REG - Chemring Group PLC - Results for the year ended 31 October 2024
17/12/2024 07:00
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RNS Number : 3074Q Chemring Group PLC 17 December 2024
17 December 2024
CHEMRING GROUP PLC
("Chemring", "the Group" or "the Company")
RESULTS FOR THE YEAR ENDED 31 OCTOBER 2024
Robust performance across the Group; record order book; substantially
increased demand
As reported At 2023 exchange rates
2024 Change 2024 Change 2023
Continuing operations
Revenue (£m) 510.4 +8% 517.3 +9% 472.6
Underlying EBITDA(*) (£m) 93.7 +6% 94.8 +7% 88.5
Underlying operating profit(*) (£m) 71.1 +3% 71.7 +4% 69.2
Underlying profit before tax(*) (£m) 66.3 -2% 67.0 -1% 67.9
Underlying diluted earnings per share(*) (pence) 19.3 -4% 19.5 -3% 20.0
Statutory operating profit (£m) 58.1 +28% 45.4
Dividend per share (pence) 7.8 +13% 6.9
Net debt at 31 October (£m) 52.8 +267% 53.2 +269% 14.4
Order intake (£m) 672.8 -11% 682.2 -10% 756.4
Order book at 31 October (£m) 1,037.8 +13% 1,072.5 +16% 921.6
Key achievements
· 2024 was in line with the Board's initial expectations despite H1 headwinds
Ø Revenue growth of 8%, driven by strong performance at Roke, up 17%, and
growth in our specialist energetic materials businesses, up 12%, offset by a
weaker period for Countermeasures
Ø Underlying operating profit margin of 13.9% (2023: 14.6%) primarily
reflecting the impact of operational challenges at our Tennessee
countermeasures business in the period
Ø Improved cash conversion of 102% (2023: 90%) with continued focus on
working capital
· A record order book of £1,038m, the highest in Chemring's history, providing
excellent medium-term revenue coverage
· Awarded c.£90m of grant funding to support capex investment to increase the
capacity of our Norwegian site, amid unprecedented levels of demand for its
products
· Investment in our Energetics capacity expansion plan increased from £120m to
£200m, excluding grant funding
· Good progress made on capital projects to date, with c.£70m of capex spent in
total during the period, and customers increasingly moving to long-term
partnering agreements
· Net debt was £52.8m (2023: £14.4m), given c.£70m investment in capex and a
further £28.1m on the share buyback. Net debt to underlying EBITDA of 0.56
times (2023: 0.16 times) below internal target of <1.5 times
· Proposed final dividend per share of 5.2p, up 13%, giving a total dividend of
7.8p (2.5 times cover)
· The Board's expectations for the Group's 2025 performance remains in line with
market expectations, with a similar H2 weighting. Approximately 77% (2023:
79%) of expected 2025 revenue is already covered by the order book, with
unprecedented cover in Countermeasures & Energetics for 2026 and 2027 at
81% and 52% respectively
Michael Ord, Group Chief Executive, commented:
"2024 was another year of positive performance for Chemring as we continued to
see heightened activity and progress across the Group amidst growing demand
for our products and services. Our teams delivered on expectations despite the
operational headwinds that we experienced in the first half of the year.
Changing customer spending priorities in the face of increased global
uncertainty and competition have resulted in the order book being at its
highest level in Chemring's history, giving us a strong and sustainable
platform for future growth.
The outlook for global defence markets is increasingly robust, with strong
growth expected over the next decade. This growing visibility gives us the
confidence to continue to invest for the future, balancing near-term
performance with longer-term growth and value creation. Chemring is well
placed to deliver on its many opportunities and we maintain our ambition to
increase the Group's annual revenue to c.£1bn by 2030."
Notes:
* All profit and earnings per share figures in this news release relate to
underlying business performance (as defined below) from continuing operations
unless otherwise stated.
The principal alternative performance measures ("APMs") presented are the
underlying measures of earnings which exclude: exceptional items, gain or loss
on the movement on the fair value of derivative financial instruments, the
amortisation of acquired intangibles and the associated tax impact on these
items. The Directors believe that these APMs assist with the comparability of
information between reporting periods as well as reflect the key performance
indicators used within the business to measure performance. The term
underlying is not defined under IFRS and may not be comparable with similarly
titled measures used by other companies.
A reconciliation of underlying measures to statutory measures is provided
below:
Group - continuing operations: Underlying Non-underlying Statutory
EBITDA (£m) 93.7 (11.0) 82.7
Operating profit (£m) 71.1 (13.0) 58.1
Profit before tax (£m) 66.3 (13.0) 53.3
Tax charge (£m) (12.3) 1.7 (10.6)
Profit after tax (£m) 54.0 (11.3) 42.7
Basic earnings per share (pence) 19.8 (4.1) 15.7
Diluted earnings per share (pence) 19.3 (4.0) 15.3
Group - discontinued operations:
Loss after tax (£m) (1.3) (1.9) (3.2)
Segments - continuing operations:
Sensors & Information EBITDA (£m) 47.3 (3.2) 44.1
Sensors & Information operating profit (£m) 41.4 (4.0) 37.4
Countermeasures & Energetics EBITDA (£m) 63.2 2.8 66.0
Countermeasures & Energetics operating profit (£m) 46.5 1.6 48.1
The adjustments comprise:
· amortisation of acquired intangibles of £2.0m (2023: £3.0m)
· costs relating to acquisitions, including deferred consideration treated as an
expense under IFRS 2, of £3.4m (2023: £3.7m)
· costs relating to the defined benefit pension buy-in and buy-out transaction
£7.5m (2023: £nil)
· costs relating to changes in senior management positions £1.2m (2023: £nil)
· impairment of Chemical Detection assets £nil (2023: £18.5m)
· release of legal and disposal provisions £3.1m (2023: £3.2m charge)
· loss on the movement in the fair value of derivative financial instruments of
£2.0m (2023: £1.4m gain)
· tax impact of the adjustments above: £1.7m credit (2023: £3.8m credit)
· discontinued operations in respect of the Explosive Hazard Detection ("EHD")
business in Sensors & Information, net of tax, credit of £4.5m (2023:
£31.4m charge) which includes an impairment of goodwill and other assets; and
· an increase in disposal provision relating to a discontinued operation of
£6.4m (2023: £nil).
Further details are provided in note 3.
EBITDA is defined as profit before interest, tax, depreciation and
amortisation. Reference to constant currency relates to the re-translation of
2024 financial information at the 2023 exchange rates to reflect the movement
excluding the impact of foreign exchange. The exchange rates applied are
disclosed in note 11.
For further information:
Rupert Pittman Group Director of Corporate Affairs, Chemring Group PLC 01794 463401
James McFarlane MHP 07584 142665
Ollie Hoare 07817 458804
Cautionary statement
This announcement may contain 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 2,700 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 17 December
2024 at the offices of Investec Bank plc, 30 Gresham St, London EC2V 7QP. To
confirm attendance please contact MHP: chemringplc@mhpgroup.com
(mailto:chemringplc@mhpgroup.com) / 07817 458804
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 17 December 2024.
