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2023 Reportc 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 8 DIFFICULT THINGS DONE WELL ANNUAL REPORT AND ACCOUNTS for the year ended 31 March 2018 STOCK CODE: CMH 26038 Proof Five 27 June 2018 10:11 AM Chamberlin-AR2018.indd 3 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:06 DIFFICULT THINGS DONE WELL Success in UK engineering has not been easy to achieve in recent years, but its requirements can be (cid:86)impl(cid:92) (cid:86)tat(cid:72)(cid:71)(cid:30) (cid:90)inn(cid:72)(cid:85)(cid:86) m(cid:88)(cid:86)t (cid:71)(cid:82) (cid:71)i(cid:431)c(cid:88)lt t(cid:75)in(cid:74)(cid:86) an(cid:71) 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 turbocharger castings market (cid:69)(cid:72)n(cid:72)fitin(cid:74) (cid:73)(cid:85)(cid:82)m (cid:85)(cid:72)(cid:74)(cid:88)lat(cid:82)(cid:85)(cid:92) (cid:71)(cid:85)i(cid:89)(cid:72)(cid:85)(cid:86) Æ (cid:50)p(cid:72)(cid:85)atin(cid:74) ac(cid:85)(cid:82)(cid:86)(cid:86) (cid:71)i(cid:89)(cid:72)(cid:85)(cid:86)ifi(cid:72)(cid:71) ma(cid:85)(cid:78)(cid:72)t(cid:86) Æ Strong, credible management team with sales driven by the global engineering economy – 59% of sales are exported with a proven track record Æ Focused UK manufacturing in niche markets chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 4 26038 Proof Five 27 June 2018 10:11 AM 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:07 Visit us online For more information on Chamberlin Group operations please visit our website at www.chamberlin.co.uk Overview Chairman, Keith Butler–Wheelhouse, commented: “ While the year has delivered on our revenue expectations, margins have suffered due to the difficulties we have encountered in the start-up of our new machining facility, and ramp up of our main foundry to meet unexpected demand. The technical issues at the company’s new machining facility continue to improve. New products for machining are also being introduced. The Group remains well placed for further progress over the new financial year as cost efficiencies are realised.” REVENUE £37.7m 2018 2017 37.7 35.0 32.1 UNDERLYING PROFIT BEFORE TAX £(21)k 2018 (21) 2017 579 Chairman’s Statement STATUTORY PROFIT BEFORE TAX (£0.5m) 2018 (0.5) 2017 UNDERLYING DILUTED EARNINGS PER SHARE (5.6)p 2018 (5.6) 0.1 2017 4.5 CASH GENERATED FROM OPERATIONS £1.3m 2018 2017 (0.1) 1.3 Highlights Æ Very encouraging revenue growth, which should continue into new financial year and beyond Æ Net debt of £8.9m at year end (2017: £6.8m), which reflected machining facility investment Æ Revenues up 17% to £37.7m Æ Foundry operations grew revenues (2017: £32.1m) by 24% to £26.4m Æ Gross margin decreased to 18.2% (2017: 21.6%) – however H2 gross margin improved by 4.4 percentage points over H1 from 15.9% to 20.3% — benefited from ramp up of new automotive contract, which commenced in H2 2017 Æ Engineering operations increased Æ Underlying operating profit revenues by 5% to £11.3m before tax* decreased to £0.4m (2017: £0.7m) Æ IFRS diluted loss per share reduced to 10.2p (2017: loss per share of 12.2p) Æ Capital expenditure of £3.0m (2017: £3.7m), included further investment in new machining facility — initiatives in place to drive export sales and margins Æ Board is confident of delivering an improved operational performance in new financial year * Underlying operating figures are stated before interest, 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 1 26038 Proof Five 27 June 2018 10:11 AM CONTENTS OVERVIEW Highlights 01 02 03 04-05 06 07 09 10-12 13-15 16-19 21 22-29 30 31-38 39-48 49-50 STRATEGIC REPORT Group at a Glance 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 Section 4 – Capital Structure Section 5 – Other Supporting Notes 51-67 Independent Auditor’s Report 68-75 Parent Company Financial Statements 76-78 Five Year Financial Summary 79 Notice of Annual General Meeting 80-82 Shareholder Information Shareholder Notes 83 84 C F I 01 27/06/2018 10:22:08 CHAIRMAN’S STATEMENT Our engineering businesses, Exidor and Petrel, also contributed to growth. Exidor increased revenues and we are implementing further initiatives to improve profitability. Petrel continued to expand its market share accessing new markets outside its core oil and gas customer base, helped by the ongoing development of its new LED product ranges. Looking ahead over the new financial year, we are continuing to focus on improving margins across both our foundry