Chemring Group Plc · LSE:CHG
Chemring — FY2022 Earnings Presentation
41 slides from Chemring's earnings presentation, Oct 31, 2022
Slide 1: Results for the Year Ended 31 October 2022
CHEMRING GROUP PLC RESULTS FOR THE YEAR ENDED 31 OCTOBER 2022 A STRONGER GROUP DELIVERING SUSTAINABLE GROWTH
Slide 2: Michael Ord, Group Chief Executive
MICHAEL ORD GROUP CHIEF EXECUTIVE
Slide 3: 2022 Overview – Delivering Sustainable Growth
2022 OVERVIEW – DELIVERING SUSTAINABLE GROWTH Group Operating EPS Cash Net debt performance in conversion line with profit 19% 73% 11% 19.7p 109% £7m expectations £64.0m Continued 2023 expected Good progress progress on Dividend per Order book revenue on strategic imperatives in ESG and share 30% 86
Slide 4: Andrew Lewis, Chief Financial Officer
ANDREW LEWIS CHIEF FINANCIAL OFFICER
Slide 5: Group Performance
GROUP PERFORMANCE H1 H2 Revenue (£m) Profit before tax (£m) EPS (pence) 450 70 20 60 15 300 50 40 10 30 150 20 5 10 0 0 0 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 FINANCIAL HIGHLIGHTS OPERATIONAL HIGHLIGHTS • Revenue up 13% to £443m (2021: £393m) • Strong performance at Roke, with
Slide 6: Group Revenue Bridge
GROUP REVENUE BRIDGE US Sensors (£17.3m) Roke £28.5m £21.6m £442.8m £16.7m £393.3m £11.2m Exchange effects Countermeasures & Sensors & Energetics Information 2021 2022 • In Sensors & Information, strong performance at Roke offset by weaker year in US Sensors due to HMDS moving to sustainment phase e
Slide 7: Group Operating Profit Bridge
GROUP OPERATING PROFIT BRIDGE (£0.2m) £1.8m £64.0m £57.5m (£1.7m) £6.6m Unallocated Exchange effects Sensors & Countermeasures & central costs Information Energetics 2021 2022 • Sensors & Information saw strong growth in the Roke products and services business, offset by opex investment in the Roke
Slide 8: Impact of Foreign Exchange Translation
IMPACT OF FOREIGN EXCHANGE TRANSLATION 2022 Restated at First level text – 22pt Gill Sans Nova Light Constant 2021 rates 2021 2022 currency movement £m £m £m Second level text – 16pt Gill Sans Nova Regular Revenue (Colour of the second level to match the colour of7%the section) 421.2 393.3 442.8 Thi
Slide 9: Sensors & Information
SENSORS & INFORMATION 2022 2021 Roke order intake (£m) Pass-through £m £m Products & Services 180 Revenue 11% 162.3 146.6 160 140 EBITDA 4% 33.0 34.4 120 100 80 Operating profit 5% 30.0 31.6 60 40 Operating margin 310 bps 18.5% 21.6% 20 0 Order intake 11% 195.2 175.9 2018 2019 2020 2021 2022 Order b
Slide 10: Sensors & Information Bridges
SENSORS & INFORMATION BRIDGES • Roke revenue for FY22 included £9m of incremental “pass-through” products and REVENUE services revenue which dilutes the margin in S&I £9.0m (£17.3m) £4.5m £162.3m £19.5m £146.6m Roke Roke US Sensors Exchange • Adjusting for this and the £2.3m opex “pass- products & e
Slide 11: Countermeasures & Energetics
COUNTERMEASURES & ENERGETICS 2022 2021 Operating profit (£m) H2 £m £m H1 60 Revenue 14% 280.5 246.7 50 EBITDA 14% 64.2 56.1 40 30 Operating profit 22% 48.9 40.0 20 Operating margin 120bps 17.4% 16.2% 10 0 Order intake 40% 356.3 255.1 2018 2019 2020 2021 2022 Order book 28% 497.2 387.2 • Order intake
Slide 12: Cash Flow
CASH FLOW £m 2022 2021 Cash generated from continuing underlying operations 90.1 80.0 Cash impact of discontinued and non-underlying operations (1.1) (1.7) Cash flows from operating activities 14% 89.0 78.3 Tax paid (8.5) (2.6) Proceeds on disposal of PPE / (Acquisition of subsidiaries) 6.0 (4.7) Ca
Slide 13: Improved Group Performance Continues
IMPROVED GROUP PERFORMANCE CONTINUES 500 70 25 60 400 20 50 300 40 15 30 10 200 20 100 5 10 0 0 0 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Revenue (£m) Operating profit (£m) Earnings per share (pence) 20% 120 100 100 80 15% 80 60 10% 60 40 40 5% 20 20 0% 0 0 2018 20
Slide 14: Improving Future Visibility Through a Growing Order Book
IMPROVING FUTURE VISIBILITY THROUGH A GROWING ORDER BOOK 2022 ORDER BOOK UP 30% TO £651m - £403m EXPECTED TO BE DELIVERED AS REVENUE IN 2023, GIVING 86% COVERAGE SENSORS & INFORMATION COUNTERMEASURES & ENERGETICS • Order intake of £195m (2021: £176m), up 11% • Order intake of £356m (2021: £255m), up
