ("APMs") presented are the
underlying measures of earnings which exclude the amortisation of acquired
intangibles, gain or loss on the movement on the fair value of derivative
financial instruments and exceptional items. The directors believe that these
APMs improve the comparability of information between reporting periods as
well as reflect the key performance indicators used within the business to
measure performance. The term underlying is not defined under IFRS and may not
be comparable with similarly titled measures used by other companies.
EBITDA is defined as operating profit before interest, tax, depreciation and
amortisation. Reference to constant currency relates to the re-translation of
H1 2024 financial information at the H1 2023 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 - continuing operations: Underlying Non-underlying Statutory
EBITDA (£m) 35.5 (6.5) 29.0
Operating profit (£m) 25.0 (7.5) 17.5
Profit before tax (£m) 22.7 (7.5) 15.2
Tax charge on profit (£m) (4.3) 1.3 (3.0)
Profit after tax (£m) 18.4 (6.2) 12.2
Basic earnings per share (pence) 6.7 (2.3) 4.4
Diluted earnings per share (pence) 6.6 (2.3) 4.3
Group - discontinued operations:
(Loss)/profit after tax (£m) (0.5) 4.7 4.2
Segments - continuing operations:
Sensors & Information EBITDA (£m) 24.5 (1.7) 22.8
Sensors & Information operating profit (£m) 21.6 (2.1) 19.5
Countermeasures & Energetics EBITDA (£m) 19.4 - 19.4
Countermeasures & Energetics operating profit (£m) 11.8 (0.6) 11.2
The adjustments comprise:
· amortisation of acquired intangibles of £1.0m (H1 2023: £1.8m, 2023:
£3.0m)
· gain on the movement in the fair value of derivative financial
instruments of £1.1m (H1 2023: £0.4m gain, 2023: £1.4m gain)
· exceptional items of £7.6m (H1 2023: £1.8m, 2023: £22.2m),
comprising:
o acquisition expenses of £1.7m (H1 2023: £1.8m, 2023: £3.7m), relating
solely to deferred consideration accounted for as a post-acquisition expense
under IFRS 2
o expense of £5.0m (H1 2023: £nil, 2023: £nil) in relation to the defined
benefit pension buy-in and buy-out. This comprises the settlement loss
following the buy-in transaction agreed on 28 November 2023, as well as
ongoing costs incurred in relation to the buy-in process which will eventually
conclude with a buy-out of the scheme
o costs relating to the change in senior management positions within the
Group of £0.9m (H1 2023: £nil, 2023: £nil)
o impairment of Chemical Detection assets £nil (H1 2023: £nil, 2023:
£18.5m)
· tax impact of adjustments of £1.3m credit (H1 2023: £0.5m credit,
2023: £3.8m credit)
· discontinued operations in respect of the Explosive Hazard Detection
("EHD") business, net of tax, of £4.7m profit (H1 2023: £0.3m loss, 2023:
£31.4m loss) which includes the reversal of an impairment of inventory,
following an agreement being reached to sell certain assets related to the EHD
business.
Further details are provided in note 3.
For further information:
Rupert Pittman Group Director of Corporate Affairs, Chemring Group PLC 01794 463401
James McFarlane MHP Group 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 (http://www.chemring.com)
Analyst meeting
An analyst meeting will take place at 09.00 (UK time) on Tuesday 4 June 2024
at the offices of Investec Bank plc, 30 Gresham St, London EC2V 7QP. To
confirm attendance please contact MHP Group: chemringplc@mhpgroup.com.
Presentation
The presentation slides and a live audio webcast of the presentation to
analysts will be available at the Chemring Group results centre
www.chemring.com/investors/results-centre
(http://www.chemring.com/investors/results-centre) at 09.00 (UK time) on
Tuesday 4 June 2024.
Photography
Original high resolution photography is available to the media by contacting
MHP Group: chemringplc@mhpgroup.com .
INTERIM MANAGEMENT REPORT
Group overview
Order intake for H1 2024 was strong in both segments, up 2% to £345m (H1
2023: £338m, 2023: £756m) and has contributed to a record order book at 30
April 2024 of £1,041m (H1 2023: £750m, 2023: £922m), the highest in
Chemring's history.
H1 2024 performance was in line with the Board's expectations. Revenue was up
8% to £223.4m (H1 2023: £206.3m, 2023: £472.6m), driven by strong
performance at Roke, up 19%, and growth in our specialist energetic materials
businesses offset by a weaker period for Countermeasures.
Underlying operating profit was down 5% to £25.0m (H1 2023: £26.3m, 2023:
£69.2m) resulting in an underlying operating margin of 11.2% (H1 2023: 12.7%,
2023: 14.6%). The decrease compared to H1 2023 primarily reflects the
operational challenges experienced at our Tennessee Countermeasures business,
where (as previously highlighted) production was disrupted due to adverse
weather conditions and there were delays in the ramp up of its automated
facility.
Total finance expense was higher at £2.3m (H1 2023: £1.0m, 2023: £1.3m)
reflecting both the increase in interest rates versus the comparative period
and the higher level of net debt.
Underlying profit before tax was £22.7m (H1 2023: £25.3m, 2023: £67.9m).
The effective tax rate on the underlying profit before tax increased to 18.9%
(H1 2023: 15.0%, 2023: 15.0%) 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 underlying diluted earnings per share was 6.6p (H1
2023: 7.4p, 2023: 20.0p).
Net debt has increased since the year end to £75.3m (H1 2023: £25.0m, 2023:
£14.4m) due primarily to the strategic decision to invest in capex to
increase capacity in our specialist energetic materials businesses and the
continuation of the share buyback programme that was launched in August 2023.
£34.2m has been invested in capex during the period, while £27.9m has been
returned to shareholders through the share buyback.
