Resilient in the face of uncertainty
COVID-19 (“CV-19”) represents an unprecedented challenge across the globe. Our ability to respond to the challenge was fostered through an approach of pro-active monitoring and implementing proportional measures as the crisis evolved. As such we have been able to protect and safeguard our people and maintain operations in support of our customers.
Safeguarding health, safety and wellbeing
Our first priority throughout this crisis has been the health, safety and wellbeing of our people, their families, our customers and the communities in which we operate. From the outset we adopted an agile approach which balanced risk mitigation with business continuity and which was based on the latest government recommendations in each of our home markets.
We have continued to monitor the situation closely, responding to the crisis as it has evolved, providing our people with timely guidance and support to maintain their wellbeing and ensuring that we take appropriate action as required.
The response of our people has been outstanding. They have risen to the challenge, adapting their behaviour and working practices in order to minimise the spread of the virus, whilst continuing to focus on the needs of our customers.
Maintaining operations and business continuity
As a company we recognise our essential contribution to the ongoing defence and national security missions of our customers. Our business continuity plans were therefore enacted at all our sites and, where necessary, we adapted our working practices and environments to minimise the risk of spreading the virus. This included the implementation of social distancing and home working, and, where this was not possible, the use of enhanced PPE to further minimise any potential risk.
In the US, the UK and Norway, Chemring’s operations were designated as critical to the defence and national security industrial base, and in Australia the risk of business interruption was considered to be low. All our businesses have therefore remained open throughout the pandemic. We continue to make every effort to maintain delivery of essential services and manufacturing production in support of our customers.
One significant risk to our operations was associated with the ability of our customers to test and accept goods. Our manufacturing businesses have worked closely with their customer representatives to deliver timely testing and acceptance of products. In the first half of the year we worked through some CV-19 related disruptions where customer representatives were not able to complete product acceptance procedures on a timely basis. This persisted in the second half of the year, resulting in some short-term revenue deferrals, although this did not impact the Group at year end.
Protecting our financial position
Given the uncertainty surrounding the length of the CV-19 pandemic, the Group has taken various actions to protect profitability and to conserve cash. Operational expenditure has been reduced and all discretionary spending is tightly controlled as we seek to ensure the Group is well placed to navigate the current challenges. The already-established enhanced focus on working capital management, in particular the reduction of intra-period net debt volatility, is proving beneficial and the Group is focusing on ensuring that working capital disciplines are maintained in these challenging times.
In response to the CV-19 pandemic and the risk of business disruption, the Group took the precautionary measure of obtaining an additional short-term debt facility of £100m to further strengthen the Group’s liquidity position. £50m of this facility was drawn in April 2020 and was repaid in full in October 2020, having not been required.
Conclusion of financial stress tests
We carried out a number of financial stress tests, further details of which are included in the viability statement. The conclusion was that the Group could withstand a greater than 50% decline in operations for six months without the need to renegotiate bank facilities or covenants.
Managing our stakeholders
Throughout the pandemic we have recognised that its impact will be felt by all our stakeholders. We have therefore endeavoured to support and inform them through early and regular engagement.
Employees
Our first priority has been to safeguard the health and wellbeing of our employees. At every stage we have sought to provide them with timely guidance and support in order to maintain their wellbeing and minimise the risk of exposure.
Customers
We have actively worked with our customer base to ensure the delivery of timely testing and acceptance of products. At times, this has required innovative solutions including virtual product inspections. In turn, we are grateful to our customers for their flexibility and support and the designation of our operations as critical to the defence and national security industrial base.
Shareholders
We have proactively engaged with our shareholders, providing them with regular market updates and participating in numerous investor calls and virtual investor roadshows. We also published on our website a pre-recorded video of our interim financial results in lieu of our normal presentation to analysts and investors.
Suppliers
Chemring enjoys strong relationships with our suppliers and we have worked closely with them throughout the crisis. We have had no significant supply chain issues to date and are grateful to our many suppliers for the support that they have given us.