and engineering operations. The automotive turbocharger sector remains a growth area and we expect production volumes from our existing contracts to increase over 2018. We therefore anticipate ongoing progress as the new financial year unfolds. Results Revenues for the year to 31 March 2018 increased by 17% to £37.7m (2017: £32.1m), with growth largely driven by the Walsall foundry and increased market share from our two engineering businesses. The new machining facility, which opened in early 2017, suffered from major technical problems and contributed revenues of £2.6m, and a maiden loss of £0.4m, net of compensation from our machine supplier. Underlying operating profit before tax decreased to £0.4m (2017: £0.7m). On an IFRS basis, after accounting for restructuring costs of £0.1m (2017: £0.1m), administration and costs of the closed pension scheme of £0.3m (2017: £0.4m), the Group generated a loss of £0.8m (2017: loss of £1.0m). Diluted loss per share was 10.2p (2017: loss per share of 12.2p). The net debt position at 31 March 2018 was £8.8m (2017: £6.8m), 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 (2017: nil). The Board and Staff There were two changes to the composition of the Board of Directors during the year. In December 2017, David Nicholas retired as a Non- executive Director and, in March 2018, we appointed David Flowerday. Formerly Strategy Director at Smiths Group PLC and a member of the Chartered Institute of Management Accountants, David Flowerday has significant relevant experience and has been appointed as Chairman of the Company’s Remuneration Committee and a member of the Audit and Nomination Committees. The Group is supported by committed and hard-working teams and, on behalf of the Board, I would like to thank all our staff for their efforts during the year. Their skills and energy will help to drive Chamberlin’s performance and future growth. Outlook We believe that the Group is well positioned to deliver a further improvement in performance during the current financial year as we recover margins. We look forward to reporting further progress at the Group’s AGM on 24 July 2018. (cid:46)(cid:40)(cid:44)(cid:55)(cid:43) (cid:37)(cid:56)(cid:55)(cid:47)(cid:40)(cid:53)(cid:482)(cid:58)(cid:43)(cid:40)(cid:40)(cid:47)(cid:43)(cid:50)(cid:56)(cid:54)(cid:40) CHAIRMAN 4 June 2018 (cid:46)(cid:40)(cid:44)(cid:55)(cid:43) (cid:37)(cid:56)(cid:55)(cid:47)(cid:40)(cid:53)(cid:482)(cid:58)(cid:43)(cid:40)(cid:40)(cid:47)(cid:43)(cid:50)(cid:56)(cid:54)(cid:40) CHAIRMAN Introduction While the year has delivered on our revenue expectations, the Group’s results reflect the impact of the previously reported technical issues within our foundry activities, in particular with the new machining cells. The resulting operational inefficiencies meant that gross margins for the year reduced, from 21.6% in 2017 to 18.2%, and underlying operating profit decreased from £0.7m to £0.4m. As we made progress in resolving the technical issues, gross margins improved, recovering by 4.4 percentage points in the second half of the financial year (20.3%) over the first half (15.9%). The Group’s revenue performance demonstrates the wider picture of growth and development, with revenue up 17% year-on-year to £37.7m reflecting the strong position we have established in the automotive turbocharger sector. As we have previously highlighted, our investment in our new machining cells positions us as the only provider of fully machined, grey iron bearing housings in Europe. This stands us in very good stead to win additional turbocharger volumes, and opens up new long-term opportunities. 02 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 2 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:10 Strategic Report 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. 4 3 5 1 2 6 Direct exports account for 59% 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. UK Manufacturing 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 55% 3% 11% 4% 10% 20% 15% Light Castings Heavy Castings Security/safety Hazardous Environments Light Castings Heavy Castings Security/safety Hazardous Environments 82% 3% 1% 10% 3% 8% 20% 3% 8% 42% 3% Off road vehicles Power generation Civil engineering General engineering Passenger car turbo Commercial diesel Safety/security Machining Hydraulics Hazardous environments www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 3 26038 Proof Five 27 June 2018 10:11 AM 03 27/06/2018 10:22:11 CHIEF EXECUTIVE’S REVIEW 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, that 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. 