Slide 15: Michael Ord, Group Chief Executive
MICHAEL ORD GROUP CHIEF EXECUTIVE
Slide 16: Market Environment
MARKET ENVIRONMENT Expected increase in global defence spending driven by evolving threat landscape • Force modernisation and potential inventory building • Battlefield competition using traditional capabilities • Sub-threshold “grey zone” competition using novel/digital capabilities including OSINT
Slide 17: Consistent Approach to Strategy
CONSISTENT APPROACH TO STRATEGY Our strategy is to deliver profitable and sustainable growth by operating in markets where we have differentiating technology, deep customer relationships, and where high barriers to entry have been created In 2023 our strategic imperatives are to: • Continue our prog
Slide 18: Roke's Growth Plan
ROKE’S GROWTH PLAN With growing market demand and customer budgets Roke is a key enabler of our wider growth ambitions • Successful execution of strategy has seen Roke double in size over previous five-year period • Plan for next five-year period is to again double revenue to >£200m whilst maintaini
Slide 19: Acquisition of Geollect
ACQUISITION OF GEOLLECT • Geollect, a UK leader in geospatial intelligence technologies, was acquired in December 2022 having received NSIA regulatory approval • Geollect provides a market leading geospatial intelligence platform, data engine and investigatory tradecraft capability • Acquisition pro
Slide 20: Countermeasures & Energetics Sector
COUNTERMEASURES & ENERGETICS SECTOR We continue to protect our market leading positions with government and commercial customers, as they assess inventory building requirements driven by the current threat environment Key areas of focus: Continue to secure longer-term contracts with government and
Slide 21: Growing Demand in US Space and Missiles Markets
GROWING DEMAND IN US SPACE AND MISSILES MARKETS • Space established as a military domain in its own right and significant growth in Commercial Space launch • US DoD heavily investing in space capabilities, building missile inventories, and developing next generation hypersonic missile systems • Chem
Slide 22: ESG Highlights in 2022
ESG HIGHLIGHTS IN 2022 HEALTH & SAFETY ENVIRONMENT PEOPLE ETHICS & BUSINESS CONDUCT • Total Recordable Injury Frequency • Independently audited Scope 1 and • Development programmes, including • Serious Fraud Office investigation (TRIF) rate at 0.78, well below annual Scope 2 GHG emissions reduced by
Slide 23: FY23 Outlook
FY23 OUTLOOK • Continue to build a high quality business for sustainable performance and growth • Strengthening our values-based culture of Safety, Excellence and Innovation • Growing order book across our US and UK home markets • Approximately 86% of 2023 expected revenue covered by order book • Fo
Slide 24: Conclusion
CONCLUSION • Chemring is well placed with multiple market-leading positions across different geographies and sectors • Investing in high technology niches provides attractive long-term growth opportunities • Future growth will be maintained by focusing on our strategic imperatives: Continue to gro
Slide 25: Appendices
Chemring Innovating to protect APPENDICES
Slide 26: Chemring at a Glance
APPENDIX 1. CHEMRING AT A GLANCE A TECHNOLOGY COMPANY WITH AN INTERNATIONAL FOOTPRINT AND A BREADTH OF MARKET LEADING PRODUCTS AND SERVICES SENSORS & INFORMATION COUNTERMEASURES & ENERGETICS • Focused on information and electronic warfare, chemical & biological • Focused on advanced expendable count
Slide 27: Organisational Chart
APPENDIX 2. ORGANISATIONAL CHART CHEMRING GROUP PLC SENSORS & INFORMATION COUNTERMEASURES & ENERGETICS Chemring Chemring Roke (UK) Countermeasures (UK) Energetics UK Chemring Chemring Sensors & Electronic Systems Countermeasures USA Chemring Nobel (Norway) (USA) (Kilgore Flares) Chemring Chemring Ro
Slide 28: Investment Case
APPENDIX 3. INVESTMENT CASE • Significant multi-year visibility and high barriers to entry • Diversified, protection-led portfolio, with strong customer relationships • We operate in niche markets where we have technology differentiation • Longer-term growth underpinned by increasing demand and poss
