Chemring Group H1 2025 Earnings Report

Chemring Group EPS Results

• Actual EPS: GBX 7
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Chemring Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Chemring Group Announcement Details

• Quarter: H1 2025
• Date: 6/3/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, June 3, 2025
• Conference Call Time: 4:00AM ET

We are a specialist manufacturing and technology business creating market-leading innovative solutions to meet our customers’ complex needs. Using our extensive science and engineering expertise, we turn ideas into reality, designing and developing critical solutions that protect and safeguard in unpredictable environments in today’s increasingly unstable world. We achieve this by innovating at every stage of the value chain, from research and development (“R&D”) through to design, manufacture and in-service support, working closely with our customers to deliver products, services and solutions for mission-critical success. Our customer base spans national defence organisations, security and law enforcement agencies, as well as commercial markets such as space and transport. We support our customers in more than fifty countries across the globe.

Chemring Group H1 2025 Earnings Call Transcript

Key Takeaways

• Record order intake of £488 m (up 42% y/y) and a record order book of £1.3 bn provide strong revenue visibility into FY25.
• H1 revenue rose 5%, operating profit increased 8% (EPS +3%), group margin improved to 11.6%, cash conversion was 80%, and the interim dividend was raised 4% to 2.7 p.
• Countermeasures & Energetics saw 20% revenue growth, a 73% jump in operating profit, and margin expansion to 14.4% on strong operational execution.
• Sense & Information revenue fell 12% and operating profit dropped 26% due to prior-year program benefits and delays in UK government spending.
• Continued investment in capacity expansions—propellant facility in Scotland plus projects in Norway and Germany—and launch of EW system Deceive, which has gained interest from over 15 countries, supports the goal of £1 bn annual revenue by FY30.

Presentation

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Good morning, and welcome to the presentation of Kemring's interim results for the six months to the 04/30/2025. I am, as usual, joined by our CFO, James Mortensen. I'll briefly cover some of the group highlights from our first half before handing over to James, who will take you through our financial and operational performance. I'll then comment on the general market environment and the progress we are making in delivering our incremental growth strategy, which is underpinned by our values of safety, excellence and innovation. We'll then take questions.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Our momentum from 2024 has been maintained into this year with a continued delivery of our long stated goal of balancing near term performance with longer term growth and value creation. Across the first half, our operational and trading performance has been robust and in line with the expectations we set out in December, continuing to demonstrate the resilience and quality of the group. Our record order book and associated trading visibility underpins our growth ambitions as we build towards our goal of increasing annual revenue to £1,000,000,000 by 02/1930. And be assured, we will continue to closely manage operational and financial risk during this period of organic and inorganic growth. In summary, the Board's expectations for the full year are unchanged.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Clearly, none of this is possible without the commitment and dedication of my colleagues across the group. And I want to take this opportunity to acknowledge and thank them all for their unrelenting professionalism and hard work. Turning to the headline numbers. For me, the standout is our record £488,000,000 of order intake, which is a 42% increase from last year and the resulting £1,300,000,000 order book, which is the highest in the company's history. Operationally, our revenue was up 5% driven by a strong performance across countermeasures and energetics.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Operating profit was up 8% resulting in earnings per share being up 3%. You hear me say at all these presentations that safety is one of our core values. And I highlight on this slide that we have reduced our total recordable injury frequency rate to 0.63, which underpins our journey to a proactive safety culture and a zero harm ambition. I will now hand over to James.

[James Mortensen, CFO & Director at Chemring Group]

Thanks, Mick. We're pleased to report results in line with expectations as we deliver the plan. Here are the highlights. A new record order book for the group at £1,300,000,000 up 25%. Revenue up 5% showing continued strong momentum.

[James Mortensen, CFO & Director at Chemring Group]

Operating profit was up 8% with improved operational execution in countermeasures and energetics. Group operating margin improving to 11.6%. EPS was up 3%, and we had strong cash conversion at 80%. And so the Board has declared an interim dividend of 2.7p, up 4%. So turning next to our segmental performance.

[James Mortensen, CFO & Director at Chemring Group]

Countermeasures and Energetics revenue grew 20% as we saw strong operational execution. So operating profit was up 73% and margin increased to 14.4%. It was a weaker period in Sense and Information, as expected and previously highlighted. This was because the prior year benefited from JBTDS, LRIP, and there were delays to U. K.

[James Mortensen, CFO & Director at Chemring Group]

Government spending, which meant revenue was down 12% and operating profit down 26%. You will see we put a small exceptional charge in the year relating to Roke, which Mick will talk about later. There was a small FX headwind in the period. On a constant currency basis, group revenue would have increased by 6% and operating profit by 10%. Turning to the cash flow.