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 74% of Walsall’s casting production is for petrol engines. 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 that 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 in line with management expectations over the year and we continued to work to deepen and broaden customer relationships, and to focus on operational efficiency. Engineering Revenues from the engineering operations, comprising our Exidor and Petrel businesses, increased by 15% year-on-year to £11.3m (2017: £10.8m) and operating profit rose by 10% to £0.9m (2017: £0.8m). Our Exidor business is the UK market leader in panic and emergency exit door hardware. Its products are for life-critical applications and it operates in a highly regulated market. Customers place great value on Exidor’s heritage as a British designer and manufacturer that delivers high quality, certified products. We are re-engineering the product range to support our growth 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 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 46% of sales (2017: 31%) 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 A major focus in the new financial year is on improving margins as well as driving revenue growth and we expect to make good progress in both areas. KEVIN NOLAN CHIEF EXECUTIVE The opening of our new machining operations in early 2017 was a strategically significant point for the Group and, while we experienced technical problems, which impacted results in the year under review, this investment will help to drive additional growth opportunities for our foundry activities. Both our engineering operations made encouraging progress although Petrel’s traditional core market of oil and gas remains subdued. We remain focused on building export sales across both Petrel and Exidor. Foundries Foundry revenues increased by 24% year-on-year to £26.4m (2017: £21.3m). This included a first time contribution from the new machining facility of £2.6m, which started production in early 2018. However, reflecting the technical problems experienced across this segment particularly within machining, operating profit decreased to £0.5m (2017: £1.2m). This included a loss of £0.4m from the new machining facility, net of compensation from our machine supplier. The Group now operates two foundries, at Walsall and Scunthorpe, each with a different specialisation. 04 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 4 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:12 Strategic Report PERFORMANCE REVIEW FOUNDRY OVERVIEW ENGINEERING 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. 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. Operating Profit Operating Profit 528 2018 2017 1,188 2018 2017 901 816 Revenue Split 79% Revenue Split 67% 21% 33% Light Castings Heavy Castings Security/safety Hazardous environments www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 5 26038 Proof Five 27 June 2018 10:11 AM 05 27/06/2018 10:22:13 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 3.0 3.0 2018 2017 8.0 5.6 2018 2017 8.0 7.6 GROUP Year ended 31 March 2018 0.9 2018 0.9 2017 2.3 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. 4.1 2018 4.1 2017 10.1 24.8 2018 2017 24.8 23.6 2018 2017 11.3 11.3 102.1 109.5 100.2 2018 2017 102.1 101.1 2018 2017 109.5 106.8 2018 2017 19.2 100.2 99.7 ACCIDENT FREQUENCY RATE The number of accidents per 100,000 hours worked averaged for the full year. 15.8 2018 15.8 2017 6.8 4.9 2018 2017 12.3 4.9 5.1 2018 2017 12.3 6.3 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. 06 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 6 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:14 Strategic 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 10 to 12 Risk Description of Risk & Potential Impact Mitigation Brexit/Foreign currency fluctuation Approximately 50% of Group revenue is derived in Euros. Significant Brexit disruptions leading to exchange fluctuations could have a material impact on the financial performance of the Group. Group sells Euros forward in order to provide an effective hedge. The Group continues to monitor and assess the potential post-Brexit trading relationships with EU member states. 