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 7 ANNUAL REPORT AND ACCOUNTS for the year ended 31 March 2017 STOCK CODE: CMH 25536.04 Proof 5 23 June 2017 2:37 PM 25536.04 Proof 5 23 June 2017 2:37 PM 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. Investment Proposition Æ Operating in markets with high Æ Growth opportunity in the barriers to entry protected by process know-how or market regulation Æ Operating across diversified markets turbocharger castings market benefiting from regulatory drivers Æ Strong, credible management team with sales driven by the global engineering economy – 53% of sales are exported with a proven track record Æ Focused UK manufacturing in niche markets Visit us online For more information on Chamberlin Group operations please visit our website at www.chamberlin.co.uk 25536.04 Proof 5 23 June 2017 2:37 PM 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Overview CONTENTS OVERVIEW Highlights Chairman’s Statement STRATEGIC REPORT Group at a Glance Strategy Chief Executive’s Review Measurements and Targets Principal Risks and Uncertainties GOVERNANCE The Board Corporate Governance Report Directors’ Remuneration Report Directors’ Report FINANCIAL STATEMENTS Introduction Primary Statements Section 1 – Basis of Preparation Section 2 – Results of the Year Section 3 – Operating Assets and Liabilities 01 02 03-04 05 06 07 08 10 11-13 14-15 16-19 21 22-29 30 31-38 39-47 48-49 Section 4 – Capital Structure Section 5 – Other Supporting Notes 50-65 66 Independent Auditor’s Report Parent Company Financial Statements 67-69 70 Five Year Financial Summary Notice of Annual General Meeting Shareholder Information 71-73 74 REVENUE £32.1m 35.0 32.1 29.1 STATUTORY PROFIT BEFORE TAX (£0.1m) (0.1) UNDERLYING PROFIT BEFORE TAX £0.6m 0.6 2017 2016 0.2 UNDERLYING EARNINGS PER SHARE 4.5p 2017 4.5 (0.4) 2016 1.4 2017 2016 2017 2016 Highlights Æ Continued encouraging progress, both strategically and operationally underpins expected significant – growth in the current year and beyond Æ Revenue up 10% to £32.1m (2016: £29.1m) Æ Underlying diluted profit per share* more than tripled to 4.5p (2016: 1.4p) Æ IFRS diluted loss per share of 12.2p (2016: loss per share of 3.3p) Æ Capital expenditure of £3.9m (2016: £1.4m), included establishment of new machining facility: – opens up new long term growth opportunities – positions Chamberlin as the only fully integrated supplier of grey iron bearing housings in Europe Æ Net debt of £6.8m at year end, reflected machining facility investment CASH GENERATED FROM OPERATIONS (£0.1m) (0.1) 2.3 2017 2016 Æ Foundry operations grew revenues by 8% to £21.3m – – – major new automotive contract commenced in H2 as expected, with volumes rising in 2017 new machining facility opened in Q4 to support move into fully machined components Walsall foundry’s promotion to ‘Category A’ supplier in Q1 is providing additional growth opportunities Æ Engineering operations increased revenues by 15% to £10.8m – initiatives in place to drive export sales and margins Æ Board remains confident of delivering further progress through 2017 * Underlying figures are stated before exceptional items, administration costs of the pension scheme and net financing costs on pension obligations, share based payment costs and associated tax impact of these items. 25536.04 Proof 5 23 June 2017 2:37 PM 1 0 C F I www.chamberlin.co.ukSTOCK CODE: CMH Chairman’s Statement Keith Butler-Wheelhouse Chairman Introduction The Group delivered a significantly strengthened performance in the second half of the year, as expected, and financial results for the year are encouraging, with revenue growth of 10% at £32.1m and underlying profit before tax significantly increased to £0.6m from £0.2m last year. These improved results were supported by both our foundry and engineering operations. Operating profit across our foundry activities rose by 55%, driven mainly by our Walsall foundry, and our engineering operations increased operating profit by 20% year-on-year. We took some important strategic decisions in the year. Most significantly, we invested in a new machining facility in Walsall. The investment supports Chamberlin’s move into fully machined components for automotive turbochargers. It also positions the Group as the only fully integrated supplier of grey iron bearing housings in Europe and is expected to open up new long term growth opportunities, as we have previously reported. We started production at the new facility in early 2017 and held a successful Open Day at the end of March 2017 which was attended by both customers and stakeholders. The Board took the difficult decision of closing our non-core foundry at Leicester, which was the least specialised of the Group’s foundries, at the end of 2016, and production at Leicester stopped in February 2017. An orderly decommissioning process is now underway. Exidor has delivered good growth and management is implementing further initiatives to improve profitability. Petrel is showing encouraging growth by continuing to access new markets outside of its core oil and gas customer base, helped by the successful introduction of new LED product ranges. Prospects for the current financial year remain very encouraging. The actions we have completed over the last year help to improve Chamberlin’s competitive positioning and we are continuing to focus on margin development across both areas of operations. The automotive turbocharger sector is a growth area and with our new machining capability in operation, we are well placed to expand further. Production volumes from last year’s major new automotive contract win should increase over 2017 and will help to support growth in revenue and profitability. Results Revenues for the year to 31 March 2017 increased by 10% to £32.1m (2016: £29.1m), with growth coming from new, cast-only work at the Walsall foundry and increased market share from our two engineering businesses. This offset the loss of an industrial vehicle contract at our Scunthorpe facility. Revenues from the new machining facility, which opened in early 2017, made only a marginal contribution, as expected. Underlying profit before tax increased significantly to £0.6m (2016: £0.2m) and diluted underlying profit per share more than tripled to 4.5p (2016: 1.4p). On an IFRS basis, after accounting for restructuring costs of £0.1m (2016: £0.1m), administration and costs of the closed pension scheme of £0.4m (2016: £0.4m) and impairment of Leicester of £1.5m (2016: £nil), the Group generated a loss of £1.0m (2016: loss of £0.3m). Diluted loss per share was 12.2p (2016: loss per share of 3.3p). The net debt position at 31 March 2017 was £6.8m (2016: £3.2m), reflecting the investment in the new machining facility. Dividend In line with the current dividend policy, the Directors are not proposing the payment of a dividend for the period under review (2016: nil). Staff Our staff continue to demonstrate huge commitment and dedication as we develop the business, and on behalf of the Board, I would like to thank everyone for their hard work. The Group’s improving business performance is supported by their talents and efforts. Outlook The Group is well positioned to deliver a further improvement in performance during the current financial year. Major new contract wins in the automotive turbocharger market support ongoing growth and our recently opened new machining plant helps to strengthen our market positioning and widen opportunities. We look forward to reporting further progress at the Group’s AGM on 20 July 2017. KEITH BUTLER-WHEELHOUSE Chairman 22 May 2017 25536.04 Proof 5 23 June 2017 2:37 PM HeadingANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Group at a Glance GROUP OVERVIEW Product areas Chamberlin operates across five locations in the UK. The Foundry Division specialises in technically demanding castings in complex shapes and in specialist metallurgies. Work is allocated across its two foundry sites and one machining facility based on size and metallurgy as follows: Æ Light Castings based in Walsall produce castings up to 5kg in grey iron; Æ Heavy Castings based in Scunthorpe make 100kg and 6 tonne castings, again in a wide variety of iron grades. Æ The machining centre, opened in 2017, supports the light castings made in Walsall. The two engineering businesses supply to regulated markets operating from two sites in the West Midlands. Global sales Engineering activity outside of the UK is a key driver of demand. UK Manufacturing 4 3 5 1 2 6 Direct exports account for 53% of output with our customers located in Europe, America and Asia. Global demand for engineered products is strong and our customers are typically leaders in their sectors. HEAD OFFICE 1 Walsall FOUNDRIES 2 Chamberlin & Hill Castings, Walsall 3 Chamberlin & Hill Castings, machining facility, Walsall 4 Russell Ductile Castings, Scunthorpe ENGINEERING 5 Exidor, Cannock 6 Petrel, Birmingham REVENUE BY BUSINESS DIRECT EXPORTS MARKETS SERVED 48% 5% 12% 74% 8% 1% 11% 1% 4% 5% 3% 8% 42% 11% 22% 18% Light Castings Heavy Castings Security/safety Hazardous Environments Light Castings Heavy Castings Security/safety Hazardous Environments 22% Passenger car turbo Commercial diesel Safety/security Construction equipment Hydraulics Hazardous environments 3% Mining & quarrying Power generation Civil engineering General engineering 3 0 2 0 25536.04 Proof 5 23 June 2017 2:37 PM www.chamberlin.co.ukSTOCK CODE: CMHStrategic Report Group at a Glance FOUNDRY OVERVIEW OUR TWO FOUNDRY SITES CAST A RANGE OF PRODUCTS RANGING FROM 1KG UP TO 6,000KG AND DELIVER CASTINGS WITH COMPLEX GEOMETRY AND CHALLENGING METALLURGY. ENGINEERING OVERVIEW OUR TWO ENGINEERING SITES PRODUCE EMERGENCY EXIT HARDWARE, MECHANICAL AND ELECTRICAL DOOR CLOSERS AND LIGHTING AND CONTROL EQUIPMENT FOR USE IN HAZARDOUS AND EXPLOSIVE ENVIRONMENTS. Underlying Profit Before Tax Underlying Profit Before Tax 2017 2016 1,188 764 2017 2016 816 679 Following our decision to close our non-core foundry at Leicester, the Group now operates two foundries, at Walsall and Scunthorpe, each with a different specialisation. Chamberlin & Hill Castings Ltd Our foundry at Walsall is our flagship operation and drives the majority of the foundry division’s sales. Walsall’s expertise is in producing small castings, typically below 3kg in weight, which have complex internal geometry. The complex geometry is achieved through the use of innovative core design and assembly techniques and, importantly, the foundry is capable of producing these castings in high volumes. Russell Ductile Castings Ltd The Scunthorpe foundry specialises in heavy castings weighing up to 6,000kg which have complex geometry and challenging metallurgy. These castings are used in applications where there is a requirement for high strength or high temperature performance, for instance in large process compressors, industrial gas turbines and mining, quarrying and construction equipment, and the majority of customers are Original Equipment Manufacturers (“OEMs”). Exidor Ltd Our Exidor business is the UK market leader in panic and emergency exit door hardware. Its products are for life- critical applications and Exidor operates in a highly regulated market. Customers place great value on Exidor’s heritage as a British designer and manufacturer, which delivers high quality, certified products. Petrel Ltd Petrel Limited has a well-established reputation for designing and manufacturing high quality lighting and control equipment for use in hazardous or demanding environments. It supplies customers across the UK and Europe as well as internationally. The transition to LED lighting remains a key focus as well as developing the business’s portable light fittings range. Approximately 31.3% of sales (2016: 11.8%) were generated from portable lighting and LED products over the year and this percentage should rise further. We have also expanded Petrel’s commercial and technical resource to support ongoing growth. Revenue Split 28% 72% Revenue Split 67% Light Castings Heavy Castings Security/safety Hazardous environments 33% 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Strategy Turbo charger market The biggest challenge faced by the global automotive industry is meeting the regulations and standards set regarding the emissions of exhaust gases such as Carbon Dioxide (CO2), Nitrous Oxide (NOx) and Particulate Material (PM) from automobiles. Another challenge is increasing demand for fuel- efficient vehicles from consumers as well as governments. These challenges have led to the OEMs and component manufacturers to invest their resources in developing technologies which can help the automobiles to comply with the various government regulations set in different regions. Turbocharger offers the benefits of both, improved fuel economy and reduction in emissions. The scenario which is prevailing in the global automotive industry has fuelled the adoption of turbochargers across all the vehicle segments. Turbochargers utilise the exhaust gases from the engine to compress the air and feed it back to the engine to create a better air to fuel ratio. This generates a better combustion and provides a boost for the vehicle. This has enabled the OEMs to downsize their engines without sacrificing the performance and fuel efficiency of the vehicle. Adoption of diesel turbocharger is comparatively higher than petrol turbocharger. However, the penetration of petrol turbocharger is estimated to increase at a promising rate in the near future. Turbochargers were first introduced for diesel engine to deliver higher power output, less emissions and increase fuel efficiency as diesel engines were generally used in commercial vehicle. After gaining importance in diesel engines, turbochargers are also being favoured to increase engine efficiency for petrol engines. CASE STUDY Strategy in Action Chamberlin & Hill Castings Ltd Machining Facility To support growth in demand for turbo chargers, Chamberlin has invested heavily in a new machining facility. This will enable us to supply cast iron turbo charger bearing housings which are fully machined in house. The facility, just two miles away from the flagship Walsall foundry, will initially house three machine cells capable of producing up to 750,000 parts per annum. The capacity of the initial machines will be fully utilised by current contracts. Automotive turbochargers market has huge scope and opportunity in the emerging markets of Asia Pacific and Latin America in countries such as India, China, Japan and Brazil among others. Rising penetration of turbocharged gasoline engine in Asia Pacific and turbocharged diesel cars in Latin America region is going to drive the automotive turbochargers market. 