Chemring Group PLC

Good morning and welcome to the ChemRings interim results presentation for the six months to April 30th, 2026. I'm Mick Ord, the group's chief executive, and I'm joined this morning by our CFO, James Mortenson. I'll begin with the first half headlines, then James will take you through the financial and operational performance in more detail. I'll then comment on the group's environment, the market environment, and spend some time on our key growth drivers and why this gives us confidence in ChemRings' future growth. We'll then take your questions at the end. Operational and trading performance in the first half was in line with our expectations. Despite the headwinds in the UK market, order inflow in recent months has been encouraging, improving our near-term visibility and reinforcing our confidence in the full year. Approximately 91% of forecast 2026 revenue had either already been delivered or was in the order book at April 30th and our full year expectations therefore remain unchanged. Market demand is strong as growing geopolitical instability drives a shift to high intensity deterrence and structurally higher defence and national security budgets. Against this backdrop, we continue to invest in areas which are aligned with our customers' priorities, particularly in countermeasures and energetics, where we deliver first-half growth and where our capacity expansion projects continue at pace. We continue to execute against our strategy and position in the group for strong future growth. James will take you through the financial performance in a moment, so I won't go into detail here. For me, I'd call out the increase in revenue reflecting a strong performance in cancer measures and energetics, the return to growth in sensors and information, and the order book of £1.4 billion, which is another record for the group. I'd also highlight our safety performance. We have reduced our total recordable injury frequency rate from 0.63 to 0.31, which reflects the progress we are making in our proactive safety culture and our zero harm ambition. And I want to acknowledge the focus and commitment of all of my colleagues across Kemring in keeping safety at the forefront of everything that we do. With that, I'll now hand over to James.

Thanks, Mick. Before I start, you'll notice a few images of the Artemis mission throughout the day. We're proud of our growing role in the space industry, and Artemis is a great example of the critical programs we're contributing to. There's more detail in the appendix. Turning to the results, performance in the first half was in line with expectations, and our focus is now firmly on delivering the second half. The order book reached a record of 1.4 billion, up 8%. Revenue, up 7%, showing continued momentum. Operating profit and operating margin were lower year on year, and that flowed through to EPS. Cash conversion was lower, mainly due to working capital investment to support H2 deliveries. An interim dividend of 2.8p declared, up 4%. Next, let me take you through the segmental performance. Starting with countermeasure and energetics, another strong performance with both revenue growth and margin expansion. Revenue grew 9% as the businesses ramp in line with our plan, meeting our customers' unprecedented demand. This led to operating profit up 32%, a margin increase to 18.4%. This improvement was driven by better commercial terms and our rigorous focus on operational excellence. turning to sense and information which performed as expected. Revenue growth and strong order intake, but margins impacted by product mix and maintaining operational capability. There were clear positives. Order inflow was up nearly 60% as we saw the Roke business stabilise with strength in national security. We therefore returned to growth with revenue up 3%. As expected, operating profit and margin were lower and there were three main drivers. First, we deliberately maintained operational capability and so had lower utilisation in ROC. This was to support improving national security demand and to position ourselves to take advantage of the significant UK MOD opportunity pipeline as it arrives. Second, revenue mix. Early Cortexa pre-production units carried lower margins. We expect to improve commercial terms going forwards as we enter full-scale production. Third, pass-through. The first work package on the £251 million Missile Defence Centre project increased the proportion of low-margin pass-through revenue. Turning to the cash flow... Cash conversion was 42% in H1, mainly reflecting our decision to increase safety stocks and secure inventory for H2 expected revenue. We expect an improvement in H2 conversion with full year guidance in the range of 80% to 85%. CapEx was $44 million, with good progress across our expansion projects. Net debt increased as expected through the peak investment phase. We returned $19 million to shareholders, $14 million through the dividend and $5 million through the buyback. We also purchased some shares to satisfy acquisition consideration and employee share options. We signed an additional $80 million UKEF facility, which will replace the current UKEF facility as it expires. Together with the RCF and US overdraft, we now have $342 million of available facilities. We close the period with net debt of 145 million, or 1.5 times leverage. We do expect net debt to rise further, but in line with market expectations. Next, let me update you on the energetics expansion projects, which continue at pace. Chicago, complete, on budget and on schedule. fit out is done. Production ramping. We are now focused on lean practices to maximize output. The additional capacity positions us well for future demand and gives us optionality should needs increase following the conflict in the Middle East. Scotland remains on track, also on budget and on schedule. Construction is complete, machinery installed and commissioning underway. we remain on track to