Underlying operating cash inflow of £29.4m (H1 2023: £22.4m, 2023: £80.0m)
represented 83% (H1 2023: 64%, 2023: 90%) of underlying EBITDA. The strong
operating cash performance reflects our continued focus on commercial
contracting and disciplined working capital management. Our two-year rolling
average cash conversion has been 95%, showing the ongoing focus on working
capital improvements is delivering long-term, sustainable positive results.
Of the Group's £1,041m order book at 30 April 2024, approximately £270m is
scheduled for delivery during the second half of 2024. This represents cover
of approximately 93% (H1 2023: 90%) of expected second half revenue, leaving
£771m of order book to be delivered in 2025 and beyond. At this stage, this
provides approximately 90% (H1 2023: 78%) cover of expected 2025 revenue and
approximately 65% cover of expected 2026 revenue in Countermeasures &
Energetics. In Sensors & Information this provides approximately 30% (H1
2023: 30%) cover of expected 2025 revenue.
Statutory operating profit was £17.5m (H1 2023: £23.1m, 2023: £45.4m) and
after statutory finance expenses of £2.3m (H1 2023: £1.0m, 2023: £1.3m),
statutory profit before tax was £15.2m (H1 2023: £22.1m, 2023: £44.1m).
The statutory profit after tax from continuing operations was £12.2m (H1
2023: £18.8m, 2023: £37.7m) giving a statutory basic earnings per share from
continuing operations of 4.4p (H1 2023: 6.7p, 2023: 13.4p).
A reconciliation of underlying to statutory profit measures is provided in
note 3. The non-underlying costs relate to the amortisation of acquired
intangibles, the gain on the movement in the fair value of derivative
financial instruments and exceptional items, plus the tax impact associated
with these adjustments. In H1 2024, the most significant non-underlying cost
was the exceptional expense relating to the defined benefit pension buy-in and
buy-out transaction, following the buy-in agreement being entered into in
November 2023. This represents £5.0m of the total £7.5m non-underlying loss
that has been excluded from underlying operating profit and underlying profit
before tax.
The EHD division of our US Sensors business was treated as discontinued under
IFRS 5 in 2023 and as a result all H1 2023 comparatives have been
re-presented. A full reconciliation of this is provided in note 13.
Markets
The elevated levels of geopolitical tensions characterised by the continuing
Russia-Ukraine war, the renewed armed conflict between Israel and Hamas-led
militant groups in the Middle East, and an increasingly assertive China, are
driving defence and national security budget increases of differing levels.
These uncertainties are also contributing to a strengthening of international
alliances, with existing, and new NATO members responding to the Ukraine
crisis which is now in its third calendar year.
The US continues to be the largest defence and security market in the world
and remains opportunity-rich for the Group's capabilities. The FY25 Budget
Request from the Biden-Harris Administration for the US Department of Defense
("US DoD") is US$849.8bn, with investment in advanced capabilities and
operational concepts across all domains, including significant resources
allocated to enhance missile and space capabilities. Moreover, there is a
drive to strengthen global alliances and partnerships for enhancing security.
The Group's differentiated capabilities in active-cyber, space, hypersonic and
advanced weapons, electronic warfare ("EW") and bio-security/surveillance give
us the opportunity to compete in this large and growing market.
Investment is ongoing in the UK to enhance national resilience, through
reinforced supply chains and expanded industrial capacity, in the priority
areas highlighted by the 2023 Integrated Review Refresh (IRR23).
Simultaneously, the UK defence customer continues to support Ukraine, and is
embarking on several initiatives under the new Integrated Procurement Model to
optimise acquisition. Additionally, the Prime Minister recently announced that
UK defence spending will increase to 2.5% of GDP by 2030, with an intent to
spend a cumulative extra £75bn over the next six years, giving an annual
defence budget of £87bn in 2030. Other commitments include a £10bn
investment in munitions to support industry moving to a "war footing"
production ramp-up, and "at least" 5% of the defence budget reserved for
R&D.
Against this backdrop we are seeing increased long-term demand levels for our
differentiated Countermeasures & Energetics capabilities. This is
particularly prevalent in our three leading Energetics businesses where we are
seeing unprecedented demand levels for speciality energetic materials and
energetic propulsion devices, and where Chemring is a key supplier to NATO.
Maintaining strategic advantage against adversaries in an increasingly digital
defence and security environment, will demand rapid, large-scale, data
exploitation and multi-domain integration. This is driving ever increasing
demand for Sensors & Information capabilities, especially Roke's
cutting-edge technology solutions in active-cyber, EW, artificial intelligence
("AI") and open-source intelligence.
European allies (both NATO and non-NATO members) are boosting defence
investment and increasing industrial production capacities to address the
replacement of defence capabilities provided to Ukraine, modernise their own
capabilities, and elevate stockpile and readiness levels. Chemring is
investing to respond to this demand.
Strategy
Chemring is a technology-differentiated, mid-tier company operating in niche
markets with high barriers to entry. Our strategy looks to leverage our
market-leading, technology capabilities to protect people, platforms, and
information against constantly changing threats. As part of our value
proposition, we will continue to invest to increase our capabilities, capacity
and in developing intellectual property in growth areas of defence and
national security, where we enjoy trust-driven, long-term relationships with
our customers - often acting as their sole-source provider.
The Sensors & Information sector is a major focus area for the Group. Our
portfolio is now aligned with our strategy, with our capabilities being highly
relevant to our customers' investment priorities as they address a rapidly
changing threat environment. We will continue to grow our advanced product and
service offerings, where our mission understanding, and multi-domain
integration capabilities position us well to deliver enhanced customer value.
Our Countermeasures & Energetics sector strategy is focused on operational
excellence, and we are investing to strengthen and expand our world-leading
positions. Russia's invasion of Ukraine in February 2022 brought a shift to
the international defence landscape, with customers prioritising significant
elements of their defence spend to enhance and replenish their munition and
complex weapon stockpiles. This has resulted in unparalleled demand levels for
our specialist energetic capabilities, and we have an ongoing investment
programme to modernise and create more manufacturing capacity to respond to
this demand. In Countermeasures, where we expect robust but steady demand for
our air and naval countermeasures over the next five years, even in the
absence of force deployment, we will continue to advance modernisation and
automation across our facilities. Additionally, we promote technology sharing
and enhanced manufacturing excellence throughout the Group whenever possible.
