07:00 Thu 03 Jun 2021
Chemring Group PLC - Interim Results
CHEMRING GROUP PLC
("Chemring" or "the Group" or "the Company")
INTERIM RESULTS FOR THE SIX MONTHS TO
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As reported |
At H1 2020 exchange rates |
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H1 2021 |
Change |
H1 2021 |
Change |
H1 2020 |
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Revenue (£m) |
198.5 |
+4% |
206.3 |
+8% |
191.0 |
Underlying EBITDA*(£m) |
37.6 |
+7% |
39.5 |
+12% |
35.2 |
Underlying operating profit* (£m) |
28.1 |
+10% |
29.6 |
+16% |
25.6 |
Underlying profit before tax* (£m) |
27.2 |
+12% |
28.7 |
+19% |
24.2 |
Underlying basic earnings per share* (pence) |
8.5 |
+20% |
9.0 |
+27% |
7.1 |
Statutory operating profit (£m) |
25.2 |
+24% |
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20.4 |
Interim dividend per share (pence) |
1.6 |
+23% |
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1.3 |
Net debt at 30 April (£m) |
38.7 |
-36% |
42.3 |
-30% |
60.6 |
Highlights
· H1 performance was in line with our expectations reflecting continued strong performance in both segments, despite FX translation headwind caused by the weakening US dollar.
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· Investment in the Group's manufacturing infrastructure continues to be a key enabler to deliver improved safety performance and operational excellence. Total Recordable Injury Frequency Rate is at 0.66 versus 1.13 for the same period last year.
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· Double digit growth in orders, revenue and operating profit for Roke as the market continues to be buoyant, underpinned by
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· Acquisition of Cubica Group (see separate announcement published today).
· Continued progress in our US Sensors Programs of Record. Further orders received in the period for the next phase of HMDS delivery, valued at
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· Secured new long-term contracts in Countermeasures & Energetics, including Chemring Countermeasures USA receiving a five-year IDIQ contract for the supply of infra-red decoy flares and Chemring Energetics UK securing a 15 year long-term partnering agreement with Martin Baker Aircraft Company.
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· Continued reduction in net debt with strong operational cash generation partially offset by scheduled capital expenditure. Net debt to underlying EBITDA of 0.5 times.
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· New policy to target a medium-term dividend cover of c.2.5 times underlying EPS. Interim dividend increased by 23% to 1.6p.
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· Board's full year expectations are unchanged (at current FX rates). Approximately 92% of expected H2 revenue is in the order book as at |
"Chemring's positive first half performance again demonstrates the progress that we continue to make in building a higher quality technology-based Group. With strong order cover for the full year the Group remains on track to deliver year on year growth, and the Board's expectations for the full year remain unchanged.
Whilst our modernisation and operational excellence programmes will continue, our focus is now shifting towards the growth of our Sensors & Information segment, where our market leading positions and investment in high technology niches positions us well in this area of growing customer requirement. We are investing in our organic capabilities, both in the development of our technology and people. In addition we now have the financial flexibility to pursue both organic and inorganic growth opportunities.
The acquisition of Cubica Group is a small but important first step in driving further scale to our growing Roke business, and is further evidence of Chemring delivering against its strategy.
Whilst there may be some macro-economic uncertainty surrounding the level and timing of defence spending as a result of the Covid-19 pandemic, our multiple market leading positions and investment in high technology niches, provide attractive growth opportunities. Chemring's long-term prospects remain strong."
Notes:
* All profit and earnings per share figures in this news release relate to continuing underlying business performance (as defined below) unless otherwise stated.
The principal Alternative Performance Measures ("APMs") presented are the underlying measures of earnings which exclude discontinued operations, exceptional items, gain or loss on the movement on the fair value of derivative financial instruments, and the amortisation of acquired intangibles. The Directors believe that these APMs improve the comparability of information between reporting periods as well as reflect the key performance indicators used within the business to measure performance. The term underlying is not defined under IFRS and may not be comparable with similarly titled measures used by other companies.
EBITDA is defined as operating profit before interest, tax, depreciation and amortisation. Reference to constant currency relates to the re-translation of H1 2021 financial information at the H1 2020 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) |
37.6 |
0.8 |
38.4 |
Operating profit (£m) |
28.1 |
(2.9) |
25.2 |
Profit before taxation (£m) |
27.2 |
(2.9) |
24.3 |
Tax charge (£m) |
(3.3) |
0.4 |
(2.9) |
Profit after tax (£m) |
23.9 |
(2.5) |
21.4 |
Basic earnings per share (pence) |
8.5 |
(0.9) |
7.6 |
Diluted earnings per share (pence) |
8.3 |
(0.9) |
7.4 |
Segments - continuing operations: |
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Sensors & Information EBITDA (£m) |
16.6 |
- |
16.6 |
Sensors & Information operating profit (£m) |
15.3 |
(2.6) |
12.7 |
Countermeasures & Energetics EBITDA (£m) |
27.5 |
- |
27.5 |
Countermeasures & Energetics operating profit (£m) |
19.3 |
(1.1) |
18.2 |
The adjustments to continuing operations comprise:
· |
amortisation of acquired intangibles of |
· |
gain on the movement in the fair value of derivative financial instruments of |
· |
tax impact of adjustments of |
Further details are provided in note 3.
