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Edited Transcript of CHG.L earnings conference call or presentation 16-Dec-19 9:30am GMT

Full Year 2019 Chemring Group PLC Earnings Call

Fareham Jan 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Chemring Group PLC earnings conference call or presentation Monday, December 16, 2019 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew G. Lewis

Chemring Group PLC - Group Finance Director & Director

* Bill Currer

Chemring Group PLC - President of CHG Group, Inc.

* Michael Ord

Chemring Group PLC - Group Chief Executive & Director

* Paul MacGregor

Chemring Group PLC - MD of Roke

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Conference Call Participants

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* Charlotte Anne Keyworth

Barclays Bank PLC, Research Division - Analyst

* Henry Carver

Peel Hunt LLP, Research Division - Analyst

* Ross Law

Joh. Berenberg, Gossler & Co. KG, Research Division - Research Analyst

* Sash Tusa

Agency Partners LLP - Research Analyst

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Presentation

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [1]

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Okay. Good morning, everyone, and welcome to the presentation of Chemring's results for the year ending October 31, 2019. I'm joined today by Andrew Lewis, our Group Finance Director. And I'm also pleased to welcome Bill Currer, who leads our businesses in the U.S.; and Paul MacGregor, the Managing Director of our Roke business here in the U.K. All will be available to answer questions at the end.

Today's presentation is being broadcast live via an audio webcast, and a recording will be available on our company website later today.

I will provide an initial overview before handing over to Andrew, who will take you through the financial results. I will then provide a short review of our FY '19 performance and our focus for FY '20. We will then take questions.

Safety is and always will be our core value. Our goal remains zero harm, and this will be achieved by establishing and embedding a proactive safety culture across the company, which focuses on the control and interaction of people, plants and processes. In the last year we have invested in a new HSE and strategy, standards, guidelines, and it is encouraging to see this effort is resulting in the continued improvement of our safety performance globally. But there is no room for complacency, and we will continue to place safety at the heart of everything we do, ensuring that all our colleagues return home safely at the end of their working day. Our safety strategy and plan will take a number of years to complete and, as previously discussed, will drive capital investment in our sites, plants and equipment. There is no update on the HSE investigation into the incident at our Salisbury facility in August 2018.

Turning now to our performance in FY '19, which was a year in which we made good progress in improving the quality of the company. Overall performance across the year was slightly ahead of our initial expectations, with a strong performance across our Sensors & Information sector helping to offset a weaker performance in Countermeasures & Energetics, which was impacted by planned site recommissioning and qualification. In November 2018, we announced the decision to exit the commoditized Energetics businesses, and it was, therefore, pleasing to announce last month the sale of the fourth business and the final part of that process. This transaction is another step in the delivery of our strategy and further improves the quality of the group and its future earnings.

With a number of significant operational and strategic milestones achieved this year, we have made real progress as we build a stronger, more sustainable business for the future. Collectively, we are changing the culture of the company to one of collaboration, responsible behavior and belief in our core values of safety, excellence and innovation.

Looking forward to FY '20, we have started the year well with trading across all our businesses in line with our expectations and with expected revenue approximately 76% covered by the order book. Overall, the Board's expectations for the full year are unchanged with the usual weighting to the second half.

I will now hand over to Andrew to take you through the financial results.

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Andrew G. Lewis, Chemring Group PLC - Group Finance Director & Director [2]

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Thanks, Mick, and good morning, everyone.

As indicated in our year-end closing statement, the financial results were slightly ahead of our initial expectations driven primarily by a strong year in the Sensors & Information segment.

