Chemring Group PLC Results for the year ended 31 October 2016
Key points Revenue £477.1 million, up 26.5% with growth in Energetics and countermeasures Constant currency revenue £440.3 million, up 16.7% Operating profit* £48.5 million, up 41.0% with good performance from Energetics segment Constant currency operating profit £43.0 million, up 25.0% Safety Lost time incident rate lowest on record Progress Good cash conversion - operating cash flow £76.4 million Net debt £87.6 million (Oct 15: £154.3 million) Strengthened balance sheet post rights issue 40mm contract fully effective Continued progress on long-term Sensor programmes and F-35 Site rationalisation and restructuring projects continuing Dividend reinstated Order book £592.9 million, up 4.1%, of which £368.0 million is currently expected to be recognised as revenue in FY17 FY17 outlook Board’s expectations for FY17 unchanged, based on current FX rates H2 weighted * References to operating profit are to underlying measures 2
Safety FY16 Lost time incident rate is the lowest on record, reflecting enhanced culture and investment in safety Systems and processes in place across Group to minimise exposure of employees to high hazard conditions Continued emphasis on reduction of risk in high hazard activities Safety culture programs remain key, every employee responsible for ensuring their peers are safe Significant effort over forthcoming period to reduce to As Low As Reasonably Practicable (ALARP) personnel exposure to potentially lethal hazards 3
Financial Review Andrew Davies – Deputy Group Finance Director 4
FY16 Results FY16 FY16 FY15 constant currency +26.5% £477.1m £377.3m Revenue +16.7% £440.3m +41.0% £48.5m £34.4m Operating profit* +25.0% £43.0m 10.2% 9.1% Operating margin* +71.7% £34.0m £19.8m Profit before tax* 47.0% £29.1m +45.1% 10.3p 7.1p** Earnings per share* - 2.1p** Interim dividend per share 1.3p - Final dividend per share -43.2% £87.6m £154.3m Net debt -57.7% £65.2m +4.1% £592.9m £569.6m Order book -14.0% £489.8m * References to operating profit, profit before tax and loss per share are to underlying measures ** Restated 2015 earnings per share to reflect bonus element of rights issue during the year 5
Revenue bridge 67.7 377.3 Initial 40mm contract Decline due to US revenues £44.5m and operations focus on growth in most funded R&D businesses FY15 Countermeasures Sensors & Electronics Energetic Exchange FY16 Systems effects 6
Operating profit bridge 5.5 0.1 UK contract and production issues Depreciation of automated facility Lower Australian production & phasing of deliveries to customer 12.3 (5.8) 2.0 48.5 Greater efficiencies and revenues across the segment Benefit of Roke restructuring 34.4 FY15 Countermeasures Sensors & Energetic Unallocated Exchange FY16 Electronics Systems central costs effects References to operating profit is to underlying measure 7
Counters Countermeasures 29% of Group Revenue FY16 Constant FY16 FY15 Change currency Revenue £138.3m £125.8m +9.9% £127.8m Operating profit* £12.8m £17.5m -26.9% £11.7m Operating margin* 9.3% 13.9% 9.2% Order book £177.0m £184.1m -3.9% £147.4m FY16 review Continued recovery in the segment with increased revenues Manufacturing issues in UK and incidents in US and Australia reduced profits Order book decline reflects improving production consistency in US Orders received for both F-35 operational and training flares, and newly developed special materials flare * References to operating profit and operating margin are to underlying measures, which are reconciled to statutory figures at Appendix 1 8 8
Counters Sensors & Electronics 20% of Group Revenue FY16 Constant FY16 FY15 Change currency Revenue £96.9m £99.1m -2.2% £92.4m Operating profit* £11.4m £9.3m +22.6% £11.3m Operating margin* 11.8% 9.4% 12.2% Order book £49.3m £75.8m -35.0% £43.2m FY16 review US activity still focused on lower margin R&D for US DoD Good progress on all three streams of NGCD Program of Record First shipments of new hand-held IED detector products. Major EW order from Australia Year on year profit growth at the Roke cyber and security business following restructuring in FY15 * References to operating profit and operating margin are to underlying measures, which are reconciled to statutory figures at Appendix 1 9 9