In recent years Chemring has been focused on successfully building a stronger,
higher-quality and more resilient business. The balance sheet has also been
strengthened, providing the Group with increased optionality. Our disciplined
approach to capital allocation prioritises organic and inorganic investment,
focused M&A, a growing and sustainable dividend, other returns to
shareholders and a prudent approach to leverage. Favourable market conditions
for our specialist energetic materials businesses has underpinned the Group's
strategic decision to approve a three-year investment plan to increase
capacity. In August 2023 we announced the launch of a share buyback programme
of up to £50m, with £37m returned to shareholders to date. If the share
buyback is not completed by the previously disclosed timing of July 2024, the
Board intend to extend the completion date to the announcement date of the
2024 full year results. We maintain our commitment to balance near-term
performance with longer-term growth and value creation.
The Group will continue to assess and pursue, strategy-led, bolt-on
acquisitions, with the Board having a clear and consistent set of focused
criteria for allocating our capital that any target company must satisfy.
Acquisitions represent one option we have for accelerating our growth in
expanding and high-priority defence and national security markets such as
cyber, information advantage, and US space and missiles, and we have a robust
pipeline of technology and capability targets for evaluation.
Chemring is committed to building a strong and sustainable company. Going
forward we will continue to focus on developing our people and infrastructure
to deliver further future growth. We are committed to a rigorous focus on
safety and environmental sustainability and to further enhancing our strong
track record in operational performance and execution. Our vision for the
future is to be our customers preferred supplier, operating in niche markets
with high barriers to entry and where we enjoy sole-source or market leading
positions.
Segmental review - Sensors & Information
Performance
Order intake in the period was down slightly at £96m (H1 2023: £100m, 2023:
£215m) and revenue increased by 15% to £105.7m (H1 2023: £92.1m, 2023:
£187.0m) with strong growth at Roke, up 19%, offset by a slight reduction at
our US sensors business, where revenue is expected to have a second half bias
driven by the timing of deliveries for its Joint Biological Tactical Detection
System ("JBTDS") low rate initial production ("LRIP") contract.
Underlying operating profit increased by 16% to £21.6m (H1 2023: £18.7m,
2023: £34.2m) and the underlying operating margin improved slightly to 20.4%
(H1 2023: 20.3%, 2023: 18.3%) despite the continuing investment in people,
infrastructure and product development in Roke to position it well for its
future exciting growth ambition.
Roke continues to win a number of contracts as the prime contractor and
therefore order intake and revenue contains an element of "pass-through". For
H1 2024, "pass-through" order intake was £7m (H1 2023: £20m, 2023: £27m)
and revenue was £17m (H1 2023: £17m, 2023: £32m). Excluding Roke
"pass-through" revenue, the underlying operating margin for Sensors &
Information would have been 24.4% (H1 2023: 24.9%, 2023: 22.1%).
A fundamental characteristic of the increased threat environment and of
current conflicts, notably Russia's invasion of Ukraine and Hamas' attack on
Israel, is how conventional wars are blending in the use of new technologies
and tactics, and how agility and being able to adapt at pace, are essential to
defeat both established and emerging threats. Government customers are
budgeting and investing accordingly, and in this multi-domain, integrated
environment, Roke's capabilities in active cyber defence, EW, sensors,
information processing, autonomy, and AI are seeing strong demand, and making
an important contribution to supporting vital missions.
In Roke's defence markets, the increasing importance of Cyber and
Electromagnetic Activity ("CEMA") in today's threat environment, has led to a
growing number of enquiries for Roke's suite of world-leading EW products. A
notable highlight during the period were further wins in the area of EW with
awards received from customers in Sweden and Japan. The order for ten Resolve
EW systems to Japan is Roke's first into the East-Asia region, securing a high
quality reference customer. Roke currently has requests for quotation in
excess of £200m for its defence products, and is well positioned to win
several multi-year orders.
Roke also received a £10m increase to the Project ZODIAC award received in
September 2023. ZODIAC is the backbone of the British Army's Land
Intelligence, Surveillance, Target Acquisition, and Reconnaissance ("ISTAR")
Programme which will deliver an integrated ISTAR system to transform how the
Army undertakes data-led decision-making to gain operational advantage. In
total, Roke's ZODIAC programme contract awards now stand at £50m which will
be delivered over the next two years.
A particular highlight in this period is the progress made by Roke's new
Intelligence business area in building a position in the fast growing,
embryonic, opportunity-rich Open-Source Intelligence ("OSINT") market. Roke's
unique approach to this market integrates human expertise and intelligence
tradecraft with cutting-edge technology including AI, machine learning and
advanced sensors. Roke's capabilities and technologies are combining to
create a highly differentiated intelligence offering, and while the initial
domain focus is on Geospatial Intelligence ("GEOINT") to commercial clients
with a requirement for maritime domain awareness, strong potential exists to
cross-sell this capability to other Roke customers.
2024 represents a transitional period for our US Sensors business as we focus
on our biological detection capabilities. Deliveries under the full rate
production phase of the Enhanced Maritime Biological Detection System ("EMBD")
Program of Record have continued as planned and in April 2024 we received a
fourth option quantity exercised under the sole source $99m Indefinite
Delivery / Indefinite Quantity contract valued at $15m, with deliveries
expected to be made in 2025. On the JBTDS program, having been awarded a LRIP
contract in September 2023, material procurement and production has gathered
pace, with first deliveries expected to be made early in the second half of
the year.