The key messages from this year's results. Revenue was up 13%. Operating profit grew significantly to GBP 44 million, up 42% year-on-year. Our margin improved 270 basis points from 10.4% to 13.1%, demonstrating the margin potential of the continuing business. Foreign exchange has been a minor tailwind in the year as the average dollar rate was $1.26 compared to $1.34 in 2018. Constant currency information is later in the presentation for the group and is in the appendix at the segment level. The 25% reduction in the interest charge for the year was driven by the continued focus on reducing intra-period net debt volatility through the better management of day-to-day working capital. Operating cash conversion was strong at 104% of EBITDA, leaving net debt down GBP 6 million at GBP 76 million. Earnings per share was up 64% to 11p. And the Board has declared a final dividend for 2019 of 2.4p, making the total for the year 3.6p, up 9%.

Operationally, order intake was up 14% driven by F-35 orders for our Australian plant and further HMDS orders on the U.S. Program of Record. This left a closing order book of GBP 449 million, GBP 287 million of which is expected to be delivered in 2020, which covers 76% of expected 2020 revenue.

The next slide shows a more detailed income statement. I've covered most of the highlights already, so I'll just pull out the fact that the result for the year includes GBP 15 million of insurance recoveries in respect of the incident at Salisbury in August last year. This has offset the site's operating and remediation costs in the year. And after these insurance proceeds, the site was an approximately breakeven for the year.

In accordance with accounting standards, insurance proceeds have been accounted for as other income rather than revenue, and therefore, the group and Countermeasures & Energetics segmental operating margin has been flatted in 2019. Appendix 6 shows the impact. And at a group level, in 2019, we believe the operating margin has been flatted by approximately 1% by this accounting method, leaving the adjusted operating margin at approximately 12%, which still represents solid year-on-year improvement.

The underlying tax rate for the year was 20% as the geographical mix of profit was biased towards the lower rate countries given Australia's refitting and Norway's operational challenges in the first half of the year. Going forward, we expect the effective rate to remain in the low 20s, notwithstanding any changes to the U.K. rate which the new government may make.

The revenue and profit bridges show the key drivers of the group's results this year. At a revenue level, there was significant progression in the Sensors & Information segment driven by the HMDS program and a strong year at Roke. Countermeasures & Energetics was adversely impacted by the closure of the Australian and U.K. countermeasures sites for recommissioning, but these ramped up in the second half and should deliver a more normal contribution in 2020. At an operating profit level, we see the Sensors & Information growth dropping through as expected. Notwithstanding the revenue for Countermeasures & Energetics was up slightly, and this is reflective of the Salisbury insurance proceeds not being accounted for as revenue, as discussed on the last slide, foreign exchange was a 4% tailwind to operating profit.

Moving to the segmental results and starting with Sensors & Information, the results show revenue up more than 50% and operating profit up 72% to GBP 26.3 million, reflecting the impact of the HMDS program ramp-up and the strong year at Roke which delivered double-digit growth in revenue and operating profit. Roke's information security and data science markets continue to grow, and we've invested in resource and skills, which positions it well for continued future growth.

In the U.S.A., further orders were won on the HMDS and EMBD programs. And the AVCAD and JBTDS programs progressed as planned, with the former passing through critical design review late in the year and the customer ordering a further 75 EMD units.

Moving on to Countermeasures & Energetics. The result has been impacted by the temporary closure of 2 sites in the year. The Salisbury site has been closed following the incident last August, and the Australian site has been closed for refitting to allow it to produce F-35 countermeasures. Both sites restarted production in the second half and are expected to deliver at more normal levels in 2020. We believe the countermeasures market outlook is improving particularly in the significant U.S. market, and this has supported the decision to invest in capacity expansion and automation at our Tennessee facility. A multiyear GBP 50 million investment in an extruded flare automated facility to support expected F-35 requirements has commenced. Our Australian site received its first F-35-related orders in the period and is now well positioned as a second source to the U.S. DoD. The first delivery under this framework was made late in the year. Our niche Energetics businesses in Scotland, Norway and Chicago had a strong year. The integration of the Californian facility into Chicago was completed, and the demand for their niche products has remained strong.