Photography
Original high resolution photography is available to the media by contacting
MHP : chemringplc@mhpgroup.com / 07817 458804
Group overview
We have continued to deliver against the Board's expectations, balancing
short-term performance with long-term growth. Chemring continues to play a
vital role supplying mission-critical products and services, as demonstrated
by the highest order book in Chemring's history.
Order intake for 2024 remained strong at £673m (2023: £756m). Demand in our
niche Energetics businesses continued, where order intake was £348m (2023:
£358m). Sensors & Information total order intake was £150m (2023:
£215m) where the prior year benefitted from multi-year awards.
Revenue was up 8% to £510.4m (2023: £472.6m) reflecting significant growth
in Roke and improved operational execution delivering strong output in our
niche Energetics businesses.
On a constant currency basis the Group's revenue was up 9% to £517.3m (2023:
£472.6m), underlying operating profit was up 4% to £71.7m (2023: £69.2m)
and underlying diluted earnings per share was down 3% to 19.5p (2023: 20.0p).
Foreign exchange translation has proved to be a headwind to revenue and
operating profit compared with last year. While exchange rates have been
volatile in the year, the US dollar, Australian dollar and Norwegian krone
have all weakened against sterling. A summary of the impact of the exchange
rate movements on the key metrics at a Group and sector level is shown in the
table below.
At constant currency As reported
2024 Change 2024 Change 2023
£m £m £m
Group:
Order intake 682.2 -10% 672.8 -11% 756.4
Order book 1,072.5 +16% 1,037.8 +13% 921.6
Revenue 517.3 +9% 510.4 +8% 472.6
Underlying EBITDA 94.8 +7% 93.7 +6% 88.5
Underlying operating profit 71.7 +4% 71.1 +3% 69.2
Underlying diluted earnings per share (pence) 19.5 -3% 19.3 -4% 20.0
Sensors & Information:
Order intake 150.1 -30% 149.7 -31% 215.4
Order book 106.7 -37% 105.5 -38% 170.6
Revenue 212.8 +14% 212.0 +13% 187.0
Underlying EBITDA 47.4 +23% 47.3 +23% 38.5
Underlying operating profit 41.5 +21% 41.4 +21% 34.2
Countermeasures & Energetics:
Order intake 532.1 -2% 523.1 -3% 541.0
Order book 965.8 +29% 932.3 +24% 751.0
Revenue 304.5 +7% 298.4 +4% 285.6
Underlying EBITDA 64.3 -2% 63.2 +4% 65.5
Underlying operating profit 47.3 -6% 46.5 -8% 50.5
The Group's net debt at 31 October 2024 was £52.8m (2023: £14.4m),
representing a net debt to underlying EBITDA ratio of 0.56x (2023: 0.16x). The
financial health of the Group has continued to improve in a number of aspects
during the year. Disciplined working capital practices have been maintained to
reduce intra-period volatility, with working capital as a percentage of
revenue remaining stable at 17% (2023: 17%).
The Group's order book at 31 October 2024 was £1.04bn (2023: £922m), of
which approximately £413m is scheduled for delivery during 2025, representing
cover of approximately 77% (2023: 79%) of expected 2025 revenue. On a constant
currency basis, using the 2023 closing exchange rates, the order book would be
£1.07bn. The increase since 31 October 2023 is attributable to strong order
intake across the Countermeasures & Energetics sector. This leaves £625m
of the order book to be delivered in FY26 and beyond. At this stage, this
provides approximately 81% of 2026 and 52% of 2027 expected revenue cover in
Countermeasures & Energetics.
Markets
The threat environment remains increasingly complex, with heightened
geopolitical tension and risks of global conflict. Russia's invasion of
Ukraine, the Israel-Hamas conflict elevating tensions in the Middle East,
China's expanding military power, and the increasing asymmetric influence of
Iran and the Democratic People's Republic of Korea ("North Korea") all
contribute to the challenge. Against this heightened threat environment, the
role of multi-lateral organisations such as the North Atlantic Treaty
Organization ("NATO") and the European Union ("EU") is highly significant.
The Russia-Ukraine conflict has specifically refocused attention on the broad
spectrum of defence capabilities relevant to a significant peer conflict. It
has also led to a drive for modernisation and replenishment of NATO military
assets, including those provided to Ukraine. It is also becoming clear that
governments across Europe are concerned about the scale of the defence
industrial base and its ability to act as a strategic deterrent. This has
resulted in European nations re-evaluating their defence budgets and
strategies to ensure they are prepared for these contemporary security issues.
China's ambitious defence modernisation programme is generating requirements
for increasingly cutting-edge solutions to protect against a broad spectrum of
threat. This is not only in the traditional domains of land, sea and air but
also in space, and increasingly cyberspace.
The Group's diverse and specialised capabilities position it well to assist
our customers in addressing these uncertainties.
Strategy
Chemring is a technology-differentiated Group operating in niche markets with
high barriers to entry. We have a clear and relevant strategy for achieving
our growth ambitions which is based on three essential strategic imperatives -
grow, accelerate and protect.
First, we will drive organic growth by investing in our people, in technology
and in increasing capacity. Next, we will inorganically accelerate that growth
by seeking to make acquisitions in expanding, high-priority defence and
national security markets such as cyber, information advantage and US space
and missiles. For these market areas we have a live pipeline of technology and
capability targets which we are actively evaluating against our robust
acquisition criteria. Finally, we will continue to invest to protect and
strengthen our sole source and market-leading positions through increased
modernisation, automation and new product development. This strategy is fully
aligned to the significant growth opportunities that we are seeing in the
market and underpins our value proposition.
Our Countermeasures & Energetics sector strategy is operationally driven.
Set against the background of Russia's invasion of Ukraine in February 2022
and the broader deteriorated geopolitical environment, we are seeing
unparalleled demand for our specialist capabilities in energetics. As a Board
we have approved investment to expand our manufacturing capacities in Norway,
the US and the UK to respond to our customers' elevated and urgent
requirements, facilitated by grant funding. 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.
The Sensors & Information sector is an area of major strategic focus for
the Group. Our capabilities are highly relevant to customer investment
priorities as they address a growing and diversifying threat. We will continue
to grow our advanced product and service offerings in sensors, communications,
cyber and AI, where our customer intimacy, mission understanding and
integration capabilities position us well to deliver superior value to our
defence, national security and other customers.
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 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.
Group financial performance
Order intake for 2024 remained strong at £673m (2023: £756m). Demand in our
niche Energetics businesses continued, where order intake was £348m (2023:
£358m). Sensors & Information total order intake was £150m (2023:
£215m) where the prior year benefitted from multi-year awards.