For further information:
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Group Director of Corporate Affairs, Chemring Group PLC |
+44 (0) 1794 463401 |
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MHP Communications |
+44 (0) 20 3128 8170 |
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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 |
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Employing approximately 2,300 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 |
Presentation
A video presentation and accompanying slides will be available at the Chemring Group results centre www.chemring.co.uk/investors/results-centre at 07.00 (
Analyst call
An analyst call will take place at 08.30 (
Photography
Original high resolution photography is available to the media by contacting
INTERIM MANAGEMENT REPORT
Group overview
The Group has recorded a good first half performance. Revenue was up 4% to
The US dollar has weakened in the period with the average exchange rate to GBP increasing from 1.28 to 1.39, resulting in significant headwind. In the first half, 54% of the Group's revenue was US dollar denominated (H1 2020: 48%, 2020: 54%), the increase in weighting being attributable to the ramp up of the supply of countermeasures for the F-35 Lightning II ("F-35") programme. On a constant currency basis the Group's revenue was up 8% to
|
At constant currency |
As reported |
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|
H1 2021 |
Change |
H1 2021 |
Change |
H1 2020 |
|
£m |
|
£m |
|
£m |
Group |
|
|
|
|
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Revenue |
206.3 |
+8% |
198.5 |
+4% |
191.0 |
Underlying EBITDA |
39.5 |
+12% |
37.6 |
+7% |
35.2 |
Underlying operating profit |
29.6 |
+16% |
28.1 |
+10% |
25.6 |
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Sensors & Information |
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Revenue |
77.1 |
+15% |
74.4 |
+11% |
67.3 |
Underlying EBITDA |
17.3 |
+15% |
16.6 |
+10% |
15.1 |
Underlying operating profit |
15.8 |
+19% |
15.3 |
+15% |
13.3 |
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Countermeasures & Energetics |
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Revenue |
129.2 |
+4% |
124.1 |
-% |
123.7 |
Underlying EBITDA |
28.9 |
+14% |
27.5 |
+8% |
25.4 |
Underlying operating profit |
20.5 |
+16% |
19.3 |
+10% |
17.6 |
In the Sensors & Information segment, Roke has again recorded double digit growth in orders, revenue and operating profit, with the market continuing to be buoyant. In addition, there has been continued progress on the US Sensors Programs of Record with further delivery orders received for the next phase of the Husky Mounted Detection System ("HMDS") Indefinite Delivery / Indefinite Quantity ("IDIQ") contract, valued at
In Countermeasures & Energetics, good progress was made on securing new long-term contracts, including Chemring Countermeasures USA receiving a five-year IDIQ contract for the supply of infra-red decoy flares and Chemring Energetics UK securing a 15 year long-term partnering agreement with Martin Baker Aircraft Company. The capital investment programmes are progressing as planned.
Net debt was
The Group's order book at
This leaves
Markets
With negligible exposure to commercial aerospace markets, Chemring is not experiencing significant adverse impacts from Covid-19 ("CV-19"). Global defence and national security spending is projected to be robust given continued geopolitical tensions and customers investing to increase their resilience against a broad spectrum of conventional and sub-threshold ("
The US remains the largest defence and security market in the world, and continues to be the biggest market opportunity for the Sensors & Information segment. The
Our strategy for Energetics remains to focus on the high value differentiated areas of the market where market demand is most robust. Our
In the
The Group's capabilities are well aligned to the
The increased investment for developing
For the Countermeasures & Energetics segment the documents also contain a commitment for the
Environmental, Social and Governance
At Chemring we acknowledge our responsibility to contribute to a sustainable future. We have a strong and recognised obligation to ensure the responsible operation of our business and are fully committed to being a socially and environmentally responsible business.
During the first half of FY21 we have built on the progress made during FY20 as we manage our sustainability agenda, and in particular our environmental, social and governance ("ESG") related risks.
A core activity has been to continue the process of building and validating data in order to set appropriate near and medium-term targets. This has been coupled with an assessment to identify significant topics for our employees, customers, suppliers and investors, and to identify those areas and activities where our actions can have greatest impact. Key focus areas include health and safety, diversity and inclusion, reducing climate change, and employee wellbeing. Our goal is to be able to announce these targets in our FY21 annual report and accounts, so that as we enter FY22 our strategy and intent is clearly understood.
Health, safety and environment
Safety is one of the core values within Chemring. A key part of our Health, Safety & Environmental ("HSE") strategy is the collation and analysis of data at every level to focus on the underlying causes of incidents. This will facilitate appropriate decision making at all levels of our organisation.
Through the use of enhanced risk assessment techniques, supported by the roll out of a common asset integrity programme, we will focus on the control of residual risks within our high hazard processes.
In addition, we are extending our current data platform to better assess the environmental impact of our operations and the targets we need to set in support of our wider ESG commitment. Whilst working towards creating a more calculative culture we are also keen to ensure that we understand and learn more from any incident. To date good progress has been made on our journey to become a high reliability organisation.
Health - 2021 has seen a continued focus on CV-19 with the Crisis Management Team meeting regularly to monitor the situation. To ensure we adhere to the required in-country standards, Chemring has remained agile in its response through the implementation of its CV-19 playbook. Throughout the pandemic we have had over 1,700 colleagues attending our sites daily and working under social distancing and CV-19 protocols to protect them. Chemring continues to work to Government guidelines.
Safety - The successful implementation of our HSE strategy continues, as does our focus of achieving zero harm. Our safety performance in terms of recordable injury rates (Total Recordable Injury Frequency Rate) at 0.66 versus 1.13 shows a 42% decrease on the same period last year. The nature of most injuries were either slips, trips and falls, or muscular skeletal type of events.
Cultural Change - Safety and our goal of zero harm remains one of our core values which will be achieved through establishing and embedding a culture of high reliability. So far this year we have focused on the steps required to ensure we become a more learning organisation through shared and embedded learning associated with the control and interaction of people, plant and process.
Financial performance and position
Group financial performance
Against a strong comparator period in which our Australian business received a
Revenue for the period was up 4% to
The underlying operating profit of
Foreign exchange translation has provided a headwind to operating profit versus the same period last year. While exchange rates have been volatile in the period, there has been a weakening of the US dollar against Sterling compared to the equivalent period in 2020 with the average rate moving from
Total finance expense was lower at
Underlying profit before tax was
Statutory operating profit was
Segmental review - Sensors & Information
Performance
Order intake in the period grew by 15% to
Revenue for Sensors & Information increased by 11% to
In the
On a constant currency basis order intake would have risen 21% to
Key developments in the period on the major US Programs of Record are summarised below.
The US DoD's Explosive Hazard Detection HMDS program, which encompasses concurrent development, trialling, and manufacturing, continues to progress as expected. Under the previously awarded IDIQ sole source contract vehicles, further delivery orders of
We expect this program to run for the next decade providing a recurring level of business as the US Army moves to its objective of growing and upgrading its HMDS fleet. The new fleet will comprise both refurbished and new HMDS and this activity will run alongside technology upgrade programs.
The Joint Biological Tactical Detection System ("JBTDS") program is progressing as planned through the EMD phase and we now expect a customer procurement decision in FY22.
The second biological program is the Enhanced Maritime Biological Detection System ("EMBD"), where the customer is the US Navy. In
The Aerosol and Vapor Chemical Agent Detector program ("AVCAD") is progressing through the EMD phase as expected. The EMD and LRIP phases are expected to be worth approximately
Opportunities and outlook
The focus for Sensors & Information continues to be on expanding the Group's product, service and capability offerings in the areas of National Security, artificial intelligence and machine learning, tactical electronic warfare and information-security, and securing positions on the US DoD Programs of Record.