Returning to the group results and the impact of foreign exchange in the year. With approximately half of our business U.S. dollar denominated, we have dollar translation exposure. The U.S. dollar average rate has provided a tailwind as it's been $1.26 in 2019 compared to $1.34 in 2018. The slide shows constant currency information with 2019 restated at 2018 rates. The current rate is $1.34, and the rate clearly has the potential to continue to be volatile in 2020. And as a guide, the sensitivity to a $0.10 movement in the U.S. dollar rate in 2019 would have impacted underlying operating profit by approximately GBP 1.8 million. Transactional exposure is limited due to local manufacturer. And where it does exist, it's hedged at the time of order receipt. Debt is largely dollar denominated and acts as a natural hedge to our dollar income streams.

The cash flow shows the group's net debt at the end of the year at GBP 76 million. This is a year-on-year reduction of GBP 6 million which has been driven by strong cash conversion. The operating cash conversion ratio was 104% of EBITDA. The improved operating cash generation has come about from the focus on reducing intra-period net debt volatility through the implementation of sustainable improvements in business practices which have resulted in improved working capital disciplines, as you can see on the graph, the current year being the blue line at the bottom and the previous 3 years represented by the lines above.

The significant non-trading items in the year were CapEx was up as the first significant expenditure was made on the Tennessee site extruding facility, and investment was made to recommission the Salisbury site; the lower finance expense as the benefit of lower week-to-week net debt levels were seen; and the pension payment was lower, the GBP 0.4 million paid represented the final payment under the current deficit recovery plan.

Mick has referred to building a stronger business, and that applies to the financial management of the group as well as its operations. It's worth reflecting that in 2016, interest and pension scheme payments totaled GBP 22.5 million. In 2019, this had reduced to GBP 5.6 million and is expected to reduce further in 2020. This reduction through proactive management has been a key enabler to funding the investment in the group's operational infrastructure.

On to the balance sheet. Our net debt-to-EBITDA ratio decreased from 1.64x last year to 1.24x. Since the year-end, we've repaid the final tranche of the private placement loan notes. This concludes the legacy financing structure, and the loan notes have been replaced by debt drawn from our revolving credit bank facility. This GBP 147 million facility runs to October 2022. Going forward, this will significantly reduce our cost of debt.

Other items of note in the balance sheet. Property, plant and equipment has increased as the investment in the Salisbury and Tennessee sites has started in a meaningful way. We expect CapEx to run at a high level over the next 2 to 3 years as a number of sites are recapitalized. The held-for-sale assets have reduced as CMP and Derby have been divested and CPC closed. GBP 14 million of cash was realized from working capital in the discontinued businesses prior to their disposal. Working capital from the continuing businesses increased by GBP 7 million as inventory increased in preparation for Q1 2020 deliveries when all sites are expected to be operational. Finally, the pension scheme shows GBP 9.6 million surplus, albeit on an IAS 19 basis. More interestingly, from a cash perspective, the final deficit recovery payment of GBP 0.4 million was made in the year. No further payments are expected in 2020 and 2021, after which another triennial valuation will be undertaken. With net debt of GBP 76 million and a year-end net debt-to-EBITDA ratio of 1.24x, which compares to our banking covenant of 3, our balance sheet is robust, which positions the group well to continue to invest and build a stronger business.

Moving on to the order book. At a group level, the closing order book of GBP 449 million with GBP 287 million expected to be delivered in 2020 giving 76% cover on expected 2020 revenue. In both segments, we've worked on improving the quality of the order book, leveraging deep, strong, long-term customer relationships.

Turning to each segment and starting with Sensors & Information. Order intake was up 23%, and book-to-bill was 102%. The order book in this division tends to be shorter cycle. And of the GBP 80 million order book, GBP 68 million is expected to be delivered in 2020 in addition to orders won and delivered in the year, giving 52% cover of expected revenue which provides improved visibility. We are increasingly seeing longer-term customer commitments, including the previously announced SERAPIS framework contract by Roke -- won by Roke and the DoD Programs of Record in the U.S.