deliver revenue in 27. Norway, phase one, complete and on budget. Phase two is progressing well. Groundworks are nearly complete. Concrete foundations for nearly all the buildings laid. And as you can see, the first building is nearing completion with the second approaching halfway. Across all the sites, we remain on track to deliver 100 million in revenue and 30 million in operating profit by 28. We're also making good progress on a potential second site in Norway, the Greenfield. As a reminder, this is for a facility at least as big as our enlarged facility, and a location has been identified about 25 kilometres southwest of the current site. We are now in the concept selection phase, fully funded by the Norwegian government with around £16 million, and expected to report out in early 2017. Next, let's look at order cover and the book and bill for the rest of the year. What gives us confidence in our full year guidance? Our record order book provides 91% cover for the rest of the year. That's up 600 basis points on the prior year. In countermeasures and energetics, that order cover is strong, nearly fully covered this year and 81% and 68% in the following two years. In sense and information, order cover is now 84%, up from 64% last year, a significant improvement. If we break down the book and bill, the majority relates to expected orders in countermeasures and energetics and high confidence renewals in national security. Those EW product sales are to a number of international customers where tenders are in process. And lastly, there are a couple of orders to the UK MOD. These are largely for programmes we have been delivering on, but procurement delays have pushed timing. And so to guidance. FY26 guidance remains unchanged from the year end, so I won't go through it in detail. It's supported by 91% order cover and an improving performance in the second quarter, with 70% operating profit expected in H2. Cash conversion is expected to be 80% to 85% for the full year, reflecting a much stronger H2. As always, there are external factors to monitor. I just flag, while we have seen no supply chain issues and energy is well hedged this year, we continue to monitor the impact of the Middle East situation. And so, we will continue to balance near-term performance with longer-term growth and value creation. And with that, I'll hand back to Mick for the strategy section.

Thanks, James. I'll now turn to the market environment where geopolitical tensions are at increasingly elevated levels. This is driving a rearmament cycle which we expect to last at least a decade and probably longer. And it is these fundamental market changes which underpin our confidence in the long-term outlook. This slide summarises why we believe defence spending is on a structurally higher trajectory, irrespective of whether we see peace deals in Ukraine or the Middle East. There are several factors behind this, but I want to focus on two. Firstly, defence planning assumptions have changed. NATO has shifted from expeditionary operations to persistent territorial defence and peer conflict readiness. To deliver these changes will require more durable and growing defence budgets. 2% of GDP is now a floor, not a ceiling. Defence spending is becoming more politically embedded across Europe, with multiple NATO members moving towards the Alliance's ambition of 5% by 2035. That shift also supports multi-year procurement visibility rather than sporadic demand. Secondly, the significant materiel demand arising from the conflicts in Ukraine and the Middle East have drawn down inventories and exposed vulnerabilities in the defence industrial base after years of underinvestment. Rebuilding these inventories requires sustained production at scale, not one-off orders. Defence industrial capacity is now being treated as a strategic infrastructure with governments prioritising sovereign and allied supply chains and supporting long-term framework contracts and capacity expansion, particularly in energetics. Against this backdrop, demand and investment is concentrated in areas where Kemring's capabilities are highly relevant – These include, but are not limited to, long-range strike missiles, integrated air and missile defence systems, space capabilities, cyber and electronic warfare, and counter-drone technologies. Our differentiated capabilities are therefore well-matched to where our customers are prioritising spend, supporting sustained growth across both our home markets. And I want to spend a few minutes on some of the group's key growth areas, starting with missiles and munitions, where Kemring is a major merchant supplier of high-grade military explosives and energetically actuated devices that are essential to missiles and advanced munition systems. We've called out on this slide some of the key missile and munition programs on which we are a key supplier, and at the bottom given examples of the types of materials and devices into which we supply. We supply highly engineered, designed-in products and materials that are not easily substituted. They require significant regulatory clearance and involve very long qualification cycles. As our prime contractor customers seek to increase missile and munition output, demand for these materials and devices rises, yet the pool of capable suppliers remains limited. Across the NATO defence industrial base, the supply of high-grade military explosives such as HMX and RDX and insensitive munition compositions is recognised as an area of significant undercapacity. KEMRING already has licensed infrastructure and capacity Deep expertise in formulation, production and handling of these materials, which positions us strongly as governments and prime contractors, prioritize supply chain resilience and domestic sourcing. While some European companies have announced their intention to expand supply of lower-grade explosives such as TNT, there are no mature plans for large-scale HMX production, which