In the
Roke continues to focus its efforts on growing across all its business areas in the
We continue to focus on how we monetise our know-how and intellectual property in the commercial market with initial successes in the transport and medical markets, although the impact of CV-19 continues to put commercial customers' budgets under pressure in some areas, which may result in some short-term challenges in this small but growing niche.
In the US, HMDS program deliveries are on schedule with good medium-term visibility and the focus continues to be on ensuring that the
The order book for Sensors & Information at
Acquisition of Cubica Group
Separately Chemring has today announced the acquisition of Cubica Technology Limited ("Cubica") and Q6 Holdings Limited ("Q6") (collectively the "Cubica Group") (the "Acquisition"). The consideration will be satisfied by a payment in cash on completion, funded from Chemring's existing bank facilities, and a deferred consideration payable in Chemring 1p ordinary shares in two tranches on the second and third anniversary of completion. The Acquisition creates further opportunities for Chemring to enhance and further accelerate growth in its Roke business.
Cubica, based in Woking,
Q6 is the majority shareholder of Vigil AI Limited ("Vigil AI"), which has technology providing state-of-the-art solutions to enable online platforms to detect imagery relating to child sexual exploitation globally.
Since being founded in 2013, Cubica and its employees have developed world-first technologies including its support to building the award-winning Vigil AI technology and its team members have received customer and industry accolades for their research and data science work. They are recognised by the
The Acquisition creates further opportunities for Chemring to enhance and further accelerate growth in its Roke business. Roke's customers require an exponential increase in capability to achieve digital advantage against complex threats. Cubica's leading edge capability in Machine Augmented Intelligence and Autonomy complements Roke's existing capabilities in cyber security, intelligence and electronic warfare, offering customers a force multiplier for their missions. Roke plans to invest c£1m in Cubica and Vigil AI to support accelerated growth. This investment will be focused on research and development, infrastructure and security.
Based on unaudited accounts, in the twelve months to
Segmental review - Countermeasures & Energetics
Performance
Order intake in the period was lower at
Revenue increased slightly to
The investment in the expansion and automation of our
Our niche energetics devices businesses enjoyed another strong period driven by favourable market conditions and improving operational execution. The specialised and niche nature of our products was demonstrated in February when the Mars Perseverance Rover landed with 233 Chemring devices on board. These were designed, developed and manufactured at our
Opportunities and outlook
The segment focus remains on maintaining and growing the Group's market leading position, in particular on key platforms such as the F-35 as it begins to enter service in increasing numbers, and in the important Special Material Decoy market.
The Group's niche propellant and devices businesses in
We will continue the process of modernisation and automation across our sites, and in improving our competitiveness through investment in lean manufacturing capabilities. We will invest in new product development to ensure that our product portfolio remains highly relevant to our customers, and will continue the process of operational alignment to share technology and manufacturing excellence across the Group.
Countermeasures & Energetics' order book at
Net debt and cash flow
Net debt at
Underlying operating activities generated cash of
Working capital
Working capital was
Debt facilities
The Group has a
Retirement benefit obligations
The surplus on the Group's defined benefit pension scheme was
The surplus relates to the Chemring Group Staff Pension Scheme (the "Scheme"), a
The
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 matters, as previously disclosed in last year's annual report, remained open at period end:
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The Serious Fraud Office (the "SFO") investigation |
· |
The incident that occurred at the Group's Countermeasures site in |
Full details of these are included in note 13.
Dividends
At the Annual General Meeting on
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 now it believes it is appropriate for the Group to target a medium-term dividend cover of c.2.5 times underlying EPS, subject inter alia to maintaining a strong financial position. Therefore, the Board has declared an interim dividend in respect of the 2021 financial year of 1.6p per ordinary share which will be paid on
Medium-term financial objectives
The Group has previously (
· |
Revenue |
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In Sensors & Information mid-single digit % growth, with the potential for step changes as the US Programs of Record commence full rate production |
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In Countermeasures & Energetics low-single digit % growth driven by the US market, including F-35, potential for step changes in 2022 and 2023 as |
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Operating margins - targeting mid to high teen return on sales % at a segmental level |
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Capital expenditure - |
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In |
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Short term blended tax rate percentage of mid to high teens, medium-term rate in the low 20's. This excludes potential changes in the US Federal tax rate which may be introduced by the Biden administration |
Outlook
With 92% of the expected H2 revenue in the order book as at 30 April 2021, the Board's full year expectations are unchanged (based on the current foreign exchange rates).
Whilst there may be some macro-economic uncertainty surrounding the level and timing of defence spending as a result of the CV-19 pandemic, our multiple market leading positions and investment in high technology niches provide attractive long-term growth opportunities.
Chemring is well placed, with a robust strategy, market leading positions across different geographies and segments, and with products and services that are critical to our government and blue-chip customers. This, together with the Group's strong balance sheet, gives the Board confidence that despite any near-term uncertainty, Chemring's long-term prospects remain strong.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The directors are responsible for the maintenance and integrity of the Company website.
Legislation in the
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; |
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b) |
the Interim Management Report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and details of principal risks and uncertainties for the remaining six months of the year); and |
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c) |
the Interim Management Report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein). |
By order of the Board
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Group Chief Executive |
Group Finance Director |
3 June 2021 |
3 June 2021 |
CONDENSED CONSOLIDATED INCOME STATEMENT
for the half year to 30 April 2021
|
|
Unaudited Half year to 30 April 2021 |
Unaudited Half year to 30 April 2020 |
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Note |
Underlying performance |
Non-underlying items* |
Total |
Underlying performance |
Non-underlying items* |
Total |
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£m |
£m |
£m |
£m |
£m |
£m |
Continuing operations |
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Revenue |
2 |
198.5 |
- |
198.5 |
191.0 |
- |
191.0 |
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|
|
|
|
|
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Operating profit |
2 |
28.1 |
(2.9) |
25.2 |
25.6 |
(5.2) |
20.4 |
Finance expense |
|
(0.9) |
- |
(0.9) |
(1.4) |
- |
(1.4) |
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Profit before tax |
|
27.2 |
(2.9) |
24.3 |
24.2 |
(5.2) |
19.0 |
Tax charge on profit |
5 |
(3.3) |
0.4 |
(2.9) |
(4.3) |
1.6 |
(2.7) |
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|
|
|
|
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Profit after tax |
|
23.9 |
(2.5) |
21.4 |
19.9 |
(3.6) |
16.3 |
|
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|
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Discontinued operations |
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Loss after tax |
|
- |
- |
- |
(0.1) |
(0.1) |
(0.2) |
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Profit after tax for the period |
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23.9 |
(2.5) |
21.4 |
19.8 |
(3.7) |
16.1 |
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Unaudited Half year to 30 April 2021 |
Unaudited Half year to 30 April 2020 |
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Underlying performance |
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Total |
Underlying performance |
|
Total |
Earnings per ordinary share |
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Continuing operations |
|
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Basic |
6 |
8.5p |
|
7.6p |
7.1p |
|
5.8p |
Diluted |
6 |
8.3p |
|
7.4p |
6.9p |
|
5.7p |
|
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Continuing operations and discontinued operations |
|
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Basic |
6 |
8.5p |
|
7.6p |
7.0p |
|
5.7p |
Diluted |
6 |
8.3p |
|
7.4p |
6.9p |
|
5.6p |
* Further information about non-underlying items is set out in note 3.
