Annual Report and Accounts for the year ended 31 March 2012 Stock code: CMH difficult things done well c h a m b e r l i n p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 M a r c h 2 0 1 2 For more information on Chamberlin Group operations please visit our website at www.chamberlin.co.uk Use your phone’s bar code app and go directly to the relevant page on our website. Chuckery Road, Walsall, West Midlands, WS1 2DU Tel: 01922 707100 Fax: 01922 638370 email: plc@chamberlin.co.uk 21361.04 12/06/12 Proof 621361.04 12/06/12 Proof 6 chamberlin plc difficult things done well Producing critical components for the most demanding environments Highlights Revenue (£m) £45.5m 2012 2011 2010 2009 2008 Underlying Profit Before Tax (£000) £1,657 45.5 00.00 39.8 39.9 40.0 2012 2011 2010 2009 2008 (1,028) 28.5 1,657 804 00.00 310 1,282 Statutory Profit Before Tax (£000) Underlying Basic Earnings Per Share (pence) £1,430 2012 2011 2010 2009 2008 (1,421) 18.3 pence 333 (498) 585 1,430 2012 2011 2010 2009 2008 (12.8) 6.7 2.2 18.3 15.1 Dividend Per Share (pence) Cash Generated From Operations (£000) 3.0 pence 3.0 2012 2011 2010 2009 2008 0.0 1.0 1.2 £2,430 2012 2011 2010 2009 2008 11.9 502 693 828 2,430 1,791 00.00 Small complex grey iron castings, principally for the automotive sector and hydraulic applications. Emergency exit equipment and traditional architectural hardware directed mainly at the DIY and construction markets. Products associated with cable management. Lighting and switchgear associated with petrochemicals and construction applications. Large grey, ductile and alloyed iron castings for a range of applications including power generation, bearing housings, steelworks, construction and compressors. Chamberlin & Hill Castings Ltd Chuckery Road Walsall, WS1 2DU Tel: 01922 721411 Fax: 01922 614610 Bonchurch Street Leicester, LE3 5EP Tel: 0116 2992000 Fax: 0116 2998844 www.chcastings.co.uk Exidor Ltd Progress Drive Cannock, WS11 0JE Tel: 01543 460030 Fax: 01543 573534 www.fredduncombe.co.uk Petrel Ltd 22 Fortnum Close Kitts Green Birmingham, B33 0LB Tel: 0121 783 7161 Fax: 0121 783 5717 www.petrel-ex.co.uk Russell Ductile Castings Ltd Trent Foundry Dawes Lane Scunthorpe, DN15 6UW Tel: 01724 862152 Fax: 01724 280461 www.russellcastings.co.uk 21361.04 12/06/12 Proof 621361.04 12/06/12 Proof 6 Key Points Revenues and earnings above pre-recession levels – aided by positive global engineering markets – 70% of sales are for export markets Revenues increased by 14% to £45.5m (2011: £39.8m) Underlying* profit before tax up 107% to £1.7m (2011: £0.8m) – with improved margins Statutory profit before tax of £1.4m (2011: £0.3m) Underlying* earnings per share up by 173% to 18.3p (2011: 6.7p) Statutory earnings per share of 16.1p (2011: 1.3p) Cash generated from operations up 36% to £2.4m (2011: £1.8m) Net debt reduced by 46% to £1.6m (2011: £2.9m) Proposed final dividend of 2.0p (2011: 1.0p), taking total dividend for year to 3.0p (2011: 1.0p) Net assets increased to £9.0m at 31 March 2012 (2011: £7.8m) Growth across all three foundries – trend expected to continue Engineering activities boosted by addition of Jebron Ltd’s assets. Added £2m of profitable sales New Chairman, Keith Butler-Wheelhouse, appointed in March 2012 Board views prospects for new financial year very positively * Underlying items are stated before Non-Underlying items which represent business reorganisation costs, goodwill impairment costs, net financing costs on pension obligations, share-based payment costs and associated tax impact. For more information on Chamberlin Group operations please visit our website at www.chamberlin.co.uk Pictured: The Group has invested in sophisticated modelling software to drive performance. Introduction Highlights Chairman’s Statement Group at a Glance Performance Chief Executive’s Review Finance Director’s Review Governance Board of Directors Report of the Directors Corporate Governance Directors’ Remuneration Report Independent Auditors’ Report Financial Statements Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Parent Company Balance Sheet Consolidated Cash Flow Statement Parent Company Cash Flow Statement Statement of Changes in Equity Notes to the Accounts Notice of Annual General Meeting Shareholder Information 01–02 03 04–07 10–11 12–13 16 17–22 23–25 26–29 30–31 34 35 36 37 38 39 40–41 42–73 74–75 76 1 Introductionchamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMHPerformanceGovernanceFinancial Statements21361.04 12/06/12 Proof 6 Introduction difficult things done well Success in UK engineering has not been easy to achieve in recent years, but its requirements can be simply stated; winners must do difficult things and must do them well. We define “difficult things” as activities with high engineering content delivering technically demanding products or processes. To take profitable advantage of them it is essential that a business is properly managed and performs well. Our ideal acquisition is a business where difficult things are done poorly, allowing us to add value by improving performance. Investment Proposition Operating in markets with high barriers to entry protected by process know-how or market regulation Operating across diversified markets with sales driven by the global engineering economy – 70% of sales are ultimately exported Pursuing both organic and acquisitive growth Growth opportunity in the turbocharger castings market benefiting from regulatory drivers and limited competition Strong, credible management team with a proven track record Significant capacity opportunity at modest investment costs Highly cash generative – positive operating cash flow for the last 5 years Strong balance sheet with low gearing Committed to a policy of progressive dividends Use your phone’s bar code app and go directly to our website. 2 chamberlin plc21361.04 12/06/12 Proof 6 Chairman’s Statement Keith Butler-Wheelhouse “Our strategy for the future will focus on growing both top and bottom line by offering first class technology which is valued by our customers.” Introduction Having been involved as Chairman for only the Chamberlin continues to be strongly cash generative and we remain focused on working Strategy and Outlook In visiting Chamberlin’s operations, I have been final month of this financial year, full credit must capital control. Cash generated from operations impressed by the skills and competence of go to my predecessor Tom Brown, the Board and rose by 36% to £2.4m (2011: £1.8m). This was everyone I have met. Also, there is a feeling of the Executive Team for the manner in which they significantly above underlying operating profit openness to change, coupled with a determination have steered the Company through the recession and allowed us to reduce net borrowing by 46% to drive the business forward. I will enjoy adding with both profits and revenues now exceeding to £1.6m (2011: £2.9m). Gearing reduced to 17% my experience in support of Chamberlin’s efforts pre-downturn levels. (2011: 37%) and Chamberlin continues to be to achieve growth in the coming years. financed by a £5.0m overdraft facility from HSBC. I believe Chamberlin is well placed to achieve In July 2011, a placing of shares with Diverse The Board has concentrated in recent years on further improvement in results and look forward Income Trust plc, managed by MAM Funds plc, to leading the Board and supporting the Executive raised £0.5m (gross). Team to deliver sustained profitable growth in the years to come. Dividend With continued earnings growth and cash the modernisation of the Group’s businesses and tightened their focus on the technically demanding areas of the markets we serve under the theme “difficult things done well”. This approach has delivered a strong foundation on Results Revenues for the year ended 31 March 2012 rose generation proceeding as expected, our balance which to build and our strategy for the future will sheet continues to strengthen. I am therefore focus on growing both top and bottom line by by 14% to £45.5m (2011: £39.8m). Previous reports pleased to announce that the Directors are offering first class technology which is valued by have noted that increasing revenues included a recommending the payment of a final dividend our customers. We anticipate that growth will be strong contribution from new business and I am of 2.0p per share, to be paid on 13 July 2012 to achieved both organically and by acquisition and encouraged to see that this trend is continuing. shareholders on the register at 29 June 2012. This we will continue to explore opportunities which takes the total dividend for the year to 3.0p (2011: would be a logical extension to the Group. Underlying operating profit increased by 92% to 1.0p) and is in line with the progressive dividend £1.7m (2011: £0.9m), with gross margins again policy we introduced last year when we restored increasing, to 19.5% (2011: 18.7%). The underlying the payment of dividends. profit before tax was up 107% to £1.7m (2011: £0.8m) and underlying earnings per share rose 2.7 times to 18.3p (2011: 6.7p). The Board After nine years of service to the Company, Tom Brown retired from Chamberlin on 29 February The statutory results show statutory operating 2012, when he passed the role of Chairman of the profit increased to £1.6m (2011: £0.5m), statutory Board to me. On behalf of the Board, I would like profit before tax up to £1.4m (2011: £0.3m) and to thank Tom for his considerable contribution to statutory earnings per share up to 16.1p (2011: 1.3p). Chamberlin over the years and to wish him well for the future. Keith Butler-Wheelhouse Chairman 21 May 2012 3 Introductionchamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMHPerformanceGovernanceFinancial Statements21361.04 12/06/12 Proof 6 Group at a Glance Our Business Foundry Business The Foundries Division currently comprises Chamberlin & Hill Castings Ltd and Russell Ductile Castings Ltd Revenue By Business Chamberlin & Hill Castings Ltd This subsidiary incorporates our Walsall and Leicester foundries with combined financial and sales functions. Walsall specialises in small castings with complex internal passages and has built a strong position in automotive turbochargers. Our Leicester foundry specialises in producing mid-size iron castings with complex metallurgy designed to give high strength, corrosion or wear resistance or low temperature capability and its expertise is relevant to many sectors. See case study on page 33 Russell Ductile Castings Ltd Chamberlin & Hill Castings Light castings Medium castings Russell Ductile Castings Heavy castings 41% 29% 30% RDC is based in Scunthorpe and specialises in heavy castings for a wide variety of industries including power generation, oil & gas, steel and construction equipment. The majority of RDC customers are OEMs and the site is benefiting from the global demand for engineered products. See case study on page 15 2012 Highlights Foundry sales grew by 13% in 2012. High economic gearing and continued productivity improvements have resulted in significant improvement in all three profit KPIs below. Key Performance Indicators Revenue (£000) £37,354 2012 2011 2010 37,354 33,082 22,423 Return on sales Return on net assets Operating profit per employee (£000) 2012 2011 2010 (2.2%) 5.6% 4.0% 2012 2011 2010 (5.5%) 21.3% 13.3% 2012 2011 2010 (1,654) 6,106 4,349 4 chamberlin plc21361.04 12/06/12 Proof 6 Engineering Business The Engineering Division currently comprises Exidor Ltd and Petrel Ltd Revenue By Business Exidor Ltd Based in Cannock, Staffordshire, Exidor is a long established and leading supplier of specialist emergency exit hardware, i.e. the crash bars fitted to fire escape doors that allow rapid opening in the event of an emergency. In 2011 it added door closers to its range, following the acquisition out of administration of the assets of Jebron Ltd. Door closer production was fully integrated into the Cannock site by November 2011. See case study on page 9 Petrel Ltd Exidor Petrel 63% 37% Petrel Ltd, based near the National Exhibition Centre to the East of Birmingham, concentrates on the development and production of certified lighting and control equipment for use in hazardous and explosive environments. This is a highly regulated market servicing a variety of sectors including the petrochemical and distilling industries. 2012 Highlights Engineering sales increased by 22% in 2012. A key constituent of this growth was door closer production within Exidor following the integration of this product stream during the year. Revenue (£000) £8,178 2012 2011 2010 8,178 6,719 6,030 Key Performance Indicators Return on sales Return on net assets Operating profit per employee (£000) 2012 2011 2010 5.8% 4.7% 2012 2011 2010 3.0% 6.3% 16.6% 16.1% 2012 2011 2010 4,596 3,182 2,405 5 Introductionchamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMHPerformanceGovernanceFinancial Statements21361.04 12/06/12 Proof 6 Group at a Glance continued Our Business Product areas Chamberlin operates across 5 locations in the UK. The foundry Division specialises in technically demanding castings in complex shapes and in specialist metallurgies. Product Areas Work is allocated across its three foundry sites based on size and metallurgy as follows: Light castings based in Walsall produces castings up to 5kg in grey iron; Medium castings based in Leicester produce 5kg to 100kg castings in a wide variety of iron alloys; Heavy castings based in Scunthorpe make 100kg and 6 tonnes castings again in a wide variety of iron grades. The two engineering businesses supply to regulated markets operating from two sites in the West Midlands. Light Castings Medium Castings Heavy Castings Hazardous Environments Security/Safety 34% 23% 25% 7% 11% Global Sales Pictured: The Group supplies specialist lighting for hazardous and explosive environments and commercial vehicle components including key turbochargers. Engineering activity outside of the UK is a key driver of demand. Exports Approximately 70% of output is ultimately exported. Direct exports account for 30% of output with our customers located in Europe, America and Asia. Indirect exports, where Chamberlin businesses supply products to UK-based equipment manufacturers whose products are then shipped worldwide, account for approximately 40% of our output. Against this 30% of sales are driven by demand from the UK economy. Global demand for engineered products is strong and our UK customers, which include companies such as Siemens, Howden, CAT, JCB and Tata Steel, are typically leaders in their sectors. Direct Indirect UK 30% 40% 30% 6 Picture: ©Howden Compressors Limited. All rights reserved. 2012 chamberlin plc21361.04 12/06/12 Proof 6 Group Markets UK Manufacturing Head office 1 Walsall Foundries 2 Chamberlin & Hill Castings, Walsall 3 Chamberlin & Hill Castings, Leicester 4 Russell Ductile Castings, Scunthorpe Engineering 5 Exidor, Cannock 6 Petrel, Birmingham 4 3 5 1 2 6 Passenger car Commercial diesel Safety/security Construction Equipment Hydraulics Hazardous Environments Mining & Quarrying Off-road Vehicles Power Generation Oil & Gas Process Other 18% 12% 11% 10% 10% 7% 6% 5% 4% 3% 2% 12% Worldwide Markets 7 Introductionchamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMHPerformanceGovernanceFinancial Statements21361.04 12/06/12 Proof 6 using our expertise to generate value 88 chamberlin plc21361.04 12/06/12 Proof 6 Jebron integration Pictured: Electro-magnetic (E-mag) door closer In February 2011, the Group acquired the assets of Jebron Ltd from the administrator for £162,000. The original Jebron business had developed a number of high capability innovative products, but it had not been able to fully exploit these as a result of poor quality and customer service, combined with inefficient manufacturing. Production was restarted in March 2011, at Jebron’s original premises, under the direction of the Exidor management team. Their immediate task was to improve both quality control through the production process and on time delivery to customers and having regained their confidence start to grow the business. Quality and service improvements were delivered over the summer, and with the transfer of manufacturing to our Cannock site in November 2011, a step change in production efficiency was achieved. In the first year of operation under Chamberlin, Exidor Door Controls as it has been re-branded, delivered approximately £2.0m of sales and £300,000 of operating profit from a standing start. Use your phone’s bar code app and go directly to our website. 9 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Chief Executive’s Review Tim Hair “Chamberlin continues to make progress in growing revenues and profitability, and we are in very good shape financially to support ongoing growth.” Trading conditions continued to improve during the financial year to 31 March 2012 and revenues and earnings are now both above pre-recession Chamberlin & Hill Castings (“CHC”) CHC incorporates our Walsall and Leicester sites which share a number of foundry processes but Our existing customers account for less than 50% of the European market for turbochargers and we believe that established OEMs and new entrants levels. Indeed, these results represent our best serve different markets. performance for five years and demonstrate both our drive to revitalise the Group’s prospects and improved global trading conditions. Exports, either direct or indirect, comprise over 70% of Our expertise at the Walsall foundry lies in the development and production of small castings with complex internal geometry, especially represent an important source of growth. Our sales effort will be directed towards these areas while ensuring that our existing customers receive the high standards of service they require. Chamberlin sales and engineering activity outside for casings for the turbocharger market where Leicester, which produces mid-size castings with the UK continues to underpin our results. Foundries After the modernisation programme we began in complex passages are required for cooling and lubrication. The number of turbochargers fitted to passenger cars in Europe continues to grow and as petrol engines increasingly become complex metallurgy, has enjoyed good year- on-year sales growth, taking revenues to above £10m and reducing reliance on the construction sector. Unlike Walsall, where demand is driven by 2007 our foundries have now passed a milestone turbocharged to meet EU emissions legislation, long-term supply arrangements, a proportion of where they all operate with improved equipment, market forecasts predict volume growth of one Leicester sales are related to contracts for supply upgraded processes and strengthened systems. third by 2016. We have strong relationships with to a discrete project. Typical of these is our supply However, we believe that there are significant two of the major turbocharger manufacturers of suspension components to a Singapore-based improvements still attainable and that these are worldwide, Borg Warner and IHI Charging Systems manufacturer of military vehicles, where Leicester best achieved by benchmarking our operations, (“IHI”), and remain well placed to take advantage has recently completed supplying the second quality and logistics performance against the best in the wider engineering industry. We have therefore been recruiting from that skill base to of growth in the turbocharger sector. I have previously commented on the development of a family of parts for IHI, some of which are now project phase and has confirmed