Revenue was up 8% to £510.4m (2023: £472.6m) reflecting significant growth
in Roke and improved operational execution delivering strong output in our
niche Energetics businesses.
The underlying operating profit of £71.1m (2023: £69.2m) resulted in an
underlying operating margin of 13.9% (2023: 14.6%). The Group margin has
fallen primarily reflecting the impact of operational challenges at our
Tennessee Countermeasures business, and the lower margin legacy US government
contract that impacted the year.
Total finance expense has increased to £4.8m (2023: £1.3m) reflecting the
continued investment in our niche energetics businesses combined with higher
interest rates versus the comparative period.
Underlying basic earnings per share from continuing operations was 19.8p
(2023: 20.5p) and diluted underlying earnings per share from continuing
operations was 19.3p (2023: 20.0p). Statutory basic earnings per share was
15.7p (2023: 13.4p) and statutory diluted earnings per share was 15.3p (2023:
13.1p).
Statutory operating profit was £58.1m (2023: £45.4m) and after statutory
finance expenses of £4.8m (2023: £1.3m), statutory profit before tax was
£53.3m (2023: £44.1m). The statutory profit after tax from continuing
operations was £42.7m (2023: £37.7m) giving a statutory basic earnings per
share from continuing operations of 15.7p (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, change of senior management, defined benefit pension buy-in and
buy-out transaction costs, releases of legal and disposal provisions, costs
relating to acquisitions, loss on the movement in the fair value of derivative
financial instruments and tax credit associated with these.
Segmental review - Countermeasures & Energetics
Performance
Order intake for 2024 remained strong at £523m (2023: £541m).
In the Energetics sector we continue to see increased levels of activity and
demand in the devices, propellants and energetic materials markets as
customers re‐evaluate their operational usage and stockpile requirements
associated with traditional defence capabilities. As a result, our three niche
Energetics businesses, which design and manufacture high precision engineered
devices and specialist materials, have continued to see strong customer demand
with order intake at £348m (2023: £358m).
Our Norwegian-based subsidiary, Chemring Nobel, had another period of record
performance and signed a number of long-term partnering agreements with its
key customers. In June 2024 a 15-year partnering agreement was signed with
Northrop Grumman for the supply of HMX energetic material used in its missile
programmes. As part of this agreement, Chemring Nobel also received an initial
delivery order, valued at $83m, for the supply of HMX. Deliveries under this
order will commence in FY26 and will be made over the following three years.
In November 2024 Chemring Nobel signed a 12-year framework agreement with
Diehl Defence for the supply of MCX energetic material. As part of this
agreement, Chemring Nobel received an initial purchase order for the delivery
of MCX, valued at €231m. Deliveries under this order will commence in 2027
and will be made over the following five years. The company is exploring
options to perform the blending stage of the manufacturing process in Germany.
Our Scottish facility also received a number of notable contract awards during
the year. The business also made excellent progress in the construction of its
new propellants manufacturing facility. Concrete pours have been completed on
most buildings with steelwork and frames also installed. This new facility
will provide increased capacity and throughput in a safe and modern
manufacturing environment.
In the US, we have seen growing demand for precision engineered devices for
space and missile applications, with our Chicago business, Chemring Energetic
Devices ("CED"), 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 programme, with the
combined value of these two orders totalling over $20m. In April, CED
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.
In January 2024, and in response to growing customer demand, CED acquired an
additional 45,000 sq. ft. facility adjacent to its existing site. The new
facility, which commenced operations in April 2024, significantly enhances
CED's ability to maintain continuous flow manufacturing operations which is
essential in delivering against customer programme requirements, and is a key
enabler of its future growth ambitions. CED closed the financial year with a
record order book which is in excess of $200m (2023: $165m). In November 2024
CED received an order valued at $106m for the delivery of critical components
used on an undisclosed missile programme for the US DoD, further enhancing
this record order book.
This strong performance demonstrates the value that our customers place on
Chemring's niche products and the strong demand that we expect over the coming
years. This was further illustrated when in March, the Group received
notification that the European Commission had granted £57m of funding to our
Norwegian subsidiary, Chemring Nobel, in support of boosting defence
production in Europe. Further funding of £32m was also received from the
Government of Norway to boost capacity and production at the site.
In Countermeasures we have continued to see steady customer demand from across
our portfolio, maintaining our position as the world leader in the design,
development and manufacture of advanced expendable countermeasures. Order
intake was £175m (2023: £183m). Notable contract awards at Chemring
Countermeasures UK ("CCM UK") included a £36m order from BAE Systems, a £16m
order from the UK MOD, and an £8m order from MBDA USA for a new naval
infra-red decoy. This was the first US production order that CCM UK had
received in over ten years, and contributed to the business having a year-end
order book of greater than £200m, the highest in its history. Chemring
Australia also secured a $31m contract for the supply of MJU-68/B infra-red
countermeasures used on the F-35 Joint Strike Fighter.
The Countermeasures sector saw a greater weighting of its trading performance
and cash generation to the second half of 2024, following the operational
challenges experienced at our Tennessee Countermeasures business, where
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 to the US DoD. Having
previously been expected to complete in the second half of the financial year,
the customer has now exercised an option to extend the duration of this
contract, which will now conclude in the first half of FY25.
Revenue for Countermeasures & Energetics was up by 4% to £298.4m (2023:
£285.6m). The sector reported an underlying operating profit of £46.5m
(2023: £50.5m) as underlying operating margin decreased to 15.6% (2023:
17.7%), reflecting the impact of operational challenges at our Tennessee
Countermeasures business. On a constant currency basis revenue would have been
up 7% to £304.5m and operating profit would have been down 6% to £47.3m.
Opportunities and outlook
The Countermeasures & Energetics segment's 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 energetic materials has enabled our Norwegian business to work
proactively with its customer base on establishing long-term contracting
models, providing significantly improved visibility.
The increasingly positive market conditions for our Energetics businesses,
reflected in our order intake and record order book, have presented a strong
organic growth opportunity to expand capacity at these sites. In 2023 we
announced a three-year £120m investment programme through to 2026 to
capitalise on this long-term demand. As the strong market conditions have
continued, we announced the decision in June 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 from 2028.
In addition to this, 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.
In October 2024 the Norwegian Government announced that, in partnership with
Chemring Nobel, it had launched a feasibility study into the establishment of
a new production facility to further increase the production of military
explosives, as they view Chemring Nobel as the producer in Europe and North
America that can establish increased production the fastest. This co-funded
feasibility study, which is expected to be concluded in early 2025, will
investigate the geographic location, infrastructure requirements and
environmental considerations of building a new production facility. The study
will also consider the role and the levels of any financial contribution made
by the Norwegian Government.
Alongside these investments in expanding our capacities we will continue to
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.
