Chemring Group PLC (LON:CHG) has today announced its interim results for the six months to 30 April 2020.
· H1 performance was ahead of our expectations reflecting strong performance in both segments and some positive timing differences.
· All our businesses have remained open despite the challenges caused by COVID-19.
· Safety remains a core value and together with enhancing operational resilience and efficiency is driving investment in the Group’s manufacturing infrastructure.
· Continued progress on the US Programs of Record. Further orders received in the period for the next phase of HMDS delivery, valued at $32m, with the HMDS IDIQ increased by a further $200m post period end with an initial delivery order placed for $21m. In May, we were pleased that the customer approved and awarded the contract modification for Low Rate Initial Production for the EMBD program.
· Strong growth in orders and revenue for Roke including strategically important first Electronic Warfare order for Resolve into the US DoD.
· Good progress made on securing new business in the UK, US and Australia for the supply of global countermeasures, including Chemring Australia receiving a definitised contract of $107m in support of the F-35.
· Sale of Chemring Ordnance, Inc., completed on 7 May 2020, concluding our strategic exit from commoditised energetics.
· Significant reduction in net debt with strong operational cash generation partially offset by scheduled capital expenditure and the adoption of IFRS16.
· Group’s liquidity improved as a result of obtaining an additional short term facility for £100m, of which £50m has been drawn. Interest costs reduced with repayment of $83.6m of 5.68% private placement loan notes using the existing revolving credit facility.
· Board’s full year expectations are unchanged, despite the challenging environment. Approximately 95% of expected H2 revenue is in the order book or has been delivered to date.
* All profit and earnings per share figures in this news release relate to underlying business performance (as defined below) unless otherwise stated.
**The H1 2020 net debt balance reflects the initial recognition of a £6.5m finance lease liability and £0.9m of the increase in underlying EBITDA is as a result of applying IFRS 16 Leases (effective 1 November 2019). The H1 2019 net debt balance and underlying EBITDA have not been restated, in line with the modified retrospective approach taken.
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 HY20 financial information at the HY19 exchange rates to reflect the movement excluding the impact of foreign exchange. The exchange rates applied are disclosed in note 14.
A reconciliation of underlying measures to statutory measures is provided below:
|Group – continuing operations:||Underlying||Non-underlying||Statutory|
|Operating profit (£m)||25.6||(5.2)||20.4|
|Profit before taxation (£m)||24.2||(5.2)||19.0|
|Tax charge (£m)||(4.3)||1.6||(2.7)|
|Profit after tax (£m)||19.9||(3.6)||16.3|
|Basic earnings per share (pence)||7.1||(1.3)||5.8|
|Diluted earnings per share (pence)||6.9||(1.2)||5.7|
|Group – discontinued operations:|
|Loss after tax (£m)||(0.1)||(0.1)||(0.2)|
|Segments – continuing operations:|
|Sensors & Information EBITDA (£m)||15.1||–||15.1|
|Sensors & Information operating profit (£m)||13.3||(3.2)||10.1|
|Countermeasures & Energetics EBITDA (£m)||25.4||–||25.4|
|Countermeasures & Energetics operating profit (£m)||17.6||(1.2)||16.4|
The adjustments to continuing operations comprise:
· amortisation of acquired intangibles of £4.4m (H1 2019: £5.6m, 2019: £12.1m)
· loss on the movement in the fair value of derivative financial instruments of £0.8m (H1 2019: £nil, 2019: £0.6m loss)
· tax impact of adjustments of £1.6m credit (H1 2019: £1.2m credit, 2019: £4.3m credit)
Further details are provided in note 3.
The discontinued operations loss after tax comprises:
· operating loss of £0.1m (H1 2019: £2.0m loss, 2019: £3.5m loss)
· exceptional items of £0.1m loss (H1 2019: £3.1m loss, 2019: £1.0m loss)
· loss on disposal of a subsidiary of £nil (H1 2019: £1.8m loss, 2019: £2.8m loss)
· tax credit on the above of £nil (H1 2019: £3.0m credit, 2019: £6.1m credit)
Michael Ord, Chemring Group Chief Executive, commented:
“As a global team we are working to build a stronger and higher quality business, and the resilience the Group has demonstrated during the coronavirus pandemic shows we are making solid progress. Despite the changing and challenging environment in which we are currently working, we have delivered a strong performance in the first half of the year.
Our sites have remained open and we have made every effort to sustain operations in support of our customers and their essential defence and security missions.
Safety is our core value, with the health, safety and well-being of our colleagues, their families, our customers and the communities in which we operate being our priority throughout. The response of our people has been outstanding. They have risen to and exceeded the challenge, adapting working environments and practices to minimise the spread of the virus. I would like to thank all of my colleagues across the Group for their commitment, innovation and hard work.
Noting the challenges presented by the coronavirus pandemic, some positive timing differences which benefited the first half, and with approximately 95% of expected H2 revenue already in the order book or delivered to date, the Board’s expectations for the full year are unchanged.”