Chemring Group Plc · LSE:CHG
Chemring — FY2023 Earnings Presentation
46 slides from Chemring's earnings presentation, December 2023
Slide 1: Results for the Year Ended 31 October 2023
CHEMRING GROUP PLC RESULTS FOR THE YEAR ENDED 31 OCTOBER 2023 STRONG PERFORMANCE ACROSS THE GROUP, RECORD ORDER INTAKE AND ORDER BOOK, INCREASING DEMAND ACROSS GLOBAL DEFENCE MARKET
Slide 2: Michael Ord, Group Chief Executive
MICHAEL ORD GROUP CHIEF EXECUTIVE
Slide 3: 2023 Overview – Delivering Sustainable Growth
2023 OVERVIEW – DELIVERING SUSTAINABLE GROWTH Group Operating EPS Cash performance Net debt profit conversion ahead of initial 8% £14m 16% 20.0p 90% (2022: £7m) expectations £69.2m Continued 2024 expected progress on Order intake Dividend per Order book revenue ESG and 37% share 42% 79% sustainabili
Slide 4: Andrew Lewis, Chief Financial Officer
ANDREW LEWIS CHIEF FINANCIAL OFFICER
Slide 5: Group Performance
GROUP PERFORMANCE H1 H2 Order intake (£m) Operating profit (£m) EPS (pence) 800 70 20 60 600 15 50 40 400 10 30 200 20 5 10 0 0 0 2020 2021 2022 2023 2020 2021 2022 2023 2020 2021 2022 2023 OPERATIONAL HIGHLIGHTS FINANCIAL HIGHLIGHTS • Order intake up 37% to £756m with strong performance across both
Slide 6: Group Revenue Bridge
GROUP REVENUE BRIDGE US Sensors £16.8m Roke £50.0m £9.9m (£5.1m) £472.6m Countermeasures & £66.8m £401.0m Energetics Exchange effects Sensors & Information 2022 2023 • In Sensors & Information, strong performance at Roke and growth at our US Sensors business with the EMBD Program of Record having a
Slide 7: Group Operating Profit Bridge
GROUP OPERATING PROFIT BRIDGE £4.0m (£0.6m) (£2.5m) £69.2m £8.9m Countermeasures & Unallocated Exchange effects £59.4m Energetics central costs Sensors & Information 2022 2023 • Sensors & Information saw strong growth in the Roke products and services business and US Sensors EMBD Program of Record •
Slide 8: Impact of Foreign Exchange Translation
IMPACT OF FOREIGN EXCHANGE TRANSLATION 2023 Restated at Constant 2022 2023 First level text – 22pt Gill Sans Nova Light currency movement 2022 rates £m £m £m Second level text – 16pt Gill Sans Nova Regular Revenue 19% 477.7 401.0 472.6 (Colour of the second level to match the colour of the section)
Slide 9: Sensors & Information
SENSORS & INFORMATION 2023 2022 £m £m Roke order intake (£m) Pass-through Products & Services Revenue 55% 187.0 120.5 200 EBITDA 38% 38.5 28.0 150 Operating profit 35% 34.2 25.4 100 Operating margin 280bps 18.3% 21.1% 50 Order intake 10% 215.4 195.2 0 2020 2021 2022 2023 Order book 11% 170.6 153.7 R
Slide 10: Sensors & Information Bridges
SENSORS & INFORMATION BRIDGES REVENUE (£0.3m) • Roke revenue for FY23 included £16m £15.9m £16.8m Exchange £187.0m of incremental “pass-through” revenue US Sensors effects Roke pass- £34.1m which dilutes the margin in S&I, with a £120.5m through Roke total of £32m for FY23 products & services 2022 2
Slide 11: Countermeasures & Energetics
COUNTERMEASURES & ENERGETICS 2023 2022 Operating profit (£m) H2 £m £m H1 60 Revenue 2% 285.6 280.5 50 EBITDA 2% 65.5 64.2 40 30 Operating profit 3% 50.5 48.9 20 Operating margin 30bps 17.7% 17.4% 10 0 Order intake 52% 541.0 356.3 2019 2020 2021 2022 2023 Order book 51% 751.0 497.2 Countermeasures Or
Slide 12: Countermeasures & Energetics Bridges
COUNTERMEASURES & ENERGETICS BRIDGES REVENUE Energetics Countermeasures Foreign £285.6m • Energetics revenue grew by 26% £280.5m £31.8m (£21.9m) exchange driven by strong operational (£4.8m) execution responding to market demand • US countermeasures impacted by knock on effect of order delays in 202
Slide 13: Cash Flow
CASH FLOW 2023 2022 £m £m Cash generated from continuing underlying operations 80.0 85.1 Cash impact of discontinued and non-underlying operations (4.8) 3.9 Cash flows from operating activities 75.2 89.0 Tax paid (9.3) (8.5) Acquisition of subsidiaries / proceeds on disposal of PPE (7.2) 6.0 Capital
Slide 14: Group Net Debt Bridge
GROUP NET DEBT BRIDGE Tax & Operating cash finance cost (£8.0m) Other Capex & (£7.1m) acquisitions (£41.4m) £80.0m Dividends Opening (£17.3m) Purchase of own Closing net debt shares net debt £nil (£7.2m) (£13.4m) (£14.4m) 2022 Bank debt (£1.2m) 2023 Leases (£6.0m) Operating cash generation Investing
Slide 15: Improved Group Performance Continues