The Countermeasures & Energetics order book at 31 October 2024 was up 27%
to £933m (2023: £751m). The increase compared to the 2023 year-end closing
order book is largely attributable to the strong order intake across the
Energetics businesses whose customers are increasingly placing multi-year
orders. Of the 31 October 2024 order book, approximately £323m is currently
expected to be delivered in 2025, representing 97% coverage of expected 2025
revenue and approximately 81% of 2026 and 52% of 2027 revenue.
Segmental review - Sensors & Information
Performance
Order intake in the year was down 31% to £149.7m (2023: £215.4m). This was
driven by a decrease in Roke's order intake as customers returned to an annual
order cycle rather than the multi-year awards that were placed following the
COVID-19 pandemic and the order for Joint Biological Tactical Detection
Systems ("JBTDS") Low Rate Initial Production ("LRIP") being in the prior year
comparator.
Roke "pass-through" impact 2024 2023 Change
£m £m
Order intake
Products and services 115 156 -26%
Pass-through 16 27 -41%
As reported 131 183 -28%
Revenue
Products and services 157 128 +23%
Pass-through 28 32 -13%
As reported 185 160 +16%
Revenue for Sensors & Information increased by 13% to £212.0m (2023:
£187.0m) and underlying operating profit increased by 21% to £41.4m (2023:
£34.2m), as underlying operating profit margin increased to 19.5% (2023:
18.3%). This was driven by the increased products and services revenue at Roke
and lower margin dilutive "pass-through" revenue as shown in the table above.
Adjusting for the "pass-through" revenue, the Sensors & Information
underlying profit margin would have been 22.5% (2023: 22.1%). On a constant
currency basis revenue would have risen 14% to £212.8m and underlying
operating profit would have increased by 21% to £41.5m.
In the UK, the markets for Electronic Warfare ("EW"), cyber and AI
capabilities, in which Roke is a leading participant, have remained buoyant in
the period. As shown above, Roke has delivered strong growth in revenue with
double-digit growth in underlying operating profit and has maintained strong
margins despite increased investment in people, infrastructure and product
development.
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,
intelligence, 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 was further wins in the area of EW with
awards received from customers in Sweden, Lithuania, Latvia, the United Arab
Emirates 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 has a significant (>£300 million) 5-year international sales pipeline
for EW products as customers increase focus on CEMA.
Roke's expertise in the field of EW was further demonstrated in September 2024
when Roke was announced as one of four UK organisations to have been selected
for research funding in the first AUKUS Innovation Challenge. The trilateral
AUKUS Pillar 2 EW Challenge called for proposals to identify electromagnetic
spectrum technology solutions to help give the AUKUS nations a strategic edge
in targeting and to provide protection against adversarial
electromagnetic-targeting capabilities.
During the year Roke also received a £10m increase to the Project ZODIAC MVP
award received in September 2023. ZODIAC is the backbone of the British Army's
Land 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
£51m with the programme currently completing in FY25. Future phases of Zodiac
could be in excess of £100m, presenting a significant opportunity to Roke as
the incumbent supplier.
Roke has continued to cement its position as a key strategic partner to the
UK's national security agencies, further enhancing this key high barrier to
entry value stream. Despite Government spending headwinds multiple awards,
valued at c.£50m, were received from the national security community.
Roke's new Intelligence business area has made good progress 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.
Following last year's decision to exit the Explosive Hazard Detection
business, 2024 has been 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. This fully automated
sensor to rapidly detect, collect, identify and sample airborne biological
warfare agents is supporting the US Navy. 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 programme, having been awarded a LRIP contract in September 2023,
material procurement and production gathered pace throughout the year with all
major deliverables under the JBTDS LRIP contract having been completed. We
continue to support the customer as they progress through testing and
acceptance, with the expectation of a Full Rate Production contract being
awarded in FY26.
These sole source positions with the US DoD provide an excellent opportunity
to penetrate international markets with these products sold under Foreign
Military Sales ("FMS") and direct commercial sales agreements to key strategic
allies of the US Government.
Chemring's experience and expertise in fielding biological agent detectors for
its US DoD customers provide a strong platform from which to pursue
opportunities in other existing and adjacent markets, such as homeland
security. In a post-pandemic and contested world, governments are becoming
increasingly concerned by the risks of both naturally occurring and engineered
biological threats. Advances in synthetic biology now give our national
adversaries the capability to deliberately engineer organisms to create
hazards and cause harm. As a key supplier of biological detection equipment to
the US DoD, we are well placed to help customer in this area.
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 threat 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. In year Roke has expanded its sites
in Gloucester and Manchester, continuing its strategy of building presence
alongside customers, academic partners and science and engineering talent
pools.
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 per annum by 2028, while maintaining
strong margin performance. We will also continue to actively explore
opportunities to expand and accelerate the Sensors & Information sector
capabilities and offerings, both by leveraging opportunities in adjacent
markets and through further bolt-on acquisitions. However, any acquisition
must meet a strict set of criteria, enhance shareholder value and fit in with
our wider growth plans.
The order book for Sensors & Information at 31 October 2024 was £105m
(2023: £171m) as customers defer to placing annual orders over multi-year
contracts that we have seen in recent years. Of this, £101m is expected to be
delivered in 2025, providing 48% cover of expected 2025 revenue. 2025 trading
performance for Sensors & Information is expected to show a continuation
of the momentum seen in 2024, with continued growing demand for Roke's
products and services. Medium-term growth opportunities in the US are driven
by the Group's sole source positions on the biological detection Programs of
Record moving into full rate production and by exploiting overseas
opportunities for our biological threat detection capabilities.
Net debt and cash flow
The Group's net debt at 31 October 2024 was £52.8m (2023: £14.4m),
representing a net debt to underlying EBITDA ratio of 0.56x (2023: 0.16x).
Underlying operating activities generated cash of £96.0m (2023: £80.0m) and
statutory operating activities generated cash of £90.5m (2023: £75.2m).
Underlying cash conversion was 102% (2023: 90%) of underlying EBITDA, and an
average of 101% on a rolling 36-month basis (2023: 101%).
Working capital
Working capital was £88.3m (2023: £82.3m), an increase of £6.0m. As a
percentage of revenue, working capital has remained stable at 17% (2023: 17%).
We continued with our focus on commercial contracting, inventory levels and
cash management. Year-end trade receivable days of 15 (2023: 16) and trade
payable days of 30 (2023: 18) demonstrate that working capital has been
managed in a balanced and sustainable manner.
Tax
The underlying tax charge totalled £12.3m (2023: £10.2m) on an underlying
profit before tax of £66.3m (2023: £67.9m). The effective tax rate on
underlying profit before tax for the year was a charge of 18.6% (2023: 15.0%).
The Group effective tax rate increased, reflecting the full year effect of the
increase in the UK corporation tax rate and an increased weighting of UK
profit. The statutory tax charge totalled £10.6m (2023: £6.4m) on a
statutory profit before tax of £53.3m (2023: £44.1m).