contracts for the third phase, with revenue in excess of £700,000, which will require supply in the second half of the deliver the next phase of improvement. in production. We anticipate that the remaining new financial year. elements will enter production in the new financial year, in line with our original expectations, In 2009 we combined the management of both and our Walsall engineers are currently working on new turbocharger projects which will deliver the Walsall and Leicester foundries, achieving operational and overhead synergies. We have further growth in future years. also made good progress in creating cross-selling opportunities between the two foundries. Walsall also produces bearing housing castings for use in commercial diesel turbochargers, the majority of which are supplied to Borg Warner in the UK. We have recently extended this relationship further, with the supply of our first fully finished component machined by a The most notable success here has been in the commercial diesel market, where the long-standing relationships from Walsall and metallurgical expertise from Leicester have enabled us to establish a credible position for the supply of sub-contractor, and believe that there is further turbine casings, the other major iron casting in a potential for us to supply machined components truck turbocharger. We look forward to receiving to this market. our first orders to supply these castings in the course of 2012/13. Pictured: Turbocharger 10 chamberlin plc21361.04 12/06/12 Proof 6 Chamberlin supply critical turbocharger components to the automotive industry Russell Ductile Castings (“RDC”) RDC is located in Scunthorpe and specialises in Crossrail is structured as three tunnelling projects, each requiring around £1.0m of castings. RDC is Petrel Petrel supplies lighting and control systems for heavyweight castings up to 6,000kg. The majority currently supplying castings for the first tunnelling hazardous environments in applications where of these are used in demanding applications project and we would hope to win more of these the risk of explosion requires tightly regulated requiring high strength, corrosion resistance or contracts as Crossrail progresses over the next equipment. Overall the business is performing in high temperature capabilities and these all require few years. the production of complex shapes in specialist grades of iron. RDC has a recognised expertise in manufacturing these challenging parts and the final objective of the foundry reorganisation in 2009 was to increase focus on this sector and deliver growth. I am therefore pleased to report that RDC revenues grew by over 20% during the course of the financial year. Engineering Exidor Our door hardware business, located in Cannock, has made significant progress during the financial year and is well-placed for growth. Exidor has a well established position in the market for emergency exit hardware, where it is market leader in the UK, and in February 2011 we line with expectations and we are investigating niche applications which create opportunities for specialist new products. Outlook Chamberlin continues to make progress in growing revenues and profitability, and we are confident that we can build on the progress we have already achieved. Core markets for RDC are process equipment, mining, power generation and construction acquired assets which allowed us to expand into door closers, a related market. The integration Our focus in the new financial year remains on both driving sales and enhancing Chamberlin’s equipment but our expertise is relevant to a wide of these assets was completed on schedule with operational performance. Currently, the range of applications in other industries and I new routes to market, product certification and opportunities we see ahead of us leave us well- expect to see further growth in the business. This the relocation of manufacturing operations all placed for the first half and the Group remains in will include the production of a unique range of complete by December 2011. The product range very good shape financially to support ongoing castings for the Crossrail project, where the most we acquired is well-regarded by customers who are growth. I look forward to updating shareholders complex parts of the tunnel system are supported responding positively to the high service standards on our progress in due course. with cast iron lining segments. to which Exidor operates. The new range has produced a strong first full year contribution and I am confident that we will see growth in both revenues and profitability in this business as we take market share. Tim Hair Chief Executive 21 May 2012 11 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Finance Director’s Review Mark Bache “Cash conversion was strong with cash generated from operations of £2.4m (2011: £1.8m), which equated to 140% of underlying operating profit. Group borrowings reduced during the year by £1.3m, or 46%, to £1.6m.” Overview Sales increased by 14% during the year to Tax The Group’s underlying tax charge for the year was In July 2011, we completed a placing of 370,370 new ordinary shares with Diverse Income Trust plc, £45.5m (2011: £39.8m) as the business grew £242,000 (2011: £305,000). The underlying effective existing accounts and won new customers. rate of 15% (2011: 38%) was favourably affected which is managed by MAM Funds plc, at an 8% premium to the then market price, which raised Foundry division sales grew by 13% to £37.3m, by the recognition of brought forward tax losses £500,000 gross. driven by demand across all three sites. Sales in within deferred tax and as a consequence, tax the Engineering Division increased by 22% to payable for the year will be £145,000. The statutory £8.2m, with the assets acquired in February 2011 tax charge was £183,000 (2011: £235,000). contributing £2.0m of revenues. Margins also improved year-on-year with gross profit margin increasing to 19.5% (2011: 18.7%). Cash generation and financing Cash conversion was strong with cash generated Capital expenditure for the year increased to £1.4m (2011: £1.2m) which was marginally above depreciation and amortisation. In addition to normal replacement and productivity related spend, £200,000 was invested in technical from operations of £2.4m (2011: £1.8m), which modelling and ERP software. Underlying operating profit increased by 92% equated to 140% of underlying operating profit. to £1.7m (2011: £0.9m). Financing costs reduced This reflects the high priority given to cash in the year, in line with borrowings, resulting in management throughout the business. During the underlying profit before tax of £1.7m, a 107% past year working capital increases were limited improvement (2011: £0.8m). Underlying earnings to £157,000 (4%), on £5.5m (14%) higher sales. per share improved by 173% to 18.3p (2011: 6.7p). This continues a record of consistent positive cash Group borrowings reduced during the year by £1.3m or 46%, to £1.6m (2011: £2.9m). As a result gearing was reduced to 17% from 37% at the previous year end. The Group is funded through a £5.0m overdraft facility, which is renewable generation, including during the recession and annually and is not subject to financial covenants. The statutory results also improved significantly subsequent recovery, as illustrated in the chart over the previous year with statutory operating below. profit of £1.6m (2011: £0.5m), statutory profit before tax of £1.4m (2011: £0.3m) and statutory earnings per share of 16.1p (2011: 1.3p). Cash v profit (£000) 2,430 1,735 1,791 2012 2011 2010 2009 2008 (923) 904 502 693 460 828 1,323 Pictured: Lighting for hazardous environments ■ Cash generated from operations ■ Underlying operating profit 12 chamberlin plc21361.04 12/06/12 Proof 6 Chamberlin produce performance critical components for the off-road vehicle sector Asset acquisition On 4 February 2011, the Group acquired certain Pension The Group’s defined benefit pension scheme, fixed assets and inventory from the administrator which now has 175 deferred and retired members, of Jebron Ltd, a door controllers maker, for was closed to future accrual in 2007. Following £162,000. The manufacture of door controllers the last triennial valuation, as at 1 April 2010, started, in Wednesbury, during March 2011 and contributions were set at £308,000 per year for production was transferred to our Cannock site 2011/12 increasing by 3% per year thereafter. Based during the year. This activity is now fully integrated on current assumptions this would eliminate the into our Exidor business and is delivering returns in deficit by 2020. line with expectations. Foreign exchange In order to protect against future exchange The IAS 19 deficit at 31 March 2012 was £3.1m (2011: £2.2m). The increase principally reflects the reduction in the discount rate used to calculate rate movements the Group enters into forward scheme liabilities, as a consequence of a fall in currency contracts covering 80% of its estimated bond yields over the last year. Euro denominated sales for the coming year. The Group has adopted hedge accounting in relation to these foreign currency contracts, as explained in detail in note 2 to the Financial Statements. During the period a movement in fair value of £493,000 in respect of effective hedges was recognised in equity. Mark Bache Finance Director 21 May 2012 13 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements high profile applications 1414 chamberlin plc21361.04 12/06/12 Proof 6 Cross-rail Project Pictured: Cast iron tunnel lining segment Crossrail is a major infrastructure project to build a new East-West underground train line across London. At junctions, the tunnels are lined with cast iron segments, which provide the appropriate strength and performance characteristics. These large segments have to be manufactured to tight tolerances and are bolted together in rings to line the tunnels. The Cross-rail project is being lead by three separate consortiums, each digging a different section of the overall tunnel. Our Scunthorpe facility is one of only a small number of foundries with experience of producing these complex parts, and during 2011, won the contract to supply all of the castings for the first phase of tunnelling. Phases two and three are expected to be awarded during 2012/13. Use your phone’s bar code app and go directly to our website. 15 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Board of Directors Executive Directors Non-Executive Directors Tim Hair Aged 52, Tim joined the Company in June 2006 Keith Butler-Wheelhouse Aged 66, Keith joined the Board and was Alan Howarth Aged 66, Alan was appointed as a Director and was appointed as Chief Executive in July 2006. appointed Non-Executive Chairman in March in January 2007. Alan was previously a Tim was previously Managing Director of Sterling 2012. Previously Chief Executive of Smiths Group partner in Ernst & Young. He is Chairman of Hydraulics Limited and his career includes senior plc, Saab Automobile Sweden and Delta Motor Cerillion Technologies Ltd, CRF Inc, and has positions in a range of advanced engineering Corporation South Africa. He is currently Non- further non-executive interests in a range of businesses. Executive Director of Plastics Capital plc and private companies. Alan is Chairman of the previously served as a Non-Executive Director Remuneration Committee. Mark Bache Aged 48, Mark joined the Company in November with Atlas Copco AB, General Motors Europe, J Sainsbury plc and NIU Solutions. 2006 and was appointed Finance Director in December 2006. He was previously Finance Director of Pel Group Ltd and has held senior Keith Jackson Aged 63, Keith joined the Board in 2005. He was Keith Butler-Wheelhouse was appointed as Non- Executive Chairman on 1 March 2012. financial positions in a number of manufacturing previously Finance Director of Tarmac Group Ltd, Tom Brown retired from the Board on groups since qualifying as a Chartered Accountant and was Finance Director of Cape plc between 29 February 2012. with PWC in 1988. 1989 and 1996. He is a Director of EuroChem, as well as being Chairman of a number of pension funds. Keith is Senior Independent Director and At the Annual General Meeting to be held on Chairman of the Audit Committee. 12 July 2012 (see the Notice of Annual General Pictured left to right: Keith Jackson, Tim Hair, Keith Butler-Wheelhouse, Alan Howarth, Mark Bache Meeting on pages 74 to 75), all Directors will retire and, being eligible, offer themselves for re-election. No Director had a material interest during the year in any significant contract with the Company or with any subsidiary undertaking. The Group provides indemnities to the Directors in respect of liabilities or claims arising in the performance of their duties. 16 chamberlin plc21361.04 12/06/12 Proof 6 Report of the Directors The Directors present their report together with the audited financial statements for the year ended 31 March 2012. Principal activities The principal activities of the Group are the production and sale of iron castings in a wide variety of sizes and metal grades, and the manufacture and sale of light engineering products, predominantly into safety and security markets. The Company is registered in England and its registration number is 76928. Business review and future developments A comprehensive analysis of the development and performance of the Company during the year, including its future prospects, is included in the Chairman’s Statement on page 3 and Business Review, which comprises the Chief Executive’s Review and Finance Director’s Review, on pages (10 to 13). (a) Key Performance Indicators Key performance indicators (“KPIs”) are used to measure and evaluate Group performance against targets and monitor various activities throughout the Group. The main key performance indicators employed in the Group are set out below: Return on sales Return on net assets Foundries Engineering Group Foundries Engineering Group Operating profit per employee Foundries Engineering Group Year to 31 March Year to 31 March 2012 5.6% 5.8% 3.8% 21.3% 16.6% 19.2% £6,106 £4,596 £3,503 2011 4.0% 4.7% 2.1% 13.3% 16.1% 11.7% £4,349 £3,182 £804 The Directors are satisfied that the KPIs reflect the improvements made to the Group during the year. During the year, the Group has changed a KPI from sales per employee to operating profit per employee as the Directors believe this is a more effective measure of productivity. Calculations are based on numbers disclosed in the segmental analysis in note 3 to the accounts and are shown before exceptional items as detailed in note 12 to the accounts. The Group percentages are different as they incorporate shared costs. The above KPIs are defined as follows: Return on sales The ratio of the segment’s trading profit to the segment’s sales. The trading profit is defined in the segmental analysis in note 3. Return on net assets Operating profit per employee The ratio of the segment’s trading profit to the segment’s net assets (as analysed in note 3). The ratio of the segment’s operating profit to the segment’s average number of employees. 17 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Report of the Directors continued (b) Employees Staff numbers and associated costs are shown in note 5 to the accounts. The segmental split of the average number of employees is as follows: Foundries Engineering Head office* Group * Includes 3 Non-Executive Directors Year to 31 March Year to 31 March 2012 £000 340 104 9 453 2011 £000 291 93 8 392 The Group’s employment policy includes a commitment to the principles of equal opportunity for all, and specifically prohibits discrimination of every type. Our policy is always to ensure that all persons are treated fairly irrespective of their colour, race, sex, sexual orientation, age or youth, religion, political beliefs, trade union membership or non-membership, marital and physical or mental status or any other factors including pregnancy and maternity. In particular, the Group gives full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled by a disabled person. We endeavour to provide those who have physical or mental disabilities with specific assistance, and arrangements are made to enable them to work for us wherever and whenever this is reasonably practical. We expect all employees to comply in every respect with the Group’s employment policies at all times. The Group has arrangements in place for the involvement of all employees in the activities of the business, including management/employee briefings, dialogue with trade union representatives and health and safety meetings. A Safety Policy is in place throughout the Group and all employees are required to be aware of their responsibilities under the Health and Safety at Work Act. A copy of the policy and all relevant Codes of Practice are available at the workplace. It is the policy of the Group to recognise that the training of employees is important to the efficiency of the business and each employee’s welfare and safety. Promotion is encouraged within the organisation and it is Group policy to promote from within wherever this is appropriate. (c) Environment The Board recognises that our operations have an effect on the local, regional and global environment, and as a consequence of this, the Board is committed to continuous improvements in environmental performance and the prevention of pollution. Specifically the Group has and will: comply with the requirements of all relevant environmental legislation, meeting any set emission limits and standards laid down, and use best available techniques in order to control impacts on the environment; maintain and develop environmental management policies and practices to continually monitor and progress the minimisation of the effects of the business on the environment. Environmental management is considered to be a key part of the business strategy at all levels within the Group; actively encourage the minimisation of waste from all aspects of the business and promote the benefits of recycling and reuse; as part of the Target 2010 climate change levy agreement, aim to meet the requirements to reduce energy use and emissions of carbon dioxide by increasing energy efficiency through all parts of the Group and to seek new opportunities of improving energy efficiency as part of the overall improvement of the business; consider environmental factors in respect of the growth of the business, seeking as far as is practical to reduce harmful environmental impacts and to integrate new developments into the local environment; and actively encourage the consideration of the environmental impact of all raw materials and services purchased by the business, and where practical to use the options with the least impact and to reduce the consumption of raw materials. 