[James Mortensen, CFO & Director at Chemring Group]

We kept a strong focus on cash generation with cash conversion of 80%. We have continued to invest in our operations with £46,000,000 of CapEx spent in the period. Of this, 35,000,000 was spent on energetics expansion projects, and this was offset by £13,000,000 of grant funding. This brings the total spent on energetics expansion projects to 70,000,000 offset by total grants of £24,000,000 In the period, we returned £17,000,000 to shareholders, fourteen million through our dividend and £3,000,000 through the share buyback. We also purchased some shares to satisfy acquisition consideration and employee share options.

[James Mortensen, CFO & Director at Chemring Group]

We've refinanced our RCF in April. We've increased it from 150,000,000 to 180,000,000. It will run until December 2028 and could be extended a further three years and is on attractive pricing. In addition, we also have a US20 million dollars overdraft and a U. EF loan of 80,000,000, so we have good, immediate available liquidity with facilities up to $275,000,000 available.

[James Mortensen, CFO & Director at Chemring Group]

We had closing net debt of $93,000,000 less than 1x leverage, and we expect to end the year only slightly higher. There's no change in relation to our capital allocation policy. Overall, we want to maintain a resilient balance sheet, and we'll target leverage of less than 1.5 times. We'll continue to execute that policy through the four pillars of investing in the business, focused M and A and returning capital to shareholders through the dividend and surplus capital through the share buyback. I would just highlight that in May, after the period end, we completed the disposal of the explosive hazard detection business, which we sold for $9,000,000 in cash.

[James Mortensen, CFO & Director at Chemring Group]

We regularly review our portfolio and we'll take action to change it if necessary. We'll remain disciplined, but we also have a very attractive pipeline of opportunity in Roke where we remain most active, and we continue to develop our pipeline in space and missiles. Next, I'll cover our longer term and then shorter term guidance. First, longer term. Our ambition is the same: £1,000,000,000 in revenue by FY 'thirty, and we remain on track.

[James Mortensen, CFO & Director at Chemring Group]

Within energetics, we see enduring demand for our products for which we are installing capacity, as evidenced by the long term agreements entered into with the likes of Deal, Saab and Northrop Grumman. Whilst Roke's growth has slowed this year, longer term, we still see Roke growing at a high to mid single digit CAGR to £250,000,000 in FY 'twenty eight and then beyond. I've already talked about our disciplined approach to M and A, and so would also highlight the potential further expansion projects that Mick will cover later in Norway, Germany and The U. K. As ways to supplement our ambition organically.

[James Mortensen, CFO & Director at Chemring Group]

On margins, we have guided to mid teens in the medium term, but you can imagine, we'll add some significant revenue in our high margin businesses, and so you'd expect some operational leverage in the longer term. This guidance is getting nearer since we first publicly committed to it, so too is the significant growth in the next couple of years, which is included in existing analyst forecasts. Shorter term, for FY 'twenty five, our overall guidance is unchanged, supported by 85% of expected revenue having been delivered or in the order book. In countermeasures and energetics, we are still targeting low double digit growth, supported by order cover of 96% this year. In Sensitive Information, we are targeting flat.

[James Mortensen, CFO & Director at Chemring Group]

In just the time since the half year end, order cover has risen to 73%. Growth in ROIC will offset the decline in U. S. Sensors as JBTDS has now completed low rate initial production, and we await the full rate production award expected in FY 'twenty six. We are still targeting mid teens margin in the medium term, but unlikely to hit that in 'twenty five.

[James Mortensen, CFO & Director at Chemring Group]

And we expect H1H2 phasing of operating profit to be similar to last year. On U. S. Tariffs, we expect the impact to be negligible. The majority of our sales in The U.

[James Mortensen, CFO & Director at Chemring Group]

S. Are supplied by our U. S. Operations. Under our contracts, sales from outside The U.

[James Mortensen, CFO & Director at Chemring Group]

S. Are largely exempt from tariffs. As usual, I want to flag there are some external factors which could impact us in the near term. There could still be budget timing disruption in The U. S.

[James Mortensen, CFO & Director at Chemring Group]

And from the SDR in The U. K. And obviously, any significant movements in FX. So now for innovation, an area where Kemring excels in one of our core values. The war in Ukraine has reinforced the importance of advanced electronic warfare technologies.

