Financial Statements - Chemring Group PLC

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