18 chamberlin plc21361.04 12/06/12 Proof 6 (d) Research and Development The Group’s research and development activities in the year, as in previous years, consist primarily of devising methods for achieving the casting of complex shaped and/or multi-cored products in the foundry businesses and the design and development of new products in our engineering businesses, principally hazardous area lighting and emergency exit hardware products. The Board views such activities as key to the future prosperity of the business. Expenditure expensed through the income statement is shown in note 7 and expenditure capitalised in note 14 to the accounts. Principal risks and uncertainties Management throughout the Group uses a common model to identify and assess the impact of risks to their businesses. The Group’s risk management process is described further in the corporate governance report on pages 23 to 25. The more significant risks and uncertainties faced by the Group are set out below: Approximately 20% of the Group’s income is derived in Euros. In order to reduce the Group’s exposure to currency fluctuations the Group sells Euros forward in order to provide an effective hedge, as described in note 25. The price of many raw materials is dependent upon movements in commodity prices, especially iron. In order to reduce its exposure to movements in raw material prices the Group negotiates, where appropriate, price surcharge arrangements into its customer contracts. In common with other industrial businesses the Group is subject to risks associated with the environment. The Group manages these risks by continual review of its processes to identify opportunities for improvement, whilst ensuring that the conditions of its site operating licences are met or exceeded at all times. The global economic outlook has continued to be uncertain and the Group has been exposed to additional risks associated with significant and rapid increases in demand. In order to mitigate this risk the Group maintains borrowing facilities which incorporate sufficient headroom to accommodate any working capital movements associated with such changes in demand. In addition the Group regularly monitors its forward order load and where practical takes action to adjust its cost base in line with demand. The Group’s approach to managing other financial risks is set out in note 25 to the financial statements. Dividends The Directors recommend the payment of a 2.0p final dividend. An interim dividend of 1.0p (2011: nil p) has been paid during the year. Directors Details of the Directors of the Company during the year and their interests in the shares of the Company are shown below. The interests of the Directors in share options are shown in the Directors’ Remuneration Report on pages 26 to 29. Directors’ shareholdings Beneficial interests of the Directors in the shares of the Company, including those of their immediate families were: Keith Butler-Wheelhouse (appointed 1 March 2012) Tim Hair Mark Bache Keith Jackson Alan Howarth Tom Brown (retired 29 February 2012) There have been no changes in the interests of the Directors set out above between 1 April 2012 and 21 May 2012. Year to 31 March 2012 Number of shares — 134,508 55,000 13,525 11,300 n/a Year to 31 March 2011 Number of shares — 33,000 15,000 13,525 11,300 35,000 19 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Report of the Directors continued Special Business at the Annual General Meeting Directors’ authority to allot shares As in previous years, approval will be sought for a special resolution to renew the authority given to the Directors to allot shares in the Company. Authority will be sought to allot shares in the Company up to an aggregate nominal amount of £662,461 (which represents approximately 33% of the issued share capital of the Company as at 21 May 2012). This limit is in line with the guidelines issued by the Association of British Insurers. Authority will also be sought from shareholders to allow the Directors to issue new shares for cash to persons other than to existing members up to a maximum nominal amount of £99,369. This sum represents 397,477 ordinary shares of 25 pence each, being equivalent to 5% of the issued share capital of the Company at 21 May 2012. Authority to purchase own shares At the Annual General Meeting in 2011, the Board was given authority to purchase and cancel up to 794,900 of its own shares representing just under 10% of the Company’s then existing issued share capital, through market purchases on The London Stock Exchange. The maximum price to be paid on any exercise of the authority was restricted to 105% of the average of the middle market quotation for the shares for the five dealing days immediately preceding the day of a purchase. The minimum price which may be paid for each share is 25 pence. No purchases have been made. The current authority to make market purchases expires at the forthcoming Annual General Meeting. The Directors have resolved, if the right circumstances exist, to exercise the current authority which remains valid until the Annual General Meeting, and will continue to consider circumstances in which they may exercise this authority. They are now seeking the approval of shareholders for the renewal of this authority upon the same terms, to allow the Company to purchase and cancel up to 794,953 of its own shares, again representing just under 10% of its issued share capital at 21 May 2012. The authority is sought by way of a special resolution, details of which are also included at item 12 in the notice of meeting. This authority will only be exercised if the Directors, in the light of market conditions prevailing at the time, expect it to result in an increase in earnings per share, and if it is in the best interests of the shareholders generally. Account will also be taken of the effect on gearing and the overall position of the Company. Both authorities are to be for the period commencing on the date of passing of the resolution until the next Annual General Meeting. The proposed resolutions are set out as items 10 to 12 in the notice of meeting on pages 74 to 75. Substantial shareholders At 21 May 2012 the Company was aware of the following interests of 3% or more of the Company’s share capital, other than those of Directors: Rights & Issues Investment Trust PLC Henderson Global Investors Discretionary Unit Fund Schroder Institutional UK Smaller Companies Fund MAM Funds PLC AXA Framlington Monthly Income Fund Perfecta Assets Ltd Number of shares 1,000,000 863,254 500,000 477,178 470,370 400,000 275,000 % of Issued Share Capital 12.58% 10.86% 6.29% 6.00% 5.92% 5.03% 3.46% 20 chamberlin plc21361.04 12/06/12 Proof 6 Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the Group and Company financial statements in accordance with applicable United Kingdom law and regulations. Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law, the Directors are required to prepare Group and Company financial statements under IFRSs as adopted by the European Union and in respect of the Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Under Company Law the Directors must not approve the Group financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group and Company for that period. In preparing the Group and Company financial statements the Directors are required to: present fairly the financial position, financial performance and cash flows of the Group; select suitable accounting policies in accordance with IAS 8: Accounting Policies Changes in Accounting Estimates and Errors, and then apply them consistently; present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group and Company’s financial position and financial performance; state whether the Group and Company financial statements have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and make judgements and estimates that are reasonable. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for preparing the Directors’ Report in accordance with the Companies Act 2006 and applicable regulations. Going concern After making appropriate enquiries, the Directors consider that the Group has adequate resources to continue in operation for the foreseeable future. In forming this view the Directors have reviewed budgets and other financial information as set out in note 2 to the Financial Statements. For this reason, they continue to adopt the going concern basis in preparing the accounts. Directors’ statement as to disclosure of information to Auditors The Directors who were members of the Board at the time of approving the Directors’ report are listed on page 16. Having made enquiries of fellow Directors and of the Company’s Auditors, each of these Directors confirms that: to the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s Auditors are unaware; and each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s Auditors are aware of that information. 21 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Report of the Directors continued Charitable and political donations Donations to UK charitable organisations amount to £nil (2011: £750). There were no political donations in the year (2011: £nil). Policy on payments to creditors The Group has a variety of payment terms with its suppliers. These are either negotiated along with other contract terms or conform to standard terms applied either by the relevant group company or by the supplier. In respect of all its suppliers it is the Group’s policy to settle the terms of payment when entering a business relationship with a supplier, to ensure suppliers are aware of the terms of payment, and to abide by the terms of payment. The Group’s average creditor payment period at 31 March 2012 was 61 days (2011: 58 days) and that of the Company was 34 days (2011: 55 days). Auditors A resolution will be proposed to reappoint Ernst & Young LLP as Auditors and to authorise the Directors to determine their remuneration. By order of the Board Mark Bache Secretary 21 May 2012 22 chamberlin plc21361.04 12/06/12 Proof 6 Corporate Governance Principles of good governance The Group is committed to high standards of corporate governance and although The Financial Services Authority’s Listing Rules which incorporate the UK Corporate Governance Code (“the Code”) are not mandatory for AIM quoted companies, it has applied the main principles set out in the Code as described below and in the Directors’ Remuneration Report, in a manner appropriate to the size and nature of the Group. The Board and its committees: (a) The Board The Board normally comprises a non-executive Chairman, two other non-executive Directors and at least two executive Directors. The Directors (including non-executive Directors) have a range of experience and are of sufficient calibre to bring independent judgement to bear on issues of strategy, performance, resources and standards of conduct, which is vital to the success of the Group. The Board meets at least eight times a year and additionally when necessary. At each scheduled meeting of the Board, the Chief Executive reports on the Group’s operations and the Finance Director reports on the financial position of the Group. To enable the Board to discharge its duties, all Directors receive appropriate and timely information. Briefing papers are distributed by the Company Secretary to all Directors in advance of Board meetings. In addition the Board has adopted standard procedures and practices whereby significant issues affecting the Group are reviewed on a regular basis. All non-executive Directors are considered to be independent by the Board. Keith Butler-Wheelhouse is the independent non-executive Chairman and Keith Jackson is the senior independent non-executive Director. There is a schedule of matters which are reserved for decision by the Board and matters which are delegated to the various Board committees or to the executive Directors, along with monetary levels of authority for capital expenditure and other financial commitments. Following the appointment of new Directors, an appropriately tailored induction programme is arranged and the training needs of Directors are regularly considered. If appropriate, all Directors have the authority to take independent legal advice and have direct access to the Company Secretary. Evaluation of the performance of the Board and evaluation of the performance of individual Directors is conducted regularly on an annual cycle. (b) Chairman and Chief Executive The Chairman of the Company is an independent non-executive Director who is responsible for the running of the Board. The Board is responsible to shareholders for the overall direction and control of the Company, and the Chief Executive is responsible to the Board for management of the Company within the parameters set by the Board. There is a clear division of responsibilities between the two roles. (c) Supply of information The Board is satisfied that it is provided with information in an appropriate form and quality to enable it to discharge its duties. (d) Appointments to the Board The Nominations Committee makes recommendations to the Board on the composition of the Board generally and on the balance between executive and non-executive Directors. It also makes recommendations on the appointment of new Directors and subsequent reappointments on retirement by rotation. It comprises the non-executive Directors and the Chief Executive. The Chairman of the Committee is Keith Butler-Wheelhouse. (e) Re-election of Directors At the Annual General Meeting to be held on 12 July 2012 (see the Notice of Annual General Meeting on pages 74 to 75), all Directors will retire and, being eligible, offer themselves for re-election. Notwithstanding that Article 94 of the Articles of Association requires only of a selection of the Directors to retire by rotation, the Directors have taken the decision to apply the good corporate governance provisions of the Code in respect of the re-election of Directors as it applies to FTSE 350 companies and consequently to require all Directors to be subject to re-election. (f) Directors’ remuneration The statement of the Company’s policy on executive Directors’ remuneration and details of Directors’ emoluments and service contracts are contained in the Directors’ Remuneration Report on pages 26 to 29. 23 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Corporate Governance continued (g) Relations with shareholders Members of the Board hold meetings from time to time with major shareholders to discuss the Company’s strategy and financial performance. These are usually held after the public announcement of results each 6 months and usually involve the Company’s brokers, through whom feedback from institutional investors is obtained as necessary. The Board uses the Annual General Meeting to communicate with all private and institutional investors and welcomes their participation. (h) Audit Committee The Audit Committee, which consists of the three non-executive Directors, Keith Jackson (Chairman), Keith Butler-Wheelhouse and Alan Howarth, meets at least twice per year with the external Auditors in attendance when required. It has formal terms of reference and it assists the Board in ensuring that appropriate accounting policies, financial systems, internal controls and compliance procedures are in place. It also reviews the relationship between the Group and the external Auditors in terms of the provision of non-audit services and ensuring that auditor independence and objectivity is maintained. The Auditors have direct access to the Chairman of the Audit Committee. A formal “whistle-blowing” policy is in operation, providing direct access to the Chairman of the Audit Committee, in relation to any concerns staff may have concerning the propriety of Group operations and activities. No issues or incidents have come to light as a result of this policy. All proposals for the provision of non-audit services by the external Auditor are pre-approved by the Audit Committee or its delegated member, the overriding consideration being to ensure that the provision of non-audit services does not impact the external Auditor’s independence and objectivity. (i) Remuneration Committee The Remuneration Committee comprises the three non-executive Directors. Further details are shown in the Directors’ Remuneration Report. (j) Annual General Meeting All Directors expect to attend the Annual General Meeting and to be available to answer questions put to them by shareholders. (k) Internal control The Board is responsible for the Group’s system of internal control and for reviewing its effectiveness in accordance with the guidance set out in the Code. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Code has a requirement that the Directors review the effectiveness of the Group’s system of internal controls. This includes internal financial controls and controls over financial, operational, compliance and risk management. The Directors of each business are required to complete an annual internal control questionnaire, which when combined with regular reviews gives the Board confidence that internal controls are effective. The Group also operates a risk management process whereby each business identifies its key risks, the probability of those risks occurring, their potential impact, and action needed to manage them. This is carried out as a specific exercise as part of the annual budgeting process, but is also part of the day to day management process of each business. The Group has established procedures for planning and budgeting and monitoring the operational and financial performance of all businesses in the Group, as well as their compliance with applicable laws and regulations. These procedures include: Clear responsibilities on the part of line and financial management for good financial controls in the production of accurate and timely financial management information. The control of key financial risks through clearly laid down authorisation levels and proper segregation of accounting duties. Detailed monthly budgeting and reporting of trading results, balance sheets and cash flows with regular reviews of variances from budgets by management and the Board. Reporting on compliance with internal financial controls and procedures by each individual business unit under the supervision of the Group Finance Director and at the year end by external Auditors. Interim and Annual Reports are reviewed by the Audit Committee prior to issue. 