IMPROVED GROUP PERFORMANCE CONTINUES 500 70 25 60 20 400 50 300 15 40 200 30 10 20 100 5 10 0 0 0 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023 Revenue (£m) Operating profit (£m) Earnings per share (pence) 20% 120 100 100 80 15% 80 60 10% 60 40 40 5% 20 20
Slide 16: UK Defined Benefit Pension Scheme – Buy-in/Buy-out
UK DEFINED BENEFIT PENSION SCHEME – BUY-IN/BUY-OUT • Buy-in/buy-out transaction completed on 28 November 2023 • Removes future market and longevity risk from the Group • At its peak, five years ago, the buy-out deficit was c.£50m; however, the investment strategy has delivered positive returns which
Slide 17: Improving Future Visibility Through a Growing Order Book
IMPROVING FUTURE VISIBILITY THROUGH A GROWING ORDER BOOK 2023 ORDER BOOK UP 42% TO £922m – £403m EXPECTED TO BE DELIVERED AS REVENUE IN 2024, GIVING 79% COVERAGE SENSORS & INFORMATION COUNTERMEASURES & ENERGETICS • Order intake of £215m (2022: £195m), up 10% • Order intake of £541m (2022: £356m), up
Slide 18: Michael Ord, Group Chief Executive
MICHAEL ORD GROUP CHIEF EXECUTIVE
Slide 19: Market Environment
MARKET ENVIRONMENT Multiple geopolitical crises • Enduring Russia/Ukraine conflict in Eastern Europe • Israel/Hamas conflict threatening Middle East stability Asia-Pacific allies facing increased stability challenges Robust defence budgets in UK, US and Europe • Record-level US Budget driven by peer
Slide 20: Our Strategy Is Aligned to Customer Needs
OUR STRATEGY IS ALIGNED TO CUSTOMER NEEDS Deliver profitable and sustainable growth by operating as a manufacturing and technology company in markets where: ➢ We have differentiating technology ➢ Deep customer relationships are in place ➢ High barriers to entry have been created Our key 2024 priorit
Slide 21: Growing Demand Across the Energetics Sector
GROWING DEMAND ACROSS THE ENERGETICS SECTOR • Increasing, sustained demand across our Energetics businesses – order intake up 161% • Governments are seeking to: - replenish and enhance stockpiles of missiles and munitions, and - increase the resilience and capacity of industrial supply chains • Gove
Slide 22: Investing to Meet the Demand in Energetics
INVESTING TO MEET THE DEMAND IN ENERGETICS • Significant opportunity to expand capacity across all three Energetics businesses and capitalise on increased long-term demand • Group’s decision to initiate a three year £120m capital investment programme to increase revenue by £85m per annum Norway • c.
Slide 23: Roke's Growth Plan
ROKE’S GROWTH PLAN • Successful execution of its strategy has seen Roke double in size over last five years • Roke’s growth plan is set against an increasingly unstable global and domestic security environment which is driving increased customer demand Key enablers: • Growth in established core mark
Slide 24: US Sensors – Strategic Review
US SENSORS – STRATEGIC REVIEW • Review of HMDS and AVCAD programs concluded that a focus on biological detection and security markets presents the greatest opportunity to maintain strong margins and to deliver growth • US Sensors therefore repositioned and reshaped to ensure sustainable competitive
Slide 25: US Sensors – Biological Detection Programs of Record
US SENSORS – BIOLOGICAL DETECTION PROGRAMS OF RECORD • EMBD EMBD FRP - First two years of production complete JBTDS LRIP JBTDS FRP - Third delivery order received for $15m £60m • JBTDS - LRIP award in September 2023 for $15m - Potential full rate production award commencing 2026 - Expected to delive
Slide 26: Summary and Outlook
SUMMARY AND OUTLOOK • The outlook for the global defence market is increasingly robust, strong growth predicted over the next decade • Investing in high technology niches provides attractive long-term growth opportunities • Future growth will be maintained by focusing on our strategic imperatives: ➢
Slide 27: Appendices
Chemring Innovating to protect APPENDICES
Slide 28: 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 and biological detection • Focused on advanced expendable cou
Slide 29: Medium Term Financial Objectives and Assumptions
APPENDIX 2. 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 a step change as the JBTDS PoR commences FRP REVENUE • C&E - Low single digit % growth in Countermeasures with ste
Slide 30: Capital Allocation