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 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 regulatory 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. 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. Market deterioration 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. 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.. Production failures 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 04 to 07, together with the commentary on the primary statements on pages 23 to 29, has been approved by the board of Directors and signed on their behalf by: KEVIN NOLAN CHIEF EXECUTIVE 4 June 2018 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 7 26038 Proof Five 27 June 2018 10:11 AM 07 27/06/2018 10:22:14 HEADING HEADING GOVERNANCE The Board Corporate Governance Report Directors’ Remuneration Report Directors’ Report 09 10– 12 13 – 15 16 – 19 08 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 8 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:16 Governance THE BOARD EXECUTIVE DIRECTORS (cid:49)(cid:50)(cid:49)(cid:482)(cid:40)(cid:59)(cid:40)(cid:38)(cid:56)(cid:55)(cid:44)(cid:57)(cid:40) (cid:39)(cid:44)(cid:53)(cid:40)(cid:38)(cid:55)(cid:50)(cid:53)(cid:54) KEVIN NOLAN (cid:46)(cid:40)(cid:44)(cid:55)(cid:43) (cid:37)(cid:56)(cid:55)(cid:47)(cid:40)(cid:53)(cid:482)(cid:58)(cid:43)(cid:40)(cid:40)(cid:47)(cid:43)(cid:50)(cid:56)(cid:54)(cid:40) KEITH JACKSON Aged 72, 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. Aged 69, 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. Aged 61, 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 ROBERTS DAVID FLOWERDAY DAVID NICHOLAS Aged 49, 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. www.chamberlin.co.uk STOCK CODE: CMH Aged 68, David was appointed a Director in July 2016 and resigned on 28 November 2017. Aged 65, David joined the Board in March 2018. He previously held positions of Strategy Director, Group Financial Controller, and Flex-tek Managing Director at Smiths Group plc. He currently is a strategy consultant and additionally is Chairman of Dartmouth Trust. David is Chairman of the Remuneration Committee and a member of both the Audit and Nominations Committee. 09 27/06/2018 10:22:22 Chamberlin-AR2018.indd 9 26038 Proof Five 27 June 2018 10:11 AM CORPORATE GOVERNANCE REPORT (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 24 July 2018 (see the Notice of Annual General Meeting on pages 80 to 82), 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 13 to 15. 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 Flowerday (first appointed 26 March 2018) 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. 10 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 10 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:22 Governance (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 Flowerday, 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 11 26038 Proof Five 27 June 2018 10:11 AM 11 27/06/2018 10:22:22 CORPORATE GOVERNANCE REPORT CONTINUED Summary of attendance at meetings Board meetings Nominations Committee Remuneration Committee Audit Committee Number of meetings in the year David Flowerday* David Nicholas** Kevin Nolan David Roberts 8 8 8 – 6 8 8 1 1 1 – – 1 – 3 3 3 – 3 n/a n/a 2 2 2 – 2 n/a n/a * appointed as a director on 26 March 2018 ** resigned as a director on 28 November 2017 n/a – Indicates that a director was not a member of a particular committee. DAVID ROBERTS CHIEF EXECUTIVE 4 June 2018 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: 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. Keith Butler- Wheelhouse Æ The control of key financial risks through clearly laid down Keith Jackson 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. 12 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 12 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:22 Governance DIRECTORS’ REMUNERATION REPORT Remuneration Committee The Remuneration Committee comprises the three non- executive directors: David Flowerday (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 2018 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 are 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 Total remuneration excluding pensions 2018 £000 2017 £000 249 174 378 263 75 30 20 – – 548 75 30 21 – 9 776 776 Basic salary £000 Benefits £000 Annual bonus £000 Executive Kevin Nolan* David Roberts 221 155 Non- Executive Keith Butler- Wheelhouse Keith Jackson David Nicholas** David Flowerday*** Alan Howarth**** Total Total 2017 75 