Retirement benefit obligations
On 28 November 2023 the trustees of the Chemring Group Staff Pension Scheme
("the Scheme") entered into a buy-in contract with an insurer, Pension
Insurance Corporation ("PIC"). The Group has made payments to the Scheme of
£3.0m to date and expects to pay c.£1.1m over the next year as a
contribution to the buy-in premium, to provide funding for the rectification
of certain members' benefits and to meet the costs associated with the initial
buy-in and eventual buy-out of the Scheme. On completion of the full buy-out
of the Scheme, the defined benefit assets and matching defined benefit
liabilities will be derecognised from the Group balance sheet.
The surplus on the Group's defined benefit pension scheme was £0.1m (2023:
£5.9m), measured in accordance with IAS 19 (Revised) Employee Benefits.
Dividends
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 has met the target dividend cover of c.2.5 times
underlying EPS, subject inter alia to maintaining a strong financial position.
The Board is recommending a final dividend in respect of the year ended 31
October 2024 of 5.2p (2023: 4.6p) per ordinary share. With the interim
dividend of 2.6p per share (2023: 2.3p), this results in a total dividend of
7.8p (2023: 6.9p) per share, an increase of 13% on the prior year. If
approved, the final dividend will be paid on 11 April 2025 to shareholders on
the register on 21 March 2025. In accordance with accounting standards, this
final dividend has not been recorded as a liability as at 31 October 2024.
Share buyback programme
On 1 August 2023 the Group announced that it had commenced a share buyback
programme of up to £50m. The sole purpose of the buyback programme was to
reduce the Company's share capital and the Ordinary Shares purchased under the
programme were cancelled. Originally intended to end on 31 July 2024 the
programme was subsequently extended to 17 December 2024. Since its inception
the buyback programme has returned £37m to shareholders. The Board has
decided that the programme will not be renewed given the significant number of
organic growth opportunities and the current buyback programme will therefore
lapse on 17 December 2024.
Current trading and outlook
Trading since the start of the current financial year is running to plan. The
Board's expectations for the Group's 2025 performance remains in line with
market expectations, with a similar weighting towards the second half.
The Group order book as at 31 October 2024 was £1,038m, of which £413m is
currently expected to be recognised as revenue in 2025, giving 77% order
cover, which provides excellent visibility for the full year. This leaves
£625m of the order book to be delivered in 2026 and beyond, which provides
approximately 81% of 2026 and 52% of 2027 expected revenue cover in
Countermeasures & Energetics.
The Group's longer-term growth prospects are strong, underpinned by robust
activity levels, our leading technological offerings, the calibre of 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 maintains its ambition to increase the Group's
annual revenue to c.£1bn by 2030.
The Board remains confident that Chemring will continue to deliver both robust
organic and inorganic growth, balancing near-term performance with longer-term
growth and value creation.
Going concern
The directors believe that the Group is well placed to manage its business
risks successfully The Group's forecasts and projections, taking account of
reasonably possible changes in trading performance, show that the Group should
be able to operate within the level of its current committed facilities.
Key financial metrics
2024 Covenant
Revolving credit facility, UKEF facility and overdraft £245.6m
Undrawn committed borrowing facilities £157.4m
Leverage ratio 0.57x Less than 3x
Interest cover ratio 15.28x Greater than 4x
The revolving credit facility of £150m runs to December 2025, of which £130m
has been extended to December 2026. The Group also has a $20m overdraft
facility in the US. In October 2024, the group entered into a UK Export
Finance Development Guarantee facility led by Barclays PLC for up to £80m.
This is a four-year term, arm's length facility with a one-year draw down
period and a three-year amortising repayment schedule. The Group was in
compliance with its covenants throughout the year.
Confirmation of going concern
After consideration of the above, the directors have a reasonable expectation
that the Group and the Company will have sufficient funds to continue to meet
its liabilities as they fall due for at least 12 months from the date of
approval of the financial statements and therefore have prepared the financial
statements on a going concern basis.
A detailed description of the Group's going concern and long-term viability
assessment, together with sensitivity analysis, can be found on page 83 of the
Group's 2024 annual report and accounts.
Principal risks and uncertainties
The principal risks and uncertainties which could have a material impact on
the Group's performance and could cause actual results to differ materially
from expected and historical results have not changed significantly from those
set out in the Group's 2023 annual report and accounts and the 2024 interim
report. A detailed description of the Group's principal risks and
uncertainties and the ways they are mitigated can be found on pages 76 to 82
of the Group's 2024 annual report and accounts. In summary, the principal
risks relate to:
· Occupational and process safety
· Environmental laws and regulations
· Climate change
· Market
· Political
· Contracts
· Technology
· Financial
· Operational
· People
· Cyber-security
· Compliance and corruption
Management have detailed mitigation plans and assurance processes to manage
and monitor these risks.
RESPONSIBILITY STATEMENT OF THE DIRECTORS ON THE ANNUAL REPORT AND ACCOUNTS
The responsibility statement below has been prepared in connection with the
Company's full annual report and accounts for the year ended 31 October 2024.
Certain parts thereof are not included within this announcement.
We confirm to the best of our knowledge:
1. the financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole; and
2. the strategic report and directors' report includes a fair review of the
development and performance of the business and the position of the issuer and
the undertakings included in the consolidation taken as a whole, together with
a description of the principal risks and uncertainties that they face.
We consider the annual report and accounts, taken as a whole, is fair,
balanced and understandable, and provides the information necessary for
shareholders to assess the Group's position and performance, business model
and strategy.