Opportunities and outlook
The focus for Sensors & Information continues to be on expanding the
Group's product, service and capability offerings to government and commercial
customers in the technology-driven areas of national security, AI and machine
learning, tactical EW, information security and biological detection.
In the UK, the national security and defence markets are being increasingly
shaped by a rapidly changing threat environment with AI, EW, and data
proliferation of particular focus. This is driving increased investment as
customers look to modernise their capabilities at pace.
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. With strong positions in markets
with high barriers to entry and where customers have unique profiles, our
ambition remains to organically grow Roke's revenues to greater than £250m by
2028, while maintaining strong margin performance. We will also continue to
explore bolt-on sized, strategy-led, acquisitions that can accelerate our
growth strategy for Roke.
The order book for Sensors & Information at 30 April 2024 is £158m
(H1 2023: £153m, 2023: £171m). While the Roke business remains a relatively
shorter-cycle order book business, the segment has orders of approximately
£82m for delivery in the second half of the year, representing 83% (H1 2023:
72%) coverage of expected H2 revenue. Coverage of expected 2025 revenue is
approximately 30%.
Segmental review - Countermeasures & Energetics
Performance
In Countermeasures & Energetics, order intake was £249m, up 5% (H1 2023:
£238m, 2023: £541m) with 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 specialist energetic
materials businesses, which design and manufacture high precision engineered
devices and specialist materials, have seen strong customer demand with order
intake increasing by 3% to £155m against an elevated comparative number in
the prior period (H1 2023: £150m, 2023: £358m).
We have seen growing demand for precision engineered devices for space and
missile applications, with our Chicago business receiving a significant level
of orders in the period. These included an order from the United Launch
Alliance to develop initiators and an order from Boeing in relation to the
Harpoon missile program, with the combined value of both orders totalling over
$20m. In April our Chicago business successfully completed qualification
testing for the Blue Origin Standard Initiator and is now the sole provider
for this device. This initiator will be common to all Blue Origin spacecraft
including the upcoming New Glenn launch vehicle.
Order intake for our Countermeasures business was robust at £94m. Notable
wins include the $31m contract that Chemring Australia secured for the supply
of MJU-68/B infrared countermeasures used on the F-35 Joint Strike Fighter.
Revenue for Countermeasures & Energetics was up slightly by 3% to £117.7m
(H1 2023: £114.2m, 2023: £285.6m) as growth in the specialist energetic
materials businesses offset a weaker period for countermeasures. Underlying
operating profit fell to £11.8m (H1 2023: £15.2m, 2023: £50.5m) and the
underlying operating margin decreased to 10.0% (H1 2023: 13.3%, 2023: 17.7%).
The reduction in profitability was primarily caused by the operational
challenges experienced at our Tennessee countermeasures business, where (as
previously highlighted) production was disrupted due to adverse weather
conditions and there were delays in the ramp up of its automated facility. The
underlying operating profit margin was also adversely affected by deliveries
made on a legacy contract from 2016 for the supply of countermeasures, which
is expected to complete in the second half of the financial year. Significant
progress has been made in recent weeks to overcome the operational challenges
experienced, and we expect the ramp up of the facility to accelerate in the
second half of the financial year.
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 where we see undiminishing demand for our air and naval decoy
products, even in the absence of force deployment. Our focus on seeking to
achieve appropriate margins, mindful of financial constraints from our
customers, will continue.
The Group's specialist 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 energetics has enabled our Norwegian business to work proactively with
its customer base on long-term contracting models, providing significantly
improved visibility.
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 and in 2023 we announced a three-year
investment programme through to 2026 to capitalise on this long-term demand.
As the strong market conditions continue, we have taken the decision to
increase the capital investment programme from £120m to £200m, which we
expect to increase revenue by £100m per annum and operating profit by £30m
per annum in 2028. In addition to this, in March 2024 we announced that our
Norwegian business had been awarded grant funding of £90m in support of its
capacity expansion projects, meaning that the net investment required by the
Group will now be £110m in total.
We now expect to receive about £30m of the grant funding in the second half
of the year upon submission of detailed technical plans, with subsequent
payments made on an annual based on completion of work packages.
The Countermeasures & Energetics order book at 30 April 2024 was £883m
(H1 2023: £597m, 2023: £751m) of which approximately £188m is currently
expected to be delivered in the second half of 2024, representing 99% (H1
2023: 99%) coverage of expected H2 revenue. Coverage for 2025 and 2026
respectively is approximately 90% and 65% of expected revenue.
Retirement benefit obligations
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.
The Group made an initial payment to the Scheme of £1.6m as a contribution to
the buy-in premium. Further payments of £0.4m have been made subsequent to
this during the period. Overall we expect to pay a further c£2.5m over the
next 18 months 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.
An expense of £5.0m relating to the defined benefit pension buy-in and
buy-out transaction was recognised in the period and classified as an
exceptional item. As at 30 April 2024, a remaining surplus of £0.8m is
included in the Group balance sheet in accordance with IAS 19, which
represents cash held by 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
At the Annual General Meeting on 23 February 2024 the shareholders approved a
final dividend in respect of the year ended 31 October 2023 of 4.6p per
ordinary share. This was paid on 12 April 2024 to shareholders on the register
on 22 March 2024.
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 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 2024
financial year of 2.6p (H1 2023: 2.3p) per ordinary share which will be paid
on 6 September 2024 to shareholders on the register on 16 August 2024.
Outlook - full year and longer term
The Board's full year expectations are unchanged, supported by order coverage
at 30 April 2024 of 93% of expected H2 revenue, with a heavier H2 weighting of
operating profit as previously communicated in February 2024.