30 20 – – 501 504 2 1 – – – – – 3 3 26 18 – – – – – 44 266 * Highest paid director in 2018 and 2017. ** Resigned 28 November 2017 *** Appointed 26 March 2018 **** Resigned 22 July 2016 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 13 26038 Proof Five 27 June 2018 10:11 AM 13 27/06/2018 10:22:23 DIRECTORS’ REMUNERATION REPORT CONTINUED 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 (2017: nil) which is a closed defined benefit scheme. Contributions into personal pension plans K Nolan D Roberts Percentage of basic salary 10% 10% Contribution paid 2018 £000 Contribution paid 2017 £000 21 15 21 14 For directors who have served during the year, no other pension contributions were paid other than as disclosed above. Directors’ options Kevin Nolan David Roberts 31 March 2017 120,732 120,732 120,731 207,363 79,268 79,268 79,269 142,637 950,000 Granted in year Exercised in year – – – – – – – – – – – – – – – – – – Lapsed or forfeited in year 120,732 120,732 120,731 31 March 2018 Option exercise price Exercisable between – – – 97.65p 25.11.17 – 25.11.2024 97.65p 25.11.18 – 25.11.2024 97.65p 25.11.19 – 25.11.2024 – 207,363 Nil p 14.12.19 – 14.12.2026 79,268 79,268 79,269 – 600,000 – – – 142,637 350,000 97.65p 25.11.17 – 25.11.2024 97.65p 25.11.18 – 25.11.2024 97.65p 25.11.19 – 25.11.2024 Nil p 14.12.19 – 14.12.2026 14 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 14 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:23 Governance A Share Option Plan (“SOP”) has issued a third tranche of share options after the first two tranches lapsed in the year. 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. 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. No share options have been exercised in 2018 or 2017. There have been no changes in the interests set out above between 1 April 2018 and 4 June 2018. The mid-market price of the shares at 31 March 2018 was 63.5p and during the year ranged between 63.5p and 176.5p. On behalf of the Board DAVID FLOWERDAY CHAIRMAN, REMUNERATION COMMITTEE 4 June 2018 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 15 26038 Proof Five 27 June 2018 10:11 AM 15 27/06/2018 10:22:23 DIRECTORS’ REPORT The Directors present their report together with the audited financial statements for the year ended 31 March 2018. 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 2018 Year to 31 March 2017 261 103 12 376 230 101 12 343 * 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. (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. 16 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 16 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:23 Governance 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 (2017: nil p). No interim dividend (2017: 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 13 to 15. See Board of Directors on page 09 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 2018 Number of shares At 31 March 2017 Number of shares Keith Butler-Wheelhouse 120,127 120,127 Kevin Nolan David Roberts Keith Jackson David Flowerday (appointed 26 March 2018) David Nicholas (resigned 28 November 2017) – 5,000 13,525 – – – 5,000 13,525 – – There have been no changes in the interests of the directors set out above between 1 April 2018 and 4 June 2018. 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 4 June 2018). 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 4 June 2018. Authority to purchase own shares At the Annual General Meeting in 2017, 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 4 June 2018. 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. The proposed resolutions are set out as items 9 to 11 in the notice of meeting on pages 80 to 82. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 17 26038 Proof Five 27 June 2018 10:11 AM 17 27/06/2018 10:22:23 DIRECTORS’ REPORT CONTINUED Substantial shareholders At 4 June 2018 the Company was aware of the following interests of 3% or more of the Company’s share capital, other than those of directors: 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. Number of Shares % of Issued Share Capital Discretionary Unit Fund Managers 1,000,000 Miton Asset Management Janus Henderson Investors Thornbridge Investment Management Chelverton Asset Management R J Keeling Esq Schroder Institutional UK Smaller Companies Fund AXA Framlington Charlton T W G Esq Perfecta Assets Ltd 990,471 791,000 560,000 500,000 358,800 348,500 300,000 281,500 275,000 12.6 12.5 9.9 7.0 6.3 4.5 4.4 3.8 3.5 3.5 At the Annual General Meeting to be held on 24 July 2018 (see the Notice of Annual General Meeting on pages 80 to 82), 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. 