Financial Statements - Chemring Group PLC
Financial Statements - Chemring Group PLC Financial Statements - Chemring Group PLC
C H E M R I N G G R O U P P L CReview by the Chief Executive- continuedlegislated marine electronic and safetyequipment worldwide for commercialand leisure markets.The marine safetyand security business is made up ofthree product groups and an emergingsystems business. The product groupsare electronics, marine safety lights andpyrotechnics. The growth in thebusiness is primarily driven byelectronics products, where the rangeof products has increased to meetincreased shipping related legislationand growth in recreational marketsboth on land and at sea. Sales ofelectronics products have doubled overthe last three years, and grew by 50%in 2003; these now represent 43% oftotal marine sales. Despite the goodgrowth overall, however, theprofitability of electronics products wasdisappointing. We have now instigatedcost saving initiatives and are focusingon increasing sales volumes to improvethe profitability. Lights andpyrotechnics markets are stable,although there was increased demandfrom military customers in the year.The Group has invested significantly inthe development of new electronicsproducts over the last three years toimprove the product range and reducemanufacturing costs. This investmentis written-off over three years.Demand for our 406MHz EPIRBs andpersonal locating beacons (PLBs) isincreasing due to a combination of thephasing out of 121.5MHz beacons, andincreasing use of 406MHz PLBs formarine, land, government, utilities andaviation use. In the US the FederalCommunications Commissionpermitted the use of PLBs nationwidefrom 1 July 2003, enabling hikers andother outdoor adventurers to use thislife-saving product. With a uniqueintegral GPS capability built into ourPLB, we will be the prime supplier ofproducts into this market area.Sales of the newly developed commercialautomatic identification system (AIS)transponder commenced in the fourthquarter. The AIS is an InternationalMaritime Organisation legislatedrequirement for carriage of automaticidentification systems capable of providinginformation automatically in the VHFmaritime band about the ship to otherships and to coastal authorities.US federal law requires a wide range ofvessels around the US coastline to carrythis equipment by the end of 2004. Theoverall market will exceed £100 millionover the next two years and we aretargeting to achieve an appreciable marketshare. Shore monitoring will also requirethe introduction of AIS base stations andmodification to existing maritime coastradio stations, which provides excellentopportunities for our emerging systemsbusiness, ICS Electronics.StrategyThe Group’s strategy is to focus ongrowing our niche businesses, where weare recognised international marketleaders, by continuing to invest inresearch and development andmanufacturing capability to enhanceand protect our strong market presence.We will support this strategy withcomplementary acquisitions to increaseour product range, services andtechnical competence as opportunitiesarise.D R Evans - Chief Executive2 February 2004P 8
2 0 0 3 F I N A N C I A L S T A T E M E N T SReview by the Finance DirectorOperating ResultsTurnover of the continuingoperations was £112.3 million(2002: £85.0 million), an increase of32%. Turnover of the discontinuedoperations was £8.2 million(2002: £11.3 million). Total Groupturnover was £120.5 million(2002: £96.3 million), an increase of 25%.Overheads are unchanged on last year at£15.8 million. Overheads of thediscontinued operations accounted forapproximately £1.5 million of the totalin both years.Net operating profits of the continuingoperations were £14.3 million(2002: £7.0 million). Net operatingmargins of the continuing operationswere 13% (2002: 8%). The discontinuedoperations produced an operating lossof £0.2 million in the year(2002: operating profit of £0.7 million).Research and DevelopmentResearch and developmentexpenditure totalled £4.7 million(2002: £4.6 million), an analysis ofwhich is set out below.The Group’sprudent policy is to write-offcapitalised development costs over athree year period. Amortisation ofdevelopment costs was £1.2 million(2002: £0.7 million).Profits on DisposalThe Chemical Coatings division ofAlloy Surfaces was sold in the year for£1.5 million after costs, giving rise to aprofit on disposal of £0.7 million. Thisprofit has been accounted for withindiscontinued operations.The Group has reassessed the amountsrecoverable in respect of the Kilgoreinsurance claim against RSA, and hasincreased the amount accrued in theGroup’s accounts by £1.1 million. Ourtotal recoverable balance stands at£7.5 million (2002: £9.6 million). Legalcosts of £0.5 million have been incurredduring the year in connection with the claim,and these have been offset against theadditional £1.1 million accrual. Thebalance of £0.6 million is accounted foras a net profit on disposal of assets whichwere destroyed in the