The market backdrop for defence is increasingly robust. The Group's
longer-term growth prospects are strong, underpinned by robust activity
levels, our leading technological offerings, our people, high barriers to
entry, and the investments we continue to make in our strong, high-quality
business. With customers needing to re-equip and modernise their defence
capabilities providing increased visibility, and with a robust strategy, the
Group has the ambition to increase the Group's annual revenue to c.£1bn by
2030. This makes certain assumptions regarding market sizes, inclusion of some
bolt-on M&A and is at current FX rates. 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
longer-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 James Mortensen
Group Chief Executive Chief Financial Officer
4 June 2024 4 June 2024
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2024
Note Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2024 30 April 2023* 31 Oct 2023
£m £m £m
Continuing operations
Revenue 2 223.4 206.3 472.6
Operating profit 2 17.5 23.1 45.4
Finance expense (2.3) (1.0) (1.3)
Profit before tax 15.2 22.1 44.1
Tax charge on profit 5 (3.0) (3.3) (6.4)
Profit after tax for the period 12.2 18.8 37.7
Discontinued operations
Profit/(loss) after tax from discontinued operations 13 4.2 (0.1) (32.3)
Profit after tax for the period 16.4 18.7 5.4
Earnings per ordinary share
Continuing operations
Basic 6 4.4p 6.7p 13.4p
Diluted 6 4.3p 6.5p 13.1p
Continuing operations and discontinued operations
Basic 6 6.0p 6.6p 1.9p
Diluted 6 5.8p 6.5p 1.9p
* Unaudited half year to 30 April 2023 comparative information has been
re-presented due to a change in classification for discontinued operations.
See note 13 for further details.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year to 30 April 2024
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2024 30 April 2023 31 Oct 2023
£m £m £m
Profit after tax attributable to equity holders of the parent 16.4 18.7 5.4
Items that will not be reclassified subsequently to profit or loss
Remeasurement of the defined benefit pension schemes (2.1) (1.1) (4.7)
Movement on deferred tax relating to pension schemes 0.5 0.3 1.6
(1.6) (0.8) (3.1)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations (6.6) (23.1) (15.2)
Tax on exchange differences on translation of foreign operations - (1.2) (1.1)
(6.6) (24.3) (16.3)
Total comprehensive income/(loss) attributable to equity holders of the parent 8.2 (6.4) 14.0
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2024
Unaudited half year to 30 April 2024
Share Share Special Translation Retained Total
capital premium capital reserve earnings £m
£m account reserve £m £m
£m £m
At 1 November 2023 2.8 308.7 12.9 (8.8) 62.9 378.5
Profit after tax - - - - 16.4 16.4
Other comprehensive loss - - - (6.6) (2.1) (8.7)
Tax relating to components of other comprehensive loss - - - - 0.5 0.5
Total comprehensive (loss)/income - - - (6.6) 14.8 8.2
Ordinary shares issued - 0.3 - - - 0.3
Share-based payments (net of settlement) - - - - 2.9 2.9
Dividends paid - - - - (12.5) (12.5)
Purchase of own shares (0.1) - 0.1 - (26.5) (26.5)
At 30 April 2024 2.7 309.0 13.0 (15.4) 41.6 350.9
Unaudited half year to 30 April 2023
Share Share Special Translation Retained Total
capital premium capital reserve earnings £m
£m account reserve £m £m
£m £m
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)/income - - - (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 own shares - - - - (5.4) (5.4)
At 30 April 2023 2.8 307.8 12.9 (16.8) 92.9 399.6
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2024
Audited year to 31 October 2023
Share Share Special Translation Retained Total
capital premium capital reserve earnings £m
£m account reserve £m £m
£m £m
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
CONDENSED CONSOLIDATED BALANCE SHEET as at 30 April 2024
Note Unaudited Unaudited Audited
As at As at As at
30 April 2024 30 April 2023 31 Oct 2023
£m £m £m
Non-current assets
Goodwill 99.4 119.1 100.5
Development costs 17.5 32.7 17.6
Other intangible assets 8.5 11.2 9.6
Property, plant and equipment 261.0 222.3 242.2
Retirement benefit surplus 0.8 10.3 5.9
Deferred tax 6.4 35.8 36.9
393.6 431.4 412.7
Current assets
Inventories 124.2 116.2 101.7
Trade and other receivables 86.4 72.9 74.8
Cash and cash equivalents 11 4.6 6.9 6.4
Derivative financial instruments 8 0.6 0.8 0.8
215.8 196.8 183.7
Assets classified as held for sale 13 6.0 - -
Total assets 615.4 628.2 596.4
Current liabilities
Borrowings 11 (14.3) (1.0) -
Lease liabilities 11 (1.0) (1.5) (1.1)
Trade and other payables (147.1) (120.1) (124.0)
Provisions (5.4) (1.1) (5.6)
Current tax (5.3) (5.0) (8.2)
Derivative financial instruments 8 (1.1) (3.2) (3.2)
(174.2) (131.9) (142.1)
Non-current liabilities
Borrowings 11 (59.1) (25.6) (14.1)
Lease liabilities 11 (5.4) (3.7) (5.5)
Provisions (11.3) (16.1) (12.0)
Deferred tax (14.3) (51.1) (43.8)
Derivative financial instruments 8 (0.1) (0.1) (0.3)
Preference shares 11 (0.1) (0.1) (0.1)
(90.3) (96.7) (75.8)
Total liabilities (264.5) (228.6) (217.9)
Net assets 350.9 399.6 378.5
Equity
Share capital 2.7 2.8 2.8
Share premium account 309.0 307.8 308.7
Special capital reserve 13.0 12.9 12.9
Translation reserve (15.4) (16.8) (8.8)
Retained earnings 41.6 92.9 62.9
Total equity 350.9 399.6 378.5
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2024
Note Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2024 30 April 2023* 31 Oct 2023
£m £m £m
Cash flows from operating activities
Cash generated from underlying operations 10 29.4 22.4 80.0
Cash impact of non-underlying items (1.1) (1.0) (2.1)
Cash (utilised in)/generated from discontinued underlying operations (0.6) 0.5 (0.8)
10
Cash impact of discontinued non-underlying items (1.4) - (1.9)
Cash flows from operating activities 26.3 21.9 75.2
Employer contributions to defined benefit pension scheme (2.0) - -
Tax paid (5.2) (4.9) (9.3)
Net cash inflow from operating activities 19.1 17.0 65.9
Cash flows from investing activities
Purchases of intangible assets (0.9) (0.6) (1.5)
Purchases of property, plant and equipment (34.2) (11.6) (32.7)
Acquisition of subsidiary net of cash acquired - (7.2) (7.2)
Short-term funding to defined benefit pension scheme - 2.0 2.0
Net cash outflow from investing activities (35.1) (17.4) (39.4)
Cash flows from financing activities
Dividends paid 7 (12.5) (10.8) (17.3)
Purchase of own shares (29.7) (5.4) (14.0)
Net proceeds for transactions in own shares 0.3 0.1 0.6
Finance expense paid (1.7) (1.1) (0.7)
Capitalised facility fees paid (0.3) - (0.3)
Drawdown of borrowings 75.0 26.5 60.1
Repayments of borrowings (30.1) (22.1) (66.8)
Payment of lease liabilities (0.7) (0.5) (1.8)
Net cash inflow/(outflow) from financing activities 0.3 (13.3) (40.2)
Decrease in cash and cash equivalents (15.7) (13.7) (13.7)
Cash and cash equivalents at beginning of period/year 6.4 19.8 19.8
Effect of foreign exchange rate changes (0.4) (0.2) 0.3
Cash and cash equivalents at end of period/year (including bank overdraft) (9.7) 5.9 6.4
11
* Unaudited half year to 30 April 2023 comparative information has been
re-presented due to a change in classification for discontinued operations.