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. 18 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 18 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:23 Governance 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. 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 09. 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. Going concern 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 2019 (no indication that this won’t be renewed in March 2019), £0.5m overdraft renewable in March 2019 (the Group is not reliant on this renewal), finance leases of £2.5m repayable over 5 years and an import loan of £1.1m. 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. 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 4 June 2018 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 19 26038 Proof Five 27 June 2018 10:11 AM 19 27/06/2018 10:22:23 FINANCIAL STATEMENTS 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 Parent Company Financial Statements Five Year Financial Summary Notice of Annual General Meeting Shareholder Information Shareholder Notes 21 22 – 29 30 31 – 38 39 – 48 49 – 50 51 – 67 68 – 75 76 – 78 79 80 – 82 83 84 20 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 20 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:25 Financial Statements INTRODUCTION 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. 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 28 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 21 26038 Proof Five 27 June 2018 10:11 AM 21 27/06/2018 10:22:26 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2018 Revenue Cost of sales Gross profit Other operating expense Operating profit/ (loss) Finance costs (Loss)/ profit before tax Tax (expense)/ credit (Loss)/ profit for the year from continuing operations Discontinued operations Profit/ (loss) for the year from discontinued operations (Loss)/ profit for the year attributable to equity holders of the parent company (Loss)/ earnings per share from continuing operations: basic diluted Earnings/ (loss) per share from discontinued operations: basic diluted Total (loss)/ earnings per share: basic diluted Year ended 31 March 2018 Year ended 31 March 2017 Notes Underlying £000 3 37,670 (30,802) 6,868 (6,512) 356 (377) (21) (427) 4, 12 7 6 8 Non- underlying+ £000 – – – (324) (324) (126) (450) 85 Total £000 Underlying £000 37,670 32,119 (30,802) (25,173) 6,868 (6,836) 32 (503) (471) (342) 6,946 (6,203) 743 (164) 579 (205) Non- underlying+ £000 – – – (365) (365) (160) (525) 105 Total £000 32,119 (25,173) 6,946 (6,568) 378 (324) 54 (100) (448) (365) (813) 374 (420) (46) 10 – – – 219 (1,146) (927) (448) (365) (813) 593 (1,566) (973) 11 11 11 11 11 11 (10.2)p (10.2)p 0.0 p 0.0 p (10.2)p (10.2)p (0.6)p (0.6)p (11.6)p (11.6)p (12.2)p (12.2)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. 22 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 22 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:27 Financial Statements COMMENTARY ON THE CONSOLIDATED INCOME STATEMENT Overview Sales increased by 17% during the year to £37.7m (2017: £32.1m). Gross profit margin decreased to 18.2% from 21.6% in 2017. Underlying operating profit before tax decreased to £0.4m (2017: £0.7m). The IFRS results show a loss of £0.8m (2017: £1.0m) and a statutory loss per share of 10.2p (2017: loss per share 12.2p). (cid:49)(cid:50)(cid:49)(cid:482)(cid:56)(cid:49)(cid:39)(cid:40)(cid:53)(cid:47)(cid:60)(cid:44)(cid:49)(cid:42) (cid:40)(cid:59)(cid:38)(cid:40)(cid:51)(cid:55)(cid:44)(cid:50)(cid:49)(cid:36)(cid:47) (cid:44)(cid:55)(cid:40)(cid:48)(cid:54) Exceptional items in the year included £0.1m (2017: £0.1m) relating to the realignment of the cost base of the Group. Tax The Group’s underlying tax charge for the year was £0.4m (2017: £0.2m). CASH GENERATION AND FINANCING Operating cash inflow from continuing operations was £1.3m (2017: £0.3m). Capital expenditure for the year decreased to £3.0m (2017: £3.7m). This was ahead of depreciation and amortisation of £1.4m (2017: £1.2m), reflecting the investment in the new machining facility. Our overdraft and net borrowings at 31 March 2017 increased to £8.8m (2017: £6.8m). 