[James Mortensen, CFO & Director at Chemring Group]

The return of a European peer threat has highlighted the underinvestment many countries have made in their capabilities over the last ten years. There is now a drive to rebuild those capabilities in this highly contested environment. That means we are seeing a pipeline of more than £300,000,000 of potential opportunity for our electronic warfare products. There have been two key learnings from the war in Ukraine. First, technologies are evolving rapidly.

[James Mortensen, CFO & Director at Chemring Group]

Systems have to evolve quickly to address new threats with open architectures enabling faster development. Second, survivability. Large, exquisite systems were quickly disabled on the battlefield. Smaller, highly mobile systems are required. Roque have used their deep understanding of electronic warfare and real world experience to develop this next generation system, Deceive.

[James Mortensen, CFO & Director at Chemring Group]

It has a number of attractive features. It's multifunctional and has a software defined radio with its core, so you can reconfigure it to address the full spectrum of electronic warfare effects, including electronic attack and counter drone operations. It's sovereign, U. K. Designed and built, and it uses open architecture, meaning it could rapidly evolve to counter new threats, so it's ready for the future now.

[James Mortensen, CFO & Director at Chemring Group]

What you should take away is that we have and will maintain investment in Rogue and the next generation of products we need, and so that gives us confidence in the growth outlook for the business. Deceive was launched last month, and we're already seeing international interest from more than 15 countries. Thank you. That brings me to the end of my section. Back to Mick for the market update and outlook.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Thanks, James. Turning now to our market environment. Global attention on defense spending remains high, fueled by uncertainty regarding U. S. Support for NATO, the ongoing events in Ukraine and the enduring tensions in the Asia Pacific region.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

These geopolitical dynamics underpin a positive outlook for defense and security spending for the foreseeable future. With the Ukraine war now in its fourth year, defense spending is rising across Europe, along with an increasing trend for developing sovereign capabilities and supply chains. Here in The UK, recently announced sorry, here in The UK, the government recently announced the largest sustained increase in defense spending since the Cold War, with budgets set to rise to 2.5% of GDP by 2027 and to 3% in the following parliament, Delivering on NATO commitments and ensuring a resilient nuclear deterrent are among the core priorities for this spend. Industrially, this is expected to be accompanied by capability reshoring stockpile production to build national resilience. The UK Strategic Defense Review, which was published yesterday, defines the long term strategic direction of UK defense policy, ensuring the nation is equipped to address the emerging threats, global security challenges and technological advancements, whilst also seeking to reinforce resilience and sovereign capability.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

The group is well placed to benefit from many aspects of the SDR, but I highlight just two. The first is the establishment of the new Cyber and Electromagnetics Command to oversee The UK's defensive and active cyber activities alongside electronic warfare efforts and they should create significant opportunities for Rogue. And the second is the commitment to invest £1,500,000,000 in an always on pipeline for munitions, building at least six new facilities in The UK to produce munitions and energetics, and also the commitment to build up to 7,000 UK built long range weapons to strengthen Britain's Armed Forces. And in The US, the Trump administration is focusing on deterring adversaries by maintaining overwhelming military superiority. In its recent budget proposal, the White House is requesting a total of $1,000,000,000,000 in national defense spending for FY 2026.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

The expected capability focus for this budget will be on countering the threats posed by China's large missile inventories, a rapidly growing naval force and sophisticated cyber capabilities. These also represent a growing opportunity for the group. You may remember me putting up this chart in December to illustrate our drivers of opportunity and growth. And this time, we have tweaked the order of the slide as we believe Europe will be at the foremost driver of growth in the medium term. The U.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

S. Has linked its continued support for NATO to greater European burden sharing, pushing for higher defense spending by allies. This has already resulted in European countries committing to increase their defense budgets. The European Defense Industrial Strategy sets out a long term vision to achieve defense industrial readiness across the European Union with the Readiness 2030 initiative aiming to increase defense investment and defense capabilities. Whilst the detail is still to be confirmed, the recent EU UK summit established a defense and security pact, which the government says will pave the way for UK businesses to access EU rearmament funds.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

And we are currently working with stakeholders to identify opportunities where Kemring can address both product demand and further grant funding opportunities through initiatives such as the European Defense Industrial Program. We believe the increased demand for our products is long term, which underpins our decision to invest in increasing the capacity of our three energetics businesses. I'm pleased to report that we continue to make good progress across our organic growth projects with $35,000,000 of CapEx spent on these projects during the first half. In Scotland, we are building an advanced extruded double base propellants manufacturing facility, the project is on schedule and on budget. Construction of the new buildings is now complete, equipment is being installed and the commissioning, licensing and qualification processes are well underway and live production is scheduled to commence in early twenty twenty seven.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