CONDENSED CONSOLIDATED INCOME STATEMENT (continued)
for the half year to 30 April 2021
|
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Audited Year to 31 Oct 2020 |
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Note |
Underlying performance £m |
Non-underlying items* £m |
Total £m |
Continuing operations |
|
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Revenue |
2 |
402.5 |
- |
402.5 |
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Operating profit |
2 |
54.7 |
(8.4) |
46.3 |
Finance expense |
|
(3.0) |
- |
(3.0) |
|
|
|
|
|
Profit before tax |
|
51.7 |
(8.4) |
43.3 |
Tax charge on profit |
5 |
(9.1) |
0.5 |
(8.6) |
Profit after tax |
|
42.6 |
(7.9) |
34.7 |
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Discontinued operations |
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(Loss)/profit after tax |
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(0.1) |
0.1 |
- |
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Profit after tax for the year |
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42.5 |
(7.8) |
34.7 |
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Audited Year to 31 Oct 2020 |
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Underlying performance
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Total
|
Earnings per ordinary share |
|
|
|
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Continuing operations |
|
|
|
|
Basic |
6 |
15.1p |
|
12.3p |
Diluted |
6 |
14.8p |
|
12.0p |
|
|
|
|
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Continuing operations and discontinued operations |
|
|
|
|
Basic |
6 |
15.1p |
|
12.3p |
Diluted |
6 |
14.7p |
|
12.0p |
* Further information about non-underlying items is set out in note 3.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year to 30 April 2021
|
Unaudited Half year to 30 April 2021 £m |
Unaudited Half year to 30 April 2020 £m |
Audited Year to 31 Oct 2020 £m |
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|
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Profit after tax attributable to equity holders of the parent |
21.4 |
16.1 |
34.7 |
Items that will not be reclassified subsequently to profit or loss |
|
|
|
Actuarial gains/(losses) on defined benefit pension schemes |
4.3 |
(4.8) |
(1.9) |
Movement on deferred tax relating to pension schemes |
(1.5) |
1.7 |
0.7 |
|
|
|
|
|
2.8 |
(3.1) |
(1.2) |
Items that may be reclassified subsequently to profit or loss |
|
|
|
Exchange differences on translation of foreign operations |
(9.8) |
2.7 |
(0.2) |
Exchange difference reclassified to income statement on disposal of foreign operation |
- |
- |
(1.4) |
Tax on exchange differences on translation of foreign operations |
(0.1) |
(0.6) |
0.5 |
|
|
|
|
|
(9.9) |
2.1 |
(1.1) |
|
|
|
|
Total comprehensive income attributable to equity holders of the parent |
14.3 |
15.1 |
32.4 |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year to 30 April 2021
Unaudited half year to 30 April 2021
|
Share capital £m |
Share premium account £m |
Special capital reserve £m |
Revaluation reserve £m |
Translation reserve £m |
Retained earnings £m |
Own shares £m |
Total £m |
|
|
|
|
|
|
|
|
|
At 1 November 2020 |
2.8 |
306.7 |
12.9 |
1.0 |
(18.9) |
28.0 |
(2.9) |
329.6 |
Profit after tax |
- |
- |
- |
- |
- |
21.4 |
- |
21.4 |
Other comprehensive (loss)/income |
- |
- |
- |
- |
(9.8) |
4.3 |
- |
(5.5) |
Tax relating to components of other comprehensive (loss)/income |
- |
- |
- |
- |
(0.1) |
(1.5) |
- |
(1.6) |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
- |
- |
- |
- |
(9.9) |
24.2 |
- |
14.3 |
Ordinary shares issued |
0.1 |
- |
- |
- |
- |
- |
- |
0.1 |
Share-based payments (net of settlement) |
- |
- |
- |
- |
- |
1.6 |
- |
1.6 |
Dividends paid |
- |
- |
- |
- |
- |
(7.4) |
- |
(7.4) |
Purchase of shares by employee share ownership plan trust |
- |
- |
- |
- |
- |
(1.5) |
- |
(1.5) |
Transactions in own shares |
- |
- |
- |
- |
- |
(2.9) |
2.9 |
- |
|
|
|
|
|
|
|
|
|
At 30 April 2021 |
2.9 |
306.7 |
12.9 |
1.0 |
(28.8) |
42.0 |
- |
336.7 |
Unaudited half year to 30 April 2020
|
Share capital £m |
Share premium account £m |
Special capital reserve £m |
Revaluation reserve £m |
Translation reserve £m |
Retained earnings £m |
Own shares £m |
Total £m |
|
|
|
|
|
|
|
|
|
At 1 November 2019 |
2.8 |
306.2 |
12.9 |
1.0 |
(17.8) |
8.5 |
(7.8) |
305.8 |
Profit after tax |
- |
- |
- |
- |
- |
16.1 |
- |
16.1 |
Other comprehensive income/(loss) |
- |
- |
- |
- |
2.7 |
(4.8) |
- |
(2.1) |
Tax relating to components of other comprehensive income |
- |
- |
- |
- |
(0.6) |
1.7 |
- |
1.1 |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
- |
- |
- |
- |
2.1 |
13.0 |
- |
15.1 |
Share-based payments (net of settlement) |
- |
- |
- |
- |
- |
1.8 |
- |
1.8 |
Dividends paid |
- |
- |
- |
- |
- |
(6.8) |
- |
(6.8) |
Transactions in own shares |
- |
- |
- |
- |
- |
(6.1) |
4.9 |
(1.2) |
|
|
|
|
|
|
|
|
|
At 30 April 2020 |
2.8 |
306.2 |
12.9 |
1.0 |
(15.7) |
10.4 |
(2.9) |
314.7 |
Audited year to 31 October 2020
|
Share capital £m |
Share premium account £m |
Special capital reserve £m |
Revaluation reserve £m |
Translation reserve £m |
Retained earnings £m |
Own shares £m |
Total £m |
|
|
|
|
|
|
|
|
|
At 1 November 2019 |
2.8 |
306.2 |
12.9 |
1.0 |
(17.8) |
8.5 |
(7.8) |
305.8 |
Profit after tax |
- |
- |
- |
- |
- |
34.7 |
- |
34.7 |
Other comprehensive loss |
- |
- |
- |
- |
(1.6) |
(1.9) |