In Countermeasures & Energetics, order intake was up 10%, and book-to-bill was 136%. The closing order book of GBP 369 million, GBP 219 of which is for delivery in 2020, giving 89% cover of expected 2020 revenue, which is improved visibility of future revenue compared to prior years. Two of the key multiyear contracts with a 7-year framework contract with the U.K. MOD and the first F-35 countermeasures contract into Australia from the U.S. DoD.

My final slide is a repeat of the medium-term financial objectives we shared 6 months ago. As these are unchanged, I don't propose to cover them in detail as part of the presentation, but I'm happy to take any individual questions afterwards.

With that, I'll hand you back to Mick. Thank you.

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [3]

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Thanks, Andrew. And I want to take a few minutes recapping on the goals we set ourselves for FY '19 before turning to our areas of focus for FY '20.

When I presented to you in March, I laid out the key imperatives required to build a stronger business for the future. And I have been heartened by the positive manner in which our people have embraced this challenge. Of real note is the quality of the business leaders and teams we have recruited and installed in our businesses across the U.S. and the U.K. We needed to focus our efforts on our 2 business sectors where we have real competitive advantage and differentiators, including intellectual property, niche technologies and high barriers to entry. We needed to focus our efforts on our home markets of the U.S., U.K. and Australia. But we also needed to look beyond our traditional defense and security customers and grow in the commercial sector. We also needed to invest in safety, modernization and automation to improve operational performance and competitiveness.

To deliver these goals, there were 4 key projects that ran throughout the year. The first project was to exit the group's 4 commoditized Energetics businesses located in Derby and Florida. As I touched on at the start, the decision to exit these businesses was announced in November 2018 following a strategic review of the group's Energetics portfolio. The sale of Chemring Military Products and Chemring Defence and the closure of Chemring Prime Contracts were all completed in the financial year. And the sale of Chemring Ordnance was announced on November 21 and is expected to complete by the end of Q2 FY '20. These disposals retire significant operational and reputational risk and enable greater focus on our niche specialist energetic devices and materials businesses located in Chicago, Scotland and Norway.

The second project area was to mobilize our U.S. programs -- U.S. Sensors Programs of Record. The HMDS program has been a key contributor to the year. Production ramp-up progressed as planned with customer deliveries made on schedule and with $30 million of further delivery orders received in the year.

In biological agent detection, both sole-sourced JBTDS and EMBD programs progressed to plan through customer testing and engineering, manufacturing and development phases, respectively, with the next production decision on JBTDS expected in 2020.

In the chemical agent detection, the AVCAD program has progressed to plan through the EMD phase. And in October, following a successful critical design review, we received an order for a further 75 units to support further customer testing. The next customer procurement decision for AVCAD at the conclusion of the EMD phase in 2021, and I must remind everyone that this remains a competitive program.

The third area of focus was to restart manufacturing at our Salisbury countermeasures site following the tragic incident in August last year. The phased restart of operations progressed as planned, with chaff and flare -- chaff and naval decoy lines operational in the first half. Spectral and MTV lines commenced operations in the third quarter as planned, with the overall site at steady-state manufacturing by year-end. The business's focus is now on improving efficiency and competitiveness through lean manufacturing and modernization. As I mentioned earlier, the HSE investigation is still ongoing.

The final project was capacity expansion construction at our Tennessee countermeasures facility. As a reminder, this construction project will result in an automated capability with significant additional capacity, reflecting expected customer demand over the medium term particularly in support of the F-35 Lightning II global fleet. Major construction milestones were achieved in the year, with spend to date being GBP 15 million of a total build cost approximately GBP 50 million. Commissioning and manufacturing of the first article products is scheduled for next year, with production scheduled to commence in 2021. This investment is expected to safeguard and expand our leading position in the global countermeasures market.