24 chamberlin plc21361.04 12/06/12 Proof 6 The Board has undertaken an assessment of the need for a Group internal audit function. The Board considers that the control systems and procedures currently undertaken by the Group are adequately performed by the management and that the Group has not yet reached a size where a separate internal audit function would be an appropriate or cost effective method of ensuring compliance with Group policies. It therefore does not currently propose to introduce a Group internal audit function. This area will be kept under review as part of the Board’s assessment of the Group’s systems of internal control. Summary of attendance at meetings Number of meetings in the year Keith Butler-Wheelhouse (appointed 1 March 2012) Tom Brown (retired 29 February 2012) Keith Jackson Alan Howarth Tim Hair Mark Bache n/a – Indicates that a Director was not a member of a particular committee. Board Nominations Remuneration Audit meetings Committee Committee Committee 11 1 8 11 10 11 11 1 — 1 1 1 1 n/a 5 1 4 5 5 n/a n/a 2 — 2 2 2 n/a n/a By order of the Board Mark Bache Secretary 21 May 2012 25 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Directors’ Remuneration Report Remuneration Committee The Remuneration Committee comprises the three non-executive Directors: Alan Howarth (Chairman), Keith Butler-Wheelhouse and Keith Jackson. The committee meets when necessary, usually at least twice per year, and is responsible for determining the remuneration packages of the executive Directors and of the Chairman. Policy on remuneration of Executive Directors and Senior Executives The committee aims to ensure that remuneration packages offered are designed to attract, maintain and motivate high calibre Directors and senior executives, without paying more than necessary for the purpose. The remuneration policy attempts to match the interests of the executives with those of shareholders by providing: (a) Basic salary and benefits Executive Directors’ basic salaries are reviewed each year, taking into account the performance of the individual and rates of salary for similar jobs in companies of comparable size. The main benefits provided are company cars and health insurance. The Company operates a number of defined contribution pension schemes for the majority of its employees, including executive Directors. No performance related bonuses nor benefits in kind are included in pensionable salary. (b) Annual performance related bonus scheme In order to link executive remuneration to Group performance, executive Directors participate in bonus schemes appropriate to their objectives. For the year ended 31 March 2012 the bonus in respect of Tim Hair and Mark Bache was linked to the profit performance of the Group and the achievement of personal objectives. The maximum amount of bonus payable is 100% of their basic salary. (c) Share options An incentive to achieve longer-term improvements in shareholder value is afforded through two share option schemes which were established in 2007. The key features of the schemes are summarised as follows: (i) A Performance Share Plan which grants nil cost options under an Enterprise Management Scheme (“EMI Options”). The EMI Options will normally become exercisable in three equal tranches on each of the third, fourth and fifth anniversaries of the date of grant subject to the satisfaction of a performance condition set by the Remuneration Committee of the Company. The proportion of awards that become exercisable under each tranche of the EMI Option varies on a straight-line basis, from 25% to 100%, for average growth in underlying fully diluted EPS of between 5% p.a. and 10% p.a. above RPI over the period between grant and exercise dates. No options are exercisable if growth is below this range. (ii) Non-EMI qualifying options are also granted at nil cost under the Performance Share Plan. Non-EMI options become exercisable on the third anniversary of the date of grant subject to the satisfaction of a performance condition set by the Remuneration Committee of the Company. The proportion of Non-EMI awards that become exercisable varies on a straight-line basis from 25% to 100% based on the Company’s TSR ranking against a comparator group of companies between the median and upper quartile ranking. No options are exercisable if growth is below this range. These options expire on the 10th anniversary of grant. (iii) A Share Option Plan (“SOP”) which issues options at the average quoted market price of the Company’s shares over a period of up to ninety trading days prior to grant. The options will normally become exercisable on or after the third anniversary of the date of grant subject to the satisfaction of performance conditions set by the Remuneration Committee of the Company. The proportion of awards that become exercisable varies on a straight-line basis, from 25% to 100%, for average growth in Total Shareholder Return of between 23.8% and 50.7% per annum over the period between the grant and vesting dates. This is equivalent to achieving a share price in the range of 100p to 180p. No options are exercisable if growth is below this range. Certain options were granted under this scheme (as detailed on page 28) in parallel to the options outstanding under schemes (i) and (ii) above. These parallel options are only tested against the above vesting conditions, and hence are potentially eligible to vest, in the event that the options that they are granted in parallel to fail to vest. 26 chamberlin plc21361.04 12/06/12 Proof 6 Performance Graph The following graph shows the Company’s performance compared to the performance of the FTSE Engineering and Machinery index over a five year period, measured by total shareholder return. This index has been selected as an appropriate benchmark because it represents the market sector in which the Company operates. Total shareholder return is calculated to show the theoretical growth in the value of a shareholding over a specified period, assuming that dividends are re-invested to purchase additional shares. Performance graph – Total Shareholder Return 300 250 200 150 100 50 0 0 1 o t d e s a b e r x e d n I n r u t e R m a e r t s a t a D 0 M ar 07 FTSE Engineering & Machinery Chamberlin plc Jun 07 Sep 07 Dec 07 M ar 08 Jun 08 Sep 08 Dec 08 M ar 09 Jun 09 Sep 09 Dec 09 M ar 10 Jun 10 Sep 10 Dec 10 M ar 11 Jun 11 Sep 11 Dec 11 M ar 12 Service contracts All executive Directors who served during the year have rolling service contracts terminable on no more than 1 years’ notice. Non-executive Directors Remuneration of the non-executive Directors, apart from the Chairman, is approved each year by the Chairman and the executive Directors. The Chairman’s remuneration is approved by the Remuneration Committee. Directors’ remuneration Executive Tim Hair* Mark Bache Non-Executive Keith Butler-Wheelhouse (appointed 1 March 2012) Tom Brown (retired 29 February 2012)† Keith Jackson Alan Howarth Total Total 2011 Basic salary £000 205 140 6 13 23 23 410 423 Fees £000 Benefits £000 — — — 39 — — 39 43 25 13 — — — — 38 39 Annual bonus £000 115 85 — — — — 212 221 Total remuneration excluding pensions 2012 £000 345 238 6 52 23 23 687 726 2011 £000 335 236 — 57 23 23 726 * Highest paid Director in 2011 and 2012. † Includes consultancy fees in respect of services provided to the Company. 27 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Directors’ Remuneration Report continued Benefits include all assessable tax benefits arising from employment by the Company, and relate mainly to the provision of company cars and private medical insurance. The figures above represent emoluments earned as Directors during the relevant financial year. Such emoluments are paid in the same financial year with the exception of bonuses which are paid in the year following that in which they are earned. The emoluments of other key management personnel are disclosed in note 26. Directors’ pensions No retirement benefits accrued during the year, or prior years, to Directors under the Chamberlin & Hill Staff Pension and Life Assurance Scheme (2011: nil) which is a closed defined benefit scheme. Contributions into personal pension plans T Hair M Bache No other pension contributions were paid in respect of Directors other than as disclosed above. Directors’ options Contribution paid Contribution paid Percentage of basic salary 10% 8% 2012 £000 21 11 2011 £000 19 10 Tim Hair Mark Bache 31 March 2011 16,665 16,665 11,940 132,000 193,935 698,584 12,819 12,819 17,910 96,000 152,367 293,892 1,655,596 Granted in year — — — — — — — — — — — — — Lapsed or Exercised surrendered 31 March Option exercise in year — — — 101,508 — — — — — 40,000 — — in year 16,665 — 11,940 30,492 101,508 — 12,819 — 17,910 22,176 73,824 — 2012 — 16,665 — — 92,427 698,584 — 12,819 — 33,824 78,543 293,892 141,508 287,334 1,226,754 price Exercisable between Note nil nil nil nil 52.8p 52.8p nil nil nil nil 52.8p 52.8p — 27.03.2012–27.03.2017 — — 23.02.2013–23.02.2020 # 23.02.2013–23.02.2020 — 27.03.2012–27.03.2017 — 19.12.2011–19.12.2018 23.02.2013–23.02.2020 # 23.02.2013–23.02.2020 Options marked # are granted in parallel to options in existence at 31 March 2009, as noted above. These options are only tested against the vesting conditions as set out on page 26 (and thus potentially become eligible to vest), in the event that the options that they are granted in parallel to fail to vest. Only the original options or the parallel options can vest, not both. 28 chamberlin plc21361.04 12/06/12 Proof 6 Option grants are exercisable only upon the achievement of the performance targets explained on page 26. No consideration is payable for the grant of an option, which is exercisable at a price to be determined by the Remuneration Committee at the time when the option is granted as detailed above. The exercise of share options resulted in a gain for Tim Hair of £134,000 and a gain for Mark Bache of £53,000. At the time of exercise the Company’s share price was 132p. 287,334 options lapsed as the vesting criteria were not met. There have been no changes in the interests set out above between 1 April 2012 and 21 May 2012. The mid-market price of the shares at 31 March 2012 was 144p and during the year ranged between 93.5p and 160p. On behalf of the Board Alan Howarth Chairman, Remuneration Committee 21 May 2012 29 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Independent Auditors’ Report to the members of Chamberlin plc We have audited the financial statements of Chamberlin plc for the year ended 31 March 2012 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Parent Company Balance Sheet, the Consolidated and Parent Company Cash Flow Statement, the Group and Parent Company Statement of Changes in Equity and the related notes 1 to 26. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of Directors and Auditor As explained more fully in the Statement of Directors’ Responsibilities set out on page 21, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non- financial information in the Annual Report and Accounts to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion: the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 March 2012 and of the Group’s profit for the year then ended; the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. 30 chamberlin plc21361.04 12/06/12 Proof 6 Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or the Parent Company financial statements are not in agreement with the accounting records and returns; or certain disclosures of Directors’ remuneration specified by law are not made; or we have not received all the information and explanations we require for our audit. Christopher Voogd (Senior statutory auditor) for and on behalf of Ernst & Young LLP, Statutory Auditor Birmingham 21 May 2012 31 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements successfully growing our chosen markets 3232 chamberlin plc21361.04 12/06/12 Proof 6 Turbochargers Pictured: Bearing housing for engine turbochargers In order to meet the latest EU emissions standards, car manufacturers are now beginning to introduce turbocharged petrol engines as a means of improving fuel efficiency. As a consequence the proportion of petrol engine cars that are turbo charged is expected to grow from approximately 10% currently to over 90% by 2016. Chamberlin & Hill Castings Ltd is one of only a small number of European foundries with the technical capability to develop and supply the highly complex castings that form a key component of the turbocharger. With a track record producing these demanding castings for diesel cars, our Walsall team have been able to apply their expertise to the fast growing petrol turbocharger market. Following a two year development phase, a number of parts went into production during the year. This work is ongoing with more products going into production during 2012/13. Use your phone’s bar code app and go directly to our website. 33 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Consolidated Income Statement for the year ended 31 March 2012 Year ended 31 March 2012 Year ended 31 March 2011 Underlying underlying* Notes £000 £000 Non- Total £000 45,532 (36,652) 8,880 (7,145) 1,735 — — (148) 1,587 (157) 1,430 Non- Underlying underlying* £000 39,801 (32,368) 7,433 (6,529) 904 — — — 904 (100) 804 £000 — — — — — (121) (202) (73) (396) (75) (471) Total £000 39,801 (32,368) 7,433 (6,529) 904 (121) (202) (73) 508 (175) 333 45,532 (36,652) 8,880 (7,145) 1,735 — — — 1,735 (78) 1,657 — — — — — — — (148) (148) (79) (227) (242) 59 (183) (305) 70 (235) Revenue Cost of sales Gross profit Other operating expense Trading profit Business reorganisation costs Goodwill impairment Share-based payment charge Operating profit/(loss) Finance costs Profit/(loss) before tax Tax (expense)/credit Profit/(loss) for the year from continuing operations attributable to 3 4 7 6 8 equity holders of the Parent Company 1,415 (168) 1,247 499 (401) 98 Earnings per share: basic underlying diluted diluted underlying 11 11 11 11 18.3p 16.5p 16.1p 14.5p 6.7p 6.1p 1.3p 1.2p * Non-underlying items represent business reorganisation costs, goodwill impairment, net financing costs on pension obligations, share-based payment costs and associated tax impact. 34 chamberlin plc21361.04 12/06/12 Proof 6 Consolidated Statement of Comprehensive Income for the year ended 31 March 2012 Profit for the year Other comprehensive income Movements in fair value on cash flow hedges taken to other comprehensive income Reclassification for cash flow hedge included in cost of sales Deferred tax on movement in cash flow hedges Actuarial losses on pension assets and liabilities Deferred tax on actuarial losses Movement on deferred tax on actuarial losses relating to rate change Other comprehensive income for the period net of tax Total comprehensive income for the period attributable to equity holders of the Parent Company Notes 22 2012 £000 1,247 250 229 (120) (1,206) 314 (61) (594) 653 2011 £000 98 (108) (142) 65 (59) 16 — (228) (130) 35 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Consolidated Balance Sheet at 31 March 2012 Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Current assets Inventories Trade and other receivables Total assets Current liabilities Financial liabilities Trade and other payables Provisions Current tax Non-current liabilities Deferred tax Defined benefit pension scheme deficit Total liabilities Capital and reserves Share capital Share premium Capital redemption reserve Hedging reserve Retained earnings Total equity Total equity and liabilities Tim Hair Mark Bache} Directors The accounts were approved by the Board of Directors on 21 May 2012. 36 Notes 13 14 18 15 16 17 17 17 18 22 19 31 March 31 March 2012 £000 8,121 642 1,056 9,819 3,846 8,959 12,805 22,624 1,558 8,684 — 145 10,387 133 3,061 3,194 13,581 1,987 1,269 109 174 5,504 9,043 22,624 2011 £000 8,170 494 763 9,427 2,969 9,588 12,557 21,984 2,881 8,952 85 — 11,918 85 2,202 2,287 14,205 1,859 862 109 (185) 5,134 7,779 21,984 chamberlin plc21361.04 12/06/12 Proof 6 Parent Company Balance Sheet at 31 March 2012 Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax asset Current assets Trade and other receivables Income taxes receivable Amounts due from subsidiary undertakings Total assets Current liabilities Financial liabilities Trade and other payables Amounts due to subsidiary undertakings Non-current liabilities Amounts due to subsidiary companies Deferred tax Defined benefit pension scheme deficit Total liabilities Capital and reserves Share capital Share premium Capital redemption reserve Retained earnings Total equity Tim Hair Mark Bache} Directors The accounts were approved by the Board of Directors on 21 May 2012. Notes 13 14 21 18 16 16 16 17 17 17 18 18 22 19 31 March 31 March 2012 £000 1,028 5 8,159 897 10,089 200 47 4,968 5,215 15,304 3,055 672 606 4,333 — 24 3,061 3,085 7,418 1,987 1,269 109 4,521 7,886 15,304 2011 £000 1,038 3 8,159 596 9,796 150 14 7,898 8,062 17,858 4,224 557 1,942 6,723 66 34 2,202 2,302 9,025 1,859 862 109 6,003 8,833 17,858 37 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Consolidated Cash Flow Statement for the year ended 31 March 2012 Operating activities Profit for the year before tax Adjustments to reconcile profit for the year to net cash inflow from operating activities: Net finance costs excluding pensions Depreciation of property, plant and equipment Amortisation of software Amortisation of development costs Goodwill impairment Profit on disposal of property, plant and equipment Share-based payments Difference between pension contributions paid and amounts recognised in the Income Statement (Increase)/decrease in inventories Decrease/(increase) in receivables (Decrease)/increase in payables Movement in provisions Cash generated from operations Net cash inflow from operating activities Investing activities Purchase of property, plant and equipment Purchase of software Development costs Disposal of plant and equipment Net cash outflow from investing activities Financing activities Interest paid Proceeds from issue of share capital Dividends paid Net cash inflow/(outflow) from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the start of the year Cash and cash equivalents at the end of the year Cash and cash equivalents comprise: Financial liabilities 38 Notes 6 13 14 14 7 20 13 14 14 6 17 31 March 31 March 2012 £000 1,430 78 1,219 79 48 — (68) 148 (347) (877) 873 (68) (85) 2,430 2,430 (1,185) (243) (32) 83 2011 £000 333 100 1,101 63 83 202 (20) 73 (223) 325 (3,215) 2,932 37 1,791 1,791 (1,026) (191) — 94 (1,377) (1,123) (78) 500 (152) 270 1,323 (2,881) (1,558) (1,558) (1,558) (100) — — (100) 568 (3,449) (2,881) (2,881) (2,881) chamberlin plc21361.04 12/06/12 Proof 6 Parent Company Cash Flow Statement for the year ended 31 March 2012 Operating activities Loss for the year before tax Adjustments to reconcile loss for the year to net cash inflow from operating activities: Net finance costs excluding pensions Depreciation of property, plant and equipment Amortisation of software Share-based payments Difference between pension contributions paid and amounts recognised in the Income Statement Decrease/(increase) in receivables (Decrease)/increase in payables Net cash inflow from operating activities Investing activities Purchase of property, plant and equipment Purchase of software Disposal of plant and equipment Net cash outflow from investing activities Financing activities Interest paid Proceeds from issue of share capital Dividends paid Net cash inflow/(outflow) from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the start of the year Cash and cash equivalents at the end of the year Cash and cash equivalents comprise: Financial liabilities Notes 13 14 20 13 14 17 31 March 31 March 2012 £000 (542) 145 74 2 148 (347) 2,914 (1,364) 1,030 (70) (4) 10 (64) (145) 500 (152) 203 1,169 (4,224) (3,055) (3,055) (3,055) 2011 £000 (445) 140 50 — 51 (223) 676 282 531 (63) (3) 7 (59) (140) — — (140) 332 (4,556) (4,224) (4,224) (4,224) 39 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Statement of Changes in Equity Group Balance at 1 April 2010 Profit for the year Other comprehensive income for the year net of tax Total comprehensive income Share-based payment Balance at 1 April 2011 Profit for the year Other comprehensive income for the year net of tax Total comprehensive income Share placement Share options issued Dividends paid Share-based payment Deferred tax on employee share options Share capital £000 1,859 — — — — 1,859 — — — 93 35 — — — Share premium account £000 862 — — — — 862 — — — 407 — — — — Capital redemption reserve £000 Hedging reserve £000 109 — — — — 109 — — — — — — — — — — (185) (185) — (185) — 359 359 — — — — — 174 Balance at 31 March 2012 1,987 1,269 109 Attributable to Retained equity holders earnings of the Parent £000 5,028 98 (43) 55 51 5,134 1,247 (953) 294 — (35) (152) 113 150 £000 7,858 98 (228) (130) 51 7,779 1,247 (594) 653 500 — (152) 113 150 5,504 9,043 Attributable to equity holders of the Company Retained earnings £000 6,540 (545) (43) (588) 51 6,003 (605) (953) £000 9,370 (545) (43) (588) 51 8,833 (605) (953) (1,558) (1,558) — (35) (152) 113 150 500 — (152) 113 150 Share capital £000 1,859 — — — — 1,859 — — — 93 35 — — — Share premium account Capital redemption reserve £000 862 — — — — 862 — — — 407 — — — — £000 109 — — — — 109 — — — — — — — — 1,987 1,269 109 4,521 7,886 Company Balance at 1 April 2010 Loss for the year Other comprehensive income for the year net of tax Total comprehensive income Share-based payment Balance at 1 April 2011 Loss for the year Other comprehensive income for the year net of tax Total comprehensive income Share placement Share options issued Dividends paid Share-based payment Deferred tax on employee share options Balance at 31 March 2012 40 chamberlin plc21361.04 12/06/12 Proof 6 Statement of Changes in Equity continued Share premium account The share premium account balance includes the proceeds that were above the nominal value from issuance of the Company’s equity share capital comprising 25p shares. Capital redemption reserve The capital redemption reserve has arisen on the cancellation of previously issued shares and represents the nominal value of those shares cancelled. Retained earnings Retained earnings include the accumulated profits and losses arising from the Consolidated Income Statement and items from the Consolidated Statement of Comprehensive Income attributable to equity shareholders, less distributions to shareholders and Share-based compensation expense. Hedging reserve The hedging reserve records the effective portion of the net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred. 41 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts at 31 March 2012 1 Authorisation of financial statements and statement of compliance with IFRS The Group’s and Company’s financial statements of Chamberlin plc (the ‘Company’) for the year ended 31 March 2012 were authorised for issue by the Board of the Directors on 21 May 2012 and the balance sheets were signed on the Board’s behalf by Tim Hair and Mark Bache. The Company is a public limited company incorporated and domiciled in England & Wales. The Company’s ordinary shares are traded on AIM within the London Stock Exchange. The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The Company’s financial statements have been prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. The principal accounting policies adopted by the Group and by the Company are set out in note 2. 