In parallel to this project, the team in Scotland have delivered a feasibility study to the UK MOD setting out options to establish the manufacturing of military high explosives at RDS site and we stand ready to work with the MOD and industry partners to establish this sovereign capability. Our Norwegian military explosives business is a significant growth opportunity as a response to the unprecedented market demand to supply missiles and munition programs. The substantial capacity expansion programs we are building at our SETRA site remain on track. And in parallel to the expansion, etcetera, we continue to work closely with the Norwegian government to explore options to build a second manufacturing plant, which will greatly increase the supply of military high explosives to NATO. Outside of Norway, the business is pursuing several international opportunities of which Germany is progressing at pace.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

As part of the twelve year framework agreement that was signed in November with Deal Defense, we are establishing in Germany the necessary facilities to perform the blending stage of the manufacturing processes. We are also seeking sorry, we are also exploring far broader opportunities to establish further manufacturing facilities in Germany to build a sovereign supply chain for military high explosives. You'll note I have not mentioned our capacity expansion activities in Chicago as they are now complete. During the period, our Chicago business won significant order intake, which included an order valued at $106,000,000 for the delivery of critical components for use in an undisclosed U. S.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Missile program. Deliveries under this contract, which will be over five year period, commence in 2026 with continuous flow manufacturing made possible by the additional 45,000 square foot facility that commenced operations last year. As a reminder, once complete, the three capacity expansion projects will deliver incremental revenue of £100,000,000 per annum and incremental operating profit of £30,000,000 per annum by 2028. Now turning to Rogue. Pleasingly, the business continues to make significant progress across several programs, which underpin its long term growth plan.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

In January, Rogue signed a multi year strategic agreement with A U. S. With a major U. S. Prime Contractor for the supply of its high speed miniature radar altimeter.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

This highlighted Rogue's expertise in the field of electromagnetics and demonstrates that the critical role Kemring plays in multiple space and missiles programs is not confined to just our energetics businesses. In April, it was announced that Roque in partnership with The United Kingdom's Missile Defense Center will lead a UK sovereign industry collaborative effort to provide security to The UK and its allies by countering current and future threats, including ballistic and hypersonic missiles. Valued at £251,000,000 over six years, the STORM framework will see Roke enhance its role as a trusted partner to the UK MOD at the heart of UK missile defense ecosystems, with what is a pivotal time for national defense and security. Roque's storm work will inform critical U. K.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Defense decision making and will play a key role in developing next generation missile defense capabilities. Alongside these wins, Rogue continues to focus on growing all business areas and in parallel delivering industry leading research and development, drawing on its world class people and technologies. New product launches and strategic partnerships form an integral part of this work. In the period, Roque launched EMVIS Deceive, its new EW system that James has already spoken about. And it also signed a strategic partnership agreement with the KAGAI Corporation to deliver advanced technologies into the Japanese defense and security markets.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

During the first half, Rogue has seen softness of UK order intake across defense, national security and science and technology, which we believe is linked to the customers workload associated with the SDR. Importantly though, we have not seen Roque lose any significant contracts or programs, but we have seen several delays and extensions. We anticipated these near term headwinds. So in January, we took action to match Rogue's cost base with forecast demand. Having taken this action and with the SDR now published, Rogue is well positioned to capitalize upon the expected upturn in demand during the second half.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

We will also explore further acquisitions that can accelerate our growth strategy for Roque, and we are working a strong pipeline of opportunities across defense and national security. So with incumbency in markets with high barriers to entry, we remain on track to organically grow Roach revenues to greater than £250,000,000 by 2028, whilst maintaining strong margin performance. So to summarize, we've had a good first half as we continue to build resilience and grow our high quality company. We have continued the momentum from last year, resulting in a record order book of £1,300,000,000 which provides 85% cover for in year revenues. And against this robust backdrop, the board's expectations for the full year are unchanged.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

We are committed to our incremental growth strategy to achieve £1,000,000,000 of annual revenues by 02/1930, which will require delivery of organic and inorganic opportunities. But as we do this, we will continue to operate with a laser focus on managing operational and financial risks and opportunities. So with our company underpinned by our values of safety, excellence and innovation, the outlook is increasingly robust. With market leading innovative products, technologies and services that are critical to our customers and with a strong balance sheet, I am very confident that we will deliver our strategy and goals. That concludes this morning's presentation.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

If anyone has any questions, we'll be happy to take them now. Could I please ask that you state your name and organization before asking your question?