This responsibility statement was approved by the Board of directors on 17
December 2024, and has been signed on its behalf by Michael Ord and Sarah
Ellard.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 October 2024
Note 2024 2023
£m £m
Continuing operations
Revenue 2 510.4 472.6
Operating profit 2 58.1 45.4
Finance expense (4.8) (1.3)
Profit before tax 53.3 44.1
Tax charge on profit (10.6) (6.4)
Profit after tax for the period 42.7 37.7
Discontinued operations
Loss after tax from discontinued operations 4 (3.2) (32.3)
Profit after tax for the period 39.5 5.4
Earnings per ordinary share
Continuing operations
Basic 5 15.7p 13.4p
Diluted 5 15.3p 13.1p
Continuing operations and discontinued operations
Basic 5 14.5p 1.9p
Diluted 5 14.2p 1.9p
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 October 2024
2024 2023
£m £m
Profit after tax attributable to equity holders of the parent as reported 39.5 5.4
Items that will not be reclassified subsequently to profit or loss
Remeasurement of the defined benefit pension scheme (1.3) (4.7)
Movement on deferred tax relating to the pension scheme 0.5 1.6
(0.8) (3.1)
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations (12.0) (15.2)
Tax on exchange differences on translation of foreign operations 0.1 (1.1)
(11.9) (16.3)
Total comprehensive income / (loss) attributable to equity holders of the 26.8 (14.0)
parent
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 October 2024
Share Share premium Special capital Translation Retained
capital account reserve reserve Earnings Total
£m £m £m £m £m £m
At 1 November 2023 2.8 308.7 12.9 (8.8) 62.9 378.5
Profit after tax - - - - 39.5 39.5
Other comprehensive loss - - - (12.0) (1.3) (13.3)
Tax relating to components of other comprehensive loss - - - 0.1 0.5 0.6
Total comprehensive (loss)/income - - - (11.9) 38.7 26.8
Ordinary shares issued - 0.3 - - - 0.3
Purchase of own shares (0.1) - 0.1 - (38.4) (38.4)
Share-based payments (net of settlement) - - - - 8.7 8.7
Dividends paid - - - - (19.6) (19.6)
At 31 October 2024 2.7 309.0 13.0 (20.7) 52.3 356.3
Share Share premium Special capital Translation Retained
capital account reserve reserve Earnings Total
£m £m £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
CONSOLIDATED BALANCE SHEET
as at 31 October 2024
Note 2024 2023
£m £m £m £m
Non-current assets
Goodwill 98.5 100.5
Development costs 18.6 17.6
Other intangible assets 10.0 9.6
Property, plant and equipment 287.8 242.2
Retirement benefit surplus 0.1 5.9
Deferred tax 7.3 36.9
422.3 412.7
Current assets
Inventories 127.1 101.7
Trade and other receivables 91.0 74.8
Cash and cash equivalents 8 45.0 6.4
Derivative financial instruments 0.9 0.8
264.0 183.7
Assets classified as held for sale 4 5.8 -
Total assets 692.1 596.4
Current liabilities
Borrowings 8 (43.0) -
Lease liabilities 8 (2.1) (1.1)
Trade and other payables (163.3) (124.0)
Provisions (3.2) (5.6)
Current tax (8.8) (8.2)
Derivative financial instruments (1.5) (3.2)
(221.9) (142.1)
Non-current liabilities
Borrowings 8 (43.7) (14.1)
Lease liabilities 8 (8.9) (5.5)
Government grants (24.0) -
Provisions (16.7) (12.0)
Deferred tax (17.6) (43.8)
Derivative financial instruments (2.9) (0.3)
Preference shares 8 (0.1) (0.1)
(113.9) (75.8)
Total liabilities (335.8) (217.9)
Net assets 356.3 378.5
Equity
Share capital 2.7 2.8
Share premium account 309.0 308.7
Special capital reserve 13.0 12.9
Translation reserve (20.7) (8.8)
Retained earnings 52.3 62.9
Total equity 356.3 378.5
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 October 2024
Note 2024 2023
£m £m
Cash flows from operating activities
Cash generated from continuing underlying operations 6 96.0 80.0
Cash impact of continuing non-underlying items (2.5) (2.1)
Cash (utilised in)/generated from discontinued underlying operations 6 (1.5) (0.8)
Cash impact of discontinued non-underlying items (1.5) (1.9)
Cash flows from operating activities 90.5 75.2
Retirement benefit deficit contributions (3.0) -
Tax paid (6.5) (9.3)
Net cash inflow from operating activities 81.0 65.9
Cash flows from investing activities
Purchases of intangible assets (4.8) (1.5)
Purchases of property, plant and equipment (64.8) (32.7)
Acquisition of subsidiary net of cash acquired - (7.2)
Grant funding 22.0 -
Short-term funding to defined benefit pension scheme - 2.0
Net cash outflow from investing activities (47.6) (39.4)
Cash flows from financing activities
Dividends paid (19.6) (17.3)
Purchase of own shares (41.0) (14.0)
Proceeds for transactions in own shares 0.9 0.9
Paid accrued dividends on shares (0.2) (0.3)
Finance expense paid (4.0) (0.7)
Capitalised facility fees paid (0.8) (0.3)
Drawdown of borrowings 100.0 60.1
Repayments of borrowings (70.1) (66.8)
Payments of lease liabilities (2.5) (1.8)
Net cash outflow from financing activities (37.3) (40.2)
(Decrease)/increase in cash and cash equivalents (3.9) (13.7)
Cash and cash equivalents at beginning of the year 6.4 19.8
Effect of foreign exchange rate changes (0.5) 0.3
Cash and cash equivalents at end of the year* 2.0 6.4
* Cash and cash equivalents of £2.0m at 31 October 2024 includes current
borrowings of £43.0m. See note 9 for further details.
Notes
1. ACCOUNTS AND AUDITOR'S REPORT
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 October 2024 or 31 October 2023 but
is derived from those accounts. Statutory accounts for 2023 have been
delivered to the Registrar of Companies, and those for 2024 will be delivered
following the Company's Annual General Meeting. The auditor has reported on
these accounts; their reports were unqualified, did not draw attention to any
matters by way of emphasis without qualifying their report, and did not
contain any statements required under either section 498(2) or section 498(3)
of the Companies Act 2006.
This announcement has been prepared on the basis of the accounting policies
set out in the Company's financial statements for the year ended 31 October
2024.
Whilst the financial information included in this announcement has been
computed in accordance with UK-adopted International Financial Reporting
Standards ("UK-adopted IFRSs"), this announcement does not itself contain
sufficient information to comply with UK-adopted IFRSs. The Company expects to
post full financial statements that comply with UK-adopted IFRSs on its
website on 17 December 2024 (see note 15 below).
Recent accounting developments
The following International Financial Reporting Committee ("IFRIC")
interpretations, amendments to existing standards and new standards were
adopted in the year ended 31 October 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
Year ended 31 October 2024
Sensors & Information Countermeasures & Energetics Unallocated Group
£m £m £m £m
212.0 298.4 - 510.4
Revenue
Segment result before depreciation, amortisation and non-underlying items and 47.3 63.2 (16.8) 93.7
discontinued operations
Depreciation (4.6) (16.4) - (21.0)
Amortisation (1.3) (0.3) - (1.6)
Segmental underlying operating profit 41.4 46.5 (16.8) 71.1
Amortisation of acquired intangibles (0.8) (1.2) - (2.0)
Non-underlying items (3.2) 2.8 (10.6) (11.0)
Segmental operating profit 37.4 48.1 (27.4) 58.1
Year ended 31 October 2023
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 and 38.5 65.5 (15.5) 88.5
discontinued operations
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
3. ALTERNATIVE PERFORMANCE MEASURES
The principal alternative performance measures ("APMs") presented are the
underlying measures of earnings which exclude exceptional items, gain or loss
on the movement on the fair value of derivative financial instruments, and the
amortisation of acquired intangibles. The directors believe that these APMs
assist with the comparability of information between reporting periods. The
term underlying is not defined under IFRS and may not be comparable with
similarly titled measures used by other companies.