2 Summary of significant accounting policies Basis of preparation The consolidated financial statements have been prepared on a historical cost basis and are presented in sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. Basis of consolidation The consolidated financial statements comprise the financial statements of Chamberlin plc and its subsidiaries as at 31 March each year. The financial statements of subsidiaries are prepared for the same reporting year as the Parent Company, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Going concern The Group’s activities together with the factors likely to affect its future development, performance and financial position, including its cash flows, liquidity position and borrowing facilities, are described in the Business Review, which comprises the Chief Executive’s review and the Finance Director’s review on pages 10 to 13. In addition, note 25 to the Group Financial Statements includes the Group’s objectives and policies for managing capital and financial risks in relation to currency, interest rates, credit and liquidity. The Group’s forecasts and projections, taking account of reasonably possible changes in trading conditions, show that the Group is able to operate within the level of its current bank facilities, the principal element of which is a £5m overdraft facility expiring in May 2013. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current economic uncertainty. After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the Financial Statements. Presentation of the Consolidated Income Statement The Income Statement is allocated between Underlying items which relate to the trading activities of the business and Non-underlying items which are either non-recurring or are valued using market derived data which is outside of management’s control. The Directors believe that this format sets out the performance of the Group more clearly. New standards adopted The accounting policies adopted are consistent with those of the previous financial year. Amended IFRS that have become effective in the period have not had a material impact on the financial statements. 42 chamberlin plc21361.04 12/06/12 Proof 6 2 Summary of significant accounting policies continued New standards and interpretations not applied The IASB and IFRIC have issued the following standards and interpretations with an effective date for annual periods beginning after the date of these financial statements. They have not been adopted early by the Group and the Directors do not anticipate that the adoption of these standards and interpretations will have a material impact on the Group’s reported income or net assets in the period of adoption. International Accounting Standards IAS 1 Financial Statement Presentation — Presentation of Items of Other Comprehensive Income Effective date 1 July 2012 IAS 12 Income Taxes (Amended) IAS 19 Employee Benefits (Amended) IAS 27 Separate Financial Statements (revised) IAS 28 Investments in Associates and Joint Ventures (revised) IFRS 7 Financial Instruments: Disclosures (Amended) IFRS 9 Financial Instruments: Classification and Measurement IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Involvement with Other Entities IFRS 13 Fair Value Measurement IFRS 7 & IAS 32 Offsetting of Financial Instruments 1 January 2012 1 January 2013 1 January 2013 1 January 2013 1 July 2011 1 January 2015 1 January 2013 1 January 2013 1 January 2013 1 January 2013 1 January 2013 and 1 January 2014 International Financial Reporting Interpretive Committee (IFRIC) None Business combinations and goodwill Business combinations from 1 April 2010 Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree’s identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) over the net identifiable amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements are accounted for separately from the business combination in accordance with their nature and applicable IFRSs. Identifiable intangible assets are recognised separately from goodwill. Contingent liabilities representing a present obligation are recognised if the acquisition-date fair value can be measured reliably. If the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree) is lower than the fair value of the assets, liabilities and contingent liabilities and the fair value of any pre-existing interest held in the business acquired, the difference is recognised in profit and loss. 43 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 2 Summary of significant accounting policies continued After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which goodwill is monitored for internal management purposes and will not be larger than an operating segment before aggregation. Goodwill is tested for impairment when indicators of impairment are identified. Where goodwill forms part of an operation which is disposed of, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. Business Combinations prior to 1 April 2010 Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the cash paid, and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair value at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition. Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired is allocated to each of the cash-generating units acquired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill relates. Where the recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. When there is a partial disposal of a cash-generating unit, goodwill relating to the operation disposed of is taken into account in determining the gain or loss on disposal of that operation. The amount of goodwill allocated to a partial disposal is measured on the basis of the relative values of the operation disposed of and the operation retained. Property, plant and equipment All classes of property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. The initial cost of an asset comprises its purchase price or construction cost, and any costs directly attributable to bringing the asset into operation. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. For property, where appropriate the deemed cost as at the date of transition to IFRS is the fair value at the date of the last valuation of these assets. With the exception of freehold land, depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows: Freehold buildings and long leasehold property — over expected useful life (not exceeding 50 years) Short leasehold property Plant and other equipment Motor vehicles — over the term of the lease — 2 to 10 years — 4 years The estimated useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively. 44 chamberlin plc21361.04 12/06/12 Proof 6 2 Summary of significant accounting policies continued The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash- generating units are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of net selling price (fair value less costs to sell) and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the income statement in the cost of sales line item or in the other operating expenses line item depending on the asset concerned. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the income statement in the year the item is derecognised. Intangible assets Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses. Computer software, intellectual property rights and other intangible assets are initially recorded at cost. Where these assets have been acquired through a business combination, this will be the fair value allocated in the acquisition accounting. Where these have been acquired other than through a business combination, the initial cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Computer software and other intangible assets, such as capitalised development expenditure under IAS 38, are amortised over their useful lives on a straight-line basis with the amortisation charge included within other operating expenses. Estimated useful life is the shorter of legal duration and economic useful life, which represents the Directors’ best estimate of the period over which the asset may be used to generate significant economic benefits to the Group. Software has an estimated useful life of between 3 years for normal software to 10 years for ERP systems. Intangible assets in the course of development are tested for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment losses are measured on a similar basis to property, plant and equipment. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Research and development costs Research costs are expensed as incurred. Clearly defined and identifiable development projects in which the technical degree of exploitation, adequacy of resources and potential market or development possibility in the undertaking can be clearly demonstrated, and where it is the intention to produce, market or execute the project, are capitalised when a correlation exists between the costs incurred and future benefits. Costs not meeting such criteria are expensed as incurred. Amortisation is applied as set out for intangible assets above, the useful life being determined for individual development projects. For projects capitalised to date a useful life of 5 years was considered appropriate. The Company’s investments in subsidiaries Investments in subsidiaries are stated at cost and dividends from subsidiaries are taken to profit or loss when the right to receive payment is established. 45 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 2 Summary of significant accounting policies continued Inventories Inventories are valued at the lower of cost and net realisable value, which is arrived at as follows: — Raw materials; purchase cost on a first-in, first-out basis; — Finished goods and work-in progress; where detailed individual product costing information is available, actual cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Where considered appropriate, cost of finished goods and work in progress is arrived at from selling price less the calculated margin on the products concerned. This method is utilised within the engineering division in the absence of detailed individual product costing information. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Trade and other receivables Trade receivables, which generally have 30-60 day terms, are recognised and carried at original invoice amount less any provision for bad debts. A provision for impairment, in respect of trade receivables, is made when there is objective evidence (such as the probable insolvency or significant financial difficulties of the debtor) that the Group will not be able to collect all of the amount due under the original terms of the invoice. The carrying amount of the receivable is reduced through a provision and impaired debts are derecognised when they are assessed as uncollectible. Cash and cash equivalents Cash and cash equivalents in the balance sheet comprise cash in hand and current balances with banks and similar institutions and short-term deposits with an original maturity of three months or less which are subject to insignificant risks of changes in value. For the purpose of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. Leases Operating lease payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Foreign currency translation, derivative financial instruments and hedging The functional and presentation currency of Chamberlin plc and its subsidiary undertakings is sterling (£). Transactions in foreign currencies are recorded in the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. Any resulting exchange differences are taken to the income statement. The Group is exposed to foreign exchange risk on income streams denominated in foreign currencies. In order to reduce the Group’s exposure to currency fluctuations the Group sells a proportion of expected Euro revenues on forward contracts. With effect from 1 April 2010 the Group adopted hedge accounting in respect of certain sales denominated in foreign currencies. Foreign currency forward contacts are being used to hedge the foreign currency risks on highly probable forecasted sales transactions. The fair value of forward currency contracts is calculated by reference to current market prices for contracts with similar maturity profiles. The proportion of the gain or loss on the hedging instrument that is determined as an effective hedge is recognised in other comprehensive income and the gain or loss on any ineffective component of a hedging instrument is recognised in profit and loss. Amounts initially recognised in equity are transferred to the income statement within cost of sales when the forecast hedged transaction occurs. At 31 March 2012 the Group held 12 foreign currency forward contracts designated as hedges of expected future sales to customers in Europe for which the Group has highly probable forecasted transactions. 46 chamberlin plc21361.04 12/06/12 Proof 6 2 Summary of significant accounting policies continued Employee Benefits Wages, salaries, bonuses, social security contributions, paid annual leave and sick leave are accrued in the year in which the associated services are rendered by employees of the Group. Pensions and other post-employment benefits The Group operates a number of defined contribution schemes, which require contributions to be made to administered funds separate from the Group. The Group also has a defined benefit pension scheme which is closed to future accrual. The scheme assets are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit method. As the scheme is closed to future accrual, no service cost of providing pension to employees is charged to the income statement. The cost of making improvements to pension and other post-retirement benefits is recognised in the income statement on a straight-line basis over the period during which the increase in benefits vests. To the extent that any improvement in benefits vests immediately, the cost is recognised immediately. These costs are recognised as an expense. The interest element of the defined benefit cost represents the change in present value of scheme obligations resulting from the passage of time, and is determined by applying the discount rate to the opening present value of the benefit obligation, taking into account material changes in the obligation during the year. The expected return on plan assets is based on an assessment made at the beginning of the year of long-term market returns on scheme assets, adjusted for the effect on the fair value of plan assets of contributions received and benefits paid during the year. The difference between the expected return on plan assets and the interest cost is recognised in the income statement as finance revenue or cost. Actuarial gains and losses may result from: differences between the expected return and the actual return on plan assets; differences between the actuarial assumptions underlying the plan liabilities and actual experience during the year; or changes in the actuarial assumptions used in the valuation of the plan liabilities. Actuarial gains and losses are recognised in full in the period in which they occur, in the statement of other comprehensive income. For defined contribution plans, contributions payable for the year are charged to the income statement as an operating expense. Income taxes Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions: where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised within the next financial year. Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Income tax is charged or credited directly to other comprehensive income or equity if it relates to items that are credited or charged to other comprehensive income or to equity respectively. Otherwise income tax is recognised in the income statement. 47 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 2 Summary of significant accounting policies continued Revenue Revenue is recognised when the significant risks and rewards of ownership of the goods, in line with the International Commercial terms as defined by the International Chamber of Commerce, have passed to the buyer and can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, customs duties and sales taxes. Dividends Dividend payments are recognised in the period in which they become a binding obligation on the Company, which for interim dividends is when they are paid and for final dividends is when they are approved at the AGM. Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset, that necessarily takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of the cost of the respective asset. All other borrowing costs are expensed as interest payable in the income statement in the period in which they are incurred. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds. Share-based payments The Group grants equity-settled and cash-settled share-based payments to certain Directors and employees in the form of share options. Equity-settled share-based payments are measured at fair value at the date of grant using the Black-Scholes pricing model. Cash-settled share-based payments are measured at fair value at the balance sheet date using the Black-Scholes pricing model. The fair value is then charged to the income statement over the vesting period of the options. In valuing equity-settled payments, no account is taken of any service and performance conditions (vesting conditions) other than performance conditions linked to the price of the shares of the Company (market conditions). Any other conditions which are required to be met in order for an employee to become fully entitled to an award are considered to be non-vesting conditions. Like market performance conditions, non-vesting conditions are taken into account in determining the grant date fair value. No expense is recognised for awards that do not ultimately vest except for awards where vesting is conditional upon a market vesting condition or a non-vesting condition, which are treated as vesting irrespective of whether or not the market vesting condition or non-vesting condition is satisfied, provided all non-market vesting conditions are satisfied. At each balance sheet date before vesting the cumulative expense is calculated taking into account the extent to which the vesting period has expired and management’s best estimate of the achievement or otherwise of non-market vesting conditions and of the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition or a non-vesting condition, be treated as vesting above. The movement since the previous balance sheet date is recognised in the income statement, with a corresponding entry in equity. The values for the expected life of the options and the expected volatility of the share price used in the calculation model are based on the Directors’ best estimates, taking into account conditions for exercise, historic data and behavioural considerations. Non-underlying items The Group presents as non-underlying items on the face of the income statement, those items of income and expenditure which, because they are either non-recurring or are valued using market derived data which is outside management’s control, merit separate presentation to allow shareholders to better understand the elements of financial performance in the year, so as to facilitate comparison with prior periods and to allow assessment of trends in financial performance. Non-underlying items include business reorganisation costs, goodwill impairment costs, share-based payment costs, net financing costs of pension obligations and associated tax impact. 48 chamberlin plc21361.04 12/06/12 Proof 6 2 Summary of significant accounting policies continued Use of accounting estimates and judgements The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amount of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from those estimates and judgements. Where appropriate, details of estimates and assumptions used are set out in the relevant notes to the accounts. The key figures in the accounts that are most sensitive to such estimates and assumptions are: Impairment of Development Costs – the Group determines whether development costs are impaired on an annual basis or more frequently if there are indicators of impairment. Impairment testing requires an estimate of future cash flows and the choice of a suitable discount rate. Defined benefit scheme pension liabilities – the cost of the closed defined benefit pension plan is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Dilapidations – the Group makes provision for dilapidation costs, in respect of leasehold premises, based on management’s best estimate, based on external professional advice, of the costs of making good such dilapidations. Restructuring provisions – the Group makes provision for restructuring costs, based on management’s best estimate of the costs of implementing such a restructuring. Recoverability of deferred tax assets – deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. Deferred tax assets relating to the pension scheme deficit are recognised to the extent that contributions into the pension scheme are designed to eliminate the deficit and return the scheme to a fully funded position by April 2020. Exceptional items The Group presents as exceptional items on the face of the income statement, those material items of income and expense which, because of the nature and expected infrequency of the events giving rise to them, merit separate presentation to allow shareholders to understand better the elements of financial performance in the year, so as to facilitate comparison with prior periods and to assess better trends in financial performance. 3 Segmental analysis For management purposes, the Group is organised into two operating divisions according to the nature of the products and services. Operating segments within those divisions are combined on the basis of their similar long-term characteristics and similar nature of their products, services and end users as follows: The Foundries segment is a supplier of iron castings, in raw or machined form, to a variety of industrial customers who incorporate the castings into their own products or carry out further machining or assembly operations on the castings before selling them on to their customers. The Engineering segment provides manufactured and imported products to distributors and end-users operating in the safety and security markets. The products fall into the categories of door hardware, hazardous area lighting and control gear. Management monitors the operating results of its divisions separately for the purposes of making decisions about resource allocation and performance assessment. The operating segments disclosed in the financial statements are the same as reported to the Chief Operating Decision Maker, the Chief Executive. There are no transactions between reportable segments. The Group’s geographical segments are determined by the location of the Group’s customers. 49 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 3 Segmental analysis continued (i) By operating segment Year ended Foundries Engineering Segment results Reconciliation of reported segmental operating profit Segment operating profit Shared Cost (including Share-based payment charge) Reorganisation and impairment costs (note 12) Net finance costs (note 6) Profit before tax Segmental assets Foundries Engineering Segmental liabilities Foundries Engineering Segmental net assets Unallocated net liabilities Total net assets Segmental revenue Segmental operating profit 2012 £000 37,354 8,178 45,532 2011 £000 33,082 6,719 39,801 2012 £000 2,076 478 2,554 2,554 (967) — (157) 1,430 15,951 4,629 20,580 (6,184) (1,741) (7,925) 12,655 (3,612) 9,043 2011 £000 1,335 35 1,650 1,650 (818) (324) (175) 333 14,490 6,045 20,535 (4,813) (3,612) (8,425) 12,110 (4,331) 7,779 Unallocated net liabilities include the pension liability of £3,061,000 (2011: £2,201,000), financial liabilities of £1,558,000 (2011: £2,881,000), deferred tax asset of £923,000 (2011: £678,000) and other assets of £84,000 (2011: £73,000). Capital expenditure, depreciation and amortisation Capital additions Property, plant and equipment (note 13) Software (note 14) Development costs (note 14) Foundries Engineering Total 2012 £000 818 237 — 2011 £000 727 190 — 2012 £000 367 6 32 2011 £000 299 1 — 2012 £000 1,185 243 32 2011 £000 1,026 191 — 50 chamberlin plc21361.04 12/06/12 Proof 6 Foundries Engineering Total 2012 £000 (945) (64) (42) 2011 £000 (930) (49) (57) 2012 £000 (274) (15) (6) 2011 £000 (172) (14) (26) 2012 £000 2011 £000 (1,219) (1,102) (79) (48) (63) (83) 3 Segmental analysis continued Depreciation and amortisation Property, plant and equipment (note 13) Software (note 14) Development costs (note 14) (ii) Geographical information Revenue by location of customer United Kingdom Germany Rest of Europe Other countries The Group’s assets and costs are all located within the United Kingdom. No individual customer represents more than 10% of Group revenue (2011: none). 4 Other operating expenses Distribution costs Administration and selling expenses Operating expenses before exceptional items Exceptional items (note 12) Operating expenses 5 Staff numbers and costs The average number of people employed by the Group during the year was: Management and administration Production Total employees 2012 £000 31,956 7,196 3,413 2,967 45,532 2012 £000 1,237 5,908 7,145 — 7,145 2011 £000 26,903 6,270 3,860 2,768 39,801 2011 £000 1,069 5,460 6,529 323 6,852 2012 Number 92 361 453 2011 Number 79 313 392 51 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 5 Staff numbers and costs continued The aggregate employment costs of these employees were as follows: Wages and salaries Social security costs Other pension costs (note 22) Share-based payment expense Directors’ remuneration summary Directors’ remuneration Company contributions to money purchase pension scheme Aggregate gains made by Directors on exercise of options Share-based payment charge of options granted to Directors (see note 20) Number of Directors accruing benefits under: Defined contribution pension schemes 2012 £000 13,166 1,347 286 148 14,947 2012 £000 687 32 187 113 2011 £000 11,865 1,197 284 73 13,419 2011 £000 694 33 — 73 Number Number 2 3 Directors’ remuneration is analysed in detail in the Directors’ Remuneration Report on pages 26 to 29. The total amount payable to the highest paid Director in respect of remuneration was £345,000 (2011: £335,000). Company pension contributions of £21,000 (2011: £19,000) were made to a money purchase pension scheme on his behalf. The aggregate gain made on exercise of share options was £134,000 (2011: £nil). 6 Finance costs Finance costs Bank overdraft interest payable Finance cost of pensions (see note 22) 2012 £000 (78) (79) (157) 2011 £000 (100) (75) (175) 52 chamberlin plc21361.04 12/06/12 Proof 6 7 Operating profit This is stated after charging/(crediting): Profit on disposal of fixed assets Depreciation of owned assets Amortisation of software Research and development expenditure (excluding capitalised development: note 14) Amortisation of development costs Cost of inventories recognised as an expense Business reorganisation costs (note 12) Goodwill impairment costs Exchange (gain)/loss Auditors’ remuneration: Group audit fees Audit fees for statutory accounts of subsidiaries Other services – interim review fees Other services Rentals under operating leases: Hire of plant and equipment Other 2012 £000 (68) 1,219 79 56 48 2011 £000 (20) 1,101 63 47 83 18,997 17,393 — — (46) 30 55 5 55 101 331 121 202 (91) 30 47 5 — 73 352 Fees paid to the Company for non-audit services are not disclosed in these financial statements because the Group financial statements are required to disclose such fees on a consolidated basis. 8 Taxation Current tax: UK Corporation tax at 26% (2011: 28%) Adjustments in respect of prior years Deferred taxation: Origination and reversal of timing differences Adjustments in respect of prior years Change in tax rate Tax expense reported in the consolidated income statement 2012 £000 145 — 145 46 (16) 8 38 183 2011 £000 — — — 178 10 47 235 235 53 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 8 Taxation continued The Corporation tax rate fell from 28% for the year ended 31 March 2011 to 26% for the year ended 31 March 2012. The Corporation tax rate will fall to 24% from 1 April 2012, a rate change which was substantively enacted on 26 March 2012. The Chancellor has announced progressive reductions to 22% in corporation tax rates, with a 1% fall from 1 April 2013 and a further 1% fall from 1 April 2014 but these changes have not been substantively enacted. It is not anticipated that the subsequent reductions to 22%, once substantively enacted, will have a material effect on the Company’s future current or deferred tax charges. During the year the Group utilised brought forward tax losses of £nil (2011: £99,000). In addition to the amount charged to the consolidated income statement, tax movements recognised through equity were as follows: Current tax: Deferred taxation: Retirement benefit obligation Fair value movements on cash flow hedges Change in tax rate Tax charge/(credit) reported in the statement of comprehensive income Current tax: Deferred taxation: Employee share options Tax charge/(credit) reported in the statement of changes in equity Reconciliation of total tax charge Profit on ordinary activities before tax Corporation tax credit at standard rate of 26% (2011: 28%) on profit before tax Adjusted by the effects of: Expenses not deductible for tax purposes Short-term timing differences — other timing differences — recognition of tax losses Amounts under provided in prior years — corporation tax — deferred tax Movement in deferred tax on change in corporation tax rate Total tax expense reported in the income statement 54 2012 £000 — — (314) 120 61 (133) (133) 2012 £000 — — (150) (150) 2012 £000 1,430 372 31 (9) (203) — (16) 8 183 2011 £000 — — (16) (65) — (81) (81) 2011 £000 — — — — 2011 £000 333 93 93 (9) — 10 1 47 235 chamberlin plc21361.04 12/06/12 Proof 6 9 Dividends paid and proposed Paid equity dividends on ordinary shares 2011 final dividend of 1.0p per share (2010: 0.0p per share) 2012 interim dividend of 1.0p per share (2011: 0.0p per share) Proposed final dividend subject to shareholder approval 2012 final dividend of 2.0p per share (2011: 1.0p per share) 2012 £000 75 77 152 159 2011 £000 — — — 75 10 Parent Company transfer to reserves The loss dealt with in the accounts of the Parent Company was £605,000 (2011: £545,000). 11 Earnings per share The calculation of earnings per share is based on the profit attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted earnings per share, adjustment has been made for the dilutive effect of outstanding share options. Underlying earnings per share, as analysed below, which excludes non-underlying items as defined in note 2, summary of significant accounting policies, has also been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group. Reorganisation and goodwill impairment costs are detailed in note 12. Earnings for basic earnings per share Reorganisation and goodwill impairment Taxation effect of reorganisation and goodwill impairment Net financing costs on pension obligations Taxation effect of pension obligation Share-based payment charge Taxation effect of share-based payments Earnings for underlying earnings per share Weighted average number of ordinary shares Adjustment to reflect shares under options Weighted average number of ordinary shares — fully diluted 2012 £000 1,247 — — 79 (21) 148 (38) 1,415 2012 000 7,731 844 8,575 2011 £000 98 323 (31) 75 (20) 73 (19) 499 2011 000 7,438 762 8,200 55 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 12 Reorganisation and goodwill impairment Business reorganisation costs Goodwill impairment Taxation — tax effect of reorganisation and goodwill impairment costs 2012 £000 — — — — — 2011 £000 (121) (202) (323) 34 34 Business reorganisation costs relate to bringing the assets acquired from the administrator of Jebron Ltd back in to production and integrating this equipment into Exidor. Goodwill impairment was a consequence of withdrawal from door handle production at Exidor (see note 14). 13 Property, plant and equipment Land and buildings £000 Plant and machinery £000 Motor vehicles £000 5,234 49 — 5,283 160 — 5,443 1,552 115 — 1,667 121 — 24,971 801 (103) 25,669 815 (440) 26,044 20,504 887 (40) 21,351 978 (440) 1,788 21,889 3,655 3,616 3,682 4,155 4,318 4,467 578 176 (112) 642 210 (127) 725 408 99 (101) 406 120 (112) 414 311 236 170 Total £000 30,783 1,026 (215) 31,594 1,185 (567) 32,212 22,464 1,101 (141) 23,424 1,219 (552) 24,091 8,121 8,170 8,319 Group Cost At 1 April 2010 Additions Disposals At 31 March 2011 Additions Disposals At 31 March 2012 Depreciation At 1 April 2010 Charge for year Disposals At 31 March 2011 Charge for year Disposals At 31 March 2012 Net book value At 31 March 2012 At 31 March 2011 At 31 March 2010 56 chamberlin plc21361.04 12/06/12 Proof 6 13 Property, plant and equipment continued Net book value of land and buildings comprises: Freehold Short leasehold (leasehold improvements) Company Cost At 1 April 2010 Additions Disposals At 31 March 2011 Additions Disposals At 31 March 2012 Depreciation At 1 April 2010 Charge for year Disposals At 31 March 2011 Charge for year Disposals At 31 March 2012 Net book value At 31 March 2012 At 31 March 2011 At 31 March 2010 Freehold land included above not subject to depreciation amounted to: 2012 2011 Land and buildings £000 Plant and machinery £000 1,670 — — 1,670 — — 1,670 706 27 — 733 27 — 760 910 937 964 47 7 — 54 13 — 67 20 6 — 26 7 — 33 34 28 27 2012 £000 3,641 14 3,655 Motor vehicles £000 71 56 (17) 110 57 (33) 134 30 17 (10) 37 40 (27) 50 84 73 41 2011 £000 3,597 19 3,616 Total £000 1,788 63 (17) 1,834 70 (33) 1,871 756 50 (10) 796 74 (27) 843 1,028 1,038 1,032 Group £000 Company £000 743 743 743 743 57 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 14 Intangible assets Goodwill Software Development costs Goodwill Cost At 1 April 2010 Additions At 31 March 2011 Additions At 31 March 2012 Impairment At 1 April 2010 Charge for year At 31 March 2011 At 31 March 2012 Net book value At 31 March 2012 At 31 March 2011 At 31 March 2010 Group Company 2012 £000 — 543 99 642 2011 £000 — 379 115 494 2012 £000 — 5 — 5 2011 £000 — 3 — 3 £000 201 — 201 — 201 — 201 201 201 — — 201 Goodwill arose initially on the acquisition of the Webb Lloyd business which formed part of Exidor Limited, within the Engineering Segment. In the prior year, the Directors have concluded that Webb Lloyd was no longer a core element of the Exidor product offering, and that in order to facilitate the full integration of the Jebron assets, they planned to exit from this part of the business. As a consequence the associated goodwill was fully impaired. 58 chamberlin plc21361.04 12/06/12 Proof 6 14 Intangible assets continued Software Cost At 1 April 2010 Additions At 31 March 2011 Additions Disposals At 31 March 2012 Amortisation/impairment At 1 April 2010 Charge for the year At 31 March 2011 Charge for year Disposals At 31 March 2012 Net book value At 31 March 2012 At 31 March 2011 At 31 March 2010 Software has an estimated useful life of between 3 and 10 years. Development costs capitalised Cost At 1 April 2010 Additions At 31 March 2011 Additions At 31 March 2012 Amortisation/impairment At 1 April 2010 Charge for year At 31 March 2011 Charge for year At 31 March 2012 Net book value At 31 March 2012 At 31 March 2011 At 31 March 2010 Group £000 Company £000 647 191 838 243 (6) 1,075 396 63 459 79 (6) 532 543 379 251 13 3 16 4 — 20 13 — 13 2 — 15 5 3 — Group £000 Company £000 413 — 413 32 445 215 83 298 48 346 99 115 198 — — — — — — — — — — — — — Development costs capitalised relate to specific major projects which result in an asset being created which is then amortised over the primary income generating period of the associated product. For the above items this has been estimated at 5 years from the commencement of commercial sales. 