See note 13 for further details.
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 4 June 2024.
Full accounts for the year ended 31 October 2023, 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 2023 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 2025,
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 2023 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 2023.
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 2024 but have not materially impacted
the reported results or the financial position:
· IFRS 17 Insurance Contracts;
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2);
· Definition of Accounting Estimates (Amendments to IAS 8); and
· Deferred Tax related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
2. SEGMENTAL ANALYSIS - CONTINUING OPERATIONS
Period to 30 April 2024 (unaudited)
Sensors & Information Countermeasures & Energetics Unallocated* Group
£m £m £m £m
105.7 117.7 - 223.4
Revenue
Segment result before depreciation, amortisation and non-underlying items 24.5 19.4 (8.4) 35.5
Depreciation (2.2) (7.6) - (9.8)
Amortisation (0.7) - - (0.7)
Segmental underlying operating profit 21.6 11.8 (8.4) 25.0
Amortisation of acquired intangibles (0.4) (0.6) - (1.0)
Non-underlying items (1.7) - (4.8) (6.5)
Segmental operating profit 19.5 11.2 (13.2) 17.5
Period to 30 April 2023 (unaudited)
Sensors & Information Countermeasures & Energetics Unallocated* Group
£m £m £m £m
92.1 114.2 - 206.3
Revenue
Segment result before depreciation, amortisation and non-underlying items 20.6 22.3 (7.6) 35.3
Depreciation (1.9) (7.1) - (9.0)
Amortisation - - - -
Segmental underlying operating profit 18.7 15.2 (7.6) 26.3
Amortisation of acquired intangibles (0.7) (1.1) - (1.8)
Non-underlying items (1.8) - 0.4 (1.4)
Segmental operating profit 16.2 14.1 (7.2) 23.1
Year ended 31 October 2023 (audited)
Sensors & Information Countermeasures & Energetics Unallocated* Group
£m £m £m £m
187.0 285.6 - 472.6
Revenue
Segment result before depreciation, amortisation and non-underlying items 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
* 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.
Reconciliation from underlying to statutory performance:
Unaudited Unaudited
Half year to 30 April 2024 Half year to 30 April 2023
Underlying Non-underlying Statutory Underlying Non-underlying Statutory
performance items Total performance items Total
£m £m £m £m £m £m
Continuing operations
Revenue 223.4 - 223.4 206.3 - 206.3
Operating profit 25.0 (7.5) 17.5 26.3 (3.2) 23.1
Finance expense (2.3) - (2.3) (1.0) - (1.0)
Profit before tax 22.7 (7.5) 15.2 25.3 (3.2) 22.1
Taxation (4.3) 1.3 (3.0) (3.8) 0.5 (3.3)
Profit after tax 18.4 (6.2) 12.2 21.5 (2.7) 18.8
Discontinued operations
(Loss)/profit after tax from discontinued operations (0.5) 4.7 4.2 0.2 (0.3) (0.1)
Profit after tax 17.9 (1.5) 16.4 21.7 (3.0) 18.7
Earnings per ordinary share
Continuing operations
Basic 6.7p 4.4p 7.6p 6.7p
Diluted 6.6p 4.3p 7.4p 6.5p
Continuing operations and discontinued operations
Basic 6.5p 6.0p 7.7p 6.6p
Diluted 6.4p 5.8p 7.5p 6.5p
Breakdown of non-underlying items:
Unaudited Unaudited Audited year ended 31 October 2023
Half year to 30 April 2024 Half year to
30 April 2023
£m £m £m
Gain on the movement in the fair value of derivative financial instruments 1.1 0.4 1.4
Acquisition expenses (1.7) (1.8) (3.7)
Defined benefit pension buy-in and buy-out transaction (5.0) - -
Change in senior management positions (0.9) - -
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 (6.5) (1.4) (20.8)
Intangible amortisation arising from business combinations (1.0) (1.8) (3.0)
Impact of non-underlying items on operating profit and profit before tax (7.5) (3.2) (23.8)
Tax impact of non-underlying items 1.3 0.5 3.8
Impact of non-underlying items on continuing profit after tax (6.2) (2.7) (20.0)
Non-underlying discontinued operations after tax 4.7 (0.3) (31.4)
Impact of non-underlying items on profit after tax (1.5) (3.0) (51.4)
Underlying profit after tax 17.9 21.7 56.8
Statutory profit after tax 16.4 18.7 5.4
Derivative financial instruments
Included in non-underlying items is a £1.1m gain (H1 2023: £0.4m gain, 2023:
£1.4m gain) 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 £1.7m (H1 2023: £1.8m, 2023: £3.7m) of
acquisition expenses. This includes £1.6m (H1 2023: £1.7m, 2023: £3.4m)
relating to deferred consideration contingent on continued employment of the
former owners of Cubica and 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
£0.1m (H1 2023: £0.1m, 2023: £0.3m) 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.