APPENDIX 3. CAPITAL ALLOCATION CAPEX DIVIDENDS • £120m Capex investment in our Energetics businesses to • Key part of total shareholder return capitalise on unprecedented demand. Delivering incremental • Targeting medium-term dividend cover of c.2.5 times revenue of £85m and operating profit of £21m
Slide 31: Investment Case
APPENDIX 4. 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 32: ESG Highlights in 2023
APPENDIX 5. ESG HIGHLIGHTS IN 2023 HEALTH & SAFETY ENVIRONMENT PEOPLE ETHICS & BUSINESS CONDUCT • Total Recordable Injury Frequency • Independently audited Scope 1 and • Employee Engagement remains a high • Two Code of Conduct training modules (TRIF) rate increased slightly to 0.9 but Scope 2 GHG em
Slide 33: Roke's Markets and Opportunity
APPENDIX 6. ROKE’S MARKETS AND OPPORTUNITY • Underpinning this growth is the need to continue to scale staff growth and intellectual capabilities • Roke headcount has increased from c.400 at the end of 2018 to over 850 today - driven by the success of its graduate and apprenticeship schemes, Roke Ac
Slide 34: Chemring's Transformation
APPENDIX 7. CHEMRING’S TRANSFORMATION “Then” “Now” ACHIEVEMENTS SINCE MARCH 2019 STRATEGIC REVIEW 2018 2022 2023 Financial & Operational Revenue £282m £401m £473m • Embedded a proactive safety and risk management culture Operating profit £28.6m £59.4m £69.2m • Strategic exit from commoditised energe
Slide 35: Impact of Foreign Exchange Translation - Segmental
APPENDIX 8. IMPACT OF FOREIGN EXCHANGE TRANSLATION - SEGMENTAL Group Constant 2023 restated at 2022 2023 currency 2022 rates movement £m £m £m Revenue 19% 477.7 401.0 472.6 EBITDA 18% 91.2 77.3 88.5 Operating profit 21% 71.7 59.4 69.2 Order book 48% 964.5 650.9 921.6 Sensors & Constant 2023 restated
Slide 36: Income Statement
APPENDIX 9. INCOME STATEMENT 2023 2022 £m £m Revenue 18% 472.6 401.0 Operating profit 16% 69.2 59.4 Operating margin 14.6% 14.8% Finance expense 13% (1.3) (1.5) Profit before tax 17% 67.9 57.9 Tax rate 15.0% 7.9% Earnings per share (diluted) 8% 20.0p 18.5p Dividend per share 21% 6.9p 5.7p • Strong p
Slide 37: Balance Sheet
APPENDIX 10. BALANCE SHEET 2023 2022 £m £m Goodwill & intangibles 110.1 129.5 Development costs 17.6 34.6 Property, plant & equipment 242.2 231.3 Trade working capital 82.3 93.9 Pension surplus 5.9 11.2 Other (65.2) (75.2) 392.9 425.3 Net debt (14.4) (7.2) Net assets 378.5 418.1 • Net debt stable at
Slide 38: Trade Working Capital
APPENDIX 11. TRADE WORKING CAPITAL Working capital as a % of revenue £m 2023 2022 30% Inventories 101.7 99.6 29% 28% Advance receipts from customers (47.2) (26.6) 27% 25% Net inventory 54.5 73.0 Receivables 41.3 33.3 20% 21% 21% 21% Payables (16.3) (14.7) Other items 2.8 2.3 17% 15% 12% 82.3 93.9 10
Slide 39: Weekly Net Debt
APPENDIX 12. WEEKLY NET DEBT 39
Slide 40: Non-Underlying Items
APPENDIX 13. NON-UNDERLYING ITEMS Continuing Discontinued 2023 2023 2023 2023 P&L Cash P&L Cash £m Note cost paid cost paid Acquired intangibles amortisation 3.0 - 0.7 - Acquisition expenses a 3.7 0.3 - - Mark to market of FX forward contracts (1.4) - - - Claim related costs - 1.5 - 0.2 Impairment o
Slide 41: FY22 Re-presented Results
APPENDIX 14. FY22 RE-PRESENTED RESULTS UNDERLYING NON-UNDERLYING £m Reported 2022 EHD business treated Re-presented in 2023 Reported EHD business treated Re-presented in as discontinued Annual Report 2022 as discontinued 2023 Annual Report INCOME STATEMENT Continuing operations Revenue 442.8 (41.8)
Slide 42: Market Consensus 2024 & 2025
APPENDIX 15. MARKET CONSENSUS 2024 & 2025 • The Group is aware of six 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: 2024 2025 Revenue (£m) 505 543 Underlying operating profit (£m) 73.7 81.
Slide 43: Defined Benefit Pension
APPENDIX 16. DEFINED BENEFIT PENSION £m 2023 2022 Liability driven investments 33.7 25.3 Diversified alternatives - 26.9 Corporate bonds 25.4 - Multi-asset credit - 7.8 Assets held by insurance company 1.0 1.1 Cash 2.1 10.3 Total assets 62.2 71.4 Defined benefit obligation (56.3) (60.2) Net surplus
Slide 44: Organisational Chart
APPENDIX 17. 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 R
Slide 45: Glossary
APPENDIX 18. 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 46: Disclaimer
DISCLAIMER 2023 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