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 SStatement by the ChairmanThis has been a very successful year forthe Group, principally due tosignificant growth in the sales andResults2003£0002002£000profitability of our threecountermeasures businesses -Chemring Countermeasures,Operating profitCredit to operating profitrelating to insurance claim14,040-2,1315,559Alloy Surfaces and Kilgore. Thisexcellent performance was achieveddespite the fact that Kilgore’s newproduction plant only resumed fullproduction in the second half.Total operating profitProfit before taxProfit after taxBasic earnings per ordinary share14,04012,0748,49631.04p7,6905,4163,81114.16pThe substantial increase in earnings ofover 100% returns us to the growthpattern achieved prior to the incidentat Kilgore in April 2001.Two non-core businesses, ChemicalCoatings and Kembrey WiringSystems, were sold in July 2003 andNovember 2003 respectively for atotal consideration of £3.4 millionafter costs.The reduction in the Group’s net debtto £39 million represents satisfactoryprogress. We are still awaiting asubstantial sum from the resolution ofthe Kilgore insurance claim, which isbeing pursued against Royal and SunAlliance (RSA), to further reduce ournet debt.During the year a substantial amountof further work has been carried outto progress our claim against RSA.Our independent forensic accountanthas arrived at his preliminaryconclusions on the total quantum ofthe claim. His valuation is notmaterially different to the original totalof our claim, to which I referred lastyear, and has received the full supportof our insurance brokers,Willis. Inaddition, substantive discussions are atlong last taking place between RSAand Willis to resolve the policycoverage issues which exist betweenthem. It is hoped that this will soonlead to final negotiations in order tosettle this matter. In light of thesepositive developments, we havereassessed our opinion on the sumrecoverable under the policy. In theevent that the matter is not settledwithin the next three months, theBoard will concentrate on thelitigation in Tennessee, which has beenrunning in parallel to other events.The Group has still not achievedsatisfaction from the BBC regardingthe totally unfounded and defamatoryallegations made on the Radio 4 TodayProgramme in May 2002. The severecriticisms by Lord Hutton of theactions of the BBC, the TodayProgramme and its correspondentAndrew Gilligan, bear a strikingresemblance to the Group’s experience.We intend to continue to press forsatisfaction from the BBC.Business ActivitiesAlloy Surfaces maintained its stronggrowth pattern, which is expected tocontinue this year. Its product range isin great demand within the US military,and the business is further expandingexports to certain permitted countries.Alloy Surfaces, in combination withKilgore, is also now entering the USmarket for ship decoys. If all theinterest currently being shown inAlloy Surfaces’ products (even beforetaking account of possible commercialaircraft applications) were to translateinto orders, it would necessitate thebuilding of a further production plant.Kilgore achieved full production inthe second half, demonstrating itsability to achieve the levels of sales andprofitability which we planned whenwe acquired the business. Kilgorehas a very strong order book and anexcellent performance is anticipatedthis year.Chemring Countermeasures had anoutstanding year, with the businessgrowing substantially in both turnoverand profit terms. The UK defenceforces remain the business’ largestcustomer but its excellent results havebeen achieved through the strength ofits export business to all parts of theworld.P 3