25536.04 Proof 5 23 June 2017 2:37 PM 5 0 4 0 www.chamberlin.co.ukSTOCK CODE: CMHStrategic Report Chief Executive’s Review The automotive turbocharger segment is a major market for Walsall, with modern designs requiring precise alignment of cooling and lubrication passages to meet the increased performance demanded by modern engines. Legislation is a major driver of this market, with the requirement to reduce nitrogen dioxide emissions promoting the introduction of smaller, turbocharged petrol engines. Approximately 72% of Walsall’s casting production is for petrol engines. To support Chamberlin’s growth in the automotive turbocharger market, we have invested an initial £2.1m in a machining facility near to our Walsall foundry which will enable us to supply turbo charger bearing housings which are fully machined in-house. This initiative is an exciting development which we expect to open up significant new long term growth opportunities. Walsall is one of only four specialist foundries in Europe with the technical capability of supplying castings for turbochargers and, with our new machining capability, the foundry is now the only fully integrated supplier of grey iron bearing housings in Europe. The Scunthorpe foundry specialises in heavy castings weighing up to 6,000kg which have complex geometry and challenging metallurgy. These castings are used in applications where there is a requirement for high strength or high temperature performance, for instance in large process compressors, industrial gas turbines and mining, quarrying and construction equipment, and the majority of customers are Original Equipment Manufacturers (“OEMs”). Demand at the foundry was relatively subdued over the year but we have driven further operational improvement at the foundry and continue to work to deepen and broaden customer relationships. Engineering Revenues from the engineering operations, comprising our Exidor and Petrel businesses, increased by 15% year-on-year to £10.8m (2016: £9.4m) and operating profit rose by 20% to £0.8m (2016: £0.7m). Our Exidor business is the UK market leader in panic and emergency exit door hardware. Its products are for life-critical applications and Exidor operates in a highly regulated market. Customers place great value on Exidor’s heritage as a British designer and manufacturer, which delivers high quality, certified products. We are re-engineering the product range to support our growth drive and continue to target overseas sales while maintaining Exidor’s leading position in the UK. The business delivered good growth and we are implementing lean manufacturing initiatives which will help to reduce costs and improve margins. Petrel Limited has a well-established reputation for designing and manufacturing high quality lighting and control equipment for use in hazardous or demanding environments. It supplies customers across the UK and Europe as well as internationally. Revenue growth over the year was very good and we are encouraged by the progress being made outside Petrel’s traditional markets of oil & gas. The transition to LED lighting remains a key focus as well as developing the business’s portable light fittings range. Approximately 31.3% of sales (2016: 11.8%) were generated from portable lighting and LED products over the year and this percentage should rise further. We have also expanded Petrel’s commercial and technical resource to support ongoing growth. Outlook We expect further profitable revenue growth in the next financial year supported by major new contracts coming on stream. 25536.04 Proof 5 23 June 2017 2:37 PM Kevin Nolan Chief Executive Chamberlin continues to make encouraging progress, building on our previous work to improve efficiencies and processes and to realign the cost base. The opening of our new machining operations in the fourth quarter of the financial year marked a high point for the Group and we remain excited about the additional growth opportunities the new facility brings. Our engineering operations are also progressing well and we intend to continue to focus on building export sales across both engineering businesses. Foundries Foundry revenues increased by 8% year- on-year to £21.3m (2016: £19.8m), with operating profit rising by 55% to £1.2m (2016: £0.8m). Following our decision to close our non- core foundry at Leicester, the Group now operates two foundries, at Walsall and Scunthorpe, each with a different specialisation. Our foundry at Walsall is our flagship operation and drives the majority of the foundry division’s sales. Walsall’s expertise is in producing small castings, typically below 3kg in weight, which have complex internal geometry. The complex geometry is achieved through the use of innovative core design and assembly techniques and, importantly, the foundry is capable of producing these castings in high volumes. ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Measurements and Targets Business performance is measured through Group wide targets and improvement measures. Each Chamberlin business unit participates in an annual round of planning meetings with the Executive Management, during which performance and future plans for that business are reviewed and updated. These business plans are all aligned with the Group business strategy and include specific local and divisional targets and key performance indicators (KPIs). In addition, individual business reviews take place throughout the year on a regular basis enabling the Board to assess performance against tactical and strategic milestones. 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: KPI DEFINITION FOUNDRIES ENGINEERING GROUP Year ended 31 March 2017 RETURN ON SALES (%) RETURN ON NET ASSETS (%) SALES PER EMPLOYEE (£000) 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. 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 sales to the segment’s average number of employees. ACCIDENT FREQUENCY RATE The number of accidents per 100,000 hours worked averaged for the full year. 2017 2016 2017 2016 2017 2016 2017 2016 5.6 5.6 3.9 2017 2016 7.6 7.6 7.3 2017 2016 2.3 2.3 1.3 10.1 10.1 8.3 102.1 102.1 95.5 6.8 6.8 9.0 2017 2016 2017 2016 2017 2016 23.6 23.6 21.5 2017 2016 7.5 19.2 19.2 106.8 106.8 95.4 5.1 5.1 8.0 2017 2016 2017 2016 99.7 99.7 91.9 6.3 6.3 8.7 The directors note that the KPIs reflect the trading conditions of the Group during the year. Current year KPIs exclude discontinued operations. Prior year KPIs have been restated to exclude discontinued operations. 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 incorporate shared costs. 25536.04 Proof 5 23 June 2017 2:37 PM 7 0 6 0 www.chamberlin.co.ukSTOCK CODE: CMHStrategic Report 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 11 to 13. Risk Description of Risk & Potential Impact Mitigation Foreign currency fluctuation Approximately 40% of Group revenue is derived in Euros. Significant fluctuations could have a material impact on the financial performance of the Group. Group sells Euros forward in order to provide an effective hedge. Raw material pricing fluctuation The price of many raw materials is dependent upon movements in commodity prices, especially iron. The Group negotiates, where appropriate, price surcharge arrangements into its customer contracts. Failure of our health, safety and environmental (HSE) controls resulting in harm to employees or other stakeholders IT failure/system collapse and loss of data Market deterioration Production failures We recognise that we have a duty of care to our employees. We have made great progress in recent years but understand the impact on our employees from the failure of this obligation. This could result in injury or death to our employees or to others and environmental damage with the consequential impact of reputational damage and risk of regulator action. Established processes are in place to ensure that health, safety and environmental matters are appropriately addressed and any such risks are minimised including monthly reporting to, and review at the Executive Committee. Specialist HSE employees to provide support and guidance to businesses including the conduct of regular risk control and health and safety audits. We utilise a significant number of IT systems to support the Group’s production, technology, marketing, sales and financial functions. Failure of any of the systems corruptions or loss of data could have a major impact on operations. We are a capitally intensive business with a high level of fixed costs. Deterioration in our key markets could have a material impact on the financial performance of the Group. Development and regular testing of business continuity plans. Ensuring business continuity plans are robust and address temporary unavailability of IT systems. Strategy to upgrade and replace key systems. The Group sells into a wide variety of different markets, selling a diversified product range. We strive to work with our key customer to introduce new products and are constantly seeking to identify new business segments and geographical locations into which to sell our products. Due to the complex technical nature and fine production tolerances of our products, an unstable production process can result in significant scrap which could have a significantly adverse impact on results. The Group seeks to employ a skilled workforce backed by a highly experienced technical and production team in order to provide the relevant experience and skill set to mitigate any production failures. The Group’s approach to managing other financial risk is set out in note 25 to the financial statements. The Strategic Report, which comprises pages 3 to 8, together with the commentary on the primary statements on pages 22 to 29, has been approved by the board of Directors and signed on their behalf by: KEVIN NOLAN Chief Executive 22 May 2017 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc The Board Corporate Governance Report Directors’ Remuneration Report Directors’ Report 10 11 – 13 14 – 15 16 – 19 e c n a n r e v o G 25536.04 Proof 5 23 June 2017 2:37 PM 9 0 8 0 Headingwww.chamberlin.co.ukSTOCK CODE: CMHGovernance The Board Kevin Nolan, 60 Chief Executive David Roberts, 48 Finance Director Keith Butler-Wheelhouse, 71 Senior Independent Director Keith Jackson, 68 Non-Executive Director David Nicholas, 67 Senior Independent Director Alan Howarth, 71 Non-Executive Director Kevin joined the Board and was appointed Chief Executive on 9 September 2013. Kevin Nolan has 30 years’ senior level experience in the engineering sector and joined Chamberlin from global materials engineering group, Wall Colmonoy Ltd, where he was Managing Director. He previously worked for Doncasters Group Ltd, the international engineering group which manufactures precision components and assemblies where he successfully led the expansion of a number of the group’s business units and latterly was appointed Divisional Managing Director of Doncasters’ largest division, Doncasters Turbine Airfoils and Structural Castings Division. David joined the Board and was appointed Finance Director and Company Secretary on 1 September 2013. David Roberts has substantial experience in senior financial roles within the manufacturing and engineering sectors. He was previously at Titanium Metals Corporation, a global producer of titanium melted and mill products, where he was European Finance Director. Before this, he worked for Britax International plc as Divisional Finance Director of Rear Vision Systems, a supplier of original equipment exterior mirrors for passenger cars and light trucks to automotive manufacturers worldwide. Keith joined the Board and was appointed Non-Executive Chairman in March 2012. Previously Chief Executive of Smiths Group plc, Saab Automobile Sweden and Delta Motor Corporation South Africa. He is currently Non-Executive Director of Plastics Capital plc and previously served as a Non-Executive Director with Atlas Copco AB, General Motors Europe, J Sainsbury plc and NIU Solutions. Keith joined the Board in 2005. He was previously Finance Director of Tarmac Group Ltd, and was Finance Director of Cape plc between 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 Chairman of the Audit Committee. David was appointed a Director in July 2016. He was previously a Board Director of IMI plc, the specialist engineering company, and held senior management positions at Tyco International plc, the security systems company. David is Chairman of the Remuneration Committee and a member of both the Audit and Nominations Committee. Alan was appointed as a Director in January 2007 and resigned on 22 July 2016. 25536.04 Proof 5 23 June 2017 2:37 PM I S R O T C E R D E V T U C E X E I I S R O T C E R D E V T U C E X E - N O N I ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Corporate Governance Report Principles of good governance The Group has set out its Governance Code as described below and in the Directors’ Remuneration Report. 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. Keith Butler-Wheelhouse is the 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. The Board considers Keith Jackson (first appointed 1 October 2005) and David Nicholas (first appointed 22 July 2016) to be independent non-executive directors. Given the length of service the Board has determined they are independent in character and judgement taking into account their range of experience, qualifications and other sources of income. (b) Chairman and Chief Executive The Chairman of the Company is a 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 re-appointments 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 20 July 2017 (see the Notice of Annual General Meeting on pages 71 to 73), all directors will retire and, being eligible, offer themselves for re-election. Notwithstanding that Article 94 of the Articles of Association requires only a selection of the directors to retire by rotation, the directors have taken the decision to apply good corporate governance provisions in respect of the re-election of directors 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 14 to 15. 25536.04 Proof 5 23 June 2017 2:37 PM 1 1 0 1 www.chamberlin.co.ukSTOCK CODE: CMHGovernance Corporate Governance Report 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 six 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 David Nicholas, 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. Internal control (k) 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 Group’s Code has a requirement that the Company 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 internal control questionnaires, which when combined with regular reviews performed by members of the group finance function, gives the Board confidence that internal controls are effective. There have been no identified significant control failings during the year. 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. There is an ongoing process to identify, evaluate and manage the significant risks faced by the Group – this process has been in place throughout the year under review and up to the date of approval of the annual report and accounts. This process is regularly reviewed by the board and accords with the FRC Guidance on Internal Control. 