So FY '19 was an exceptionally busy year in which the teams worked tirelessly to deliver our current mission of building a stronger business.

Turning now to FY '20 and our key areas of focus for the year. As you would expect and I hope as you would demand, safety will remain at the center of everything we do, and we will not compromise safety for the sake of any other business goal. As we continue to build a stronger business, so we build a platform for sustainable performance and growth. At the macro level, there are 3 key areas of focus for us in FY '20: our global Countermeasures organization; growing our Roke business; and protecting and growing our U.S. Sensors business.

Our first area of focus is global countermeasures, where we are taking steps to consolidate our 3 Countermeasures businesses into a single global structure which is aligned to our key customers and market opportunities. This will enable us to more effectively leverage our global market-leading position and technologies to enhance our growth opportunities, our market competitiveness and new product development. We have made good progress in strengthening collaborative customer focus with the highlight being the recent U.S. DoD program management review held at our Melbourne site with both our Chemring U.S. and Chemring Australia businesses. This is a first and bodes well for the future. The next review will again be a joint session this time held at our Tennessee site. Strong working relationships are now common across the business with shared supply chains being established between the U.S. and Australia and the sharing of operational and best -- operational best practice between our manufacturing sites and automated facilities. The creation of a single multinational organization will be a significant step forward for the group and, coupled with the investment we are making in capacity expansion, modernization and automation, will be a key driver of performance and growth in Countermeasures.

Our second area of focus is our Roke business. We have established a new leadership team as a key enabler for our growth plans. And as I said earlier, Paul MacGregor, the Managing Director, is here today. The markets for electronic warfare, cybersecurity and data science, in which Roke is a market leader, have been buoyant in FY '19 and are expected to remain strong. Roke has expanded its services and capabilities resulting in recent contract wins, including those with the National Crime Agency helping to tackle online child abuse and sexual exploitation and the National Cyber Security Centre to increase the resilience of our critical national infrastructure, truly noble work and a testament to our exceptional Roke colleagues. We will continue business development activities with our core U.K. national security and defense customers, and we will increasingly seek to develop opportunities in the commercial sector. We will also look for opportunities to take Roke's technologies into international markets especially in the U.S. and Australia. The FY '19 consolidation of all of our electronic warfare products and technologies into Roke has provided a platform to transfer U.K. technology into the U.S. market. A number of U.S. Army units have been trialing our products throughout the year, and we will be working hard to capture a foothold in this important market. I firmly believe that Roke provides us with a significant opportunity for future growth.

Our third area of focus is in the U.S. Sensors market where we have both well-established sole-sourced positions and potential future opportunities. Our focus is increasingly turning towards the execution of production phases on the existing Programs of Record. HMDS production has been established with required delivery rates and schedules being achieved. Clearly, we must now maintain that performance exceeding and ensuring we exceed our customers' expectations.

In our biological detection programs, namely JBTDS and EMBD, our focus must be both externally in supporting our U.S. DoD customer's requirements; and internally, continue to ensure our manufacturing and wider operations functions are delivering to schedule and cost. It was also pleasing that last Thursday, we saw an award of a $12 million contract for further biological agent warning system units, demonstrating our continued work in support of in-service systems.

In the AVCAD program, we will continue to support the customers' testing activities and, in parallel, build the most competitive proposal to maximize our probability of winning the LRIP phase. In addition, we must ensure that we look beyond the current programs and build medium-term technology road maps with the teams having mobilized this crucial work.

There is now growing collaboration between our U.S. and U.K. businesses. And for the first time, Roke and CSES have a single aligned strategy, capturing shared technology development and shared business winning campaigns. This provides a strong foundation for our future growth plans.