[Sash Tusa, Partner, Aerospace & Defence Analyst at Agency Partners LLP]

You. Sach Tusa from Agency Partners. A couple of questions. First of all, in terms of cash flow, it looks as if you are getting probably slightly better working capital terms as well as managing the working capital that you've got from your customers better. Is that a function of the fact that the markets are so much stronger that you have a better negotiating position with some of your customers, particularly if they want long term commitments to capacity?

[James Mortensen, CFO & Director at Chemring Group]

Yes, that's right. We're getting good commercial terms at the moment both through pricing and then also through yes, better cash terms, both in terms of prepayments for long lead time items and things like that. So yes, that's what we're seeing at the moment.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

I think you see across the energetics businesses, customers recognize the fundamental shortage of some of the materials that we manufacture, and they want to secure their position from a long term basis in our production schedules, which is why they're paying upfront terms to be able to secure those positions, not just in the immediate years, but in the outer years as well.

[Sash Tusa, Partner, Aerospace & Defence Analyst at Agency Partners LLP]

Okay. And then I've got a follow on on Project Storm, but also Zodiac, which you won, I think, about three years ago. Is it right to be thinking that Roker is developing a slightly larger proportion of multiyear contracting than it would have had in the past? Because these are two triple digit million programs. And within that storm, you specifically say has got quite a high proportion of subcontractor work in it.

[Sash Tusa, Partner, Aerospace & Defence Analyst at Agency Partners LLP]

So should we expect a higher level of pass through revenues in the coming years?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So yes, absolutely. So part of Rogue's strategy is that it has been targeting priming larger contracts and framework contracts with the U. K. MOD and more broadly. So Zodiac, great win.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

It's going to be at the heart of the Army's digitization program. And you read about that in deep digital targeting webs, etcetera, in the SDR yesterday. And STORM, you know, is a massive win for Rogue, right at the center of The U. K. Missile defense ecosystem at a time which, again, you know, a critical capability called out in yesterday's SDR.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So yes, I think you should start to look from a rogue perspective as in some of these larger frameworks that they are operating more at a prime level, and therefore, you will see a larger in those specific frameworks, you'll see more pass through. And that's a good thing. I mean I think it's a very good thing from a strategic development of Rogue.

[Sash Tusa, Partner, Aerospace & Defence Analyst at Agency Partners LLP]

Okay. And then just one final one. Your customer at Saab last week spoke very complementary terms about you and specifically said and not about you, but there's a European wide shortage of triple based propellant, which is something that concerns them. What's triple based propellant used for? Can you make any of it?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So do you want me to do that? Do you want

[James Mortensen, CFO & Director at Chemring Group]

to do that? Yes, go on. So

[Michael Ord, Group Chief Executive & Director at Chemring Group]

we manufacture double based propellant, which is obviously sort of like two active ingredients and modifiers. And that's what we manufacture in Scotland, and that's what we're building the brand new facility for because there's an extensive growth in demand for those materials, which normally go into propellant devices, rocket motors, etcetera. Triple based, which is, as the name states, has got an extra active ingredient. Normally, are used in larger caliber munitions for the propellant charges. We don't manufacture triple base.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

We know that there's a it's an area of the market where there's a significant shortage as there is across the market in all energetic and propellant materials of all types. It's not an area such that we've operated, and I don't think The U. K. Has manufactured triple based propellant since back in the days of Royal Ordinance. So that's quite a while ago.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

And it's not something that's currently on our strategic road map. But clearly, we explore all opportunities in the market. But triple base currently isn't on our road map at the moment because we think double base has got so much opportunity ahead of it. But I think the comment is a is just very indicative of what you're seeing across so many areas in Europe where there's a fundamental shortage of energetic materials and propellant materials, whether that's for artillery, whether it's for rocket artillery, whether it's for missiles, whether it's for other energetic systems such as bombs or sea mines or whatever. So that's the rationale for why we've invested so heavily in our energetics businesses, and we see a lot more opportunity ahead of us to do that.

[David Farrell, SVP UK Industrials Equity Research at Jefferies]

David Farrell from Jefferies. I've got a ton of questions, but I'll start with three. Two on ROIC. Firstly, can you just talk to where the headcount reductions have been made? And then also the strategic rationale of moving ROIC futures under the defense team?