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: 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Æ Clear responsibilities on the part of line and financial management for good financial controls in the production of accurate and timely financial management information. Æ The control of key financial risks through clearly laid down authorisation levels and proper segregation of accounting duties. Æ 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. Æ Reporting on compliance with internal financial controls and procedures by each individual business unit under the supervision of the Group Finance Director. Interim and Annual Reports are reviewed by the Audit Committee prior to issue. 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 Board meetings Nominations Committee Remuneration Committee Audit Committee Number of meetings in the year Keith Butler- Wheelhouse Keith Jackson Alan Howarth* David Nicholas** Kevin Nolan David Roberts 7 7 7 2 5 7 7 1 1 1 – – 1 – 3 3 3 1 2 n/a n/a 2 2 2 1 1 n/a n/a * resigned as a director on 22 July 2016 ** appointed a director on 22 July 2016 n/a – Indicates that a director was not a member of a particular committee. By order of the Board DAVID ROBERTS Secretary 22 May 2017 25536.04 Proof 5 23 June 2017 2:37 PM 3 1 2 1 www.chamberlin.co.ukSTOCK CODE: CMHGovernance Directors’ Remuneration Report Remuneration Committee The Remuneration Committee comprises the three non- executive directors: David Nicholas (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 2017 the bonus in respect of Kevin Nolan and David Roberts 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 a share option. The key features of the scheme is summarised on page 15. Service contracts All executive directors who served during the year have rolling service contracts terminable on no more than one year’s 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 Basic salary £000 Benefits £000 Annual bonus £000 Total remuneration excluding pensions 2017 £000 Executive Kevin Nolan* David Roberts 217 152 Non- Executive Keith Butler- Wheelhouse Keith Jackson Alan Howarth** David Nicholas*** Total Total 2016 75 30 9 21 504 491 2 1 – – – – 3 4 159 110 – – – – 269 68 378 263 75 30 9 21 776 2016 £000 255 179 75 27 27 – 563 563 * Highest paid director in 2017 and 2016. ** Resigned 22 July 2016 *** Appointed 22 July 2016 Benefits include all assessable tax benefits arising from employment by the Company, and relate mainly to the provision of 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 (2016: nil) which is a closed defined benefit scheme. Contributions into personal pension plans Percentage of basic salary 10% 10% Contribution paid 2017 £000 Contribution paid 2016 £000 21 14 20 14 K Nolan D Roberts For directors who have served during the year, no other pension contributions were paid other than as disclosed above. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc – – – – – – – – – – – – – – – Lapsed or forfeited in year 59,880 59,880 59,880 – – – – 41,583 41,583 41,584 – – – – 304,390 31 March 2017 Option exercise price Exercisable between – – – 120,732 120,732 120,731 207,363 – – – 79,268 79,268 79,269 142,637 950,000 100.2p 20.9.2016 – 19.09.2023 100.2p 20.9.2017 – 19.09.2023 100.2p 20.9.2018 – 19.09.2023 97.65p 25.11.2017 – 25.11.2024 97.65p 25.11.2018 – 25.11.2024 97.65p 25.11.2019 – 25.11.2024 Nil p 14.12.2019 – 14.12.2026 100.2p 20.9.2016 – 19.09.2023 100.2p 20.9.2017 – 19.09.2023 100.2p 20.9.2018 – 19.09.2023 97.65p 25.11.2017 – 25.11.2024 97.65p 25.11.2018 – 25.11.2024 97.65p 25.11.2019 – 25.11.2024 Nil p 14.12.2019 – 14.12.2026 No share options have been exercised in 2017 or 2016. There have been no changes in the interests set out above between 1 April 2017 and 22 May 2017. The mid-market price of the shares at 31 March 2017 was 99.5p and during the year ranged between 50.5p and 108.5p. On behalf of the Board DAVID NICHOLAS Chairman, Remuneration Committee 22 May 2017 Directors’ options Granted in year Exercised in year Kevin Nolan David Roberts 31 March 2016 59,880 59,880 59,880 120,732 120,732 120,731 – – – – – – – 207,363 41,583 41,583 41,584 79,268 79,268 79,269 – 904,390 – – – – – – 142,637 350,000 A Share Option Plan (“SOP”) has issued a third tranche of share options. The third tranche of share options are exercisable at nil p per share. 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 at time of granting. The proportion of awards that become exercisable varies on a straight line basis, from 20% to 100%, based on shareholder return, calculated as the average share price during the three month period ending on the anniversary of the date of grant. A shareholder return of 80p is required for 20% of the options to be exercisable, with a shareholder return of 120p necessary for 100% of options to be exercised. No tranche of options are exercisable if shareholder return is below this range. Where applicable, option grants are exercisable only upon the targets as outlined above. 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. 25536.04 Proof 5 23 June 2017 2:37 PM 5 1 4 1 www.chamberlin.co.ukSTOCK CODE: CMHGovernance Directors’ Report The Directors present their report together with the audited financial statements for the year ended 31 March 2017. The Company is registered in England and its registration number is 76928. (a) 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 Year to 31 March 2017 Year to 31 March 2016 230 101 12 343 250 98 12 360 * Includes 3 non-executive directors The Group’s employment policy includes a commitment to the principles of equal opportunity for all, and specifically prohibits discrimination of any 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. (b) 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: Æ 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; Æ 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; Æ actively encourage the minimisation of waste from all aspects of the business and promote the benefits of recycling and re-use; Æ 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; Æ 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 Æ 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. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 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 £663,177 (which represents approximately 33% of the issued share capital of the Company as at 22 May 2017). 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 £99,476. This sum represents 397,906 ordinary shares of 25 pence each, being equivalent to 5% of the issued share capital of the Company at 22 May 2017. Authority to purchase own shares At the Annual General Meeting in 2016, the Board was given authority to purchase and cancel up to 795,812 of its own shares representing just under 10% of the Company’s then existing issued share capital, through market purchases on The AIM Market. 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 795,812 of its own shares, again representing just under 10% of its issued share capital at 22 May 2017. (c) 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. Financial instruments The Company’s policy in respect of financial instruments is disclosed in note 25. Dividends The directors do not recommend the payment of a final dividend (2016: nil p). No interim dividend (2016: nil p) has been paid during the year. Directors Details of the directors of the Company at the year end 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 14 to 15. See Board of Directors on page 10 for details of all directors during the year, including appointments and resignations. Directors’ shareholdings Beneficial interests of the directors in the shares of the Company, including those of their immediate families were:- At 31 March 2017 Number of shares At 31 March 2016 Number of shares Keith Butler-Wheelhouse 120,127 120,127 Kevin Nolan David Roberts Keith Jackson Alan Howarth (resigned 22 July 2016) David Nicholas (appointed 22 July 2016) – 5,000 13,525 – 5,000 13,525 11,300 11,300 – – There have been no changes in the interests of the directors set out above between 1 April 2017 and 22 May 2017. 25536.04 Proof 5 23 June 2017 2:37 PM 7 1 6 1 www.chamberlin.co.ukSTOCK CODE: CMHGovernance Directors’ Report CONTINUED The authority is sought by way of a special resolution, details of which are also included at item 11 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. A resolution will be sought to approve the amendments made by the Board on 18 May 2017 to the Chamberlin plc Share Option Plan and Chamberlin plc Performance Share Plan. The proposed resolutions are set out as items 9 to 12 in the notice of meeting on pages 71 to 73. Substantial shareholders At 22 May 2017 the Company was aware of the following interests of 3% or more of the Company’s share capital, other than those of directors: Number of shares % of Issued Share Capital Rights & Issues Investment Trust 1,000,000 Miton Capital Partners Henderson Global Investors Chelverton Asset Management Thornbridge Investment Management R J Keeling Esq Schroder Institutional UK Smaller Companies Fund AXA Framlington Perfecta Assets Ltd 990,471 791,000 500,000 500,000 358,800 348,500 300,000 275,000 12.5 12.5 9.9 6.3 6.3 4.5 4.4 3.8 3.5 At the Annual General Meeting to be held on 20 July 2017 (see the Notice of Annual General Meeting on pages 71 to 73), all of the 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. For all the directors serving during the year, and up to the date of this annual report, there are indemnity arrangements in place with each director in respect of costs defending civil, criminal and regulatory proceedings brought against them in their capacity as directors, where not covered by insurance and subject always to the limitations set by the Companies Act 2006. Statement of directors’ responsibilities The Directors are responsible for preparing the Strategic Report, Directors’ Report and Financial Statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs). Under Company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and the Group for that period. In preparing these financial statements, the Directors are required to: Æ select suitable accounting policies and then apply them consistently; Æ make judgments and accounting estimates that are reasonable and prudent; Æ state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and Æ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose, with reasonable accuracy at any time, the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: Æ so far as each Director is aware there is no relevant audit information of which the Company’s auditor is unaware; and Æ the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Going concern After making appropriate enquiries, the directors consider that the Group has adequate resources to continue in operation for the foreseeable future and are not reliant on the renewal of the Group’s £0.5m overdraft facility after its renewal date of March 2018. The invoice finance facility is also due for renewal in March 2018 but there is currently no indication this won’t be renewed. In forming this view the directors have reviewed budgets and other financial information as set out in note 2 to the Financial Statements and the available headroom on the various facilities. 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 10. Having made enquiries of fellow directors and of the Company’s auditors, each of these directors confirms that: Æ 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 Æ 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. Post balance sheet events There have been no post balance sheet events. Auditors A resolution will be proposed to reappoint Grant Thornton UK LLP as auditors and to authorise the directors to determine their remuneration. By order of the Board DAVID ROBERTS Secretary 22 May 2017 25536.04 Proof 5 23 June 2017 2:37 PM 9 1 8 1 www.chamberlin.co.ukSTOCK CODE: CMHGovernance Introduction Primary Statements Section 1 – Basis of Preparation Section 2 – Results of the Year Section 3 – Operating Assets and Liabilities Section 4 – Capital Structure and Financing Costs Section 5 – Other Supporting Notes Independent Auditor’s Report 21 22 – 29 30 31 – 38 39 – 47 48 – 49 50 – 65 66 Parent Company Financial Statements 67 – 69 Five Year Financial Summary Notice of Annual General Meeting Shareholder Information 70 71 – 73 74 s t n e m e t a t S l a i c n a n F i 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Introduction and Table of Contents These financial statements have been presented in a manner which attempts to make them less complex and more relevant to shareholders. We have grouped notes in sections under five headings: ‘Basis of Preparation’, ‘Results for the Year’, ‘Operating Assets and Liabilities’, ‘Capital Structure and Financing Costs’ and ‘Other Notes’. The purpose of this format is to provide readers with a clearer understanding of what drives the financial performance of the Group. Notes to the financial statements provide additional information required by statute or accounting standards to explain a particular feature of the financial statements. The notes that follow will also provide explanations and additional disclosure to assist readers’ understanding and interpretation of the Annual Report and the financial statements. Introduction David Roberts Finance Director Welcome to the Financial Statements section of our Annual Report. The directors have included the annual financial review on the following pages as commentary on the primary statements. Whilst the accounting policies adopted by the Group are an important part of our Annual Report, we recognise that many readers of the Financial Statements prefer to use these as a reference tool. These policies are now included towards the end of the Financial Statements, rather than at the beginning. We included 27 notes to the Group Financial Statements in the previous year and while all of this information is necessary to ensure we comply with International Financial Reporting Standards, it does not always make it easy to find what you are looking for. We have therefore structured the notes into five categories (as outlined in the table of contents on the previous page) for easier navigation. 25536.04 Proof 5 23 June 2017 2:37 PM 1 2 0 2 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Consolidated Income Statement FOR THE YEAR ENDED 31 MARCH 2017 Revenue Cost of sales Gross profit Other operating expense Operating profit/(loss) Finance costs Profit/(loss) before tax Tax (expense)/credit Profit/(loss) for the year from continuing operations Discontinued operations Profit/(loss) for the year from discontinued operations Profit/(loss) for the year attributable to equity holders of the parent company Earnings/(loss) per share from continuing operations: basic underlying diluted diluted underlying Earnings/(loss) per share from discontinued operations: basic underlying diluted diluted underlying Total earnings/(loss) per share: basic underlying diluted diluted underlying Year ended 31 March 2017 Year ended 31 March 2016 Notes Underlying £000 3 32,119 (25,173) 6,946 4, 12 (6,203) 7 6 8 743 (164) 579 (205) Non- underlying+ £000 – – – (365) (365) (160) (525) 105 Total £000 Underlying £000 32,119 29,120 (25,173) (23,208) 6,946 5,912 (6,568) (5,529) 378 (324) 54 (100) 383 (150) 233 (119) Non- underlying+ £000 – – – (427) (427) (142) (569) 104 Total £000 29,120 (23,208) 5,912 (5,956) (44) (292) (336) (15) 374 (420) (46) 114 (465) (351) 10 219 (1,146) (927) 336 (246) 90 593 (1,566) (973) 450 (711) (261) 11 11 11 11 11 11 11 11 11 11 11 11 4.7p 4.5p 2.8p 2.6p 7.5p 7.1p (0.6)p (0.6)p (11.6)p (11.6)p (12.2)p (12.2)p 1.5p 1.4p 4.2p 4.1p 5.7p 5.5p (4.4)p (4.4)p 1.1p 1.1p (3.3)p (3.3)p + Non-underlying items represent exceptional items as disclosed in note 12, administration costs of the pension scheme and net financing costs on pension obligations, share based payment costs and associated tax impact of these items. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Commentary on the Consolidated Income Statement Overview Sales increased by 10% during the year to £32.1m (2016: £29.1m). Gross profit margin increased to 21.6% from 20.3% in 2016. Underlying profit before tax increased to £0.6m (2016: £0.2m). Diluted underlying earnings per share increased to 4.5p (2016: 1.4p). The IFRS results show a loss of £1.0m (2016: £0.3m) and a statutory loss per share of 12.2p (2016: loss per share of 3.3p). The income statement has been presented to reflect that operations relating to the Leicester foundry are now discontinued, as required by IFRS 5. Non-underlying exceptional items Exceptional items in the year included £0.1m (2016: £0.5m) relating to the realignment of the cost base of the Group, and £1.5m (2016: nil) relating to the impairment of the Leicester assets and lease contracts. Tax The Group’s underlying tax charge for the year was £0.2m (2016: £0.1m). Foreign exchange It is the Group’s policy to minimise risk to exchange rate movements affecting sales and purchases by economically hedging or netting currency exposures at the time of commitment, or when there is a high probability of future commitment, using currency instruments (primarily forward exchange contracts). A proportion of forecast exposures are hedged depending on the level of confidence and hedging is topped up following regular reviews. On this basis up to 50% of the Group’s annual exposures are likely to be hedged at any point in time and the Group’s net transactional exposure to different currencies varies from time to time. Approximately 40% of the Group’s revenues are denominated in Euros. During the year to 31 March 2017 the average exchange rate used to translate into GBP sterling was €1.26 (31 March 2016: €1.34). Pension The Group’s defined benefit pension scheme was closed to future accrual in 2007. Following the last triennial valuation, as at 1 April 2013, contributions were set at £0.3m per year for the period under review increasing by 3% per year thereafter based on a deficit recovery period of 14 years. The triennial valuation as at 1 April 2016 has not yet been finalised. However, the Group is confident that this will not result in a materially increased deficit contribution, albeit at the expense of a longer deficit recovery period due to lower gilt yields. The pension expense for the defined benefit scheme was £0.4m in 2017 (2016: £0.4m), and is shown in non-underlying. The Group cash contribution during the year was £0.3m (2016: £0.3m). The Group operates a defined contribution pension scheme for its current employees. The cost of £0.4m (2016: £0.3m) is included within underlying operating performance. The IAS 19 deficit at 31 March 2017 was £5.2m (2016: £4.7m). The increase principally reflects the decrease in the discount rate used to calculate scheme liabilities, as a consequence of a fall in bond yields over the last year, partially offset by the over performance of assets against expected levels. 25536.04 Proof 5 23 June 2017 2:37 PM 3 2 2 2 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Consolidated Statement of Comprehensive Income FOR THE YEAR ENDED 31 MARCH 2017 Loss for the year Other comprehensive income Reclassification for cashflow hedge included in sales Movements in fair value on cash flow hedges taken to other comprehensive income Deferred tax on movement in cash flow hedges Movement on deferred tax relating to rate change Net other comprehensive income that may be recycled to profit and loss Remeasurement losses on pension assets and liabilities Deferred/current tax on remeasurement losses on pension scheme Movement on deferred tax on remeasurement losses relating to rate change Net other comprehensive expense that will not be recycled to profit and loss Other comprehensive expense for the year net of tax Notes 8 8 22 8 8 2017 £000 (973) (87) 419 (60) 1 271 (612) 122 (52) (542) (271) 2016 £000 (261) (419) (193) 123 (9) (498) (254) 51 (93) (296) (794) Total comprehensive expense for the period attributable to equity holders of the parent company (1,244) (1,055) Commentary on the Consolidated Statement of Comprehensive Income Accounting Standards require certain gains and losses on assets and liabilities, instead of being recorded in the consolidated income statement, to be credited or charged to reserves and recorded in the consolidated statement of other comprehensive income. In accordance with the amendment to IAS1, these items are now allocated between those items that may and those items that may not eventually be recycled to the consolidated income statement. The settlement of net cashflow hedge derivatives, which are used to protect the Group from foreign exchange exposure are subject to marked to market valuations, the movements of which are included within the consolidated statement of comprehensive income. These items (including the related taxation effect) amounted to a profit of £0.3m in 2017 (2016: loss of £0.5m). Re-measurement gains and losses in the Group’s defined benefit pension obligations are also booked to other comprehensive income. These are explained in detail in section 5. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Consolidated Statement of Changes in Equity Balance at 1 April 2015 Loss for the year Other comprehensive income for the year net of tax Total comprehensive income/(expense) Share based payment Deferred tax on employee share options Total of transactions with shareholders Balance at 1 April 2016 Loss for the year Other comprehensive income for the year net of tax Total comprehensive income/(expense) Share based payment Deferred tax on employee share options Total of transactions with shareholders Share capital £000 1,990 Share premium account £000 Capital redemption reserve £000 1,269 109 – – – – – – – – – – – – – – – – – – Hedging reserve £000 155 – (498) (498) – – – 1,990 1,269 109 (343) – – – – – – – – – – – – – – – – – – – 271 271 – – – Retained earnings £000 Attributable to equity holders of the parent £000 2,586 (261) (296) (557) 53 (14) 39 2,068 (973) (542) 6,109 (261) (794) (1,055) 53 (14) 39 5,093 (973) (271) (1,515) (1,244) 28 1 29 28 1 29 Balance at 31 March 2017 1,990 1,269 109 (72) 582 3,878 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. 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. 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. 25536.04 Proof 5 23 June 2017 2:37 PM 5 2 4 2 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Consolidated Balance Sheet AT 31 MARCH 2017 31 March 2017 £000 31 March 2016 £000 Notes 13 14 18 15 16 17 17 18 18 18 22 19 10,179 461 1,498 12,138 3,347 7,556 10,903 23,041 5,520 6,899 12,419 1,308 27 200 5,209 6,744 8,112 387 1,370 9,869 2,899 6,195 9,094 18,963 2,941 5,727 8,668 251 59 200 4,692 5,202 19,163 13,870 1,990 1,269 109 (72) 582 3,878 23,041 1,990 1,269 109 (343) 2,068 5,093 18,963 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 Non current liabilities Financial liabilities Deferred tax Provisions 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 KEVIN NOLAN DAVID ROBERTS Directors The accounts were approved by the Board of Directors on 22 May 2017 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Commentary on the Consolidated Balance Sheet Net Debt Net Debt at the year end was £6.8m compared to £3.2m at the end of the previous year. Total committed bank facilities available to the Group at the year end was £10.6m (2016: £8.0m), of which £6.8m (2016: £3.2m) was drawn. Property, Plant and Equipment (PPE) The net book value of the Group’s investment in PPE at 31 March 2017 was £10.2m. Capital Expenditure on PPE of £3.7m (2016: £1.5m) represented 312% (2016: 119%) of depreciation of £1.2m (2016: £1.2m). Cash Generation and Financing Operating cash inflow from continuing operations was £0.3m (2016: £1.9m). Capital expenditure for the year increased to £3.9m (2016: £1.4m). This was ahead of depreciation and amortisation of £1.2m (2016: £1.2m), reflecting the investment in the new machining facility. Our overdraft and net borrowings at 31 March 2017 increased to £6.8m (2016: £3.2m). The Group debt facility has five elements: £7.0m invoice discounting facility, £0.5m overdraft, a £0.2m loan repayable over one year, finance leases of £1.7m and an import loan of £1.2m. The facility has the following covenants at year end: Debt turn Credit notes issued as a percentage of sales Actual 31 March 2017 53 days Covenant 65 days 2.4% Less than 5% Working Capital Working Capital, comprising Inventories, Trade and Other Receivables and Trade and Other Payables was 12% of annual sales (2016: 12%) as at year end. Robust credit control has reduced overdue receivables to 3.2% (2016: 4.8%). Pensions The Group has one defined benefit obligation scheme. It is closed to future accrual and the Group operated a defined contribution pension scheme for its current employees. The liability for the defined benefit obligations at 31 March 2017 was £5.2m (2016: £4.7m). The triennial valuation as at 1 April 2016 is currently being negotiated. The triennial valuation as at 1 April 2013 concluded that in return for maintaining the previous contribution arrangements and extending the deficit reduction period to 2028, the Company has given security over the Group’s land and buildings to the pension scheme. The statement of funding principles agreed with the Trustees during 2015 that the valuation resulted in an actuarial deficit of £4.2m where upon it was agreed to pay contributions of £0.3m each year rising by 3% per annum. 25536.04 Proof 5 23 June 2017 2:37 PM 7 2 6 2 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Consolidated Cash Flow Statement FOR THE YEAR ENDED 31 MARCH 2017 Operating activities Profit/(loss) for the year before tax Adjustments to reconcile profit/(loss) for the year to net cash (outflow)/inflow from operating activities Net finance costs excluding pensions Depreciation of property, plant and equipment Amortisation of software Amortisation and impairment of development costs Profit on disposal of property, plant and equipment Share based payments Difference between pension contributions paid and amounts recognised in the Consolidated Income Statement (Increase)/decrease in inventories (Increase)/decrease in receivables Increase/(decrease) in payables Income taxes received Cash inflow from continuing operations Cash (outflow)/inflow from discontinued operations Net cash (outflow)/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 Repayment of asset loan Net invoice finance (repayment)/drawdown Import loan facility drawdown Finance leases taken out Net cash inflow/(outflow) from financing activities Net (decrease)/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 included in discontinued operations Cash and cash equivalents for continuing operations Cash and cash equivalents comprise: Bank overdraft 25536.04 Proof 5 23 June 2017 2:37 PM Year ended 31 March 2017 £000 Year ended 31 March 2016 £000 Note 54 (336) 6 13 14 14 7 20 13 14 14 6 18 17 17 17, 18 17 17 164 1,125 90 7 (1) 28 (95) (676) (1,664) 1,220 – 252 (358) (106) 150 1,104 97 11 (12) 53 (106) 934 880 (874) 1 1,902 378 2,280 (3,732) (1,418) (41) (133) 9 (31) (12) 33 (3,897) (1,428) (164) (162) 1,421 1,235 1,583 3,913 (90) (126) (216) (332) 116 (216) (216) (150) (162) (459) – 84 (687) 165 (291) (126) (479) 353 (126) (126) ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Commentary on the Consolidated Cash Flow Statement Operating Cash Flow The operating cash outflow for the total Group was £0.1m (2016: inflow of £2.3m), driven by the increased working capital of £1.1m (2016: decrease of £0.9m) and the cash outflow from discontinued operations of £0.4m (2016: inflow of £0.4m). Net working capital balances increased by £1.0m (2016: decrease of £0.9m) during the year. Cash spent on property, plant and equipment and capitalised software and development costs in the year was £3.9m (2016: £1.5m) which was equivalent to 320% (2016: 119%) of depreciation and amortisation thereon. Closing Net Debt Opening net debt was £3.2m (2016: £3.8m). After the net debt increase in the year of £3.6m (2016: decrease of £0.6m) closing net debt was £6.8m (2016: £3.2m). 25536.04 Proof 5 23 June 2017 2:37 PM 9 2 8 2 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 1 Basis of Preparation 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 2017 were authorised for issue by the board of directors on 22 May 2017 and the balance sheets were signed on the board’s behalf by Kevin Nolan and David Roberts. 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) as adopted by the European Union. 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 27. 2 NEW STANDARDS ADOPTED Amended IFRS that have become effective in the period have not had a material impact on the financial statements. New standards and interpretations not applied The IASB and IFRIC have issued the following standards, amendments and interpretations with an effective date for annual periods beginning after the date of these financial statements. International Accounting Standards IFRS 9 Financial Instruments IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases ^Not adopted by the EU as at 31 March 2017 Effective date 1 January 2018 1 January 2018 1 January 2019^ There are other standards in issue which are not expected to have an impact on the Group and have therefore not been included in the list above. The standards and interpretations listed above and the annual improvements have not been adopted early by the Group. The Directors expect the introduction of IFRS 16 Leases to have an impact on the Group’s reported disclosures, income or net assets in the period of adoption; however this impact cannot yet be quantified and the Directors are still fully assessing. For all other standards, the Directors do not anticipate that the adoption of these standards, interpretations and other improvements will have a material impact on the Group’s reported disclosures, income or net assets in the period of adoption. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Section 2 Results of the Year 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: Æ 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. Æ 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 Chief Operating Decision Maker is the Chief Executive. (i) By operating segment Year ended Foundries Engineering Continuing operations Discontinued operations (note 10) Segment results Reconciliation of reported segmental operating profit Segment operating profit Shared cost (excluding share based payment charge) Exceptional and non-underlying costs (note 12) Net finance costs (note 6) Loss from discontinued operation (note 10) Profit/(loss) before tax from continuing operations Segmental assets Foundries Engineering Segmental liabilities Foundries Engineering Segmental net assets Unallocated net liabilities Total net assets Segmental revenue Segmental operating profit 2017 £000 21,333 10,786 32,119 2,810 34,929 2016 £000 19,767 9,353 29,120 5,868 34,988 2017 £000 1,188 816 2,004 296 2,300 2,300 (1,261) (365) (324) (296) 54 16,861 5,508 22,369 (5,051) (2,048) (7,099) 15,270 (11,392) 3,878 2016 £000 764 679 1,443 448 1,891 1,891 (1,060) (427) (292) (448) (336) 13,560 4,768 18,328 (4,313) (1,614) (5,927) 12,401 (7,308) 5,093 Unallocated net liabilities include the pension liability of £5,209,000 (2016: £4,692,000), financial liabilities of £6,828,000 (2016: £3,192,000), deferred tax asset of £645,000 (2016: £564,000) and other assets of Nil (2016: £12,000). 25536.04 Proof 5 23 June 2017 2:37 PM 1 3 0 3 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 2 Results of the Year CONTINUED 3 SEGMENTAL ANALYSIS CONTINUED Capital expenditure, depression, amortisation and impairment Foundries Engineering Total Capital additions Property, plant and equipment (note 13) 3,611 1,381 2017 £000 2016 £000 35 – (984) (81) – 13 – (985) (85) – Software (note 14) Development costs (note 14) Depreciation, amortisation and impairment Property, plant and equipment (note 13) Software (note 14) Development costs (note 14) (ii) Geographical information Revenue by location of customer United Kingdom Italy Germany Rest of Europe Other countries 2017 £000 127 6 133 (213) (12) (7) 2016 £000 87 18 12 2017 £000 3,738 41 133 2016 £000 1,468 31 12 (250) (12) (11) (1,197) (1,235) (93) (7) (97) (11) 2017 £000 2016 £000 15,031 15,588 4,702 3,736 6,159 2,491 3,343 4,192 3,824 2,173 32,119 29,120 The Group’s assets and costs are all located within the United Kingdom. The Group has one individual customer in Italy which represents more than 10% of Group revenue (2016: none), they account for 14.6% of Group revenue. 4 OTHER OPERATING EXPENSES Distribution costs Administration and selling expenses Operating expenses before exceptional items Exceptional and non-underlying items (note 12) Operating expenses 2017 £000 808 5,395 6,203 365 6,568 2016 £000 770 4,759 5,529 427 5,956 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 5 STAFF NUMBERS AND COSTS The average number of people employed by the Group during the year was: Management and administration Production Total employees The aggregate employment costs, including redundancy, of these employees were as follows: Wages and salaries Social security costs Other pension costs (note 22) Share based payment expense (note 20) Directors’ remuneration summary Directors’ remuneration Company contributions to money purchase pension scheme Share based payment charge/(credit)of options granted to directors (see note 20) Number of directors accruing benefits under: Defined contribution pension schemes 2017 £000 79 264 343 2017 £000 12,132 1,162 353 28 2016 £000 76 284 360 2016 £000 12,099 1,132 331 53 13,675 13,615 2017 £000 776 35 28 2016 2 2016 £000 563 34 53 2017 2 Directors’ remuneration is analysed in detail in the Directors’ Remuneration Report on pages 14 to 15. The total amount payable to the highest paid director in respect of remuneration was £376,000 (2016: £255,000). Company pension contributions of £21,000 (2016: £20,000) were made to a money purchase pension scheme on his behalf. 6 FINANCE COSTS Finance costs Bank overdraft interest payable Finance cost of pensions (see note 22) 2017 £000 (164) (160) (324) 2016 £000 (150) (142) (292) 3 3 2 3 25536.04 Proof 5 23 June 2017 2:37 PM www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 2 Results of the Year CONTINUED 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 costs: note 14) Amortisation of development costs Cost of inventories recognised as an expense Exceptional costs (note 12) Exchange (gain)/loss Auditor’s remuneration: Group audit fees Audit fees for statutory accounts of subsidiaries Audit related assurance services Non-audit related services Rentals under operating leases: Hire of plant and equipment Motor vehicles Land and buildings 8 TAXATION Current tax: UK Corporation tax at 20% (2016: 20%) Adjustments in respect of prior years Deferred tax: Origination and reversal of temporary differences Adjustments in respect of prior years Change in tax rate Tax expense reported in the consolidated income statement 2017 £000 (1) 1,197 93 33 7 2016 £000 (12) 1,235 97 76 11 12,257 12,536 138 (21) 21 40 5 – 188 87 398 2017 £000 212 – 212 (147) (26) 61 (112) 100 143 38 18 40 5 7 160 82 361 2016 £000 – 1 1 (17) (12) 43 14 15 The Corporation tax rate will fall to 19% from 1 April 2017 and to 17% from 1 April 2020, a rate change which was substantively enacted on 6 September 2015. During the year the Group utilised brought forward tax losses of £292,000 (2016: £57,000). 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc In addition to the amount charged to the consolidated income statement, tax movements recognised through other comprehensive income and equity were as follows: Current tax: Deferred tax: Retirement benefit obligation Fair value movements on cash flow hedges Change in tax rate Tax credit reported in the consolidated statement of comprehensive income Current tax: Deferred tax: Employee share options Tax (credit)/charge reported in the consolidated statement of changes in equity Reconciliation of total tax charge Profit/(loss) on ordinary activities before tax Corporation tax charge at standard rate of 20% (2016: 20%) on profit/(loss) before tax Adjusted by the effects of:- Expenses not deductible for tax purposes Timing differences Amounts (over)/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 consolidated income statement 2017 £000 – (122) 60 53 (9) 2017 £000 – (1) (1) 2017 £000 54 11 69 (15) – (26) 61 100 2016 £000 – (51) (123) 102 (72) 2016 £000 – 14 14 2016 £000 (336) (67) 59 (9) 1 (12) 43 15 25536.04 Proof 5 23 June 2017 2:37 PM 5 3 4 3 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 2 Results of the Year CONTINUED 9 DIVIDENDS PAID AND PROPOSED Paid equity dividends on ordinary shares Proposed final dividend subject to shareholder approval 2017 £000 – – 2016 £000 – – 10 DISCONTINUED OPERATIONS On 24 February 2017 production ceased at Chamberlin & Hill Leicester Ltd, the Group’s Leicester foundry, with the final sales being made in March 2017. As a result the results of Chamberlin & Hill Leicester Ltd are classified as a discontinued operation and presented as such in these financial statements. The operating profit of Chamberlin & Hill Leicester Ltd is summarised as follows: 2016 £’000 Total 5,868 (4,448) 1,420 (1,292) 128 (28) 100 (10) 90 2016 £000 354 (50) 74 378 Revenue Cost of sales Gross profit Other operating expense Operating profit/(loss) Finance costs Profit/(loss) before tax Tax (expense)/credit Profit/(loss) for the year from discontinued operations 2017 £’000 Underlying 2017 £’000 Non Underlying – – – (1,451) (1,451) – 2,810 (1,942) 868 (572) 296 (22) 274 (55) 2017 £’000 Total 2,810 (1,942) 868 (2,023) (1,155) (22) 2016 £’000 Underlying 2016 £’000 Non Underlying 5,868 (4,448) 1,420 (972) 448 (28) 420 (84) – – (320) (320) – (320) 74 (1,451) (1,177) 305 250 219 (1,146) (927) 336 (246) Cashflows generated by Chamberlin & Hill Leicester Ltd for the reporting periods under review are as follows: Operating activities Investing activities Financing activities 2017 £000 203 (7) (554) (358) 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 11 (LOSS)/EARNINGS PER SHARE The calculation of (loss)/earnings per share is based on the (loss)/profit attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted (loss)/earnings per share, adjustment has been made for the dilutive effect of outstanding share options. Underlying (loss)/earnings per share, as analysed below, which excludes non-underlying items as defined in note 27, 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. Exceptional costs are detailed in note 12. Continuing operations loss for basic earnings per share Exceptional costs Net financing costs and administration cost on pension obligations Share based payment charge Taxation effect of the above Earnings for underlying earnings per share Discontinued operations (loss)/earnings for basic earnings per share Exceptional costs Taxation effect of the above 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 2017 £000 (46) 138 359 28 (105) 374 2017 £000 (927) 1,451 (305) 219 2017 £000 7,958 350 8,308 2016 £000 (351) 144 372 53 (104) 114 2016 £000 90 320 (74) 336 2016 £000 7,958 160 8,118 As at 31 March 2017 and 31 March 2016, there is no adjustment in the total diluted loss per share calculation for the 350,000 and 160,300 shares respectively under option as they are required to be excluded from the weighted average number of shares for diluted loss per share as they are anti-dilutive for the period then ended. 25536.04 Proof 5 23 June 2017 2:37 PM 7 3 6 3 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 2 Results of the Year CONTINUED 12 EXCEPTIONAL COSTS AND NON-UNDERLYING Group reorganisation Exceptional costs Share based payment charge Defined benefit pension scheme administration costs Non-underlying other operating expenses Non-underlying exceptional costs of discontinued operation Taxation – tax effect of exceptional and non-underlying costs 2017 £000 138 138 28 199 365 1,451 (363) 1,453 2016 £000 144 144 53 230 427 320 (149) 598 During 2016 and continuing into 2017 the Group continued to rationalise its operations given the reduced levels of turnover seen in the Leicester and Scunthorpe foundries. Group reorganisation costs, including redundancy and recruitment, relate to this rationalisation. During 2017 the Group took the decision to close the Leicester foundry. Non-underlying exceptional costs of discontinued operations, including asset impairment, redundancy and site clean up costs, relate to this closure. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Section 3 Operating Assets and Liabilities 13 PROPERTY, PLANT AND EQUIPMENT Group Cost At 1 April 2015 Additions Disposals At 31 March 2016 Additions Disposals At 31 March 2017 Depreciation At 1 April 2015 Charge for year Disposals At 31 March 2016 Charge for year Disposals At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 1 April 2015 Land and buildings £000 Plant and machinery £000 Motor vehicles £000 5,901 198 – 6,099 240 (35) 6,304 2,177 202 – 2,379 227 (7) 2,599 3,705 3,720 3,724 19,502 1,270 (79) 20,693 3,498 (1,731) 22,460 15,361 1,023 (71) 16,313 967 (1,294) 15,986 6,474 4,380 4,141 153 – (64) 89 – (41) 48 118 10 (51) 77 3 (32) 48 – 12 35 Total £000 25,556 1,468 (143) 26,881 3,738 (1,807) 28,812 17,656 1,235 (122) 18,769 1,197 (1,333) 18,633 10,179 8,112 7,900 Included within plant and machinery is £1,063,000 (2016: £261,000) relating to assets under the course of construction which is not depreciated. Included within current year property, plant and equipment disposals is a cost amount of £1,669,000 and depreciation amount of £1,205,000 which relates to the impairment of assets at the Leicester site which closed in the current year. 25536.04 Proof 5 23 June 2017 2:37 PM 9 3 8 3 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 3 Operating Assets and Liabilities CONTINUED 13 PROPERTY, PLANT AND EQUIPMENT CONTINUED Net book value of land and buildings comprises:- Freehold Short leasehold (leasehold improvements) Company Cost At 1 April 2015 Disposals At 31 March 2016 Additions Disposals At 31 March 2017 Depreciation At 1 April 2015 Charge for year Disposals At 31 March 2016 Charge for year Disposals At 31 March 2017 Net book value At 31 March 2017 At 31 March 2016 At 1 April 2015 Freehold land included above not subject to depreciation amounted to: 2017 2016 Land and buildings £000 Plant and machinery £000 1,670 – 1,670 – – 1,670 843 27 – 870 27 – 897 773 800 827 106 – 106 – (13) 93 58 12 – 70 9 (13) 66 27 36 48 2017 £000 3,592 113 3,705 Motor vehicles £000 43 (16) 27 – (27) – 20 7 (12) 15 2 (17) – – 12 23 2016 £000 3,530 190 3,720 Total £000 1,819 (16) 1,803 – (40) 1,763 921 46 (12) 955 38 (30) 963 800 848 898 Group £000 743 743 Company £000 743 743 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 14 INTANGIBLE ASSETS Group Company Software Development costs Software Cost At 1 April 2015 Additions Disposals At 31 March 2016 Additions Disposals At 31 March 2017 Amortisation/impairment At 1 April 2015 Charge for the year Disposals At 31 March 2016 Charge for year Disposals At 31 March 2017 Net Book Value At 31 March 2017 At 31 March 2016 At 1 April 2015 2017 £000 320 141 461 2016 £000 372 15 387 2017 £000 4 – 4 Group £000 990 31 – 1,021 41 (70) 992 552 97 – 649 93 (70) 672 320 372 438 2016 £000 – – – Company £000 22 – 22 5 – 27 22 – – 22 1 – 23 4 – – Included within current year software disposals is a cost amount of £70,000 and depreciation amount of £70,000 which relates to the impairment of assets at the Leicester site which closed in the current year. Software has an estimated useful life of between 3 and 10 years. 25536.04 Proof 5 23 June 2017 2:37 PM 1 4 0 4 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 3 Operating Assets and Liabilities CONTINUED 14 INTANGIBLE ASSETS CONTINUED Development costs capitalised Group £000 Company £000 Cost At 1 April 2015 Additions At 31 March 2016 Additions At 31 March 2017 Amortisation/impairment At 1 April 2015 Charge for year Disposal At 31 March 2016 Charge for year At 31 March 2017 Net Book Value At 31 March 2017 At 31 March 2016 At 1 April 2015 255 12 267 133 400 241 11 – 252 7 259 141 15 14 – – – – – – – – – – – – – – 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. 