Chemring Group Plc · LSE:CHG
Chemring — H1 2024 Earnings Presentation
34 slides from Chemring's earnings presentation, Jun 4, 2024
Slide 1: 2024 Interim results: Record order book and strong long-term prospects
UK MOD © Crown copyright 2023 Chemring Group PLC 2024 Interim results Record order book and strong long-term prospects Presented on 4th June 2024 by: Michael Ord – Group Chief Executive James Mortensen – Chief Financial Officer Chemring Group PLC Photo credit: United Launch Alliance
Slide 2: Introduction
Introduction Michael Ord – Group Chief Executive Chemring Group PLC
Slide 3: H1 2024 Good progress across KPIs
H1 2024 Good progress across KPIs – in line with our expectations Growth Earnings Cash generation Order intake Revenue Operating margin Earnings per share Cash conversion Net debt: EBITDA +2% +8% 11.2% 6.6p 83% 0.85x £345m £223m (H1 2023: £338m) (H1 2023: £206m) (H1 2023: 12.7%) (H1 2023: 7.4p) (H1
Slide 4: Significant long-term visibility
Significant long-term visibility – positive outlook unchanged » Board’s expectations » Record order book » The outlook for the » Significant » Long-term visibility for 2024 of >£1bn with 93% global defence opportunity to and customer performance remain of H2 2024 expected market is capitalise on the
Slide 5: Financial review
Financial review James Mortensen – Chief Financial Officer Chemring Group PLC Photo credit: Blue Origin
Slide 6: Initial observations
Initial observations ©Lockheed Martin Demand is long term Chemring is more than just We have unique countermeasures manufacturing capabilities Confidence in the delivery of the plan and the outlook 6 Chemring Group PLC Results for the six months to 30th April 2024
Slide 7: Financial highlights
Financial highlights H1 2024 H1 2023 2023 Order book £1,041m +39% £750m £922m Summary: » Record order book Revenue £223.4m +8% £206.3m £472.6m » Good sales momentum Operating profit £25.0m (5)% £26.3m £69.2m » Lower operating margin and H1 weighting Operating margin 11.2% (150) bps 12.7% 14.6% » EPS
Slide 8: Order book
Order book Total orderbook Growth H2 2024 Coverage £1,041m 39% 93% Sensors & Information Countermeasures & Energetics Orderbook Growth H2 2024 Coverage Orderbook Growth H2 2024 Coverage £158m 3% 83% £883m 48% 99% » Expected 2025 revenue 30% covered » Expected 2025 revenue 90% covered and 2026 65% co
Slide 9: Group and segmental performance
Group and segmental performance Revenue Revenue Operating profit Operating Operating profit (£m) growth (£m) profit growth margin Sensors & Information 105.7 +15% 21.6 +16% 20.4% Countermeasures & Energetics 117.7 +3% 11.8 (22)% 10.0% Group 223.4 +8% 25.0 (5)% 11.2% » Sensors & Information – strong
Slide 10: Group operating profit bridge
Group operating profit bridge Sensors & Countermeasures Information & Energetics Unallocated Exchange central costs effects £3.0m £(3.3)m £(0.9)m £26.3m £(0.1)m £25.0m » Overall operating profit down 5% » Good momentum across the majority of the business » Held back by our Tennessee countermeasures
Slide 11: Group net debt bridge
Group net debt bridge Operating Tax & cash finance cost Opening £(7)m Other Closing £29m Capex net debt £(6)m net debt » Continued focus on cash management, with cash £(14)m £(75)m conversion of 83% £(35)m » £35m capex, of which £24m spent on Energetics Dividends capacity expansion Purchase of £(12)
Slide 12: Capital allocation
Capital allocation Invest in the business Focused M&A Ordinary dividends Surplus capital » Investment in our Energetics » Bolt-on acquisitions in our core » Key part of total shareholder » Returned to shareholders businesses to capitalise on and close adjacencies – in return » Share buy-back has ret
Slide 13: Guidance and financial summary
Guidance and financial summary Tailwinds Headwinds » Re-armament upcycle » Foreign exchange – strengthening of GBP versus US$/AU$/NOK » Record order intake, significant order coverage » Slower ramp up than expected in our Tennessee countermeasures facility » Good commercial momentum » Seeking increa
Slide 14: Strategy update and outlook
Strategy update and outlook Michael Ord – Group Chief Executive Chemring Group PLC
Slide 15: Market environment
Market environment Evolving market environment Chemring opportunity » UK, US and European allies are increasing sovereign supply- » Unprecedented demand levels for energetic materials and chain recapitalisation and defence spending in response to propellants the heightenend threat environment » Grow
Slide 16: Strategic framework
Strategic framework Our values: safety, excellence, innovation Our strategic imperatives: Grow Accelerate Protect Invest in people, technology and Accelerate growth with Strengthen our world leading increased capacity to drive bolt-on acquisitions positions through increased organic growth modernisa
Slide 17: Growth and long-term demand in Energetics
Growth and long-term demand in Energetics » Expand capacity across all three Energetics businesses and capture increased long-term demand » Increasing capital investment programme to £200m (+£80m) to increase total revenue by £100m per annum in 2028 » £90m of capital investment in Norway funded by g
Slide 18: Growth and long-term demand in Energetics (2)