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 55% 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 2017: €1.26). PENSION The Group’s defined benefit pension scheme was closed to future accrual in 2007. Following the last triennial valuation, as at 1 April 2016, 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 22 years. The pension expense for the defined benefit scheme was £0.3m in 2018 (2017: £0.4m), and is shown in non-underlying. The Group cash contribution during the year was £0.3m (2017: £0.3m). The Group operates a defined contribution pension scheme for its current employees. The cost of £0.4m (2017: £0.4m) is included within underlying operating performance. The IAS 19 deficit at 31 March 2017 was £5.1m (2017: £5.2m). www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 23 26038 Proof Five 27 June 2018 10:11 AM 23 27/06/2018 10:22:27 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2018 Loss for the year Other comprehensive income Reclassification for cash flow 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 2018 £000 (813) (18) 87 (12) – 57 (8) 2 – (6) 51 2017 £000 (973) (87) 419 (60) (1) 271 (612) 122 (52) (542) (271) Total comprehensive expense for the period attributable to equity holders of the parent company (762) (1,244) 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 cash flow 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 £0.1m in 2018 (2017: profit of £0.3m). 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. 24 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 24 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:27 Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 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 Balance at 1 April 2017 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 premium account £000 Capital redemption reserve £000 Hedging reserve £000 Retained earnings £000 Attributable to equity holders of the parent £000 1,269 109 (343) 2,068 5,093 Share capital £000 1,990 – – – – – – – – – – – – – – – – – – 1,990 1,269 109 – – – – – – – – – – – – – – – – – – – 271 271 – – – (72) – 57 57 – – – (973) (542) (973) (271) (1,515) (1,244) 28 1 29 582 (813) (6) (819) 46 (6) 40 28 1 29 3,878 (813) 51 (762) 46 (6) 40 Balance at 31 March 2018 1,990 1,269 109 (15) (197) 3,156 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 25 26038 Proof Five 27 June 2018 10:11 AM 25 27/06/2018 10:22:27 CONSOLIDATED BALANCE SHEET AT 31 MARCH 2018 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 4 June 2018 31 March 2018 £000 31 March 2017 £000 Notes 13 14 18 15 16 17 17 18 18 18 22 19 11,703 427 1,136 13,266 3,551 7,985 11,536 24,802 6,989 7,465 14,454 1,889 23 200 5,080 7,192 21,646 1,990 1,269 109 (15) (197) 3,156 24,802 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 19,163 1,990 1,269 109 (72) 582 3,878 23,041 26 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 26 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:27 Financial Statements COMMENTARY ON THE CONSOLIDATED BALANCE SHEET NET DEBT Net Debt at the year end was £8.9m compared to £6.8m at the end of the previous year. Total committed bank facilities available to the Group at the year end was £11.2m (2017: £10.6m), of which £8.9m (2017: £6.8m) was drawn. (cid:51)(cid:53)(cid:50)(cid:51)(cid:40)(cid:53)(cid:55)(cid:60)(cid:15) (cid:51)(cid:47)(cid:36)(cid:49)(cid:55) (cid:36)(cid:49)(cid:39) (cid:40)(cid:52)(cid:56)(cid:44)(cid:51)(cid:48)(cid:40)(cid:49)(cid:55) (cid:480)(cid:51)(cid:51)(cid:40)(cid:481) The net book value of the Group’s investment in PPE at 31 March 2018 was £11.7m. Capital Expenditure on PPE of £3.0m (2017: £3.7m) represented 208% (2017: 312%) of depreciation of £1.4m (2017: £1.2m). CASH GENERATION AND FINANCING Operating cash inflow from continuing operations was £1.3m (2017: £0.3m). Capital expenditure for the year decreased to £3.0m (2017: £3.9m). This was ahead of depreciation and amortisation of £1.4m (2017: £1.2m), reflecting the continuing investment in the new machining facility. Our overdraft and net borrowings at 31 March 2018 increased to £8.9m (2017: £6.8m). The Group debt facility has four elements: £7.0m invoice discounting facility, £0.5m overdraft, finance leases of £2.5m and an import loan of £1.1m. The facility has the following covenant at year end which was complied with: Æ Without prior written consent of HSBC no dividends were payable in the year ended 31 March 2018 and in subsequent years prior written consent of HSBC is required for the payment of any dividends in excess of 50% of net profit after tax. WORKING CAPITAL Working Capital, comprising Inventories, Trade and Other Receivables and Trade and Other Payables was 11% of annual sales (2017: 12%) as at year end. Robust credit control has maintained overdue receivables to 3.6% (2017: 3.2%). 