So in conclusion, a lot has been achieved this year. We set ourselves demanding goals, and the teams have risen to the challenges. We have implemented significant changes to improve safety, strengthen leadership, enhance corporate governance and embed continuous improvement across the group. And there is still more to do. We will continue to focus our efforts on building a stronger, higher-quality and sustainable business that delivers positive returns for all our stakeholders. The new financial year has started well, and we have 76% of expected revenue covered by the order book. So the Board's expectations are unchanged, and we shall continue to drive performance across the company in support of our core purpose, which is innovating to protect.

That concludes the presentation, ladies and gentlemen. We are happy to take any questions that you may have. Can I ask that you state your name and the institution you represent before asking your question.

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Questions and Answers

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Henry Carver, Peel Hunt LLP, Research Division - Analyst [1]

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It's Henry Carver from Peel Hunt. Just on Roke, a couple of queries. And just on the growth there, what does it entail for you guys? Is it investment in people? Do you need more premises? Or is that an area that maybe an acquisition might be possible to expand?

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [2]

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Well, I'll give you my view, and then maybe why don't we ask Paul to give you a view. So there's been a significant change in our Roke business over the last 12 months and very much under Paul's leadership, where we are implementing a far more growth-focused strategy. And all of the areas that you have identified with regards to investment in people, investment in new technologies and expansion from a geographic perspective are all on the agenda. Paul, why don't you add a little bit more color to that?

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Paul MacGregor, Chemring Group PLC - MD of Roke [3]

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Yes. I mean I think the #1 driving capability around Roke is its people and attracting and retaining really high-quality engineers, scientists and business support staff and providing them the environment, whether it's physical environment or the tools and techniques and the training, is fundamental to our growth. Our strategy is very much about growing in the U.K. Mick has already talked about taking our message out into the U.S. in cooperation with our U.S. colleagues and then down into Australia. In both markets, there is already Roke technology deployed, so we're building on a strong reputation and customer references already?

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Henry Carver, Peel Hunt LLP, Research Division - Analyst [4]

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Acquisition, is that a sort of -- would that be on the agenda or not?

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Paul MacGregor, Chemring Group PLC - MD of Roke [5]

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I think growth by a number of different means. If we can find the right people and the right technology, then yes, I'm sure I would be encouraged to ask the Board.

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Ross Law, Joh. Berenberg, Gossler & Co. KG, Research Division - Research Analyst [6]

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It's Ross Law from Berenberg. Maybe just a couple on AVCAD. Maybe if you could just set out how your technology is different to your competitor on that program and what's maybe giving you confidence that you have a better offering than them. And secondly, I think in the presentation, you mentioned down selection is now expected in 2021. I was previously under the impression that was maybe a counter 2020 decision, so any color on why that's maybe been pushed back a little bit.

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [7]

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Well, firstly, on the timing-wise, I don't think it has pushed back. I think it's always been envisaged that it would be in 2021, early in the calendar year, so that's what we're working towards. With regards to our technologies versus our competitors' technologies, so we utilize mobility spectrometry as opposed to mass spectrometry. I'm not an analytical chemist, however, those technologies are better suited to different portions of what is a very wide operational set of requirements. So we believe that our technology offers a very good balance across what is a very large set of use cases from the U.S. DoD customer. We don't take anything for granted on AVCAD. We've worked very, very hard this year. We've done some fundamental redesigns with our system to improve space, weight, power and resilience of the system, all of which were very positively received by our customer earlier -- sorry, towards the end of the year, when we passed through our very successful critical design review in Charlotte, North Carolina.

We got Bill over from the States. Bill, anything you'd like to add from the AVCAD perspective?

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Bill Currer, Chemring Group PLC - President of CHG Group, Inc. [8]

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No, whatever you said. There were 32 people representing about 12 different organizations at that CDR. And that's just a reflection of the complexity of the concept of operations that these various different organizations have. Our technology is well suited to a number of them. Smiths' technology is better suited to some others. It's going to be a competitive fight-off probably not between the execution of the companies but more about which of those concepts of operations really prevail at the end. We're feeling reasonably competitive right now. And I can tell you that just from these last couple of design reviews I've been through, I have a great deal of comfort that our execution is good. We'll just have to see how it plays out.