Growth and long-term demand in Energetics (2) Photo credit: United Launch Alliance UK MOD © Crown copyright 2021 Norway US Scotland » Project split into 3 phases with planning » 45,000 sqft building purchased adjacent » Constructing an advanced propellants and construction on schedule to our current
Slide 19: Maintaining Roke's growth
Maintaining Roke’s growth Increasingly unstable global security market driving growing customer demand across all of Roke’s markets: » National Security – £33m orders received under framework agreements » Defence – robust RFQ pipeline of >£200m for defence products – Zodiac ISTAR programme for UK MO
Slide 20: Driving innovation
Driving innovation » We have over 1,000 engineers, scientists, and subject matter experts working at the cutting edge of technology – in AI and Data Science alone we have over 100 engineers and scientists » We spend c.£115m a year on R&D, of which c.90% is customer funded Innovation showcase – space
Slide 21: Summary and outlook
Summary and outlook H1 2024: In line with expectations Longer-term outlook increasingly robust » Good progress despite challenges that have led to a heavier » Strong growth predicted over at least the next decade – H2 weighting Well positioned in niche, high margin and growing markets » Granted c.£9
Slide 22: Appendices
Appendices Chemring Group PLC
Slide 23: Organisation
Organisation Sensors & Information Countermeasures & Energetics Roke Roke US Countermeasures Countermeasures Countermeasures Energetic Energetics Chemring Technology USA Sensors UK USA Australia Devices UK Nobel Solutions BUs/capabilities Operational mission support services ● Active cyber defence &
Slide 24: Group performance 2019 – H1 2024
Group performance 2019 – H1 2024 500 70 25 400 60 20 50 300 40 15 200 30 10 20 100 5 10 0 0 0 2019 2020 2021 2022 2023 H1 2024 2019 2020 2021 2022 2023 H1 2024 2019 2020 2021 2022 2023 H1 2024 Revenue (£m) Operating profit (£m) Earnings per share (pence) 20% 120 80 100 15% 60 80 10% 60 40 40 5% 20 2
Slide 25: Countermeasures & Energetics
Countermeasures & Energetics Revenue (£m) H2 H1 Business update 300 Growth 250 » Record order intake (£249m) and order book (£883m) 200 3% » Growth in energetics revenue offset by countermeasures 150 100 50 » Capital investment plan progressing, supported by £90m of 0 2022 2023 2024 awarded grant in
Slide 26: Sensors & Information
Sensors & Information Revenue (£m) H2 H1 Business update Growth 200 » Roke revenue growth 19%. Excluding passthrough growth would 150 15% be 26% 100 50 » Operating margin improved slightly to 20.4% 0 2022 2023 2024 » US Sensors in receipt of $15m EMBD order, deliveries in 2025 Operating profit (£m)
Slide 27: Adjusting items
Adjusting items Note H1 2024 H1 2023 Statutory operating profit £17.5m (24)% £23.1m Acquired intangibles amortisation £1.0m £1.8m Acquisition related expenses a £1.7m £1.8m Mark to market of FX forward contracts £(1.1)m £(0.4)m Pension Buy-in / Buy-out £5.0m — Change of senior management positions £
Slide 28: Medium term financial objectives and assumptions
Medium term financial objectives and assumptions Revenue » Group – targeting mid-single digit growth in the near term, accelerating to low double digit growth as new capacity comes online » S&I – targeting segmental mid-single digit % growth from double digit growth in Roke and US Sensors expected t
Slide 29: ESG
ESG » Maintained AAA ESG rating with MSCI (Dec 2023) » Maintained good progress in line with our HSE Zero Harm strategy » Recordable injuries stable at 0.8 (H1 2023 0.9) and on course to stay below our annual limit of 1.0 » Continue to consolidate within a calculative safety culture whilst demonstra
Slide 30: Impact of foreign exchange translation
Impact of foreign exchange translation Constant H1 2024 restated at currency 2023 rates H1 2023 H1 2024 movement £m £m £m Revenue +10% 226.1 206.3 223.4 EBITDA +1% 35.7 35.2 35.5 Operating profit (5)% 25.1 26.3 25.0 Order book +40% 1,046.7 749.5 1,040.6 Sensitivities Translation » 36% of revenue is
Slide 31: Balance sheet
Balance sheet » Net debt of £75.3m and net debt: EBITDA ratio of £m H1 2024 H1 2023 2023 0.85x Goodwill & intangibles 107.9 130.3 110.1 » Over the 2 year period, 95% Development costs 17.5 32.7 17.6 of EBITDA has been converted to operating cash Property, plant & equipment 261.0 222.3 242.2 funding
Slide 32: Market consensus
Market consensus 2024 2025 2026 » The Group is aware of six analysts publishing Revenue (£m) 506 547 595 independent research on the Group Underlying operating profit (£m) 72.8 79.9 88.3 » The Group has compiled consensus data* from the Underlying earnings per share (pence) 20.0 22.1 24.4 research i
Slide 33: Glossary
Glossary Acronym Meaning Acronym Meaning CCM UK Chemring Countermeasures UK IDIQ Indefinite Delivery/Indefinite Quantity CCM US Chemring Countermeasures USA JBTDS Joint Biological Tactical Detection System CED Chemring Energetic Devices LRIP Low rate initial production CEUK Chemring Energetics UK LT
Slide 34: Disclaimer
Disclaimer 2024 Chemring Group PLC The information in this document is the property of Chemring Group PLC (“Chemring”) and may not be copied or communicated to a third party or used for any purpose other than that for which it is supplied without the express written consent of Chemring. This present