- |
(3.5) |
Tax relating to components of other comprehensive income |
- |
- |
- |
- |
0.5 |
0.7 |
- |
1.2 |
|
|
|
|
|
|
|
|
|
Total comprehensive income |
- |
- |
- |
- |
(1.1) |
33.5 |
- |
32.4 |
Ordinary shares issued |
- |
0.5 |
- |
- |
- |
- |
- |
0.5 |
Share-based payments (net of settlement) |
- |
- |
- |
- |
- |
3.6 |
- |
3.6 |
Dividend paid |
- |
- |
- |
- |
- |
(10.4) |
- |
(10.4) |
Purchase of shares by employee share ownership plan trust |
- |
- |
- |
- |
- |
(2.3) |
- |
(2.3) |
Transactions in own shares |
- |
- |
- |
- |
- |
(4.9) |
4.9 |
- |
|
|
|
|
|
|
|
|
|
At 31 October 2020 |
2.8 |
306.7 |
12.9 |
1.0 |
(18.9) |
28.0 |
(2.9) |
329.6 |
CONDENSED CONSOLIDATED BALANCE SHEET
as at 30 April 2021
|
Note |
Unaudited As at 30 April 2021 |
Unaudited As at 30 April 2020 |
Audited As at 31 Oct 2020 |
|
|
£m |
£m |
£m |
Non-current assets |
|
|
|
|
Goodwill |
|
105.1 |
109.8 |
108.5 |
Development costs |
|
28.8 |
28.6 |
29.8 |
Other intangible assets |
|
11.9 |
21.3 |
16.6 |
Property, plant and equipment |
|
191.9 |
186.5 |
194.0 |
Deferred tax |
|
16.6 |
19.8 |
15.7 |
Retirement benefit surplus |
|
11.8 |
4.8 |
7.6 |
|
|
|
|
|
|
|
366.1 |
370.8 |
372.2 |
Current assets |
|
|
|
|
Inventories |
|
80.3 |
91.1 |
91.3 |
Trade and other receivables |
|
58.5 |
60.4 |
62.8 |
Cash and cash equivalents |
11 |
3.6 |
104.2 |
14.7 |
Derivative financial instruments |
8 |
0.8 |
0.4 |
0.4 |
|
|
|
|
|
|
|
143.2 |
256.1 |
169.2 |
Assets classified as held for sale |
|
- |
10.4 |
- |
Total assets |
|
509.3 |
637.3 |
541.4 |
|
|
|
|
|
Current liabilities |
|
|
|
|
Borrowings |
11 |
(0.9) |
(49.7) |
- |
Lease liabilities |
11 |
(1.4) |
(1.6) |
(1.5) |
Trade and other payables |
|
(78.6) |
(106.8) |
(97.2) |
Provisions |
|
(2.6) |
(4.9) |
(3.3) |
Current tax |
|
(8.0) |
(5.6) |
(9.1) |
Derivative financial instruments |
8 |
(0.1) |
(2.4) |
(0.7) |
|
|
|
|
|
|
|
(91.6) |
(171.0) |
(111.8) |
Liabilities directly associated with assets classified as held for sale |
|
- |
(2.8) |
- |
Non-current liabilities |
|
|
|
|
Borrowings |
11 |
(36.9) |
(108.8) |
(57.5) |
Lease liabilities |
11 |
(3.0) |
(4.6) |
(3.8) |
Provisions |
|
(15.0) |
(11.0) |
(15.7) |
Deferred tax |
|
(26.0) |
(24.3) |
(22.9) |
Preference shares |
11 |
(0.1) |
(0.1) |
(0.1) |
|
|
|
|
|
|
|
(81.0) |
(148.8) |
(100.0) |
Total liabilities |
|
(172.6) |
(322.6) |
(211.8) |
|
|
|
|
|
Net assets |
|
336.7 |
314.7 |
329.6 |
|
|
|
|
|
Equity |
|
|
|
|
Share capital |
|
2.9 |
2.8 |
2.8 |
Share premium account |
|
306.7 |
306.2 |
306.7 |
Special capital reserve |
|
12.9 |
12.9 |
12.9 |
Revaluation reserve |
|
1.0 |
1.0 |
1.0 |
Translation reserve |
|
(28.8) |
(15.7) |
(18.9) |
Retained earnings |
|
42.0 |
10.4 |
28.0 |
|
|
|
|
|
|
|
336.7 |
317.6 |
332.5 |
Own shares |
|
- |
(2.9) |
(2.9) |
|
|
|
|
|
Total equity |
|
336.7 |
314.7 |
329.6 |
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
for the half year to 30 April 2021
|
Note |
Unaudited Half year to 30 April 2021 £m |
Unaudited Half year to 30 April 2020 £m |
Audited Year to 31 Oct 2020 £m |
Cash flows from operating activities |
|
|
|
|
Cash generated from continuing underlying operations |
10 |
36.1 |
56.2 |
82.4 |
Cash impact of continuing non-underlying items |
|
(0.2) |
(2.2) |
(3.6) |
Cash utilised in discontinued underlying operations |
10 |
- |
(0.4) |
(2.6) |
Cash impact of discontinued non-underlying items |
10 |
(0.3) |
(0.6) |
(1.3) |
Cash flows from operating activities |
|
35.6 |
53.0 |
74.9 |
|
|
|
|
|
Tax (paid)/received |
|
(3.8) |
(0.3) |
1.0 |
|
|
|
|
|
Net cash inflow from operating activities |
|
31.8 |
52.7 |
75.9 |
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Purchases of intangible assets |
|
(0.9) |
(2.6) |
(5.2) |
Purchases of property, plant and equipment |
|
(13.2) |
(17.3) |
(35.6) |
Customer funding for capital programmes |
|
- |
- |
0.9 |
Proceeds on disposal of subsidiary |
|
0.4 |
0.8 |
14.5 |
|
|
|
|
|
Net cash outflow from investing activities |
|
(13.7) |
(19.1) |
(25.4) |
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Dividends paid |
7 |
(7.4) |
(6.8) |
(10.4) |
Purchase of own shares |
|
(1.5) |
(0.3) |
(2.4) |
Proceeds from issue of shares |
|
- |
- |
0.5 |
Finance expense paid |
|
(2.2) |
(2.3) |
(3.0) |
Drawdown of borrowings |
|
- |
157.6 |
108.0 |
Repayments of borrowings |
|
(18.3) |
(73.1) |
(123.1) |
Payment of lease liabilities |
|
(0.8) |
(0.8) |
(1.7) |
|
|
|
|
|
Net cash (outflow)/inflow from financing activities |
|
(30.2) |
74.3 |
(32.1) |
|
|
|
|
|
(Decrease)/increase in cash and cash equivalents |
|
(12.1) |
107.9 |
18.4 |
Cash and cash equivalents at beginning of period/year |
|
14.7 |
(3.3) |
(3.3) |
Effect of foreign exchange rate changes |
|
0.1 |
(0.4) |
(0.4) |
|
|
|
|
|
Cash and cash equivalents at end of period/year (including bank overdraft) |
11 |
2.7 |
104.2 |
14.7 |
NOTES TO THE CONDENSED SET OF FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of preparation
The condensed consolidated financial information for each of the six month periods does not constitute statutory accounts as defined by section 435 of the Companies Act 2006 and have not been delivered to the Registrar of Companies. The half-yearly financial report was approved by the Board of Directors on 3 June 2021. The information for the year ended 31 October 2020 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. Full accounts for the year ended 31 October 2020, 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.