59 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 15 Inventories Raw materials Work in progress Finished goods 16 Trade and other receivables Trade receivables Amounts due from subsidiary undertakings Other receivables Prepayments Fair value of derivative forward contracts Trade receivables are denominated in the following currencies: Sterling Euro Group Company 2012 £000 1,406 1,367 1,073 3,846 2011 £000 1,113 1,296 560 2,969 2012 £000 — — — — Group Company 2012 £000 8,116 — 92 507 244 8,959 2011 £000 9,207 — 125 256 — 9,588 2012 £000 — 4,968 87 113 — 5,168 Group Company 2012 £000 7,075 1,041 8,116 2011 £000 7,845 1,362 9,207 2012 £000 — — — 2011 £000 — — — — 2011 £000 — 7,898 121 29 — 8,048 2011 £000 — — — Out of the carrying amount of trade receivables of £8,116,000 (2011: £9,207,000), £1,987,000 (2011: £2,145,000) is against five major customers. Trade receivables are non-interest bearing and are generally on terms of 30 to 60 days and are shown net of a provision for impairment. As at 31 March 2012 trade receivables at a nominal value of £374,000 (2011: £252,000) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows: At 1 April Charge for year Amounts written off At 31 March Group Company 2012 £000 252 231 (109) 374 2011 £000 243 181 (172) 252 2012 £000 — — — — 2011 £000 — — — — 60 chamberlin plc21361.04 12/06/12 Proof 6 16 Trade and other receivables continued As at 31 March 2012, the analysis of trade receivables that were past due but not impaired is as follows: Neither past due nor impaired £000 5,631 6,842 Total £000 8,116 9,207 2012 2011 <30 days 30–60 days 60–90 days 90–120 days >120 days Past due but not impaired £000 2,088 1,922 £000 234 326 £000 69 94 £000 94 23 The credit quality of trade receivables that are neither past due nor impaired is assessed by reference to external credit ratings, where available, otherwise historical information relating to the counterparty default rates is used. Debtors where external credit ratings have been sought Debtors where internal credit assessments have been made Group Company 2012 £000 7,156 960 8,116 2011 £000 5,911 3,296 9,207 2012 £000 — — — £000 — — 2011 £000 — — — Of the balance in respect of counterparties with internal ratings nil% (2011: nil%) is in respect of new customers, and 100% (2011: 100%) existing customers with no history of defaults. Amounts due from subsidiary companies are interest free and repayable on demand. Income taxes receivable UK corporation tax 17 Current liabilities Financial liabilities Bank overdraft Group Company 2012 £000 — 2011 £000 — 2012 £000 47 Group Company 2012 £000 1,558 2011 £000 2,881 2012 £000 3,055 2011 £000 14 2011 £000 4,224 The overdraft is held with HSBC Bank plc as part of the Group facility of £5,000,000, is secured on the assets of the business, is repayable on demand and is renewable in May 2013. Interest is payable at 2.00% (2011: 2.75%) over base rate. 61 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 17 Current liabilities continued Trade and other payables Trade creditors Amounts due to subsidiary undertakings Other taxation and social security Other creditors Accruals Share-based payments Fair value of derivative forward contracts Group Company 2012 £000 6,140 — 779 391 1,316 58 — 8,684 2011 £000 6,185 — 749 405 1,355 22 236 8,952 2012 £000 — 606 28 — 586 58 — 1,278 Trade payables are non-interest bearing and are normally on terms of 30 to 60 days. Amounts due to subsidiary companies are interest free and repayable by agreement with the Parent Company. Provisions As at 31 March 2010 New provisions Utilised As at 31 March 2011 Utilised As at 31 March 2012 Reorganisation Dilapidations £000 £000 — 85 — 85 (85) — 48 — (48) — — — 2011 £000 — 1,942 22 2 511 22 — 2,499 Total £000 48 85 (48) 85 (85) — Reorganisation Provision in respect of integrating the assets acquired from the administrators of Jebron Ltd into Exidor, fully utilised during the year. Dilapidations Provision in respect of dilapidations on leasehold property was fully utilised during the previous year. 18 Non-current liabilities Intra-group balances Group Company 2012 £000 — 2011 £000 — 2012 £000 — 2011 £000 66 The amount owed by the Company to non-trading subsidiary undertakings is non-interest bearing. 62 chamberlin plc21361.04 12/06/12 Proof 6 18 Non-current liabilities continued Provisions for liabilities Deferred taxation Deferred tax liabilities Group liabilities Temporary differences relating to cash flow hedges Capital gains rolled over Company liabilities Temporary differences relating to capital allowances Deferred tax assets Temporary differences relating to capital allowances Temporary differences relating to pension scheme deficit Temporary differences relating to cash flow hedges Temporary differences relating to share options Other temporary differences 2012 £000 133 Amount not provided £000 — — — Amount not provided £000 — — Group Company 2011 £000 85 2012 £000 24 2011 £000 34 2012 2011 Amount provided £000 55 78 133 Amount not provided £000 — — — 2012 2011 Amount provided £000 24 24 2011 £000 35 572 65 — 91 763 Amount not provided £000 — — Company 2012 £000 — 735 — 150 12 897 Group 2012 £000 (86) 735 — 150 257 1,056 Amount provided £000 — 85 85 Amount provided £000 34 34 2011 £000 — 572 — — 24 596 Other temporary differences include a deferred tax asset of £187,000 (2011: £nil), recognised in respect of carried forward trading losses. A deferred tax asset is recognised in respect of tax losses carried forward only to the extent that there is a reasonable expectation that the losses will be recoverable within the forseeable future. Group tax losses not carried forward for which a deferred tax asset has not been recognised total £nil (2011: £780,000). The deferred tax asset relating to the pension scheme deficit is deemed recoverable based upon the contributions into the pension scheme which are designed to return the scheme to a fully funded position by April 2020. 63 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 18 Non-current liabilities continued Deferred taxation Movement in net deferred taxation during the year Net asset brought forward Re pension provision movement Movement relating to cash flow hedges Movement on other temporary differences Movement relating to share options Movement on change in corporation tax rate Group Company 2012 £000 (678) (223) 120 (56) (150) 64 (923) 2011 £000 (831) 46 — 60 — 47 (678) 2012 £000 (563) (223) — 3 (150) 60 (873) 2011 £000 (660) 46 — 8 — 43 (563) Of the total deferred tax credit of £245,000 (2011: £218,000), a charge of £38,000 (2011: £235,000) was recognised within the income statement, a credit of £133,000 (2011: credit of £16,000) was recognised within other comprehensive income and a credit of £150,000 (2011: £nil) recognised within the statement of changes in equity. 19 Share capital Allotted called up and fully paid 7,949,536 (2011: 7,437,658) Ordinary shares of 25p 2012 £000 2011 £000 1,987 1,859 During the year 141,508 shares (2011: nil) were issued to Directors to satisfy share options at nil cost. During the year 357,334 share options lapsed (2011: 277,459), nil were granted (2011: 190,000) and nil (2011: nil) were surrendered. On 11 July 2011 a share placement of 370,370 ordinary shares with Diverse Income Trust plc occurred for a total consideration of £500,000. As a result share capital increased by £92,593 and share premium by £407,402. 20 Share-based payments The Company has three share option schemes used to incentivise the Directors of the Group and certain subsidiary company Directors. Details of the two equity-settled schemes used to incentivise the Directors of the Group are set out in the Remuneration Committee Report on page 26. In addition, cash-settled options are issued to certain key managers within the business under a phantom share option scheme. The options become exercisable in February 2013 subject to the satisfaction of performance conditions set by the Remuneration Committee of the Company. Cash payments are made in three equal instalments in April of 2013, 2014 and 2015. Under all schemes, options lapse if the employee leaves the Group subject to certain exceptions set out in the scheme rules. Due to the small number of individual grants made, each individual option is priced using the Black–Scholes pricing model, rather than applying the model to weighted average figures for options granted in each year. 64 chamberlin plc21361.04 12/06/12 Proof 6 20 Share-based payments continued Relevant options outstanding during the year were as follows: At 31 March 2010 Granted Lapsed At 31 March 2011 Lapsed Exercised At 31 March 2012 Weighted average Exercise price (p) Remaining contractual life (years) 41.0 52.8 28 43.7 36.3 — 50.3 8.6 2.0 6.8 7.2 5.0 — 7.0 No. of options 1,933,054 190,000 (277,459) 1,845,595 (357,334) (141,508) 1,346,753 Nil (2011: nil) shares were excercisable at the end of the year. The market price at date of share exercise during the year was 132p. Based on the following assumptions at 31 March 2012, the total fair value of options was £232,000 (2011: £385,000), of which £113,000 was charged to the income statement (2011: charge of £73,000). The fair value of options granted in the year was £nil (2011: £84,000). The exercise price of options range from nil p to 52.8p (2011: nil p to 52.8p). The key assumptions in relation to the valuation of the options granted were: Share price Expected volatility Expected life Risk free rate Expected dividend yield 2011 104.5p 30.0% 4.0 years 3.0% 2.3% Expected volatility, to which the fair value is most sensitive, is based on movements in the share price during the year and taking account of the Directors’ expectations of future movements. The expected life has been arrived at based on the Directors’ best estimate taking into account exercise conditions and behavioural considerations. The mid-market price of the shares at 31 March was 144p (2011: 104.5p) and during the year ranged between 93.5p and 160p (2011: between 54.5p and 130p). The total charge for the year of £148,000 (2011: £73,000) is split £35,000 (2011: £22,000) for cash-settled options and £113,000 (2011: £51,000) for equity-settled options. A liability of £58,000 (2011: £22,000) is included for the cash-settled options at the year end. 65 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 21 Fixed asset investments Shares in subsidiary undertakings Cost at 1 April 2011 and 1 April 2012 £000 8,159 Wholly owned operating subsidiaries Principal activity Chamberlin & Hill Castings Ltd Manufacture and sale of engineering castings Russell Ductile Castings Ltd Manufacture and sale of engineering castings Exidor Ltd Petrel Ltd Manufacture and sale of architectural hardware Manufacture and sale of lighting, switchgear and electrical installation products The Company owns 100% of the issued ordinary share capital of the above companies, all of whom operate principally in England and Wales. 22 Pension arrangements During the year, the Group operated funded defined benefit and defined contribution pension schemes for the majority of its employees, these being established under trusts with the assets held separately from those of the Group. The pension operating cost for all of the Group schemes for 2012 was £286,000 (2011: £284,000) plus £79,000 of financing cost (2011: £75,000) . The pension cost for the defined benefit scheme, providing benefits based on final salary has been projected forward, updated each 6 months by an independent qualified actuary, from the results of an actuarial valuation carried out as at 1 April 2010 using the projected unit method. The market value of the schemes total assets on that date was £12,400,000 and the value of these assets represented 82% of the benefits that had accrued to members allowing for expected future increases in salaries (which from 1 April 2002 have been limited to inflation). The other schemes within the Group are defined contribution schemes and the pension cost represents contributions payable. The total cost of defined contributions schemes was £286,000 (2011: £284,000). The notes below relate to the defined benefit scheme. The actuarial liabilities have been calculated using the Projected Unit method. The major assumptions used by the actuary were (in nominal terms): Rate of increase in salaries Rate of increase of pensions in payment — post 1997 accrual only Discount rate Inflation assumption — RPI Inflation assumption — CPI At 31 March At 31 March At 31 March 2012 n/a 3.1% 4.7% 3.1% 2.0% 2011 n/a 3.4% 5.5% 3.4% 2.9% 2010 n/a 3.4% 5.6% 3.4% 3.4% Demographic assumptions are all based on the S1NA mc mortality tables with a 1% annual increase. The post retirement mortality assumptions allow for expected increases in longevity. The current disclosures relate to assumptions based on longevity in years following retirement as of the balance sheet date, with future pensioners relating to an employee retiring in 2032. 66 chamberlin plc21361.04 12/06/12 Proof 6 22 Pension arrangements continued Current pensioners at 65 — male — female Future pensioners at 65 — male — female 2012 Years 20.4 23.2 21.8 24.5 2011 Years 20.3 23.1 21.7 24.5 The scheme was closed to future accrual with effect from 30 November 2007, after which the Company’s regular contribution rate reduced to zero (previously the rate had been 9.1% of members’ pensionable salaries). In addition the past service “catch up” contribution has been renegotiated with the Trustees and with effect from 1 April 2012 will increase to £26,217 per month (previously £25,667 per month), with a 3% annual increase thereafter, designed to return the scheme to a fully funded position by April 2020. The contributions expected to be paid during the year to 31 March 2013 are £315,000. The scheme assets are stated at the market values at the respective balance sheet dates and overall expected rates of return are established by applying published brokers forecasts for each category of scheme asset. The rates quoted below are the expected net rates of return after allowance for expenses. The assets and liabilities of the scheme and the expected rates of return were: Equities/diversified growth fund Gilts Bonds Property Insured pensioner assets Cash Market value of assets Actuarial value of liability Recoverable deficit in scheme Related deferred tax asset Net pension liability As at 31 March 2012 As at 31 March 2011 Rate of return % 7.85 4.35 5.50 7.35 5.50 0.50 Rate of return % 6.60 3.10 4.70 6.10 4.70 0.50 Value £000 6,039 4,209 962 1,104 53 106 12,473 (15,534) (3,061) 735 (2,326) Value £000 6,782 2,022 2,514 1,024 47 43 12,432 (14,634) (2,202) 572 (1,630) 67 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 22 Pension arrangements continued Recognised as finance cost Expected return on pension scheme assets Interest on pension liabilities Net return disclosed in finance cost Analysis of amount recognised in consolidated Statement of other Comprehensive Income Actual return less expected return on assets Other actuarial gain/(loss) on liabilities Actuarial loss recognised in the Statement of other Comprehensive Income Cumulative actuarial losses recognised in the Statement of other Comprehensive Income Year to 31 March Year to 31 March 2012 £000 702 (781) (79) 2011 £000 722 (797) (75) Year to 31 March Year to 31 March 2012 £000 (222) (984) (1,206) (1,974) 2011 £000 (185) 126 (59) (768) The cumulative amount of actuarial gains and losses recognised since 1 January 2004 in the Group statement of other comprehensive income is a loss of £1,974,000 (2011: loss of £768,000). The Directors are unable to determine how much of the pension scheme deficit recognised on transition to IFRSs, and taken directly to equity of £2,136,000 in the Group, is attributable to actuarial gains and losses since inception of those pension schemes. Consequently, the Directors are unable to determine the amount of actuarial gains and losses that would have been recognised in the Group statement of other comprehensive income before 1 January 2004. Year to 31 March Year to 31 March 2012 £000 480 Year to 31 March 2012 £000 2011 £000 537 Year to 31 March 2011 £000 (2,202) (2,366) 426 (79) (1,206) (3,061) 298 (75) (59) (2,202) Actual gain on plan assets Movement in deficit during the year Deficit in scheme at beginning of year Movement in year: Employer contributions Net expected return on assets Actuarial loss Deficit in scheme at end of year 68 chamberlin plc21361.04 12/06/12 Proof 6 22 Pension arrangements continued Movement in scheme assets Fair value at beginning of year Expected return on scheme assets Actuarial (losses)/gains Employer contributions Benefits paid Fair value at end of year Movement in scheme liabilities Benefit obligation at start of year Interest cost Actuarial (gain)/loss Benefits paid Benefit obligation at end of year Year to 31 March 2012 £000 12,432 702 (222) 426 (865) Year to 31 March 2011 £000 12,375 722 (185) 298 (778) 12,473 12,432 Year to 31 March Year to 31 March 2012 £000 14,634 781 984 (865) 15,534 2011 £000 14,741 797 (126) (778) 14,634 Experience gains and losses Difference between expected and £000 actual return on scheme assets % of assets Experience gains on scheme liabilities £000 % of liabilities Other (gains)/losses on scheme £000 liabilities Net (losses)/gains % of liabilities £000 % of liabilities Year to 31 March Year to 31 March Year to 31 March Year to 31 March Year to 31 March 2012 £000 (222) (1.8)% — — 984 6.3% (1,206) (7.8)% 2011 £000 (185) (1.5)% 100 1.0% (126) (0.9)% (59) (0.4)% 2010 £000 2,423 19.6% — — 2,995 20.3% (572) (3.9)% 2009 £000 (3,118) (31.8)% — — 2,136 18.3% (982) (8.4)% 2008 £000 (1,856) (14.6)% 600 4.3% 1,985 14.4% 729 5.3% 23 Contingent liabilities Cross guarantees exist between the Company and its subsidiary undertakings in respect of the Group’s bank overdrafts. The borrowings of the subsidiaries at 31 March 2012 amounted to £nil (2011: £nil). In the prior year, the German tax authorities raised a query relating to the application of VAT in respect of sales to a German customer dating back to 2002. In the current year this query was resolved at nil cost. 69 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 24 Financial commitments Group Company 2012 £000 2011 £000 2012 £000 Capital expenditure Contracted for but not provided in the accounts 47 40 19 Lease commitments The Group had total outstanding commitments under operating leases as follows: Future minimum payments due: Not later than one year After one year but not more than five years After five years Group 2012 £000 356 1,110 270 1,736 2011 £000 40 2011 £000 331 1,324 511 2,166 Leases on land and buildings comprises the lease for the Leicester foundry (£270,000 per annum with an end date, subject to earlier termination, of 31 March 2018). The lease on the Leicester foundry is terminable by the Company only on 12 months notice. 25 Derivatives and financial instruments The Group considers the use of derivatives to reduce financial risk in a number of areas noted below. The only area where the use of derivatives is considered appropriate at present is that of currency risk. The carrying amount of financial assets and financial liabilities are not materially different to their fair value. The Company is only exposed to interest rate risk. Currency risk The Group’s functional currency is Sterling but approximately 20% of revenues are denominated in foreign currencies, principally Euros in relation to castings exports. In order to reduce the Group’s exposure to currency fluctuations the Group sells approximately 80% of its expected Euro revenues on forward currency contracts of 12 months or less. At the year end it had net monetary assets denominated in Euros of £1,062,000 (2011: £1,471,599). Because 80% of the Euro debtors are hedged, the impact on net monetary assets of a 5% change in the Euro/sterling exchange rate would not be material to the consolidated income statement. At 31 March 2012, the Group held forward currency hedging contracts designated as hedges of expected future Euro exports for highly probable forecast sales transactions. The forward currency contracts are being used to hedge the foreign currency risk of highly probable forecast sales over the next year. The terms of the forward currency hedging contracts have been negotiated to match the terms of the commitments and the cash flow hedges of expected future sales were assessed to be highly effective. Forward currency contracts for the sale of Euros outstanding at the year end have been recorded at fair value with the difference being recognised directly in other comprehensive income through the statement of comprehensive income. If these contracts were not in place and the Euro/sterling exchange rate moved by plus or minus 5% the corresponding gain/loss to equity would be £368,000 (2011: £260,000). 