Counters Energetic Systems 51% of Group Revenue FY16 Constant FY16 FY15 Change currency Revenue £241.9m £152.4m +58.7% £220.1m Operating profit* £31.7m £15.1m +109.9% £27.4m Operating margin* 13.1% 9.9% 12.4% Order book £366.6m £309.7m +18.4% £299.2m FY16 review All but one business reported growth in revenue and profits in the year 40mm contract continues to perform well adding £44.5m of revenue in year Site consolidation plan for Chemring Energetic Devices in USA commenced. Restructuring at Chemring Defence * References to operating profit and operating margin are to underlying measures, which are reconciled to statutory figures at Appendix 1 10 10
Income statement £m FY16 FY15 Interest Operating profit* 55.9 41.9 £1.8m reduction in interest cost due to prepayments of loan notes offset Corporate costs (7.4) (7.5) by adverse exchange rate effect Operating profit 48.5 34.4 Tax Interest (14.5) (14.6) Consistent effective tax rate Profit before tax 34.0 19.8 Earnings per share Shares in issue 261.4m 20.9% 20.7% Dividend Tax rate Dividends to re-start 10.3p 7.1p** Earnings per share* 1.3p 2.1p** Dividend per share * References to operating profit, (loss)/profit before tax and loss per share are to underlying measures ** Restated 2015 earnings per share to reflect bonus element of rights issue during the year 11
Non‐underlying items Debt repayment and accelerated FY16 P&L Cash interest costs £m Cost paid Interest due on early repayment of Acquired intangibles amortisation 14.8 - loan notes and associated covenant amendment fees Debt repayment costs 1.4 1.4 Accelerated interest costs 3.7 3.7 Business restructuring and incident costs 19.9 5.1 Business restructuring and US plant closures and UK headcount 5.4 2.8 reduction incident costs Acquisition and disposal credit (4.4) 0.3 Acquisition and disposal credit Claim-related credit (0.6) 5.0 Release of provisions relating to prior year disposals Other items 1.0 - Claim-related credit 21.3 13.2 Cash paid in relation to historic claims, fully accrued for in FY15 12
Balance sheet £m FY16 FY15 Capitalised R&D Goodwill & intangibles 210.0 195.4 Includes £14.9m investment relating to long-term US Property, plant & equipment 179.9 168.0 chemical & biological detection Capitalised R&D 40.9 36.1 programmes Working capital 99.1 81.8 Working capital Tax (2.0) (5.5) See next slide Pension deficit (17.3) (17.7) Bank covenant Gross debt (150.7) (161.9) Net debt : EBITDA 1.15x Cash 63.1 7.6 (Limit 3.00x) Net debt (87.6) (154.3) Other (9.6) (13.2) Net assets 413.4 290.6 13
Working capital £m FY16 £21.0m of increase FX related constant FY16 FY15 currency WC on constant currency basis 104.8 96.2 Inventories 87.1 £78.1m 82.7 66.1 Inventories Trade receivables 70.5 7.0 15.2 Down 9.5% on constant currency Contract receivables 7.0 basis at £87.1m, reflecting actions 22.0 6.8 Prepayments 15.5 during the year (53.5) (46.7) Trade payables (44.9) Trade receivables (12.4) (11.5) Advance payments (10.1) Increase reflecting strong Q4 trading (51.5) (44.3) Other items (47.0) Prepayments 99.1 81.8 78.1 Increase due to advanced supplier payments made by Chemring Ordnance to secure production on 477.1 377.3 440.3 Revenue Middle East contracts 20.8% 21.7% Trade Payables WC % of revenue 17.8% Increase reflecting strong Q4 trading and year end cash management 14
Operating cash flow £m FY16 FY15 Depreciation Operating profit 48.5 34.4 Increased depreciation from Countermeasures UK Depreciation 18.4 16.3 automated facility Loss on fixed asset disposals 0.2 0.3 Pension Amortisation 6.9 6.4 Funding £5m pa until June Pension contributions (5.0) (5.0) 2019 Other 1.0 1.2 Working capital 70.0 53.6 Net inflow reflects inventory decrease (on constant Inventory 13.6 (19.1) currency basis) Debtors (5.8) (3.1) Cash conversion rate Creditors & provisions (1.4) 4.0 123% (FY15 : 53%) (after Working capital change 6.4 (18.2) adjusting for Capex)* Operating cash flow 76.4 35.4 * Operating cash conversion is cash generated from underlying operations, less purchases of intangible assets, property, plant & equipment, and proceeds on disposal, as a percentage of underlying profit 15
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