[James Mortensen, CFO & Director at Chemring Group]

Within rogue, so that's right. Lots of the majority of the headcount reductions were in the futures side of the business. So and we're pulling under defense I think because we were seeing lots of opportunity within that business and so as to make sure that all those people were fully utilized and there was lots of work for them within that part of it.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

I think the key thing, David, is that, you know, is for me, obviously, you know, there's been a little bit of softness from a rogue perspective. The key bit to that was is that we were ahead of the curve. So we saw that coming. You know, we've seen these movies before. So we acted early.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So in January, I think, you know, before anybody else was was doing anything in this area, we acted. We Paul and the team at Rogue did a great job of doing the strategic assessment, looking at whether they see the real areas of growth and redeploying resource into those areas. And then obviously, areas where we saw less robust demand that we took the appropriate action. So obviously, downsizing, letting some making some roles redundant, we never want to do that. But getting ahead of the curve and doing it early is really important for us.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

With regards to futures, I mean, don't think you should read too much into that other than the demand in especially in the military and defense side of the business is so large that we've made the decision that we're going to deploy far more resource into that area than the futures area.

[David Farrell, SVP UK Industrials Equity Research at Jefferies]

Okay. Thanks. A follow-up to kind of Sach's question around Storm. When we think about the £250,000,000 revenue target for ROCE in 2028, how much of that Storm framework agreement does that is contributed by storm framework agreement? And are you going to just be booking your revenue share through the P and L? Are going to be taking everyone else's?

[James Mortensen, CFO & Director at Chemring Group]

No. When we set that revenue target, we did that before we were aware of storm. And so what we'd always said within that was about 20%, thirty % was going to be pass through revenue, which is what it has been historically. Sasha is right. To the extent that, that revenue starts coming through, that will probably increase that proportion.

[James Mortensen, CFO & Director at Chemring Group]

And so I think underlying we still got the same target for the right business.

[David Farrell, SVP UK Industrials Equity Research at Jefferies]

Okay. Then final question on energetics and it's a question I frequently get asked by investors. Can you just talk us through kind of the broader supply chain from Kemring Nobel in Norway? Are you supplying into The U. S.

[David Farrell, SVP UK Industrials Equity Research at Jefferies]

Or is it just armament customers in Europe? And how much of the HMX RDX can be manufactured internally by the likes of Rheinmetall and BAE Systems versus having to buy off third parties?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

It's a good question. How far so do you want to should we start in the base raw materials supply chain or?

[David Farrell, SVP UK Industrials Equity Research at Jefferies]

May as well. No.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So broadly, I think about 50% of Nobel's output goes to The U. S. So broadly, about 50% goes to The U. S. Into prime contractors on that side of The Atlantic and about, say, big handfuls, about 50% of it goes into Europe.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

We don't supply the likes of BA Systems or Rheinmetall. They run their own supplies either sorry, their supply chains either internally or they run it with other suppliers themselves. The companies that we supply directly into do not manufacture energetic material and have no intention to broaden out into that. They're signing very long term strategic supply agreements with ourselves so that we can supply the HMX and RDX and MCX that's required in their missile and munition systems. So we don't see that as a particular threat to us.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

In fact, when you look at the length of the contracts that we're signing, some of these long term strategic supply agreements go out to 02/1941, I think, demonstrates that just like just as we're being very disciplined with our strategy and being very clear in the things that we're going to invest in and what we're going to be excellent and excel in. Many of the prime contractors themselves, you know, if you're a missile house, you want to be world class at manufacturing missiles. You don't necessarily want to be vertically integrating to manufacture raw materials such as HMX and RDX.

[Richard Paige, Research Analyst at Deutsche Bank]

Good morning. Richard Page from Deutsche Numis. ROS three as well, if I can, please. So on my first one is on the U. S.

[Richard Paige, Research Analyst at Deutsche Bank]

Census business. Opportunities beyond JBTDS and the MBD program, please?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So yes, so EMBD out there today on U. S. Navy warships protecting their sailors. We see spiral development of that program ongoing, and the team in Charlotte are talking to an international customer potentially about that system. I don't think we're at liberty to talk about who that customer is at the moment.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

And with JBTDS, as James said, we expect that we'll go into full rate production on that program of record in 2026, I think is when

[James Mortensen, CFO & Director at Chemring Group]

Late twenty six

[Michael Ord, Group Chief Executive & Director at Chemring Group]

is when

[James Mortensen, CFO & Director at Chemring Group]

they award in 2026.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

When scheduling that, we think, you know, our primary focus on JBTDS is obviously to go up the FRP curve for The U. S. Customer. But in parallel, the team are very active at looking at export sales for the JBTDS system itself. We believe that it's got the opportunity to become the system of the reference system across the whole of Europe, especially with European NATO nations where there is a significant shortage or complete absence in some areas of military grade biological agent detectors.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

We think JBT, yes, is very well placed for that. Beyond that, and I think maybe your question touched on around the next generation sensors. You know, we invest significant R and D in the business in Charlotte, looking at those next generation of detectors that could potentially have utility, both in the military capability, but also increasingly in some civilian applications as well. But the primary focus, I think, Padua, would be very much around maintaining eMBD deliveries. You know, we haven't missed a beat on that program.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

And then once we get the FRP award for JBTDS in 2026, then executing incredibly well to go up that FRP curve.