Defined benefit pension buy-in and buy-out transaction
Included in non-underlying items is an expense of £5.0m (H1 2023: £nil,
2023: £nil). This comprises the settlement loss following the buy-in
transaction agreed on 28 November 2023, as well as ongoing costs incurred in
relation to the buy-in process which will eventually conclude with a buy-out
of the scheme. The buy-in and buy-out transaction is considered a
non-recurring event by nature and the expense relating to it is material in
size, therefore these costs have been excluded from the underlying measures.
Change in senior management positions
Included in non-underlying items are costs of £0.9m (H1 2023: £nil, 2023:
£nil) relating to the change of senior management positions within the Group,
including the Group Chief Financial Officer and the President of the Group's
US operations. The non-underlying costs include costs incurred during handover
periods. Costs incurred of this nature are considered exceptional given their
significance comparative to general recruitment and remuneration activities
across the Group, therefore 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 £1.0m (H1 2023: £1.8m, 2023: £3.0m). 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 2024, the tax impact of non-underlying items
comprises a £1.3m tax credit (H1 2023: £0.5m credit, 2023: £3.8m credit)
on the above non-underlying items.
Discontinued operations
Included in discontinued non-underlying items is a £4.7m profit net of tax
(H1 2023: £0.3m loss, 2023: £31.4m loss) in respect of the Explosive Hazard
Detection ("EHD") business, which includes the reversal of an impairment of
inventory following an agreement being reached to sell certain assets. See
note 13 for further details.
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 - CONTINUING OPERATIONS
Unaudited period to 30 April 2024 Unaudited period to 30 April 2023 Audited year ended 31 October 2023
£m £m £m
Underlying tax charge 4.3 3.8 10.2
Tax impact of non-underlying items (1.3) (0.5) (3.8)
Total statutory tax charge 3.0 3.3 6.4
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 18.9% (H1 2023: 15.0%, 2023: 15.0%). The effective tax rate is
higher than the 2023 effective tax rate due to the full year effect of the
increase in the UK corporation tax rate and an increased weighting of UK
profits.
6. EARNINGS PER SHARE
Earnings per share is based on the average number of shares in issue,
excluding own shares held, of 273,990,325 (H1 2023: 281,708,913, 2023:
281,655,927). Diluted earnings per share has been calculated using a diluted
average number of shares in issue, excluding own shares held, of 280,604,559
(H1 2023: 288,618,553, 2023: 288,780,153).
The earnings used in the calculations of the various measures of earnings per
share are as follows:
Unaudited Unaudited
Half year to Half year to
30 April 2024 30 April 2023
£m Basic EPS (pence) Diluted EPS (pence) £m Basic EPS (pence) Diluted EPS (pence)
Underlying profit after tax 18.4 6.7 6.6 21.5 7.6 7.4
Non-underlying items (6.2) (2.7)
Profit from continuing operations 12.2 4.4 4.3 18.8 6.7 6.5
Profit/(loss) from discontinued operations 4.2 (0.1)
Total profit after tax 16.4 6.0 5.8 18.7 6.6 6.5
Audited
year to
31 October 2023
£m Basic EPS (pence) Diluted EPS (pence)
Underlying profit after tax 57.7 20.5 20.0
Non-underlying items (20.0)
Profit from continuing operations 37.7 13.4 13.1
Loss from discontinued operations (32.3) (11.5) (11.2)
Total profit after tax 5.4 1.9 1.9
7. DIVIDENDS
At the Annual General Meeting on 23 February 2024 the shareholders approved a
final dividend in respect of the year ended 31 October 2023 of 4.6p per
ordinary share (2023: 3.8p). This was paid on 12 April 2024 to shareholders on
the register on 22 March 2024 and totalled £12.5m (H1 2023: £10.8m).
The Board also declared an interim dividend in respect of 2024 of 2.6p per
ordinary share (2023: 2.3p) which will be paid on 6 September 2024 to
shareholders on the register on 16 August 2024. The estimated cash value of
this dividend is £7.3m (2023: £6.5m).
8. FINANCIAL INSTRUMENTS
As at 30 April 2024, 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 2024, the total fair value
of forward foreign exchange contracts recognised in the condensed consolidated
balance sheet were an asset of £0.6m (H1 2023: £0.8m, 2023: £0.8m), a
current liability of £1.1m (H1 2023: £3.2m, 2023: £3.2m) and a non-current
liability of £0.1m (H1 2023: £0.1m, 2023: £0.3m).
9. RELATED PARTY TRANSACTIONS
Past transactions with related parties are shown on page 159 of the 2023
Annual Report. There were no significant related party transactions during the
current period requiring disclosure.