Reconciliation from underlying to statutory performance:
2024 2023
Underlying Non-underlying Underlying Non-underlying
performance* items* Total performance* items* Total
£m £m £m £m £m £m
Continuing operations
Revenue 510.4 - 510.4 472.6 - 472.6
Operating profit 71.1 (13.0) 58.1 69.2 (23.8) 45.4
Finance expense (4.8) - (4.8) (1.3) - (1.3)
Profit before tax 66.3 (13.0) 53.3 67.9 (23.8) 44.1
Taxation (12.3) 1.7 (10.6) (10.2) 3.8 (6.4)
Profit after tax 54.0 (11.3) 42.7 57.7 (20.0) 37.7
Discontinued operations
Loss after tax from discontinued operations (1.3) (1.9) (3.2) (0.9) (31.4) (32.3)
Total profit after tax 52.7 (13.2) 39.5 56.8 (51.4) 5.4
Earnings per ordinary share
Continuing operations
Basic 19.8p 15.7p 20.5p 13.4p
Diluted 19.3p 15.3p 20.0p 13.1p
Continuing operations and discontinued operations
Basic 19.3p 14.5p 20.2p 1.9p
Diluted 18.8p 14.2p 19.7p 1.9p
Breakdown of non-underlying items:
2024 2023
£m £m
(Loss)/gain on movements in the fair value of derivative financial instruments (2.0) 1.4
Acquisition expenses (3.4) (3.7)
Defined benefit pension buy-in and buy-out transaction (7.5) -
Change in senior management positions (1.2) -
Impairment of Chemical Detection assets - (18.5)
Release of disposal provisions - 3.2
Increase in legal and disposal provisions 3.1 (3.2)
Impact of non-underlying items on EBITDA (11.0) (20.8)
Intangible amortisation arising from business combinations (2.0) (3.0)
Impact of non-underlying items on profit before tax (13.0) (23.8)
Tax impact of non-underlying items 1.7 3.8
Impact of non-underlying items on continuing profit after tax (11.3) (20.0)
Non-underlying discontinued operations after tax (1.9) (31.4)
Impact of non-underlying items on profit after tax (13.2) (51.4)
Underlying profit after tax 52.7 56.8
Statutory profit after tax 39.5 5.4
Derivative financial instruments
Included in non-underlying items is a £2.0m loss (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 £3.4m (2023: £3.7m) of acquisition
related expenses. This includes £3.2m (2023: £3.4m) relating to deferred
consideration contingent on continued employment of the former owners of
Geollect and Cubica, which has been accounted for as equity-settled
share-based payments under IFRS 2 Share-based payments. We have classified
this cost as a non-underlying item as it is a non-recurring cost relating to
acquisitions. The remaining expense of £0.2m (2023: £0.3m) primarily
includes professional fees incurred in relation to the Group's mergers and
acquisitions activity during the year. The acquisition related expenses are
not reflective of the underlying costs of the Group and therefore, in order to
provide an explanation of results that is not distorted by the costs of a
business being aquired 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 £7.5m (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 £1.2m (2023: £nil) relating to
the change of senior management positions within the Group, including the
appointment of 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.
Legal and disposal provisions
Included in non-underlying items is a £3.1m release of legal and disposal
provisions, relating to the 2018 incident at our UK countermeasures facility
in Salisbury. The HSE investigation was closed in the year.
Amortisation of acquired intangibles
Included in non-underlying items is the amortisation charge arising from
business combinations of £2.0m (2023: £3.0m). Amortisation of acquired
intangibles arising from business combinations is associated with acquisition
accounting under IFRS 3 Business Combinations. IFRS requires intangibles to be
recognised on acquisition that would not have been capitalised had the
business grown organically under Chemring's ownership. As such, these costs
are not reflective of the underlying costs of the Group and therefore, in
order to provide an explanation of results that is not distorted by the
history of business units being acquired rather than organically developed,
have been excluded from the underlying measures.
Tax
The tax impact of non-underlying items comprises a £1.7m tax credit (2023:
£3.8m credit) on the above non-underlying items.
We present the underlying effective tax rate for the Group, excluding
non-underlying items, that is comparable over time. This is the taxation
expense for the Group, excluding any non-underlying tax charge or credit, as a
percentage of underlying profit before taxation.
Net debt
A reconciliation and analysis of net debt is presented in notes 7 and 8. This
APM allows management to monitor the indebtedness of the Group.
Discontinued operations
Further details on the results of discontinued operations are presented in
note 4.
4. DISCONTINUED OPERATIONS AND HELD FOR SALE
Total losses from discontinued operations for the year to 31 October 2024 were
£3.2m. Included in this balance is the underlying loss from the EHD business
of £1.3m and an associated non-underlying credit of £4.5m, being the
reversal of an impairment of £5.8m of the held for sale assets, a £0.6m
charge for site rationalisation costs and professional fees related to the
sale, and a tax credit against those non-underlying items of £0.7m (see
below). Also included in discontinued operations is a £6.4m charge relating
to an increase in provisions for a previously disposed European Munitions
business.
EHD Business
In 2023 the decision was taken that the Explosive Hazard Detection ("EHD")
business would not continue to operate as a result of the US DoD's decision in
2022 to transition the HMDS Program of Record into sustainment earlier than
previously indicated. After evaluating the potential sustainment program it
was 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
EHD business. Therefore the business was abandoned and treated as a
discontinued operation. All assets were written off and impaired as at 31
October 2023. During the year to 31 October 2024 and prior to the assets being
physically disposed of, the Group received an offer to purchase the EHD
business. An asset purchase agreement was signed for the purchase of the EHD
business. The business assets were preserved, and certain costs were incurred
to safeguard these assets in order to ensure that they were in a condition
ready to sell. There was also certain revenue related to the sale of spare
parts for the service of active units in operation which occurred during the
year while the process of selling the EHD business was ongoing, as disclosed
in the table below. The sale transaction is expected to complete in the next
12 months, subject to regulatory approval.
2024 2023
Underlying Non-underlying £m Total £m Underlying Non-underlying £m Total £m
£m £m
EHD business
Revenue 1.8 - 1.8 9.3 - 9.3
Operating loss (1.5) 5.2 3.7 (1.2) (33.6) (34.8)
Tax 0.2 (0.7) (0.5) 0.3 2.2 2.5
(1.3) 4.5 3.2 (0.9) (31.4) (32.3)
Other discontinued operations
Increase in provisions - (6.4) (6.4) - - -
Total loss from discontinued operations (1.3) (1.9) (3.2) (0.9) (31.4) (32.3)
A held for sale asset of £5.8m in relation to the EHD business has been
recognised as at 31 October 2024, representing the fair value of the assets
less costs to sell.
In the year to 31 October 2023, non-underlying items included a non-cash
impairment of £31.2m (of which £20.5m related to the goodwill associated
with the acquisition of the EHD business in 2009 and £10.7m related to other
assets), site rationalisation costs of £1.7m and the amortisation of acquired
intangibles of £0.7m.
5. EARNINGS PER SHARE
Earnings per share is based on the average number of shares in issue,
excluding own shares held, of 272,875,033
(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 279,133,292 (2023: 288,780,153).