Slide 29: Roke's Markets and Opportunity
APPENDIX 4. ROKE’S MARKETS AND OPPORTUNITY Growth Scale Defence National Security Intelligence as a Law Enforcement Aerospace Energy Digital Health . . Service . (IaaS) . . . . Cyber as the 5th domain within Geopolitical situation is the The transformation of digital Market pressures to Increasing c
Slide 30: Chemring's Transformation
APPENDIX 5. CHEMRING’S TRANSFORMATION “Then” “Now” ACHIEVEMENTS SINCE MARCH 2019 STRATEGIC REVIEW 2018 2021 2022 Financial & Operational Revenue £297m £393m £443m • Embedded a proactive safety and risk management culture Operating profit £31.0m £57.5m £64.0m • Strategic exit from commoditised energe
Slide 31: Impact of Foreign Exchange Translation - Segmental
APPENDIX 6. IMPACT OF FOREIGN EXCHANGE TRANSLATION - SEGMENTAL Group Constant 2022 restated at 2021 2022 currency 2021 rates movement £m £m £m Revenue 7% 421.2 393.3 442.8 EBITDA 5% 79.9 76.4 82.3 Operating profit 8% 62.2 57.5 64.0 Order book 21% 604.1 500.8 650.9 Sensors & Constant 2022 restated at
Slide 32: Income Statement
APPENDIX 7a. INCOME STATEMENT £m 2022 2021 Revenue 13% 442.8 393.3 Operating profit 11% 64.0 57.5 Operating margin 14.5% 14.6% Finance expense 6% (1.5) (1.6) Profit before tax 12% 62.5 55.9 Tax rate 9.1% 14.8% Earnings per share (diluted) 19% 19.7p 16.5p Dividend per share 19% 5.7p 4.8p • Strong per
Slide 33: Balance Sheet
APPENDIX 7b. BALANCE SHEET £m 2022 2021 Goodwill & intangibles 129.5 122.8 Development costs 34.6 30.0 Property, plant & equipment 231.3 198.7 Trade working capital 93.9 84.4 Pension surplus 11.2 13.7 Other (75.2) (70.2) 425.3 379.4 Net debt (7.2) (26.6) Net assets 418.1 352.8 • Net debt reduced fro
Slide 34: Defined Benefit Pension
APPENDIX 8. DEFINED BENEFIT PENSION £m 2022 2021 Equities - 18.4 Liability driven investments 25.3 24.7 Diversified alternatives 26.9 27.3 Multi-asset credit 7.8 23.3 Assets held by insurance company 1.1 1.5 Cash 10.3 9.4 Total assets 71.4 104.6 Defined benefit obligation (60.2) (90.9) Net surplus 1
Slide 35: Trade Working Capital
APPENDIX 9. TRADE WORKING CAPITAL Working capital as a % of revenue £m 2022 2021 30% Inventories 99.6 80.7 29% 28% Advance receipts from customers (26.6) (17.1) 27% 27% 25% Net inventory 73.0 63.6 Receivables 33.3 40.9 22% 20% 21% 21% 21% Payables (14.7) (13.1) 20% 18% Other items 2.3 (7.0) 15% 11%
Slide 36: Weekly Net Debt
APPENDIX 10. WEEKLY NET DEBT 36 CHEMRING GROUP PLC | RESULTS FOR THE YEAR ENDED 31 OCTOBER 2022
Slide 37: Non-Underlying Items
APPENDIX 11. NON-UNDERLYING ITEMS 2022 2022 P&L Cash £m Note cost paid Acquired intangibles amortisation (4.6) - Acquisition expenses a (2.0) (1.0) Mark to market of FX forward contracts (4.1) - Claim related costs - (0.1) Impact on profit before tax / total cash paid (10.7) (1.1) Tax credit on non-
Slide 38: Medium Term Financial Objectives and Assumptions
APPENDIX 12. MEDIUM TERM FINANCIAL OBJECTIVES AND ASSUMPTIONS • S&I - Segmental mid single digit % growth from double digit growth in Roke and low single digit growth in US Sensors, with the REVENUE potential for step changes as the US PoRs commence FRP • C&E - Low single digit % growth • S&I – Targ
Slide 39: Market Consensus 2023 & 2024
APPENDIX 13. MARKET CONSENSUS 2023 & 2024 • The Group is aware of eight analysts publishing independent research on the Group • The Group has compiled consensus data* from the research it has been made aware of, as set out below: 2023 2024 Revenue (£m) 461 480 Underlying operating profit (£m) 68.0 7
Slide 40: Glossary
APPENDIX 14. GLOSSARY Acronym Meaning Acronym Meaning CCM UK Chemring Countermeasures UK HMDS Husky Mounted Detection System CCM US Chemring Countermeasures USA IDIQ Indefinite Delivery Indefinite Quantity CED Chemring Energetic Devices JBTDS Joint Biological Tactical Detection System CEUK Chemring
Slide 41: Disclaimer
DISCLAIMER 2022 Chemring Group PLC The information in this document is the property of Chemring Group PLC 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 Group PLC. This informatio