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [9]

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Thanks, Bill. Charlotte?

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Charlotte Anne Keyworth, Barclays Bank PLC, Research Division - Analyst [10]

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Charlotte Keyworth from Barclays. Two from me. Just on the Salisbury facility, we're back at steady-state production now, which is great. You mentioned some modernization investment here. I just wondered, in terms of margins, is there any kind of learning curve associated with ramping back to full rates as to how we should think about that for next year? And secondly, just on Australia, now we're opening Q4 for business after the investment. Is that something -- when would you expect to be reaching kind of a higher utilization rate into next year, just again tracking that into the next year?

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Andrew G. Lewis, Chemring Group PLC - Group Finance Director & Director [11]

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Yes, sure. So let's start with Salisbury. I think margins-wise, I probably expect still an element of learning curve in the first half of this year, with the second half tracking to what we would consider to be more normal Salisbury margins which, obviously, as you know, elements of it are governed by the sole-sourced regulations of the U.K. MOD. And so the actual margin very much depends on the mix in any given period between U.K. MOD-regulated work and export work. On Australia, first deliveries happened right at the end of the year under that framework contract. They're making 2 products for JSF, the training flare and the operational flare. I think the facility will be operational through the first half of the year given they have to ship products and get it tested and approved in-country in the U.S. The profile of revenue is likely to be much more second half weighted given the time delay between production and when that's approved to be accepted by the customer as it's shipped and tested. So I'd expect the second half in Australia to be much greater weighting than the first half. But then once we're beyond H1, we're into a normalized run rate because you haven't got that 3-month lag between production and approval.

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Charlotte Anne Keyworth, Barclays Bank PLC, Research Division - Analyst [12]

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(inaudible)

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Andrew G. Lewis, Chemring Group PLC - Group Finance Director & Director [13]

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Yes. So I'll repeat the question because you've lost your microphone, Charlotte. So this year, we said Salisbury ran at about 21 million of revenue. In the past, pre-incident, Salisbury had run at somewhere between 40 million and 50 million annualized, so we'd expect Salisbury to trend back towards that window. In Australia, this year, the revenue there was somewhere in the 10 million to 15 million space, and we'd expect that going forward to double or slightly more than double.

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [14]

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Just on Australia, and we haven't got Joe Farrah, the Managing Director, here with us today. And I'm sure he'll be listening in by the pool with a cold beer, so enjoy that, Joe. But it's been -- whilst, financially, Australia haven't really contributed very much to FY '19 results, they strategically shifted our business to a completely different place. So they are fully qualified now on the 2 F-35 countermeasures. They're now fully qualified as an extended part of the U.S. industrial base, which is a truly unique achievement. And thirdly, the automated facility that's done in that plant, I think it was built about 6 years ago, something like that it's been there for, and it's always just operated on a single day shift. And Joe and the team have taken that, and it is now running 24 hours a day, 5 days a week. We run our facilities 24/5, 2 days for safety critical maintenance. And Joe has taken a business that's kind of ticked over on a single day shift and put it into 24/5 operations. On a brand-new countermeasure for the world, which is going to be -- the F-35, which is going to be the fast jet that's going to dominate the landscape for the next 50 years. So we talk about strategically repositioning the business. Enjoy your beer, Joe, next to the pool because that's been a fantastic year for Australia.

Any more questions? One in the front.

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Sash Tusa, Agency Partners LLP - Research Analyst [15]

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Sash Tusa from Agency Partners. I just wondered if you could clarify the revenues by geography. Is that the revenues where they're going to or where they've come from? Because I think you state -- you put in the statement that U.K. MOD was 5% of revenues last year. Does that mean there's another 12% other government departments? Or does the pie chart in the presentation include exports as well.

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Andrew G. Lewis, Chemring Group PLC - Group Finance Director & Director [16]

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The former...