provides us with a first-mover opportunity in the market. It is these market dynamics which continue to reinforce our decision to invest in additional capacity through a combination of customer-funded and self-funded projects. I'm often asked whether demand across countermeasures and energetics would ease if there were peace in Ukraine and the Middle East, so I thought I'd talk to that for a moment. Operation Epic Fury and ongoing operations in the Middle East have to date cost approximately $25 billion and have materially depleted US inventories of multiple missile systems. In addition, even before Operation Epic Fury, many analysts and commentators judged stockpiles to be insufficient for peer conflict scenarios. So there is now a very significant imperative for the U.S. Department of War to ramp up production to replenish stocks of existing systems and to move new programs into production phases. As a result, the Trump administration has announced several multi-year agreements with industry prime contractors to increase output and place missile production on a wartime footing. And as a merchant supplier into many of these programs, Kemring has well placed a benefit from this increased demand. In Europe, demand is being shaped by a combination of current battlefield consumption, structural stockpile gaps and long-term rearmament decisions. And on both sides of the Atlantic, governments are increasingly seeing defence industrial capacity itself as a core element of deterrence, not just as a supporting function. The bottom line is that missile ammunition demand is being shaped less by short-term crises and more by a structural shift towards sustained rearmament with higher stockpiles and usage assumptions. The next area I want to touch on is air and naval platform protection. Given missile threats relentlessly increase in both number and sophistication, platform survivability remains paramount and mission critical across air and maritime domains, and we see a growth trajectory for countermeasures extending well into the 2030s. As the leading global supplier of countermeasures, Chemring is uniquely positioned to benefit. With more than 65% of the addressable market share, our products protect approximately 85% of NATO's air fleets and 60% of NATO's naval fleets. Our leading incumbency gives us a real advantage as customers expand stockpiles and plan for higher usage rates. In the first half, we secured £123 million of countermeasures orders, which is up 486% year-on-year, with demand primarily coming from European customers. Innovation also matters in this market, and we have several development programs underway on both sides of the Atlantic, including protection for uncrewed platforms and threat-agnostic countermeasures designed to address both current and emerging threats. We do have market leadership, deep customer relationships, and growing demand, and therefore the group's position in air and naval platform protection continues to strengthen as the market expands. Finally, let me turn to ROC and the critical role its technologies play in the defense of the United Kingdom and increasingly international customers. On this slide, I called out the areas of cyber, electronic warfare, resilient navigation, and counter-drone. and indeed there are many more technologies I could have mentioned. And whilst there is a great deal of focus on defence-related opportunities, we must always remember that national security and law enforcement remain at the very core of ROC, continuing to provide a stable underpin to the business, as evidenced by approximately £40 million worth of programme renewals secured to date. And in addition, national security provides a technology and innovation catalyst which benefits the entire business. To help mitigate the near-term headwinds resulting from the delayed publication of the UK's defence investment plan, the Rogue team continue to take action to protect and reposition the business and are seeking to broaden their international customer base. Rogue's defence product business has a five-year international sales pipeline of more than £300 million and continues to invest in expanding its product portfolio. Of note, their counter-drone system, Cortexa Guardian, which is a combined radar and electro-optics system, which was officially launched to the market in April 2026, already has multiple opportunities now in sales conversion. Sales have already been made in Sweden and the UK as counter UAS becomes increasingly mission critical. In summary, with strong positions across multiple critical technologies, deep customer relationships and a growing international footprint, ROC is well positioned to benefit from the expected UK defence upturn and opportunities overseas. So to summarise, operational and trading performance in the first half was in line with our expectations. And despite headwinds in the UK market, we have seen encouraging order inflow in recent months, improving our near-term visibility and reinforcing confidence in the full year. And with 91% of expected 2026 revenue either delivered or in the order boot at April 30th, our full year expectations remain unchanged. so with growing geopolitical instability shifting driving a shift to high intensity deterrence and higher baseline defense and national security budgets and with a record order book of 1.4 billion pounds the outlook is increasingly compelling our differentiated capabilities together with the investments that we are making to expand capacity across our three energetics businesses mean we are well positioned with where our customers are prioritizing their spend. That supports sustained growth across our major markets, and I remain confident that Kemring is well positioned for strong future growth. That concludes this morning's presentation. We'd now be happy to take your questions. Can I ask that you state your name and organization before asking your question? All right. Who's first? Okay.