15 INVENTORIES Raw materials Work in progress Finished goods Group Company 2017 £000 1,198 940 1,209 3,347 2016 £000 905 992 1,002 2,899 2017 £000 2016 £000 – – – – – – – – 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 16 TRADE AND OTHER RECEIVABLES Trade receivables Amounts due from subsidiary undertakings Other receivables Prepayments Group Company 2017 £000 6,857 – 373 326 2016 £000 5,636 – 279 280 7,556 6,195 2017 £000 – 153 88 9 250 2016 £000 – 86 118 18 222 Invoice finance liabilities are directly secured against the trade receivables of the Group. The Group retains the risk and rewards, such as default, associated with the holding of trade receivables. The Group has trade receivables as at 31 March 2017 of £6,857,000 (2016: £5,636,000) of which an invoice finance liability of £3,510,000 (2016: £2,582,000) was secured against. The total available invoice finance facility as at 31 March 2017 was £7,000,000 (2016: £7,000,000). Trade receivables are denominated in the following currencies: Sterling Euro US Dollar Group Company 2017 £000 4,178 2,547 132 6,857 2016 £000 3,939 1,582 115 5,636 2017 £000 2016 £000 – – – – – – – – Out of the carrying amount of trade receivables of £6,857,000 (2016: £5,636,000), £2,988,000 (2016: £1,876,000) 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 2017 trade receivables at a nominal value of £6,000 (2016: £16,000) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows: Group Company At 1 April Charge for year Amounts written off Provision release At 31 March 2017 £000 16 9 (7) (12) 6 2016 £000 2 47 (33) – 16 2017 £000 2016 £000 – – – – – – – – – – 25536.04 Proof 5 23 June 2017 2:37 PM 3 4 2 4 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 3 Operating Assets and Liabilities CONTINUED 16 TRADE AND OTHER RECEIVABLES CONTINUED The analysis of trade receivables that were past due but not impaired is as follows: 2017 2016 Neither past due nor impaired £000 6,638 5,367 Total £000 6,857 5,636 Past due but not impaired <30 days £000 30-60 days £000 60-90 days £000 90-120 days £000 > 120 days £000 239 249 (20) 19 – 1 – – – – 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 2017 £000 6,608 249 6,857 2016 £000 5,544 92 5,636 2017 £000 – – – 2016 £000 – – – Of the balance in respect of counterparties with internal ratings 1% (2016: 7%) is in respect of new customers, and 99% (2016: 93%) 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 Group Company 2017 £000 – 2016 £000 – 2017 £000 101 2016 £000 101 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 17 CURRENT LIABILITIES Financial Liabilities Bank overdraft Current instalments due on asset finance loans Invoice finance facility Import loan facility Current instalments due on finance leases Group Company 2017 £000 216 200 3,510 1,235 359 5,520 2016 £000 126 200 2,582 – 33 2,941 2017 £000 – – – – – – 2016 £000 619 – – – – 619 The overdraft is held with HSBC Bank plc as part of the Group net facility of £500,000, is secured on all assets of the business, is repayable on demand and is renewable in March 2018. The net overdraft position as at 31 March 2017 was £216,000 (2016: £126,000), this comprises cash balances of £533,000 (2016: £1,478,000) and bank overdrafts of £749,000 (2016: £1,604,000). Interest is payable at 2.0% (2016: 2.0%) over base rate. Asset finance loans are secured against various items of plant and machinery across the Group. These loans are repayable by monthly installments for a period of one year to March 2018. Interest is payable at 3.25% over base rate. The import loan facility is used to facilitate the purchase of equipment for the new machining centre. Once each asset is commissioned the import loan facility is repaid in full, facilitated by a sale and lease back on finance lease. Interest is payable at 3.25% over base rate. Other finance leases are secured against the specific item to which they relate. These leases are repayable by monthly instalments for a period of five years to March 2022. Interest is payable at fixed amounts that range between 3.1% and 6.2%. Invoice finance balances are secured against the trade receivables of the Group and are repayable on demand. Interest is payable at 2.3% over base rate. The maximum facility as at 31 March 2017 was £7,000,000 (2016: £7,000,000). Management have assessed the treatment of the financing arrangements and have determined it is appropriate to recognise trade receivables and invoice finance liabilities separately. Trade and other payables Trade payables Other taxation and social security Other payables Accruals Fair value of derivative forward contracts Group Company 2017 £000 4,196 516 223 1,877 87 6,899 2016 £000 3,417 513 63 1,315 419 5,727 2017 £000 – 35 7 1,094 – 1,136 2016 £000 – 33 6 582 – 621 Trade payables are non-interest bearing and are normally on terms of 30 to 60 days. 25536.04 Proof 5 23 June 2017 2:37 PM 5 4 4 4 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 3 Operating Assets and Liabilities CONTINUED 18 NON CURRENT LIABILITIES Financial liabilities Instalments due on asset finance loans Instalments due on finance leases Group Company 2017 £000 – 1,308 1,308 2016 £000 200 51 251 2017 £000 – – – 2016 £000 – – – Asset finance loans are secured against various items of plant and machinery across the Group. These loans are repayable by monthly instalments for a period of one (2016: two) year to March 2018. Interest is payable at 3.25% over base rate. Nil (2016: £200,000) is repayable within 1-2 years. Other finance leases are secured against the specific item to which they relate. These leases are repayable by monthly instalments for a period of five (2016: three) years to March 2022. £344,000 is repayable in 1-2 years (2016: £33,000), £943,000 within 2-5 years (2016: £18,000) and £21,000 in greater than 5 years (2016: Nil). Interest is payable at a fixed amount that ranges between 3.1% and 6.2%. Provisions for liabilities As at 31 March 2015 New provision As at 31 March 2016 Charge for the year As at 31 March 2017 Dilapidations £000 – 200 200 – 200 Dilapidations The dilapidation provision relates to expected future lease dilapidations at the Petrel premises. Group Company Deferred tax liabilities Deferred taxation Group liabilities Temporary differences relating to cash flow hedges Capital gains rolled over 2017 £000 27 2016 £000 59 2017 £000 – 2017 £000 – 27 27 Total £000 – 200 200 – 200 2016 £000 – 2016 £000 – 59 59 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Deferred tax assets Temporary differences relating to capital allowances Temporary differences relating to pension scheme deficit Temporary differences relating to share options Temporary differences relating to tax losses Other temporary differences Group Company 2017 £000 473 886 1 103 35 2016 £000 249 845 1 163 112 2017 £000 13 886 1 – 6 1,498 1,370 906 2016 £000 11 845 1 – 36 893 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 foreseeable future. The Group has assessed that it is probable that future profits fully justify the recognition of the deferred tax asset relating to current tax losses. Group tax losses not carried forward for which a deferred tax asset has not been recognised total £nil (2016:£nil) 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 2028, based on the April 2013 actuarial valuation, and that there will be future taxable profits which the contributions can be utilised against. 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. The Group has assessed that it is probable that future profits will fully utilise current tax losses and other deductible temporary differences. Deferred tax assets relating to the pension scheme deficit are expected to be recovered over the period that contributions are made into the scheme, including the agreed contributions to April 2028. The deferred tax assets have been assessed as recoverable against forecasts of future taxable profits. All deferred tax assets are recoverable, and deferred tax liabilities will be settled, in greater than one year. Of the total deferred tax credit of £122,000 (2016: £33,000), a credit of £112,000 (2016: charge of £25,000) was recognised within the consolidated income statement, a credit of £9,000 (2016: credit of £72,000) was recognised within other comprehensive income and a credit of £1,000 (2016: charge of £14,000) recognised within the consolidated statement of changes in equity. 25536.04 Proof 5 23 June 2017 2:37 PM 7 4 6 4 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 4 Capital Structure 19 SHARE CAPITAL Allotted, called up and fully paid 7,958,126 (2016: 7,958,126) Ordinary shares of 25p 2017 £000 1,990 2016 £000 1,990 During the year no shares (2016: none) were issued to directors to satisfy share options at nil (2016: nil) cost. During the year 830,255 share options lapsed (2016: none), 350,000 were granted (2016: none) and none (2016: none) were forfeited. 20 SHARE BASED PAYMENTS Details of the equity settled scheme used to incentivise the directors of the Group are set out in the Directors’ Remuneration Report on pages 14 to 15. 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. Relevant options outstanding during the year were as follows: At 31 March 2015 At 31 March 2016 Granted Lapsed At 31 March 2017 Weighted average No. of options Exercise price (p) Remaining contractual life (years) 1,430,255 1,430,255 350,000 830,255 650,000 81.7 81.7 nil 81.7 nil 6.3 5.3 9.7 5.3 9.7 Nil (2016: 525,865) shares were exercisable at the end of the year. No shares were exercised during the current or prior year. Based on the following assumptions at 31 March 2017, the total fair value of options was £22,000 (2016: £238,000), of which £2,000 was charged to the consolidated income statement (2016: charge of £53,000). The fair value of options granted in the year was £22,000 (2016: £nil). The exercise price of options as at 31 March 2017 is nil (2016: 52.8p and 100.2p). 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 2017 £000 70p 21.8% 7.0 years 1.4% Nil 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 2017 was 99.5p (2016: 66p) and during the year ranged between 50.5p and 108.5p (2016: between 64p and 84.5p). 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 21 FIXED ASSET INVESTMENTS Shares in subsidiary undertakings Cost at 1 April 2016 and 1 April 2017 £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 emergency exit equipment and door closers Manufacture and sale of lighting, switchgear and electrical installation product Chamberlin Foundry Ltd Intermediary holding company Chamberlin & Hill Leicester Ltd Manufacture and sale of engineering castings Wholly owned dormant subsidiaries Chamberlin Group Ltd Chamberlin & Hill Ltd Ductile Castings Ltd Fred Duncombe Ltd Fitter & Poulton Ltd Webb Lloyd Ltd The Company owns 100% of the issued ordinary share capital of the above companies, all of whom are registered and operate principally in England and Wales. 25536.04 Proof 5 23 June 2017 2:37 PM 9 4 8 4 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes 22 PENSION ARRANGEMENTS During the year, the Group operated funded defined benefit and defined contribution pension schemes for the majority of its employees in the UK, these being established under trusts with the assets held separately from those of the Group. The pension operating cost for the Group defined benefit scheme for 2017 was £199,000 (2016: £230,000) plus £160,000 of financing cost (2016: £142,000). 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 £353,000 (2016: £331,000). 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 2017 At 31 March 2016 At 31 March 2015 n/a 3.3% 2.5% 3.3% 2.3% n/a 2.9% 3.5% 2.9% 2.1% n/a 2.9% 3.2% 2.9% 1.8% Demographic assumptions are all based on the S2PA (2016: S1NA) 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. Current pensioners at 65 – male – female Future pensioners at 65 – male – female 2017 Years 21.1 22.9 22.1 24.0 2016 Years 21.4 23.7 22.4 24.8 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). The contributions expected to be paid during the year to 31 March 2018 are £263,000. Apart from this amount there are no other minimum funding requirements. The triennial valuation as at 1 April 2016 is currently being negotiated. The triennial valuation as at 1 April 2013 concluded that in return for maintaining the previous contribution arrangements and extending the deficit reduction period to 2028, the Company has given security over the Group’s land and buildings to the pension scheme. With effect from 1 April 2017 deficit reduction contributions will increase to £21,890 per month (previously £21,252 per month), with a 3% annual increase thereafter. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc The scheme assets are stated at the market values at the respective balance sheet dates. The assets and liabilities of the scheme were: Equities/diversified growth fund Bonds Insured pensioner assets Cash Market value of assets Actuarial value of liability Scheme deficit Related deferred tax asset Net pension liability 2017 £000 12,325 1,143 30 50 13,548 (18,757) (5,209) 886 (4,323) 2016 £000 11,719 1,123 9 123 12,974 (17,666) (4,692) 845 (3,847) Due to the nature of the investments held, the scheme is subject to normal market risks that effect the world’s stock markets, and in particular the UK market. Net benefit expense recognised in profit and loss Net interest cost Net benefit expense Year to 31 March 2017 £000 Year to 31 March 2016 £000 (160) (160) (142) (142) 25536.04 Proof 5 23 June 2017 2:37 PM 1 5 0 5 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes CONTINUED 22 PENSION ARRANGEMENTS CONTINUED Re-measurement losses/(gains) in other comprehensive income Actuarial losses/(gains) arising from changes in financial assumptions Actuarial gains arising from changes in demographic assumptions Experience adjustments Return on assets (excluding interest income) Total re-measurement of the net defined liability shown in other comprehensive Income Actual return on plan assets Movement in deficit during the year Deficit in scheme at beginning of year Movement in year: Employer contributions Net interest expense Actuarial loss Deficit in scheme at end of year Movement in scheme assets Fair value at beginning of year Interest income on scheme assets Return on assets (excluding interest income) Employer contributions Benefits paid Administrative costs Fair value at end of year Year to 31 March 2017 £000 Year to 31 March 2016 £000 2,703 (599) (254) (1,238) 612 (575) – (5) 834 254 Year to 31 March 2017 £000 Year to 31 March 2016 £000 1,673 (396) Year to 31 March 2017 £000 Year to 31 March 2016 £000 (4,692) (4,544) 255 (160) (612) 248 (142) (254) (5,209) (4,692) Year to 31 March 2017 £000 Year to 31 March 2016 £000 12,974 14,008 435 1,238 255 (1,354) – 438 (834) 248 (886) – 13,548 12,974 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Movement in scheme liabilities Benefit obligation at start of year Interest cost Actuarial losses/(gains) arising from changes in financial assumptions Actuarial gains arising from changes in demographic assumptions Experience adjustments Benefits paid Benefit obligation at end of year The weighted average duration of the pension scheme liabilities is 14.0 years (2016: 14.5 years). A quantitative sensitivity analysis for significant assumptions as at 31 March 2017 is as shown below: Present value of scheme liabilities when changing the following assumptions: Discount rate increased by 1% p.a. RPI and CPI increased by 1% p.a. Mortality – members assumed to be their actual age as opposed to 1 year older Year to 31 March 2017 £000 Year to 31 March 2016 £000 17,666 595 2,703 (599) (254) (1,354) 18,757 18,552 580 (575) – (5) (886) 17,666 2017 £000 16,443 19,859 19,575 The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the year. 23 CONTINGENT LIABILITIES Cross guarantees exist between the Company and its subsidiary undertakings in respect of the Group’s bank overdrafts, asset finance loans and invoice finance facilities. The total borrowings of the subsidiaries at 31 March 2017 amounted to £7,134,000 (2016: £4,051,000). 24 FINANCIAL COMMITMENTS Capital expenditure Contracted for but not provided in the accounts Group Company 2017 £000 137 2016 £000 1,447 2017 £000 – 2016 £000 – Capital commitments relate to machinery purchases required for fulfilment of the Group’s contracts to supply fully machined bearing houses from the Walsall foundry. 