[Richard Paige, Research Analyst at Deutsche Bank]

Thank you. And then jumping back to the main one, everyone's asking about energetics. The deal mixing potential or the mixing in Germany, plus what you're doing from The U. K. Side, a, what additional capacity might that provide if you can do those things? What CapEx and what time line, I guess?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

I mean, that's such a big question, isn't it? So one of the key things that we are seeing across the whole market are that NATO nations want to increase their defense industrial base so that they can not only, you know, contribute to the overall NATO defense industrial base, but everyone or a lot of nations want to establish a sovereign capability for national resilience. Hence, the reason why we've completed feasibility studies of how we do that here in The U. K, how we we're working with the government in Norway about establishing a second manufacturing site in Norway, which could be of significant size. And then in Germany, the German government absolutely recognize that they want to establish a sovereign defense industrial base for the manufacturing of high explosives, military high explosives.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So yes, so we're working very closely with deal defense. And if you go to the site in Germany now, you'll see a standard construction on that blending facility. I expect that we'll build a lot more infrastructure and facilities in Germany off the back of that. With regards to sizing and scaling, I think it's probably a little bit too early at the moment to do But I would say a big handful is the options that we're looking at in Norway, for instance, I think the smallest smaller sized facility that we're looking at would be at least the same size as our fully expanded sector site. So these are very substantial capacities because of the fundamental undersizing of the defense industrial base, especially in a lot of these high explosive areas.

[James Mortensen, CFO & Director at Chemring Group]

And the only other thing I'd add is that we're looking at similar commercial model to what we saw in Norway in terms of, you know, that we got about 70% grant funding.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Yes, yes, that's important.

[Richard Paige, Research Analyst at Deutsche Bank]

And so just to add, the lead time to do something like the mixing piece, is that quicker than?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Yes, yes, That's a that's a so yes. So we'll I think the guy starts all like breaking ground on that specific facility this summer. And then I think they've got something like 12, and then they've they're producing the first batches that will go into analysis. So that's a different proposition to say if you're building a crystallization plant, which takes probably twice as long.

[Richard Paige, Research Analyst at Deutsche Bank]

Thank you. And then moving to Roke, obviously, in the SCR, electronic warfare and cyber being combined all has ropes name all over it. Yes. But do you think that might delay the sort of contract flow in the near term as to how they you know, if they're reorganizing that side?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

I suppose it's got the it's got the risk to do that. Suppose you look at the other side of the coin and look at a lot of what was announced yesterday in SDR where there's, you know, the defense the defense reform program, one of the fundamentals of that is speed significantly speeding up and simplifying the contracting and procurement processes. So I don't know, maybe one might cancel out the other. I think net positive, though, Padja, would be is that I think that obviously the you know, what we what you see every day in Ukraine has graphically illustrated the essentiality of having dominance in the cyber and electromagnetic world, and hence, the reason for establishing a CEMA command, which, yes, you're absolutely right, is completely in rogue's wheelhouse, you know, decades and decades of experience, you know, leading technology in those areas. In the deceived product that James identified, you know, fantastic product, got the opposite, you know, counter drone capability, electronic attack capability, foot based fully on software defined radios, you know, completely reconfigurable and whatever.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

And I think we've got I think you mentioned fifteen, fifteen international customers already wanting to talk to Roque about about that product. I think that demonstrates, you know, how important this whole CEMA area is going to become for us.

[Richard Paige, Research Analyst at Deutsche Bank]

And sorry, if I couldn't attach into that leads into the last bit on that route to £50,000,000 revenue. When it was set, the mix between products and your core capabilities, U. K. Versus international, has that changed as to how you would look at it today?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

To be honest, I can't remember what the mix was when we announced it. But I think the forward growth of Roke is that we expect the defense side of the business probably to grow well. It will grow more quickly than national security side. I think national security side will continue to grow. But just because of what you're seeing with regards to defense recapitalization across Europe and beyond and the international footprint that Roke has, I think you're going to see the military side of the business grow more rapidly, and that is a products predominantly a products based business.

[George Mcwhirter, Vice President - Equity Research at Berenberg]

Hi, good morning. I'm George McQuarter from Berenberg. Just two, please. Firstly, the SDR. So it's positive it's been released yesterday.