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 adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
The annual financial statements of the group for the year ended 31 October 2021 will be prepared in accordance with International Financial Reporting Standards (IFRSs) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. 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 2020 which were prepared in accordance with IFRSs as adopted by the EU with the exception of 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, the initial term of the facility ending in October 2022.
As part of their regular assessment of the Group's working capital and financing position, the directors have prepared a detailed bottom-up trading budget and cash flow forecast for the period through to October 2022, 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 interest rates and foreign exchange rates; |
· |
the status of the Group's financial arrangements and associated covenant requirements; |
· |
progress made in developing and implementing cost reduction programmes and 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. These sensitised scenarios show headroom on all covenant test dates for the foreseeable future.
In addition to the above, the directors continue to monitor developments with, and potential impact of, CV-19 in the short and medium term and are in particular focussed on the key risks of delays by customers in testing and acceptance of products, disruption to production capacity and efficiency as a result of Government legislation on social distancing measures and the impact of the current situation on the Group's supply chain. The CV-19 outbreak is not currently having any material impact in relation to these risks or any other potential impacts, however, the directors are monitoring the situation closely.
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 financial report.
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 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 2020 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 2020.
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, adjusted for the tax effect of certain items recognised in full in the interim period. As such, the effective tax rate in the interim financial statements may differ from management's estimate of the effective tax rate for the annual financial statements.
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 2021 but have not materially impacted the reported results or the financial position:
· |
Amendments to IFRS 7 Financial Instruments: Disclosures; |
· |
Amendments to IFRS 16 Leases; |
· |
Amendments to IAS 1 Presentation of Financial Statements; and |
· |
Amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. |
2. SEGMENTAL ANALYSIS
Period to 30 April 2021 (unaudited) |
|
|||
|
Sensors & Information |
Countermeasures & Energetics |
Unallocated |
Group |
|
£m |
£m |
£m |
£m |
Revenue |
74.4 |
124.1 |
- |
198.5 |
|
|
|
|
|
Segment result before depreciation, amortisation and non-underlying items |
16.6 |
27.5 |
(6.5) |
37.6 |
Depreciation |
(1.3) |
(7.9) |
- |
(9.2) |
Amortisation |
- |
(0.3) |
- |
(0.3) |
Segmental underlying operating profit |
15.3 |
19.3 |
(6.5) |
28.1 |
Amortisation of acquired intangibles |
(2.6) |
(1.1) |
- |
(3.7) |
Non-underlying items: mark-to-market foreign exchange gain |
- |
- |
0.8 |
0.8 |
Segmental operating profit |
12.7 |
18.2 |
(5.7) |
25.2 |
Period to 30 April 2020 (unaudited) |
|
|||
|
Sensors & Information |
Countermeasures & Energetics |
Unallocated |
Group |
|
£m |
£m |
£m |
£m |
Revenue |
67.3 |
123.7 |
- |
191.0 |
|
|
|
|
|
Segment result before depreciation, amortisation and non-underlying items |
15.1 |
25.4 |
(5.3) |
35.2 |
Depreciation |
(1.5) |
(7.3) |
- |
(8.8) |
Amortisation |
(0.3) |
(0.5) |
- |
(0.8) |
Segmental underlying operating profit |
13.3 |
17.6 |
(5.3) |
25.6 |
Amortisation of acquired intangibles |
(3.2) |
(1.2) |
- |
(4.4) |
Non-underlying items: mark-to-market foreign exchange loss |
- |
- |
(0.8) |
(0.8) |
Segmental operating profit |
10.1 |
16.4 |
(6.1) |
20.4 |
Year ended 31 October 2020 (audited) |
|
|||
|
Sensors & Information |
Countermeasures & Energetics |
Unallocated |
Group |
|
£m |
£m |
£m |
£m |
Revenue |
137.2 |
265.3 |
- |
402.5 |
|
|
|
|
|
Segment result before depreciation, amortisation and non-underlying items |
30.7 |
56.5 |
(12.6) |
74.6 |
Depreciation |
(2.8) |
(15.7) |
- |
(18.5) |
Amortisation |
(0.5) |
(0.9) |
- |
(1.4) |
Segmental underlying operating profit |
27.4 |
39.9 |
(12.6) |
54.7 |
Amortisation of acquired intangibles |
(6.4) |
(2.5) |
- |
(8.9) |
Non-underlying items: mark-to-market foreign exchange gain |
- |
- |
0.5 |
0.5 |
Segmental operating profit |
21.0 |
37.4 |
(12.1) |
46.3 |
3. ALTERNATIVE PERFORMANCE MEASURES AND DISCONTINUED OPERATIONS
The principal Alternative Performance Measures ("APMs") presented are the underlying measures of earnings which exclude discontinued operations, exceptional items, gain or loss on the movement on the fair value of derivative financial instruments, and the amortisation of acquired intangibles. The Directors believe that these APMs improve the comparability of information between reporting periods. The term underlying is not defined under IFRS and may not be comparable with similarly titled measures used by other companies.