25536.04 Proof 5 23 June 2017 2:37 PM 3 5 2 5 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes CONTINUED 24 FINANCIAL COMMITMENTS CONTINUED Lease commitments The Group had total outstanding commitments under operating leases as follow Future minimum payments due: Not later than one year After one year but not more than five years After five years Group Company 2017 £000 535 694 401 2016 £000 523 699 – 1,630 1,222 2017 £000 63 52 – 115 2016 £000 70 78 – 148 Leases on land and buildings comprise the lease for the Leicester foundry (£270,000 per annum with an end date of October 2017) the lease for the premises of Petrel Limited (£91,000 per annum with an end date of 20 August 2019) and the lease for the Group’s new machined bearing housing facility £118,000 per annum for the first 5 years and £88,000 per annum thereafter with an end date of November 2026. During the year the required 12 month notice was served to the Leicester landlord. No early termination is permitted on the lease on Petrel’s premises or the machining facility. 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 40% 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 a proportion of forecast exposures are hedged depending on the level of confidence and hedging is topped up following regular reviews. Hedging is built up over 18 months up to an 80% hedge, on this basis up to 50% of the Group’s annual exposures are likely to be hedged at any point in time and the Group’s net transactional exposure to different currencies varies from time to time. At the year end it had net monetary liabilities denominated in Euros of £1,290,000 (2016: assets of £170,000). A proportion of the Group’s financial liabilities are denominated in Euros, reducing the currency risk of the Group. Because up to 80% of the Euro debtors are hedged, the impact on net monetary assets of a 5% exchange rate change in the Euro/Sterling would not be material to the profit and loss. At 31 March 2017, 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 18 months. 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 movement being recognised directly in other comprehensive income through the consolidated 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 £684,000 (2016: £362,000). 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc A risk to the Group relates to ineffective hedges whereby highly probable sales do not occur and the Group is over hedged against those particular sales. This situation has not occurred during the current or previous year. At 31 March 2017 At 31 March 2016 Contracted amount (Euros ‘000) 16,781 10,045 Weighted average contract rate 1.168 1.322 Contracted amount £’000 14,373 7,599 Contracted amount at year end rate £’000 14,392 7,956 Unrealised gain/(loss) £’000 (19) (357) Interest rate risk The Group operates an overdraft facility with HSBC Bank plc along with asset finance loans and an invoice finance facility. 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 £19,000 reduction in profit before tax (2016: £16,000). An equivalent decrease in rates would increase profit before tax by £19,000 (2016: £16,000). An analysis of interest bearing financial assets and liabilities is given below. Financial liabilities Bank overdraft (Sterling denominated) Bank overdraft (Euro denominated) Invoice finance (Sterling denominated) Invoice finance (Euro denominated) Invoice finance (US Dollar denominated) Asset finance loans (Sterling denominated) Finance leases (Sterling denominated) Import finance loan (Euro denominated) Group Company 2017 £000 1,944 (2,160) (1,791) (1,580) (139) (200) (1,667) (1,235) (6,828) 2016 £000 440 (566) (1,763) (819) – (400) (84) – (3,192) 2017 £000 – – – – – – – – – 2016 £000 (619) – – – – – – – (619) 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. 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. The bad debt charge for the year was £9,000 (2016: £47,000). 25536.04 Proof 5 23 June 2017 2:37 PM 5 5 4 5 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes CONTINUED 25 DERIVATIVES AND FINANCIAL INSTRUMENTS CONTINUED 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. There are no material differences between the fair values and carrying values of the financial assets and liabilities. The Group’s funding strategy is to maintain flexibility in managing its day to day working capital needs through the use of an invoice finance facility, subject to dividend and debtor turn covenants, along with 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, higher purchase and equity. The Group’s £0.5m overdraft facility is renewable annually and is renewable in March 2018. The Group’s £7.0m invoice finance facility is renewable in March 2018. The Group is also financed by a £200,000 loan repayable over two years as discussed in the consolidated balance sheet commentary on page 27. 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 which have a significant effect on the recorded fair value that are not based on observable market data. All derivative financial assets and liabilities are valued by level 2 techniques (see note 1.2 for details of valuation technique and inputs). The fair values of short term receivables, short term payables, and the invoice finance facility and overdraft (both of which are repayable on demand) are not disclosed, as permitted by IFRS 7, where the carrying amount is a reasonable approximation to fair value. The fair value of the asset finance loan has been determined by discounting the expected future cash flows using prevailing market interest rates (a level 2 technique). Given that the asset loan is a floating rate loan only taken out in March 2017, its fair value is considered to be the same as the book value of £200,000. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2017 and 31 March 2016. Non-derivative financial liabilities On demand Less than one year 1 to 2 years 2 to 5 years Greater than 5 years At 31 March 2017 Bank overdraft Invoice finance Asset loans, including interest Finance leases, including interest Import loan, including interest Trade payables At 31 March 2016 Bank overdraft Invoice finance Asset loans, including interest Finance leases, including interest Trade payables 216 3,510 – – – – 3,726 126 2,582 – – – 2,708 – – 211 428 1,284 4,196 6,119 – – 211 35 3,417 3,663 – – – – – – 413 1,044 – – – – 413 1,044 – – 205 34 – 239 – – – 19 – 19 – – – 21 – – 21 – – – – – – Total 216 3,510 211 1,906 1,284 4,196 11,323 126 2,582 416 88 3,417 6,629 The gross undiscounted future cashflows are analysed as follows: Derivative financial liabilities At 31 March 2017 Foreign Exchange forward contracts On demand Less than one year 1 to 2 years 2 to 5 years Total – – 11,198 11,198 3,194 3,194 – – 14,392 14,392 The outflows above relate to the settlement of the derivative contracts which are a fair value asset at the year end as disclosed in note 16. At 31 March 2016 Foreign Exchange forward contracts – – 6,471 6,471 1,485 1,485 – – 7,956 7,956 The Company’s financial liabilities comprise the bank overdraft of nil (2016: £619,000) and is payable on demand. Capital management The Group defines capital as the total equity of the Group, which at the year end is £3,878,000 (2016: £5,093,000). The Group objective for managing capital is to deliver competitive, secure and sustainable returns to maximise long-term shareholder value. The Group is subject to net worth covenants and debtor turn covenants on its invoice finance facility. There are no financial covenant restrictions on the Group’s overdraft facility or asset loans. Further details are discussed in the consolidated balance sheet commentary on page 27. 25536.04 Proof 5 23 June 2017 2:37 PM 7 5 6 5 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes CONTINUED 26 RELATED PARTY TRANSACTIONS Group All transactions between the parent company and subsidiary companies and between subsidiary 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) Termination costs (including employer’s NI) Share based payments Pension contributions Group Company 2017 £000 1,722 57 28 66 2016 £000 1,485 58 53 63 1,873 1,659 2017 £000 880 – 28 35 943 2016 £000 634 – 53 34 721 Key management, other than directors of the Company, comprise the Managing Directors and Finance Directors of the main operating subsidiaries and are included in Group figures above. Details of key management share options are disclosed in note 20. 27 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. Subsidiaries are entities which are controlled by the Group. Control is achieved when the Group has power over the investee, has the right to variable returns from the investee and has the power to affects its returns. The Group obtains and exercises control through voting rights and control is reassessed if there are indications that the status of any of the three elements have changed. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 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 Strategic Report on pages 03 to 08. 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, comprising a £7.0m invoice discounting facility renewable in March 2018 (no indication that this won’t be renewed in March 2018), £0.5m overdraft renewable in March 2018 (the Group is not reliant on this renewal), a £0.2m loan repayable over one year, finance leases of £1.7m repayable over 5 years and an import loan of £1.2m. As a consequence, the Directors believe that the Group is well placed to manage its business and financial risks successfully. 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 Consolidated Income Statement is allocated between Underlying items which relate to the trading activities of the business and Non-underlying items which are either non-trading, non-recurring or are valued using market derived data which is outside of management’s control. As per the non-underlying and exceptional items accounting policy note, the Directors believe that this format sets out the performance of the Group more clearly. 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 IAS39 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it is not re-measured 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. 25536.04 Proof 5 23 June 2017 2:37 PM 9 5 8 5 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes CONTINUED 27 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 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 consolidated 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 – over the term of the lease Plant and other equipment – 2 to 10 years Motor vehicles – 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. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 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 consolidated 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 consolidated 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, less impairment, and dividends from subsidiaries are taken to profit or loss when the right to receive payment is established. 25536.04 Proof 5 23 June 2017 2:37 PM 1 6 0 6 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes CONTINUED 27 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 or weighted average cost 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. Previously the engineering division included inventory valued at selling price less the calculated margin on certain finished goods in the absence of more detailed individual product costing information. During the year a change in estimate was made to value all finished goods using the method described above to be consistent with the rest of the Group. Management have evaluated the effect of this change in estimate and do not believe it to be material. 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. Maintenance items are held in inventory and expensed on use unless they exceed a de minimis level where they are capitalised under plant and equipment and depreciated over the remaining useful economic life of the item of plant or equipment to which they relate. 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 consolidated 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 consolidated 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 contracts 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 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 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 consolidated income statement within sales when the forecast hedged transaction occurs. At 31 March 2017 the Group held 18 months worth of foreign currency forward contracts designated as hedges of expected future sales to customers in Europe for which the Group has highly probable forecasted transactions. Hedges are valued by reference to an external marked to market valuation. Group management perform an assessment to confirm the reasonableness of this valuation. 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 credit method. As the scheme is closed to future accrual, no service cost of providing pension to employees is charged to the consolidated income statement. The cost of making improvements to past pension and other post-retirement benefits is recognised in the consolidated income statement immediately as an expense. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under non-underlying operating costs in the consolidated income statement: – Defined benefit pension scheme administration costs Re-measurements gains and losses may result from: changes in financial assumptions, changes in demographic assumptions, experience adjustments and differences between the expected return and the actual return on plan assets. Re-measurements are recognised in full in the period in which they occur, in other comprehensive income. For defined contribution plans, contributions payable for the year are charged to the consolidated 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: Æ 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; Æ 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 Æ 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 foreseeable future. 25536.04 Proof 5 23 June 2017 2:37 PM 3 6 2 6 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Section 5 Other Supporting Notes CONTINUED 27 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED 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 consolidated income statement. 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. Revenue from the sale of goods is recognised when all of the following conditions are satisfied: Æ the significant risks and rewards of ownership are transferred to the buyer; Æ the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; Æ the amount of revenue can be measured reliably; Æ it is probable that the Group will receive the consideration due under the transaction; and Æ the costs incurred or to be incurred in respect of the transaction can be measured reliably. 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 consolidated 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 a Black Scholes model. Cash-settled share-based payments are measured at fair value at the balance sheet date using a Black Scholes model. The fair value is then charged to the consolidated 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. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 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 consolidated 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. Management have assessed the impact of market conditions on the valuation and have determined them not be material. Non-underlying and exceptional items The Group presents as non-underlying items on the face of the consolidated income statement, those items of income and expenditure which, because they are either non-trading related, 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 in the current year include share-based payment costs, administration costs of the pension scheme and net financing costs of pension obligations, reorganisation costs, Leicester closure costs and associated tax impact on these items. Non-underlying items in the previous year include share-based payment costs, administration costs of the pension scheme and net financing costs of pension obligations, reorganisation costs, and associated tax impact on these items. 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: Æ 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. Æ Impairment of property, plant and equipment – the Group performs an impairment review when indications of impairment exist. Impairment testing requires an estimate of future cash flows and the application of a suitable discount rate. Æ 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, future salary increases, mortality rates and future pension increases. Æ Restructuring provisions – the Group makes provision for restructuring costs, based on management’s best estimate of the costs of implementing such a restructuring, once a formal plan has been agreed. Æ 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. The Group has assessed that it is probable that future profits will fully utilise current tax losses and other deductible temporary differences. Deferred tax assets relating to the pension scheme deficit are expected to be recovered over the period that contributions are made into the scheme, including the agreed contributions to April 2028. The deferred tax assets have been assessed as recoverable against forecasts of future taxable profits. 25536.04 Proof 5 23 June 2017 2:37 PM 5 6 4 6 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Independent Auditor’s Report to the members of Chamberlin plc We have audited the financial statements of Chamberlin Plc for the year ended 31 March 2017 which comprise the consolidated income statement, the consolidated and parent company balance sheets, the consolidated statement of comprehensive income, the consolidated and parent company cash flow statements, the consolidated and parent company statements of changes in equity and the related notes. 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. 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 Directors’ Responsibilities Statement set out on page 18, 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 A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s website at www.frc.org.uk/auditscopeukprivate. Opinion on financial statements In our opinion: Æ 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 2017 and of the group’s loss for the year then ended; Æ the financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and Æ 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, based on the work undertaken in the course of the audit: Æ the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements; and Æ the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements. Matter on which we are required to report under the Companies Act 2006 Æ In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors’ report. 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: Æ 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 Æ the parent company financial statements are not in agreement with the accounting records and returns; or Æ certain disclosures of directors’ remuneration specified by law are not made; or Æ we have not received all the information and explanations we require for our audit. DAVID WHITE Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Birmingham 22 May 2017 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Parent Company Balance Sheet AT 31 MARCH 2017 Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax asset Current assets Financial assets Trade and other receivables Income taxes receivable Amounts due from subsidiary undertakings Total assets Current liabilities Financial liabilities Trade and other payables Non-current liabilities Defined benefit pension scheme deficit Total liabilities Capital and reserves Share capital Share premium Capital redemption reserve Retained earnings Total equity Total equity and liabilities 31 March 2017 £000 31 March 2016 £000 Notes 13 14 21 18 16 16 16 17 17 22 19 800 4 8,159 906 9,869 306 97 101 153 657 848 – 8,159 893 9,900 – 136 101 86 323 10,526 10,223 – 1,136 1,136 5,209 5,209 6,345 1,990 1,269 109 813 4,181 10,526 619 621 1,240 4,692 4,692 5,932 1,990 1,269 109 923 4,291 10,223 The profit dealt with in the accounts of the parent company was £403,000 (2016: loss of £1,442,000). KEVIN NOLAN DAVID ROBERTS Directors The accounts were approved by the Board of Directors on 22 May 2017 25536.04 Proof 5 23 June 2017 2:37 PM 7 6 6 6 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Parent Company Cash Flow Statement FOR THE YEAR ENDED 31 MARCH 2017 Operating activities Profit/(loss) for the year before tax Adjustments to reconcile profit/(loss) for the year to net cash inflow/(outflow) from operating activities: Net finance costs excluding pensions Investment income Dividends received Depreciation of property, plant and equipment Amortisation of software Profit on disposal of property, plant and equipment Share based payments Difference between pension contributions paid and amounts recognised in the Income Statement Decrease in receivables Increase/(decrease) in payables Year ended 31 March 2017 £000 Year ended 31 March 2016 £000 Note 308 (1,529) 13 14 20 87 (2,450) 2,450 38 1 (1) 28 (95) 123 515 43 – – 46 – (2) 53 (106) 164 (98) Net cash inflow/(outflow) from operating activities 1,004 (1,429) Investing activities Disposal of plant and equipment Net cash inflow from investing activities Financing activities Interest paid Net cash 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: Cash in hand/(bank overdraft) 8 8 (87) (87) 925 (619) 306 306 306 6 6 (43) (43) (1,466) 847 (619) (619) (619) 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Parent Company Statement of Changes in Equity Balance at 1 April 2015 Loss for the year Other comprehensive expense for the year net of tax Total comprehensive income Share based payment Deferred tax on employee share options Total of transactions with shareholders Balance at 1 April 2016 Profit for the year Other comprehensive expense for the year net of tax Total comprehensive income Share based payment Deferred tax on employee share options Total of transactions with shareholders Balance at 31 March 2017 Share premium account £000 Capital redemption reserve £000 Attributable to equity holders of the Company £000 Retained earnings £000 1,269 109 2,622 5,990 Share capital £000 1,990 – – – – – – – – – – – – – – – – – – 1,990 1,269 109 – – – – – – – – – – – – – – – – – – (1,442) (1,442) (296) (296) (1,738) (1,738) 53 (14) 39 923 403 (542) (139) 28 1 29 53 (14) 39 4,291 403 (542) (139) 28 1 29 1,990 1,269 109 813 4,181 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. 25536.04 Proof 5 23 June 2017 2:37 PM 9 6 8 6 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Five Year Financial Summary Financial Highlights Revenue Underlying profit before tax Statutory profit before tax Underlying diluted earnings per share Dividend per share Cash generated from operations 31 March 2017 £000 31 March 2016 £000 31 March 2015 £000 32.1 579 54 7.1 0.0 (106) 35.0 652 (236) 5.5 0.0 2,256 31 March 2014 £000 38.6 (818) (2,116) (7.6) 0.0 40.8 803 76 7.2 0.0 1,320 (1,497) 31 March 2013 £000 42.2 1,281 799 14 3.3 2,260 REVENUE (£m) UNDERLYING PROFIT BEFORE TAX (£000) 2017 2016 2015 2014 2013 32.1 35.0 40.8 38.6 42.2 2017 2016 2015 2014 2013 (818) 579 652 803 1,281 STATUTORY PROFIT BEFORE TAX (£000) UNDERLYING DILUTED EARNINGS PER SHARE (p) 2017 2016 2015 2014 2013 54 (236) 76 799 (2,116) 2017 2016 2015 2014 2013 7.1 5.5 7.2 (7.6) 14 DIVIDEND PER SHARE (p) CASH GENERATED FROM OPERATIONS (£000) 2017 0.0 0.0 0.0 0.0 2016 2015 2014 2013 3.3 2017 2016 2015 2014 2013 (106) (1,497) 2,256 1,320 2,260 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc 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: Æ 10.30am on 18 July 2017; or, Æ If this Meeting is adjourned, at 10.30am 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 20 July 2017 at the Registered Office, Chuckery Road, Walsall, WS1 2DU at 10.30 a.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 2017 (Resolution 1). 2. To re-elect as a Director Keith Butler-Wheelhouse (Resolution 2). 3. To re-elect as a Director Kevin Nolan (Resolution 3). 4. To re-elect as a Director David Roberts (Resolution 4). 5. To re-elect as a Director Keith Jackson (Resolution 5). 6. To re-elect as a Director David Nicholas who has been appointed by the board since the last annual general meeting as a director of the Company (Resolution 6). 7. To approve the Directors’ Remuneration Report for the year ended 31 March 2017 (Resolution 7). 8. To reappoint Grant Thornton UK LLP as Auditors of the Company and to authorise the Directors to fix the remuneration of the Auditors (Resolution 8). 9. 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 £663,177 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 31 October 2018, 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 9). 25536.04 Proof 5 23 June 2017 2:37 PM 1 7 0 7 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Notice of Annual General Meeting CONTINUED To consider and, if thought fit, to pass the following resolutions as special resolutions: 10. That, subject to the passing of resolution 9 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 9 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 (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 10(a) of this resolution, up to an aggregate nominal amount of £99,476, 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 31 October 2018, 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 10). 11. 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 aggregate number of Ordinary Shares which may be purchased is 795,812; (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 per cent. 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 31 October 2018, 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 (Resolution 11). 12. That the amendments to the rules of the Chamberlin plc Share Option Plan (SOP) and Chamberlin plc Performance Share Plan (PSP) made by the Board on 18 May 2017, which are summarised in the Explanatory Notes, are hereby approved and that the Directors are hereby authorised to do whatever may be necessary or expedient to carry the SOP and PSP into effect. 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Explanatory Notes Resolution 12 seeks approval for the amendments to the Chamberlin plc Share Option Plan (“SOP”) and the Chamberlin plc Performance Share Plan (“PSP”) (together the Plans). The amendments are comparatively minor and any substantive amendments are detailed below. Shareholders are entitled to receive a copy of the Plans on request and the amended Plans will be available to be viewed at the AGM. The principal amendment in each of the Plans is to extend the date that awards can be made to 10 years after the date the amended Plans are approved by shareholders (the Plans prior to amendment provided that awards could not be granted after 22 March 2017). The dilution limit in the Plans has been set at 33% reflecting the current shareholder approved dilution limit. The limit in the Plans will change automatically if shareholders reduce or increase the limit in the future. To strengthen shareholder protection the Plans now include shareholder approval rules so that amendments to key features of the Plans require shareholder approval. The treatment of those that leave employment under the SOP has been amended so that it is harmonised with the treatment of leavers under the PSP. Similarly the treatment of awards on a Takeover and Other Corporate Events has been amended under the SOP to ensure consistency with the PSP. The SOP has been amended in relation to the Cash Alternative so that it mirrors the PSP and does not apply if it would cause adverse issues in relation to awards in a given jurisdiction or to the tax treatment of the award. By order of the Board DAVID ROBERTS Company Secretary 22 May 2017 Chuckery Road Walsall WS1 2DU 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, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA, not later than 10.30am on 18 July 2017 (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. A shareholder which is a corporation may authorise one or more persons to act as its representative(s) at the meeting. Each such representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual shareholder, provided that (where there is more than one representative and the vote is otherwise than on a show of hands) they do not do so in relation to the same shares. 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 10 of the enclosed annual report and accounts. An explanation of Resolutions 9, 10 and 11 is set out in the Report of the Directors on pages 16 to 19. Members should notify the Registrars without delay of any change of address. 25536.04 Proof 5 23 June 2017 2:37 PM 3 7 2 7 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements Shareholder Information DIRECTORS Keith Butler-Wheelhouse (Non-Executive Chairman) Kevin Nolan (Chief Executive) David Roberts (Finance Director) Keith Jackson (Non-Executive) David Nicholas (Non-Executive) COMPANY SECRETARY David Roberts REGISTERED OFFICE Chuckery Road Walsall WS1 2DU Registered in England No. 76928 AUDITOR Grant Thornton UK LLP Birmingham SOLICITORS DLA Piper Birmingham STOCKBROKERS Smith & Williamson London BANKERS HSBC Bank plc Birmingham REGISTRARS Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA 25536.04 Proof 5 23 June 2017 2:37 PM ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2017chamberlin plc Financial Statements Chamberlin & Hill Castings Ltd Chuckery Road Walsall, WS1 2DU Tel: 01922 721411 Fax: 01922 614610 www.chcastings.co.uk Exidor Ltd Progress Drive Cannock, WS11 0JE Tel: 01543 570050 Fax: 01543 573534 www.exidor.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 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. 25536.04 Proof 5 23 June 2017 2:37 PM 25536.04 Proof 5 23 June 2017 2:37 PM C B I 4 7 www.chamberlin.co.ukSTOCK CODE: CMH 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 7 Chuckery Road, Walsall, West Midlands, WS1 2DU T: 01922 707100 F: 01922 638370 E: plc@chamberlin.co.uk Visit us online For more information on Chamberlin Group operations please visit our website at: www.chamberlin.co.uk 25536.04 Proof 5 23 June 2017 2:37 PM 25536.04 Proof 5 23 June 2017 2:37 PM