[George Mcwhirter, Vice President - Equity Research at Berenberg]

It looks like there will be an equipment plan released at the end of the year. How do you think that would drive order intake? Would you expect orders to flow immediately? Or should we wait until the equipment plan is published towards the end of the year? That's the first one. Okay.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

That's a good question. So I think my understanding is that the next steps are really important building block of delivering the SDR as the defense industrial strategy. And I believe that we're going to see that published in the next month or so. I think that is a that will set out, as I say, the industrial road map of how the goals of the STO will be developed. We are looking forward to working very closely with the MOD and U.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

K. Government to deliver the goals of the industrial strategy. And then I think the equipment plan is now renamed, I think, the Defence Investment Plan, where I think Secretary of State said that, that was going to come out in the autumn. And again, we'll be working closely with the customer for that. Whether I think the question of do we think that we're going to see slowdown between now and then, That is a pretty difficult one to call.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

I think now that we have got SDR over the line, I think we'll probably see a recovery in more normal order cadence. But it's a bit of a how long is a piece of string kind of question.

[George Mcwhirter, Vice President - Equity Research at Berenberg]

Yes. Okay. And the second one was just on ROCE, just a clarification. The two fifty million euros target by FY 2028, is that about 20% to 30% pass through, including that?

[James Mortensen, CFO & Director at Chemring Group]

Yes. So I think historically that's roughly what we run out, about 20% pass through, 20% to 30%. And I think that was what was included in that target originally. Thank you.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Any more questions? Rupert? Oh, Sasha at the front.

[Sash Tusa, Partner, Aerospace & Defence Analyst at Agency Partners LLP]

Yes. Thank you. Just a follow-up on George's question and particularly the defense industrial strategy. Is that where you would expect some sort of detail on the at least six munitions factories that was announced yesterday? And do you have any feeling from your briefings yet as to the mix of those factories between upstream propellant and explosives and downstream product manufacture?

[Michael Ord, Group Chief Executive & Director at Chemring Group]

I think I'm hopeful that the defense industrial strategy will give us greater insight into where the where that balance of investment is going to fall. And six new facilities, six new factories or six new production lines, I think they're kind of somewhat interchangeable. I think you'll probably it will be very likely, Sach, to see a combination of all of those things. I would be very surprised if you don't see new missile final assembly facilities, especially given the 7,000 commitment that was talked to yesterday. But also, I do think that you're going to see investment in raw materials, so energetic material and propellant manufacturing facilities.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

So I think it's going to be a combination of all those.

[David Farrell, SVP UK Industrials Equity Research at Jefferies]

Sorry, I can have a follow-up as well. Just on countermeasures in The U. S, can you give an update as where we are in terms of kind of the new automated line, whether that's kind of now operating as expected? And then kind of associated with that, what your plans are for the old line? Because I think at one stage, you thought about decommissioning it.

[David Farrell, SVP UK Industrials Equity Research at Jefferies]

It probably seems like there's probably potential for increased demand over the medium term.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Yes. Good question. So yes, so the new facility is up and online. So we didn't mention it because it's just a job now. So it's been a bit of a as you know, it's been a bit of a painful journey for us to get there.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

We took a huge automation technology step when we introduced a fully robotic assembly line there. But the team have fair play to them. They've kind of looks like they've cracked it. So they're coming up that curve. So not an area of concern for us.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

With regards to the legacy line, our intention is that we still will decommission that primarily because it comes to the in our assessment, comes to the end of its safe economic life. So that's the extrusion line that the new facility replaces. One of the things, David, that we're never going to compromise on, you hear me banging on about it all the time, is that we're never going to compromise on safety. And we're not going to operate a facility where we don't believe it is in the if we extended its life out for another few years, where we'd be able to operate it as safe as reasonably practical to the level of safety standards that we operate across the group. So I don't think we'll be reversing that decision.

[James Mortensen, CFO & Director at Chemring Group]

And but just to be clear, we haven't announced that. That's not something that we're planning at the moment. And so it could be something that happens at some point in the future.

[Michael Ord, Group Chief Executive & Director at Chemring Group]

Any more questions? No? Okay. I think that draws the proceedings to a close. So thank you very much for attending today, and we look forward to presenting our FY twenty twenty five results to you all in December. Thank you. Thank

Participants

Executives

• Michael Ord, Group Chief Executive & Director
• James Mortensen, CFO & Director

Analysts

• Sash Tusa, Partner, Aerospace & Defence Analyst at Agency Partners LLP
• David Farrell, SVP UK Industrials Equity Research at Jefferies
• Richard Paige, Research Analyst at Deutsche Bank
• George Mcwhirter, Vice President - Equity Research at Berenberg