10. CASH GENERATED FROM OPERATING ACTIVITIES
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2024 30 April 2023 31 Oct 2023
£m £m £m
Operating profit from continuing operations 17.5 23.0 45.4
Amortisation of development costs 0.7 - 0.7
Amortisation of intangible assets arising from business combinations 1.0 1.8 3.0
Impairment of development costs - - 15.6
Depreciation of property, plant and equipment 9.8 9.1 18.6
Defined benefit pension buy-in and buy-out transaction expenses 5.0 - -
Other non-underlying items 1.5 1.4 5.2
Share-based payment expense 1.9 1.5 4.4
Operating cash flows before movements in working capital 37.4 36.8 92.9
Increase in inventories (24.6) (23.9) (18.2)
Increase in trade and other receivables (12.5) (14.6) (18.7)
Increase in trade and other payables 29.1 24.1 23.7
Increase in provisions - - 0.3
Operating cash flow from continuing underlying operations 29.4 22.4 80.0
Discontinued operations
Cash (utilised in)/generated from discontinued underlying operations (0.6) 0.5 (0.8)
Cash impact of discontinued non-underlying items (1.4) - (1.9)
Net cash (outflow)/inflow from discontinued operations (2.0) 0.5 (2.7)
11. ANALYSIS OF NET DEBT
As at Cash Non-cash changes Exchange rate effects As at 30 April 2024
1 Nov 2023 flows
£m £m £m £m £m
Cash and cash equivalents(*) 6.4 (15.7) - (0.4) (9.7)
Debt due after one year (14.1) (44.6) (0.4) - (59.1)
Lease liabilities (6.6) 0.7 (0.5) - (6.4)
Preference shares (0.1) - - - (0.1)
(14.4) (59.6) (0.9) (0.4) (75.3)
*Cash and cash equivalents includes the bank overdraft classified within
current borrowings on the balance sheet.
The Group's principal debt facilities comprise a £150m revolving credit
facility up to December 2025 of which £130m has been extended to December
2026, as well as a US$20m overdraft. The revolving credit facility was
established in July 2021 with a syndicate of six banks and there is one option
to extend for one year to December 2027. The Group had £69.3m (H1 2023:
£130.2m, 2023: £142.9m) 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 0.88 times (covenant limit of 3
times) and the half year interest cover ratio was 27.73 times (covenant floor
of 4 times).
12. EXCHANGE RATES
The following exchange rates applied during the period:
Average rate Closing rate Average rate Closing rate Average rate Closing rate
H1 2024 H1 2024 H1 2023 H1 2023 2023 2023
US dollar 1.26 1.25 1.24 1.26 1.24 1.21
AU dollar 1.92 1.93 1.85 1.90 1.91 1.92
NOR krone 13.59 13.87 12.71 13.44 13.10 13.56
The translation of foreign currency items in the financial statements are
dependent on the prevailing foreign exchange rates. For the period ended 30
April 2024, a 10 cent increase in the US dollar exchange rate would have
decreased reported underlying operating profit for the first half of 2024 by
approximately £0.3m.
13. DISCONTINUED OPERATIONS AND HELD FOR SALE
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 was insufficient DoD funding to make it economically viable for
Chemring to continue to operate the business. The decision was therefore taken
that the EHD business would not continue to operate and it was treated as a
discontinued operation in 2023. Prior to this it was presented as part of the
Sensors & Information segment.
Unaudited Unaudited Audited
Half year to Half year to Year to
30 April 2024 30 April 2023 31 Oct 2023
£m £m £m
Revenue 1.0 5.8 9.3
Underlying operating (loss)/profit from discontinued operations (0.6) 0.3 (1.2)
Tax credit/(charge) on underlying operating (loss)/profit from discontinued 0.1 (0.1) 0.3
operations
(Loss)/profit after tax from underlying discontinued operations (0.5) 0.2 (0.9)
(Loss)/profit after tax is analysed as:
Before non-underlying items (0.5) 0.2 (0.9)
Non-underlying items 5.4 (0.4) (33.6)
Tax on non-underlying items (0.7) 0.1 2.2
4.7 (0.3) (31.4)
Profit/(loss) for the year from discontinued operations 4.2 (0.1) (32.3)
In H1 2024 an agreement was reached to sell certain assets related to the EHD
business. The sale transaction is expected to complete subject to regulatory
approval.
A held for sale asset of £6.0m in relation to the EHD business has been
recognised as at 30 April 2024, representing the fair value of the assets less
costs to sell. The non-underlying profit of £5.4m in the period comprises the
reversal of an impairment previously recognised against inventory of £6.0m
(see details relating to the impairment charge in 2023 below), net of site
rationalisation costs of £0.5m and professional fees related to the sale of
assets of £0.1m.
In H1 2023 the non-underlying items include amortisation of acquired
intangibles of £0.4m which relates to the EHD business. 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.
In 2023 the non-underlying items include a non-cash impairment of £31.2m (of
which £20.5m relates to the goodwill associated with the acquisition of the
EHD business in 2009 and £10.7m relates to other assets), site
rationalisation costs of £1.7m and the amortisation of acquired intangibles
of £0.7m. 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.
The cash flows from discontinued operations are presented in note 10.
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 Adjustment Re-presented Reported Adjustment Re-presented
H1 2023 £m H1 2023 H1 2023 £m H1 2023
£m £m £m £m
CONSOLIDATED INCOME STATEMENT
Continuing operations
Revenue 212.1 (5.8) 206.3 - - -
Operating profit/(loss) 26.6 (0.3) 26.3 (3.6) 0.4 (3.2)
Finance expense (1.0) - (1.0) - - -
Profit/(loss) before tax 25.6 (0.3) 25.3 (3.6) 0.4 (3.2)
Taxation (3.9) 0.1 (3.8) 0.6 (0.1) 0.5
Profit/(loss) after tax 21.7 (0.2) 21.5 (3.0) 0.3 (2.7)
Discontinued operations
Profit after tax - 0.2 0.2 - 0.3 0.3
Total profit/(loss) after tax 21.7 - 21.7 (3.0) - (3.0)
CONSOLIDATED CASH FLOW STATEMENT
Continuing operations
Cash flows from operating activities 22.9 (0.5) 22.4 (1.0) - (1.0)
Discontinued operations
Cash flows from operating activities - 0.5 0.5 - - -
Total cash flows from operating activities 22.9 - 22.9 (1.0) - (1.0)
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 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, 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.
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 2023 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 71 to 76 of the 2023 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; and
· 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 (http://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 2024 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 2024 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
4 June 2024
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