Chemring Group PLC |Annual Report and Accounts 2012

4
Business review
Chairman’s statement
Although the defence industry is facing challenges, Chemring’s
leading market positions, innovative products and manufacturing
expertise should ensure the Group’s underlying business
remains robust in the face of market pressures.
Highlights
• Revenue from continuing operations
up 2% to £740.3 million
• Underlying continuing operating profit*
£88.3 million
• Underlying continuing profit before tax*
£70.1 million
• Underlying continuing earnings
per share* 28.5p
• Continuing profit before tax
£18.8 million
• Basic continuing earnings per share 6.8p
Key information
Underlying continuing profit before tax*
£70.1m
Underlying continuing earnings per share*
28.5p
Dividend per ordinary share
9.5p
* Before acquisition and disposal related costs,
restructuring and incident costs, profit on disposal
of business, impairment of goodwill, intangible
amortisation arising from business combinations
and gain on fair value movements on derivatives
2012 was extremely disappointing for
Chemring, our shareholders, our customers
and our employees. During the course of the
year, against an already challenging market
background, a number of additional issues
disrupted the operational performance of
the business, including problems with the
supply chain, contract delays and changes
in senior management.
Although the general decline in defence
spending in a number of our markets had
a significant impact on trading during the
year, a large proportion of the problems
that affected the Group’s performance
stemmed from operational issues within
the business, a failure to anticipate the
impact of changing market dynamics,
and poor management of expectations.
Overall, this resulted in a significant decline
in the market value of the Company.
However, with the appointment of
Mark Papworth as Chief Executive
in November 2012, followed by the
appointment of Steve Bowers as Finance
Director in January 2013, we are now
rebuilding the senior management team
required to lead our recovery. This recovery
will focus on operational performance
efficiency, margin improvement, and
business reorganisation to enable the Group
to deal with the ongoing challenges in its
end markets. Turning to the balance sheet,
there will need to be a tighter focus on the
generation and management of our cash
flows in order to reduce our levels of debt.
The objective is to ensure the business is
well-positioned to operate effectively in
an environment of constrained defence
spending, and to ensure the Group can
return to profitable growth.
Trading
Chemring’s trading result during 2012
was unsatisfactory. Defence spending
pressures on both sides of the Atlantic,
but particularly in the USA, affected a
number of defence companies during 2012
and Chemring was no different. We failed
to anticipate and react to those changing
market dynamics quickly enough and to
understand the impact on our businesses.
Our trading performance suffered as a
result. In addition, the overall performance
also reflected specific issues at several of
our subsidiary companies.
We reported a number of issues during
the year. At our Florida subsidiary, we
encountered problems with the installation
of a new resource planning system which,
together with delays on a major contract,
considerably eroded its profit. At the year
end, the Group’s results were significantly
below expectations, as we experienced
a delay in the receipt of a major order
from the Middle East, continued to
suffer technical problems with a specific
countermeasure product, and were unable
to deliver as much of a vehicle-based mortar
system product as we had anticipated due
to export licence difficulties.
Overall, revenue from continuing operations
for the year was £740.3 million, an increase
of 2%, generating an underlying continuing
operating profit* of £88.3 million, down 35%.
Underlying continuing profit before tax* fell
by 42% to £70.1 million, producing underlying
continuing earnings per share* of 28.5p, a fall
of 43% against the previous year.
The order intake for the Group was
£660.2 million, which is 17% lower than
last year. Although we saw strong order
growth in our Counter-IED and Pyrotechnics
businesses, this was offset by a downturn
in order intake within Countermeasures
and Munitions. The Munitions segment
was affected by export licence delays, and
the timing of orders, with several large
multi-year contracts having been received
in the prior year. The lower order intake in
the Countermeasures segment principally
reflects lower customer demand, driven by
government fiscal and budgetary controls.
As a result, the Group’s closing order book
reached £760.9 million, down 13% on 2011.
Chemring Group PLC Report and Accounts 2012