The earnings used in the calculations of the various measures of earnings per
share are as follows:
2024 2023
£m Basic EPS (Pence) Diluted EPS (Pence) £m Basic EPS (Pence) Diluted EPS (Pence)
Underlying profit after tax 54.0 19.8 19.3 57.7 20.5 20.0
Non-underlying items (11.3) (20.0)
Profit from continuing operations 42.7 15.7 15.3 37.7 13.4 13.1
Loss from discontinued operations (3.2) (1.2) (1.1) (32.3) (11.5) (11.2)
Total profit after tax 39.5 14.5 14.2 5.4 1.9 1.9
6. CASH GENERATED FROM OPERATING ACTIVITIES
2024 2023
£m £m
Operating profit from continuing operations 58.1 45.4
Amortisation of development costs 1.3 0.7
Amortisation of intangible assets arising from business combinations 2.0 3.0
Amortisation of patents and licenses 0.3 -
Impairment of development costs - 15.6
Loss on disposal of non-current assets 1.7 -
Depreciation of property, plant and equipment 21.0 18.6
Non-underlying items 11.0 5.2
Share-based payment expense 5.8 4.4
Operating cash flows before movements in working capital 101.2 92.9
Increase in inventories (30.1) (18.2)
Increase in trade and other receivables (16.9) (18.7)
Increase in trade and other payables 41.8 23.7
Increase in provisions - 0.3
Operating cash flow from continuing underlying operations 96.0 80.0
Discontinued operations:
Operating cash flow from discontinued underlying operations (1.5) (0.8)
Cash impact of non-underlying items from discontinued operations (1.5) (1.9)
Net cash (outflow)/inflow from discontinued operating activities (3.0) (2.7)
Net cash (outflow)/inflow from discontinued operations (3.0) (2.7)
7. RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2024 2023
£m £m
Decrease in cash and cash equivalents (3.9) (13.7)
Decrease in debt and lease financing due to cash flows (26.6) 8.8
Increase in net debt resulting from cash flows (30.5) (4.9)
Effect of foreign exchange rate changes (0.3) 0.3
Acquired debt - (0.1)
New leases entered into, lease interest and other non-cash movements (7.2) (2.1)
Amortisation of debt finance costs (0.4) (0.4)
Movement in net debt (38.4) (7.2)
Net debt at beginning of the year (14.4) (7.2)
Net debt at end of the year (52.8) (14.4)
8. ANALYSIS OF NET DEBT
As at Cash Non-cash changes Exchange As at
1 Nov flows rate effects 31 Oct
2023 2024
£m £m £m £m £m
Cash and cash equivalents (including bank overdraft) 6.4 (3.9) - (0.5) 2.0
Debt due after one year (14.1) (29.1) (0.6) 0.1 (43.7)
Preference shares (0.1) - - - (0.1)
(7.8) (33.0) (0.6) (0.4) (41.8)
Lease liabilities (6.6) 2.5 (7.0) 0.1 (11.0)
(14.4) (30.5) (7.6) (0.3) (52.8)
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. The revolving credit facility was established in July 2021 with a
syndicate of six banks. In addition the Group has a US$20m swingline overdraft
facility, and in October 2024, the Group entered into a UK Export Finance
Export Development Guarantee Facility led by Barclays PLC for up to £80m.
This is a four-year, arm's length facility with a one-year draw down period
and a three-year amortising repayment schedule. None of the borrowings in the
current or the prior year were secured.
The Group had £157.4m (2023: £142.9m) of undrawn borrowing facilities as at
31 October 2024.
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. Therefore the leverage ratio of 0.57 times differs to the ratio of
0.56 times that is disclosed elsewhere in the annual report and accounts,
which is calculated using the closing rates of exchange. The Group was in
compliance with the covenants throughout the year. The year-end leverage ratio
was 0.57 times (covenant limit of 3 times) and the year-end interest cover
ratio was 15.28 times (covenant floor of 4 times).
9. CASH AND CASH EQUIVALENTS
Bank balances and cash comprise cash held by the Group and short-term deposits
with an original maturity of three months or less. The carrying amount of
these assets approximates to their fair value. For the purposes of the
statement of cash flows, cash and cash equivalents comprises cash at bank of
£2.0m (2023: £6.4m). This differs to the balance sheet due to the inclusion
of the bank borrowing within one year of £43.0m. Chemring has a UK Cash
Pooling Arrangement ("CPA") which legally allows the netting of the borrowing
due within one year against the UK cash balances and the CPA is an integral
part of cash management.
10. DIVIDEND
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 (year ended 31 October 2022: 3.8p). This was paid on 12 April
2024 to shareholders on the register on 22 March 2024 and totalled £12.5m
(2023: £10.8m).
An interim dividend in respect of 2024 of 2.6p (2023: 2.3p) per ordinary share
was paid on 6 September 2024 to shareholders on the register on 16 August
2024. The cash value of this dividend was £7.1m (2023: £6.5m).
The Board is recommending a final dividend in respect of the year to 31
October 2024 of 5.2p (2023: 4.6p) per ordinary share. The estimated cash value
of this dividend is £14.5m. With the interim dividend of 2.6p per share
(2023: 2.3p), this results in a total dividend of 7.8p (2023: 6.9p) per
ordinary share. If approved, the final dividend will be paid on 11 April 2025
to shareholders on the register on 21 March 2025. In accordance with
accounting standards, this final dividend has not been recorded as a liability
as at 31 October 2024.
11. EXCHANGE RATES
The following exchange rates applied during the year:
Average rate Closing rate Average rate Closing rate
2024 2024 2023 2023
US dollar 1.27 1.29 1.24 1.21
AU dollar 1.95 1.96 1.91 1.92
Norwegian krone 13.69 14.18 13.10 13.56
For the year ended 31 October 2024 a 10% weakening of Sterling against the US
dollar, AU dollar and Norwegian krone would have increased reported revenue by
£22.8m (2023: £22.0m) and reported underlying operating profit by £1.3m
(2023: £3.3m).
12. 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 were settled under our employers' liability
insurance. We also fully supported the UK Health and Safety Executive with its
investigation. The business pleaded guilty to a breach of section 2(1) of the
Health and Safety at Work Act 1974 in connection with the incident and on 27
June 2024 was fined £613,075. This matter is now closed.
13. EVENTS AFTER THE BALANCE SHEET DATE
There were no events after the balance sheet date that require disclosure.
14. RELATED PARTY TRANSACTIONS
Transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed. The
directors of the Company had no material transactions with the Company during
the year, other than in connection with their service agreements.
15. 2024 ANNUAL REPORT AND ACCOUNTS
The annual report and accounts for the year ended 31 October 2024 will be
posted on the Company's website, www.chemring.co (http://www.chemring.co) m,
on 17 December 2024 and a copy will be posted to shareholders, as required, in
advance of the Company's Annual General Meeting on 26 February 2025.
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