Financial Statements - Chemring Group PLC

C H E M R I N G G R O U P P L CReview by the Finance Director- continued1 January 2004. Employers’ contributionsto the Staff Pension Scheme have beenincreased to 16% from 11.5%, and theGroup has also agreed to pay anadditional £15,000 per month to theStaff Pension Scheme and an additional£6,000 per month to the ExecutivePension Scheme. The impact of theseincreased contributions over the currentand future financial years is in theregion of £0.5 million per annum.Employees’ contributions to the StaffPension Scheme have been increasedfrom 6% to 8%, and 8% employees’contributions have been introduced forthe Executive Pension Scheme.The Board is also reviewing the cashflows associated with the pensionschemes, and taking into account theincreased contributions and theassumptions made in the cash flowmodel, the schemes should remain cashpositive for each year over the nexttwenty years.Shareholder ReturnsEarnings per ordinary share were31.04p (2002: 14.16p). Earnings perordinary share of the continuingoperations were 30.06p (2002: 12.75p).The dividend per ordinary share of7.40p (2002: 6.70p) is covered 4.2 times(2002: 2.1 times).The total shareholder return forthe Group over the five years to31 October 2003 has outperformed theFTSE Small Cap Index for the sameperiod by 209%.Shareholders’ funds at the yearend were £53.5 million(2002: £48.7 million).Cash Flow and GearingOperating cash flow was £18.1 million(2002: £10.1 million), representing aconversion rate from operating profit of129% (2002: 131%). Operating cash flowwas particularly strong in the second halfof the year, with the predicted return toprofitability of Kilgore being convertedinto cash flow. Working capital balanceshave broadly remained the same as lastyear, despite the substantial growth in theGroup turnover.Tangible fixed asset expenditurein the year was £5.4 million(2002: £13.1 million).Net debt fell to £38.7 million(2002: £47.3 million). Gearing was 72%(2002: 97%).Foreign ExchangeThe Group’s principal foreign exchangeexposure is to the US dollar. During theyear sterling appreciated by 8% againstthe dollar, leading to reduced profits fromthe US on translation of the results intosterling. The impact on the Group’s salesand profit before tax was approximately 3%.Contracts have been entered into untilthe end of the current financial year toreduce the Group’s exposure to furtherdepreciation of the dollar against sterling.Post Balance Sheet EventOn 8 November 2003, the entire issuedshare capital of Kembrey Wiring SystemsLimited was sold for net asset value of£1.9 million. Cash consideration of£1.2 million was paid on completionand a further £0.2 million was paid inJanuary 2004. The balance of theconsideration of £0.5 million is payablein two instalments on the anniversary ofcompletion in November 2004 andNovember 2005. The net assets aresubject to a post completion workingcapital adjustment with any surpluses ordeficits to net assets being adjusted viathe deferred consideration.As a consequence of the disposalprocess, the Group agreed to pay£0.5 million to the Chemring GroupStaff Pension Scheme. This cost will beaccounted for in future results.FacilitiesThe Group has agreed total facilities of£49 million with Bank of Scotland toprovide funding and working capital forthe UK businesses and Kilgore. Inaddition, facilities of £7.1 million are inplace with Wilmington Trust andPennsylvania Industrial DevelopmentAuthority to provide funding forAlloy Surfaces, and facilities of£0.6 million in Australia providefunding for Pains Wessex Australia.The Board has reviewed the latestguidance on going concern andconsiders that the above facilitiesprovide the Group with adequateresources.International AccountingStandardsThe Group is monitoring the proposedmove to International AccountingStandards from 2005 and is assessingthe impact on its financial statements.P A Rayner - Finance Director2 February 2004P 10