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [17]

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Former.

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Andrew G. Lewis, Chemring Group PLC - Group Finance Director & Director [18]

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Sash, so the U.K. MOD, 5%, yes. Other government agencies, and we -- particularly Roke on the national security side would make up the balance that's attributed to the U.K.?

Charlotte?

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [19]

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Charlotte? Just keep passing it between you.

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Charlotte Anne Keyworth, Barclays Bank PLC, Research Division - Analyst [20]

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Just on Countermeasures, I think one of the issues long term has been sort of lack of predictability when orders come through. And obviously, there's the training element as well which causes more issues. But are you seeing a trend towards being able to get more visibility from your customer in the DoD? Or are they getting better at giving you a sense of when these orders are going to come through or perhaps other nations as well?

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [21]

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I'll mention something, and then maybe Bill can talk to it. So yes, I think we are starting to see a little bit more of a longer-term view from our customers. If you look here in the U.K., this year, we've agreed a 5-year agreement with the U.K. MOD with regards to their countermeasures. In fact, it's 5 years with an option for another 2, so it's 7 years. And actually incidentally, we -- I think just before we went to print, we've just done the same agreement with our Chemring Energetics business up in [Ardea] for another 5 plus 2 years agreement up there. So that's a bit of a feel for -- starting to see a bit of a longer-term visibility. From a fast jet perspective, F-35, the program, I think we're starting to see a little bit more visibility of what that future program looks like. That's not just for the U.S. DoD, but it's all of the international partners themselves.

Bill, why don't you -- anything you want to add? I mean, obviously, F-35 and our work in Tennessee?

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Bill Currer, Chemring Group PLC - President of CHG Group, Inc. [22]

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Yes, I think DoD still struggles with FMS. Yes, the way that works is that probably about 30%, 40% of all the flares made are actually FMS and at least out of the U.S. operations. And you often have to wait for those governments to put the funding in before they can release the order. There's a large number of countries, and so that tends to complicate it. Plus we're still going through continuing resolutions. We haven't quite elected Boris yet and gotten Brexit well underway. We're still working through the funding process, so I anticipate that we'll see this year still a little bit of bumps as they work through the budget process.

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [23]

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Andrew?

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Andrew G. Lewis, Chemring Group PLC - Group Finance Director & Director [24]

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I mean the only thing I'd add, Charlotte, is probably 2, 3 years ago, the uncertainty related to the next 6 months. I think where we're looking now, we've got order cover in Countermeasures & Energetics for 2020 of 89%. We're probably looking at, okay, what does that uncertainty look like for the first half of FY '21 and how does the timing land with some of the orders that, yes, were due now or in the next 6 months as opposed to where we were 2, 3 years ago, where we were living hand to mouth. And we will say, hey, yes, we need to get this ordering in January to be able to deliver in April to hit a half year or, yes, we need to build that risk, anticipating an order, which is I think where the group has been 3, 5 years ago. So yes, it's a challenge, but it's a different challenge and one I see as a lower-risk short-term challenge.

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Sash Tusa, Agency Partners LLP - Research Analyst [25]

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Would you mind just clarifying a bit on the reputational risk that you think you've reduced as a result of the Energetics disposals and how you'd expect shareholders to see that come through?

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Michael Ord, Chemring Group PLC - Group Chief Executive & Director [26]

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Well, I think you're -- as we talked about in March, the Board, we had a review of the Energetics portfolio itself and the businesses that we decided to dispose of. Some of the products that were in that commoditized market, such as CS gas, et cetera, were not the types of products that we were seeing our future in. Some of the wider trading businesses, some of the products that they traded in also just didn't fit with our model going forward.

Okay. Thank you very much. Well, I think that wraps up, ladies and gentlemen. Thank you very much for joining us today, and we look forward to seeing you again at the half year results presentation in June.

Thank you. And thank you, Joe.