|
Unaudited period to 30 April 2021 |
Unaudited period to 30 April 2020 |
Audited year ended 31 October 2020 |
|
£m |
£m |
£m |
|
|
|
|
Gain/(loss) on the movement in the fair value of derivative financial instruments |
0.8 |
(0.8) |
0.5 |
Impact of non-underlying items on EBITDA |
0.8 |
(0.8) |
0.5 |
Intangible amortisation arising from business combinations |
(3.7) |
(4.4) |
(8.9) |
Impact of non-underlying items on operating profit and profit before tax |
(2.9) |
(5.2) |
(8.4) |
Tax impact of non-underlying items |
0.4 |
1.6 |
0.5 |
Impact of non-underlying items on continuing profit after tax |
(2.5) |
(3.6) |
(7.9) |
Discontinued operations after tax |
- |
(0.1) |
0.1 |
Impact of non-underlying items on profit after tax |
(2.5) |
(3.7) |
(7.8) |
Derivative financial instruments
Included in non-underlying items is a £0.8m gain (H1 2020: £0.8m loss, 2020: £0.5m 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.
Amortisation of acquired intangibles
Included in non-underlying items is the amortisation charge arising from business combinations of £3.7m (H1 2020: £4.4m, 2020: £8.9m). 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 2021, the tax impact of continuing non-underlying items comprises a £0.4m tax credit (H1 2020: £1.6m credit, 2020: £0.5m credit) on the above non-underlying items.
4. SEASONALITY OF REVENUE
Revenue in the Countermeasures & Energetics segment is normally more 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 and planned facility maintenance work programmes, and the acceptance testing of products by customers.
Revenue in the Sensors & Information segment is more evenly spread, with a slight bias to the first half at Roke with revenue driven by the
5. TAX
|
Unaudited period to 30 April 2021 |
Unaudited period to 30 April 2020 |
Audited year ended 31 October 2020 |
|
£m |
£m |
£m |
|
|
|
|
Underlying tax charge |
3.3 |
4.3 |
9.1 |
Tax impact of non-underlying items |
(0.4) |
(1.6) |
(0.5) |
Total statutory tax charge |
2.9 |
2.7 |
8.6 |
The continuing statutory tax charge totalled £2.9m (H1 2020: £2.7m, 2020: £8.6m) on a continuing statutory profit before tax of £24.3m (H1 2020: £19.0m, 2020: £43.3m).
The effective tax rate on underlying profit before tax for the period is a charge of 12.1% (H1 2020: 17.8%, 2020: 17.6%) which is lower than the estimated effective tax rate on underlying profit before tax expected for the full year due to the expectation that the
The
6. EARNINGS PER SHARE
Earnings per share are based on the average number of shares in issue, excluding own shares held, of 281,391,352 (H1 2020: 280,966,749, 2020: 281,447,284). Diluted earnings per share has been calculated using a diluted average number of shares in issue, excluding own shares held, of 288,152,175 (H1 2020: 288,374,089, 2020: 288,416,915).
The earnings used in the calculations of the various measures of earnings per share are as follows:
|
|
|
Unaudited Half year to 30 April 2021 |
|
|
Unaudited Half year to 30 April 2020 |
|
£m |
Basic EPS (pence) |
Diluted EPS (pence) |
£m |
Basic EPS (pence) |
Diluted EPS (pence) |
Underlying profit after tax |
23.9 |
8.5 |
8.3 |
19.9 |
7.1 |
6.9 |
Non-underlying items |
(2.5) |
|
|
(3.6) |
|
|
Profit from continuing operations |
21.4 |
7.6 |
7.4 |
16.3 |
5.8 |
5.7 |
Loss from discontinued operations |
- |
- |
- |
(0.2) |
(0.1) |
(0.1) |
Total profit after tax |
21.4 |
7.6 |
7.4 |
16.1 |
5.7 |
5.6 |
|
|
|
Audited year to 31 October 2020 |
|
£m |
Basic EPS (pence) |
Diluted EPS (pence) |
Underlying profit after tax |
42.6 |
15.1 |
14.8 |
Non-underlying items |
(7.9) |
|
|
Profit from continuing operations |
34.7 |
12.3 |
12.0 |
Loss from discontinued operations |
- |
- |
- |
Total profit after tax |
34.7 |
12.3 |
12.0 |
7. DIVIDENDS
At the Annual General Meeting on 4 March 2021 the shareholders approved a final dividend in respect of the year ended 31 October 2020 of 2.6p per ordinary share (2020: 2.4p). This was paid on 23 April 2021 to shareholders on the register on 6 April 2021 and totalled £7.4m (2020: £6.8m).
The Board also declared an interim dividend in respect of 2021 of 1.6p per ordinary share (2020: 1.3p) which will be paid on 10 September 2021 to shareholders on the register on 20 August 2021. The estimated cash value of this dividend is £4.5m (2020: £3.6m).
8. FINANCIAL INSTRUMENTS
As at 30 April 2021, 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 2021, the total fair value of forward foreign exchange contracts recognised in the condensed consolidated balance sheet were an asset of £0.8m (H1 2020: £0.4m, 2020: £0.4m) and current liability of £0.1m (H1 2020: £2.4m, 2020: £0.7m).
9. RELATED PARTY TRANSACTIONS
Transactions with related parties are shown on page 134 of the 2020 Annual Report. There were no significant related party transactions during the current period requiring disclosure.