April 2001 incident.This is summarised in the table below.InterestThe interest charge for the year was£3.4 million (2002: £3.5 million).Interest was covered 4.1 times(2002: 2.2 times) by operating profit.It is estimated that the Group incurredapproximately £0.5 million(2002: £0.6 million) of interest duringthe year which would not have beenincurred if the Kilgore insurance claimhad been settled by RSA.TaxationThe tax charge of £3.6 million(2002: £1.6 million) represents aneffective rate of 30% (2002: 30%).Tax losses at Kilgore were used to offsettaxable profits at Alloy Surfaces andthereby reduce tax payments in the US.It is anticipated that tax rates will rise toaround 32% in the current financial year,due to the incidence of higher profits inthe US.PensionsIn accordance with FRS17 Accounting forpension costs, the Group has disclosed theadditional information required inNote 9 of the financial statements.Under FRS17, the calculated deficit onthe Group’s two defined benefit pensionschemes after tax was £9.9 million(2002: £9.4 million).Actuarial valuations as at 6 April 2003 forboth defined benefit schemes are inprogress and will be finalised by the halfyear. Although the Chemring GroupStaff Pension Scheme, which is by far thelarger of the two, was in surplus at thelast valuation, it is anticipated that bothschemes will show deficits on the 2003valuations. The Board has thereforetaken action to increase its pensioncontributions with effect fromResearch and Development2003£m2002£mProfits on Disposal2003£m2002£mCustomer funded research and developmentNon-funded research and developmentCapitalised development costsTotal research and development expenditure1.91.61.24.71.42.21.04.6Material damage proceeds in excessof net book value of assetsLegal expenses incurredNet profit on disposal1.1(0.5)0.61.7(0.6)1.1P 9
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C H E M R I N G G R O U P P L CReview by the Chief Executive- continuedlegislated marine electronic and safetyequipment worldwide for commercialand leisure markets.The marine safetyand security business is made up ofthree product groups and an emergingsystems business. The product groupsare electronics, marine safety lights andpyrotechnics. The growth in thebusiness is primarily driven byelectronics products, where the rangeof products has increased to meetincreased shipping related legislationand growth in recreational marketsboth on land and at sea. Sales ofelectronics products have doubled overthe last three years, and grew by 50%in 2003; these now represent 43% oftotal marine sales. Despite the goodgrowth overall, however, theprofitability of electronics products wasdisappointing. We have now instigatedcost saving initiatives and are focusingon increasing sales volumes to improvethe profitability. Lights andpyrotechnics markets are stable,although there was increased demandfrom military customers in the year.The <strong>Group</strong> has invested significantly inthe development of new electronicsproducts over the last three years toimprove the product range and reducemanufacturing costs. This investmentis written-off over three years.Demand for our 406MHz EPIRBs andpersonal locating beacons (PLBs) isincreasing due to a combination of thephasing out of 121.5MHz beacons, andincreasing use of 406MHz PLBs formarine, land, government, utilities andaviation use. In the US the FederalCommunications Commissionpermitted the use of PLBs nationwidefrom 1 July 2003, enabling hikers andother outdoor adventurers to use thislife-saving product. With a uniqueintegral GPS capability built into ourPLB, we will be the prime supplier ofproducts into this market area.Sales of the newly developed commercialautomatic identification system (AIS)transponder commenced in the fourthquarter. The AIS is an InternationalMaritime Organisation legislatedrequirement for carriage of automaticidentification systems capable of providinginformation automatically in the VHFmaritime band about the ship to otherships and to coastal authorities.US federal law requires a wide range ofvessels around the US coastline to carrythis equipment by the end of 2004. Theoverall market will exceed £100 millionover the next two years and we aretargeting to achieve an appreciable marketshare. Shore monitoring will also requirethe introduction of AIS base stations andmodification to existing maritime coastradio stations, which provides excellentopportunities for our emerging systemsbusiness, ICS Electronics.StrategyThe <strong>Group</strong>’s strategy is to focus ongrowing our niche businesses, where weare recognised international marketleaders, by continuing to invest inresearch and development andmanufacturing capability to enhanceand protect our strong market presence.We will support this strategy withcomplementary acquisitions to increaseour product range, services andtechnical competence as opportunitiesarise.D R Evans - Chief Executive2 February 2004P 8
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