70 chamberlin plc21361.04 12/06/12 Proof 6 25 Derivatives and financial instruments continued At 31 March 2012 At 31 March 2011 Contracted amount (Euros 000) 8,950 7,900 Weighted average contract rate 1.157 1.178 Contracted Contracted amount at Unrealised amount year end rate gain/(loss) £000 7,735 6,707 £000 7,460 6,991 £000 275 (284) Interest rate risk The Group operates an overdraft facility with HSBC Bank plc and has no other borrowings. Exposure to interest rate risk is considered to be low and no derivatives are used to modify the Group’s interest rate risk profile. The impact of a 50 basis point increase in UK interest rates would be a £8,000 reduction in profit before tax (2011: £17,000). An equivalent decrease in rates would increase profit before tax by £8,000 (2011: £17,000). An analysis of interest bearing financial assets and liabilities is given below. Cash and cash equivalents/(bank overdraft) Bank overdraft (sterling denominated) Bank overdraft (Euro denominated) Group Company 2012 £000 (1,579) 21 (1,558) 2011 £000 (2,795) (86) (2,881) 2012 £000 (3,055) — (3,055) 2011 £000 (4,224) — (4,224) Balances outstanding on the Group’s overdraft facility are subject to floating rate interest and are repayable on demand. Credit risk The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in note 16. For transactions that do not occur in the UK, the Group does not offer credit terms without the approval of the operating business Finance Director. There are no significant concentrations of credit risk within the Group. With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counterparty, with the maximum exposure equal to the carrying amount of the instrument. There are no material differences between the fair values and carrying values of the financial assets and liabilities. The bad debt charge for the year was £231,000 (2011: £215,000 ). Liquidity risk The Group aims to mitigate liquidity risk by managing the cash generation of its operating units, and applying cash generation targets across the Group. Investment is carefully controlled, with authorisation limits operating up to Group Board level and cash payback periods applied as part of the investment appraisal process. In this way the Group aims to maintain a good credit rating and operate within its existing facilities. The Group’s funding strategy is to maintain flexibility in managing its day to day working capital needs through the use of an overdraft facility which is not subject to financial covenants, and to fund acquisitions and significant capital projects through the use of longer term funding including bank loans and equity. The Group’s £5.0m overdraft facility is renewable annually and was renewed post year end with the next date for renewal of May 2013. 71 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notes to the Accounts continued at 31 March 2012 25 Derivatives and financial instruments continued Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly: and Level 3: techniques which use inputs have a significant effect on the recorded fair value that are not based on observable market data. All derivative assets and liabilities are valued by level 2 techniques. The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2012 and 31 March 2011. Non-derivative financial liabilities On demand Less than 3 months 3 to 12 months At 31 March 2012 Bank overdraft Trade and other payables At 31 March 2011 Bank overdraft Trade and other payables The gross undiscounted future cash flows are analysed as follows: Derivative financial liabilities At 31 March 2012 Foreign Exchange forward contracts At 31 March 2011 Foreign Exchange forward contracts 1,558 — 1,558 2,881 — 2,881 — 6,140 6,140 — 6,185 6,185 — — — — — — On demand Less than 3 months 3 to 12 months — — — — 1,912 1,912 1,340 1,340 5,548 5,548 5,651 5,651 Total 1,558 6,140 7,698 2,881 6,185 9,066 Total 7,460 7,460 6,991 6,991 Capital management The Group defines capital as the total equity of the Group, which at the year end is £9,043,000 (2011: £7,779,000). The Group objective for managing capital is to deliver competitive, secure and sustainable returns to maximise long-term shareholder value. Chamberlin is not subject to any externally- imposed capital requirements and there are no financial covenant restrictions on the Group’s overdraft facility. The Group monitors capital on the basis of the gearing ratio, that is, the ratio of net debt to equity. Net debt is calculated as gross finance debt, as shown in the balance sheet, less cash and cash equivalents. All components of equity are included in the denominator of the calculation. The Directors believe that a net debt ratio in the range 30–50% provides an efficient capital structure and an appropriate level of financial flexibility. At 31 March 2012 the net debt ratio was 17% (2011: 37%). In the prior year the Group announced a return to dividend payments. It is the Group’s policy to pay progressive dividends that are appropriately covered by earnings. 72 chamberlin plc21361.04 12/06/12 Proof 6 26 Related Party Transactions Group All transactions between the Parent Company and subsidiary companies and between subsidiaries companies have been eliminated on preparation of the consolidated accounts. The Group has not entered into any other related party transactions. Company The Company provides certain management services to subsidiary companies. Certain payments in relation to items settled or provided on a central basis, principally corporation tax and insurance payments, are made by the Company and are then recharged to subsidiaries at cost. Compensation of key management personnel (including Directors) Short-term employee benefits (including employer’s NI) Share-based payments Pension contributions Group Company 2012 £000 1,501 148 70 1,719 2011 £000 1,490 73 69 1,632 2012 £000 797 113 32 942 2011 £000 821 73 32 926 Key management, other than Directors of the Company, comprise the Managing Directors and Finance Directors of the main operating subsidiaries. 73 chamberlin plcAnnual Report and Accounts for the year ended 31 March 2012Stock code: CMH21361.04 12/06/12 Proof 6IntroductionPerformanceGovernanceFinancial Statements Notice of Annual General Meeting Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those members registered on the Company’s register of members at: 11.00 a.m. on 10 July 2012; or, If this Meeting is adjourned, at 10.00 a.m. on the day two days prior to the adjourned meeting, shall be entitled to attend and vote at the AGM. Notice is hereby given that the Annual General Meeting of the Company will be held on Thursday 12 July 2012 at the Registered Office, Chuckery Road, Walsall at 2.00 p.m. for the following purposes: To consider and, if thought fit, to pass the following resolutions as ordinary resolutions: 1. To receive and adopt the Report of the Directors, Annual Accounts and Report of the Auditors for the year ended 31 March 2012 2. To declare a Final Dividend for the year ended 31 March 2012 of 2 pence per ordinary share of 25 pence each in the capital of the Company (“Ordinary Shares”) to be paid on 13 July 2012 to members whose names were on the register of members at the close of business on 29 June 2012 3. To re-elect as a Director Keith Butler-Wheelhouse who has been appointed by the Board since the last Annual General Meeting as a Director of the (Resolution 2). (Resolution 1). Company 4. To re-elect as a Director Tim Hair 5. To re-elect as a Director Mark Bache 6. To re-elect as a Director Keith Jackson 7. To re-elect as a Director Alan Howarth 8. To approve the Directors’ Remuneration Report for the year ended 31 March 2012 9. To reappoint Ernst & Young LLP as Auditors of the Company and to authorise the Directors to fix the remuneration of the Auditors (Resolution 3). (Resolution 4). (Resolution 5). (Resolution 6). (Resolution 7). (Resolution 8). (Resolution 9). 10. That the Directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (in substitution for all existing authorities under section 551 of the Companies Act 2006 which, to the extent unused at the date of this resolution, are revoked with immediate effect) to exercise all the powers of the Company to allot shares in the Company or to grant rights to subscribe for or to convert any security into shares in the Company up to an aggregate nominal amount of £662,461 provided that (unless previously revoked, varied or renewed) such authority shall expire at the earlier of the conclusion of the next Annual General Meeting of the Company or 14 October 2013, but so that this authority shall allow the Company to make, before the expiry of this authority, offers or agreements which would or might require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after such expiry and notwithstanding such expiry the Directors may allot shares or grant such rights in pursuance to such offers or agreements as if this authority had not expired (Resolution 10). To consider and, if thought fit, to pass the following resolutions as special resolutions: 11. That, subject to the passing of resolution 10 and pursuant to section 570 of the Companies Act 2006 the Directors be and are hereby generally empowered (in substitution for all existing powers under section 570 of the Companies Act 2006 which, to the extent unused at the date of this resolution, are revoked with immediate effect) to allot equity securities (as defined in Section 560 of the Companies Act 2006) for cash pursuant to the authority granted by resolution 10 as if Section 561(1) of the Companies Act 2006 did not apply to such allotment, provided that this power shall be limited to the allotment of equity securities 74 chamberlin plc21361.04 12/06/12 Proof 6 chamberlin plc Annual Report and Accounts for the year ended 31 March 2012 Stock code: CMH (a) in connection with an offer of equity securities (whether by way of a rights issue, open offer or otherwise): (i) to holders of ordinary shares in the capital of the Company in proportion (as nearly as practicable) to the respective numbers of ordinary shares held by them; and (ii) to holders of other equity securities in the capital of the Company, as required by the rights of those securities or, subject to such rights, as the Directors otherwise consider necessary, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to treasury shares, fractional entitlements, record dates or any legal or practical problems under the laws of any territory or the requirements of any regulatory body or stock exchange; and (b) otherwise than pursuant to paragraph 11(a) of this resolution, up to an aggregate nominal amount of £99,369, and (unless previously revoked, varied or renewed) this power shall expire at the earlier of the conclusion of the next Annual General Meeting, of the Company or 14 October 2013, but so that this authority shall allow the Company to make, before the expiry of this authority, offers or agreements which would or might require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after such expiry and notwithstanding such expiry the Directors may allot shares or grant such rights in pursuance of such offers or agreements as if this authority had not expired (Resolution 11). 12. That the Company be and hereby is generally and unconditionally authorised pursuant to section 701 of the Companies Act 2006 to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of Ordinary Shares on such terms and in such manner as the Directors may from time to time determine provided that: (a) the maximum number of Ordinary Shares which may be purchased is 794,953; (b) the minimum price (exclusive of expenses) which may be paid for each Ordinary Share is 25 pence; (c) the maximum price which may be paid for each Ordinary Share is an amount equivalent to 105% of the average of the middle market quotations for an Ordinary Share as derived from the Daily Official List of the London Stock Exchange Plc for the five business days immediately preceding the day on which the Ordinary Share in question is purchased, and (unless previously revoked, varied or renewed) this authority shall expire at the earlier of the conclusion of the next Annual General Meeting of the Company or 14 October 2013, save that the Company may enter into a contract to purchase Shares before this authority expires under which such purchase will or may be completed or executed wholly or partly after this authority expires and may make a purchase of Shares pursuant to any such contract as if this authority had not expired By order of the Board Mark Bache Company Secretary 21 May 2012 (Resolution 12). Chuckery Road Walsall WS1 2DU 21361.04 12/06/12 Proof 6 n o i t c u d o r t n I e c n a m r o f r e P e c n a n r e v o G s t n e m e t a t S l a i c n a n i F 75 Notice of Annual General Meeting continued General Information A member is entitled to appoint another person (whether a member or not) as his or her proxy to exercise all or any of his or her rights to attend and to speak and vote at the Meeting for which purpose a form of proxy is enclosed. Proxies must be lodged at the office of the Company’s Registrars, Neville Registrars Ltd, 18 Laurel Lane, Halesowen, West Midlands B63 3DA, not later than 2.00 p.m. on 10 July 2012 (or if the Meeting is adjourned, not later than 48 hours (excluding any part of a day that is not a working day) before the time of the adjourned meeting). Completion and return of the form of proxy in accordance with its instructions will not prevent a member from attending and voting at the Meeting instead of their proxy if they wish. A member may appoint more than one proxy in relation to the Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by the member. A member wishing to appoint more than one proxy should photocopy the proxy card and indicate on each copy the name of the proxy he appoints and the number of shares in respect of which that proxy is appointed. A failure to specify the number of shares each proxy appointment relates to or specifying a number in excess of those held by the member may result in the proxy appointment being invalid. In order to facilitate voting by corporate representatives at the meeting, arrangements will be put in place at the meeting so that: (a) if a corporate shareholder has appointed the Chairman of the Meeting as its corporate representative with instructions to vote on a poll in accordance with the directions of all of the other corporate representatives for that shareholder at the meeting, then on a poll those corporate representatives will give voting directions to the Chairman and the Chairman will vote (or withhold a vote) as corporate representative in accordance with those directions; and (b) if more than one corporate representative for the same corporate shareholder attends the meeting but the corporate shareholder has not appointed the Chairman of the Meeting as its corporate representative, a designated corporate representative will be nominated, from those corporate representatives who attend, who will vote on a poll and the other corporate representatives will give voting directions to that designated corporate representative. Corporate shareholders are referred to the guidance issued by the Institute of Chartered Secretaries and Administrators on proxies and corporate representatives at www.icsa.org.uk for further details of this procedure. The guidance includes a sample form of representation letter if the Chairman is being appointed as described in (a) above. There will be available for inspection at the Registered Office of the Company during normal business hours (Weekends and Public Holidays excepted) from the date of this notice until the conclusion of the Annual General Meeting copies of contracts of service of Directors (including letters of appointment of non-executive Directors) with the Company or with any of its subsidiary undertakings. Biographical details of all Directors who are offering themselves for re-election at the meeting are set out on page 16 of the annual report and accounts. An explanation of Resolutions 10, 11 and 12 is set out in the Report of the Directors on page 20. Members should notify the Registrars without delay of any change of address. 76 chamberlin plc21361.04 12/06/12 Proof 6 chamberlin plc Annual Report and Accounts for the year ended 31 March 2012 Stock code: CMH Shareholder Notes n o i t c u d o r t n I e c n a m r o f r e P e c n a n r e v o G s t n e m e t a t S l a i c n a n i F 77 21361.04 12/06/12 Proof 6 Shareholder Information Advisers Company Secretary Mark Bache Registered Office Chuckery Road, Walsall WS1 2DU Registered in England No. 76928 Auditors Ernst & Young LLP, Birmingham Solicitors DLA Piper, Birmingham Stockbrokers Charles Stanley Securities, London Financial PR Biddicks, London Bankers HSBC Bank plc, Birmingham Registrars Neville Registrars Limited, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA 78 chamberlin plc21361.04 12/06/12 Proof 6 chamberlin plc difficult things done well Producing critical components for the most demanding environments Highlights Revenue (£m) £45.5m 2012 2011 2010 2009 2008 Underlying Profit Before Tax (£000) £1,657 45.5 00.00 39.8 39.9 40.0 2012 2011 2010 2009 2008 (1,028) 28.5 1,657 804 00.00 310 1,282 Statutory Profit Before Tax (£000) Underlying Basic Earnings Per Share (pence) £1,430 2012 2011 2010 2009 2008 (1,421) 18.3 pence 333 (498) 585 1,430 2012 2011 2010 2009 2008 (12.8) 6.7 2.2 18.3 15.1 Dividend Per Share (pence) Cash Generated From Operations (£000) 3.0 pence 3.0 2012 2011 2010 2009 2008 0.0 1.0 1.2 £2,430 2012 2011 2010 2009 2008 11.9 502 693 828 2,430 1,791 00.00 Small complex grey iron castings, principally for the automotive sector and hydraulic applications. Emergency exit equipment and traditional architectural hardware directed mainly at the DIY and construction markets. Products associated with cable management. Lighting and switchgear associated with petrochemicals and construction applications. Large grey, ductile and alloyed iron castings for a range of applications including power generation, bearing housings, steelworks, construction and compressors. Chamberlin & Hill Castings Ltd Chuckery Road Walsall, WS1 2DU Tel: 01922 721411 Fax: 01922 614610 Bonchurch Street Leicester, LE3 5EP Tel: 0116 2992000 Fax: 0116 2998844 www.chcastings.co.uk Exidor Ltd Progress Drive Cannock, WS11 0JE Tel: 01543 460030 Fax: 01543 573534 www.fredduncombe.co.uk Petrel Ltd 22 Fortnum Close Kitts Green Birmingham, B33 0LB Tel: 0121 783 7161 Fax: 0121 783 5717 www.petrel-ex.co.uk Russell Ductile Castings Ltd Trent Foundry Dawes Lane Scunthorpe, DN15 6UW Tel: 01724 862152 Fax: 01724 280461 www.russellcastings.co.uk 21361.04 12/06/12 Proof 621361.04 12/06/12 Proof 6 Annual Report and Accounts for the year ended 31 March 2012 Stock code: CMH difficult things done well c h a m b e r l i n p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 M a r c h 2 0 1 2 For more information on Chamberlin Group operations please visit our website at www.chamberlin.co.uk Use your phone’s bar code app and go directly to the relevant page on our website. Chuckery Road, Walsall, West Midlands, WS1 2DU Tel: 01922 707100 Fax: 01922 638370 email: plc@chamberlin.co.uk 21361.04 12/06/12 Proof 621361.04 12/06/12 Proof 6