10. CASH FLOWS FROM UNDERLYING OPERATIONS
|
Unaudited Half year to 30 April 2021 £m |
Unaudited Half year to 30 April 2020 £m |
Audited Year to 31 Oct 2020 £m |
|
|
|
|
Operating profit from continuing operations |
25.2 |
20.4 |
46.3 |
|
|
|
|
Amortisation of development costs |
0.3 |
0.7 |
1.4 |
Amortisation of intangible assets arising from business combinations |
3.7 |
4.4 |
8.9 |
Amortisation of patents and licenses |
- |
0.1 |
- |
Loss on disposal of non-current assets |
- |
- |
0.3 |
Depreciation of property, plant and equipment |
9.2 |
8.8 |
18.5 |
Non-cash movement of non-underlying items |
(0.8) |
0.8 |
(0.5) |
Share-based payment expense |
2.1 |
2.0 |
4.0 |
Operating cash flows before movements in working capital |
39.7 |
37.2 |
78.9 |
|
|
|
|
Decrease/(increase) in inventories |
8.1 |
(11.8) |
(12.2) |
Decrease/(increase) in trade and other receivables |
3.3 |
(7.5) |
(9.9) |
(Decrease)/increase in trade and other payables |
(14.8) |
38.4 |
25.2 |
(Decrease)/increase in provisions |
(0.2) |
(0.1) |
0.4 |
|
|
|
|
Operating cash flow from continuing underlying operations |
36.1 |
56.2 |
82.4 |
|
|
|
|
Discontinued operations |
|
|
|
Operating cash flow from discontinued underlying operations |
- |
(0.4) |
(2.6) |
Cash impact of non-underlying items from discontinued operations |
(0.3) |
(0.6) |
(1.3) |
Net cash outflow from discontinued operating activities |
(0.3) |
(1.0) |
(3.9) |
Net cash inflow from discontinued investing activities |
0.4 |
0.3 |
14.0 |
Net cash inflow/(outflow) from discontinued operations |
0.1 |
(0.7) |
10.1 |
11. ANALYSIS OF NET DEBT
|
As at 1 Nov 2020 |
Cash flows |
Non-cash changes |
Exchange rate effects |
As at 30 April 2021 |
|
£m |
£m |
£m |
£m |
£m |
|
|
|
|
|
|
Cash and cash equivalents* |
14.7 |
(12.1) |
- |
0.1 |
2.7 |
Debt due after one year |
(57.5) |
18.3 |
(0.3) |
2.6 |
(36.9) |
Lease liabilities |
(5.3) |
0.8 |
(0.1) |
0.2 |
(4.4) |
Preference shares |
(0.1) |
- |
- |
- |
(0.1) |
|
|
|
|
|
|
|
(48.2) |
7.0 |
(0.4) |
2.9 |
(38.7) |
The Group has a £145m multi-currency Revolving Credit Bank facility, which is with a syndicate of five banks, was first established in October 2018 and has a four-year initial term with options to extend by a further two years.
The Group had £105.2m (H1 2020: £83.6m, 2020: £86.4m) 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 0.5 times (covenant limit of 3 times) and the half year interest cover ratio was 30 times (covenant limit of 4 times).
*Cash and cash equivalents in the table above includes the bank overdraft classified within current borrowings on the balance sheet.
12. EXCHANGE RATES
The following exchange rates applied during the period:
|
Average rate H1 2021 |
Closing rate H1 2021 |
Average rate H1 2020 |
Closing rate H1 2020 |
Average rate 2020 |
Closing rate 2020 |
AU dollar |
1.82 |
1.79 |
2.06 |
1.93 |
1.84 |
1.84 |
US dollar |
1.39 |
1.38 |
1.28 |
1.26 |
1.28 |
1.29 |
The translation of foreign currency items in the financial statements are dependent on the prevailing foreign exchange rates. For the period ended 30 April 2021, a 10 cent increase in the US dollar exchange rate would have decreased reported underlying operating profit for the first half of 2021 by approximately £1.4m and decreased reported net debt at 30 April 2021 by approximately £2.4m.
13. 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.
Since 2013, the Group has benefited from the
In accordance with the Serious Fraud Office ("SFO") News Release dated 18 January 2018, an investigation was opened by the SFO into Chemring Group PLC ("CHG") and its subsidiary, Chemring Technology Solutions Limited ("CTSL"), following a self-report made by CTSL. The investigation relates to bribery, corruption and money laundering arising from the conduct of business by CHG and CTSL including any officers, employees, agents and persons associated with them. It is too early to predict the outcome of the SFO's investigation, in which the Group continues to co-operate fully.
On 10 August 2018 an incident occurred at our countermeasures facility in
14. EVENTS AFTER THE BALANCE SHEET DATE
On 2 June 2021, Chemring Group PLC acquired 100% of the issued shares in Cubica Technology Limited ("Cubica") and Q6 Holdings Limited ("Q6"), collectively the "Cubica Group". Cubica Group specialise in machine learning, data fusion and autonomous systems. The acquisition has strong synergies to Roke and will expand the Group's existing capabilities and product offerings.
The acquisition has been completed for an initial cash consideration of £7.0m, funded from Chemring's existing bank facilities. Further deferred consideration of up to £2.0m is payable in Chemring 1p ordinary shares in two tranches on the second and third anniversary of completion subject to certain performance conditions.
At the time the interim financial statements were authorised for issue, the Group had not yet completed the accounting for the acquisition. The financial effects of this transaction have not been recognised at 30 April 2021. The operating results and assets and liabilities of the acquired company will be consolidated from 3 June 2021.
Based on unaudited accounts, in the twelve months to 31 March 2021, Cubica Group reported an adjusted profit before tax of £0.8m (2020: £0.4m) on revenue of £2.9m (2020: £1.8m). The gross assets of Cubica Group at 31 March 2021 were £3.1m (2020: £2.0m), and net assets at 31 March 2021 were £1.4m (2020: £0.8m).
15. 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 2020 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 38 to 44 of the 2020 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; |
· |
product liability and other customer claims; and |
· |
cyber-related risks. |
Management have detailed mitigation plans and assurance processes to manage and monitor these risks.
In addition, the Group is closely monitoring the CV-19 pandemic and taking steps to follow relevant Government guidance to mitigate any potential impacts to the health and safety of employees.
16. CORPORATE WEBSITE
Further information on the Group and its activities can be found on the corporate website at www.chemring.co.uk.
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 2021 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 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and the Disclosure Guidance and Transparency Rules ("the DTR") of the
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland ) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board 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.
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 latest annual financial statements of the group were prepared in accordance with International Financial Reporting Standards as adopted by the EU and the next annual financial statements will be prepared in accordance with International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union and in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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.
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
for and on behalf of KPMG LLP
Chartered Accountants
Gateway House
Tollgate
Chandlers Ford
SO53 3TG
3 June 2021
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