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 2018 was £5.1m (2017: £5.2m). The Group’s defined benefit pension scheme was closed to future accrual in 2007. Following the last triennial valuation, as at 1 April 2016, 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 22 years. The pension expense for the defined benefit scheme was £0.3m in 2018 (2017: £0.4m), and is shown in non-underlying. The Group cash contribution during the year was £0.3m (2017: £0.3m). www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 27 26038 Proof Five 27 June 2018 10:11 AM 27 27/06/2018 10:22:27 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2018 Operating activities (Loss)/ profit for the year before tax Adjustments to reconcile (loss)/ profit for the year to net cash inflow/ (outflow) 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 in inventories Increase in receivables Increase in payables Income taxes received Cash inflow from continuing operations Cash outflow from discontinued operations Net cash inflow/ (outflow) 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 drawdown Import loan facility drawdown Import loan facility repayment Finance leases taken out Net cash inflow from financing activities Net decrease 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 Year ended 31 March 2018 £000 Year ended 31 March 2017 £000 Note (471) 54 6 13 14 14 7 20 13 14 14 6 18 17 17 17 17, 18 17 17 377 1,425 64 10 (16) 46 (137) (204) (429) 635 – 1,300 – 1,300 164 1,125 90 7 (1) 28 (95) (676) (1,664) 1,220 – 252 (358) (106) (2,958) (3,732) (16) (24) 25 (41) (133) 9 (2,973) (3,897) (377) (200) 1,230 1,137 (1,235) 849 1,404 (269) (216) (485) – (485) (485) (485) (164) (162) 1,421 1,235 – 1,583 3,913 (90) (126) (216) (332) 116 (216) (216) 28 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 28 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:27 Financial Statements COMMENTARY ON THE CONSOLIDATED CASH FLOW STATEMENT OPERATING CASH FLOW The operating cash inflow for the total Group was £1.3m (2017: outflow of £0.1m), driven by depreciation and amortisation add back of £1.5m (2017: increased working capital of £1.1m). Net working capital balances were maintained (2017: increase of £1.0m) during the year. Cash spent on property, plant and equipment and capitalised software and development costs in the year was £3.0m (2017: £3.9m) which was equivalent to 198% (2017: 320%) of depreciation and amortisation thereon. CLOSING NET DEBT Opening net debt was £6.8m (2017: £3.2m). After the net debt increase in the year of £2.1m (2017: increase of £3.6m) closing net debt was £8.9m (2017: £6.8m). www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 29 26038 Proof Five 27 June 2018 10:11 AM 29 27/06/2018 10:22:27 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 2018 were authorised for issue by the board of directors on 4 June 2018 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 28. 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 IFRS 17 Insurance Contracts ^Not adopted by the EU as at 31 March 2018 Effective date 1 January 2018 1 January 2018 1 January 2019^ 1 January 2021^ 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. The Directors expect the introduction of IFRS 9 Financial Instruments 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. IFRS15, Revenue from Contracts with Customers introduces a 5 step approach to the timing of revenue recognition based on performance obligations in customer contracts. An assessment of the impact of IFRS 15 has been completed. Revenue recognition under IFRS 15 is expected to be consistent with current practice for the Group’s revenue. Had the principles of IFRS 15 been applied in the current reporting period it would not have had an impact on the financial statements. 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. 30 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 30 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:27 Financial Statements 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: The Foundries segment is a supplier of iron castings, in raw or machined form, to a variety of industrial customers who incorporate the castings into their own products or carry out further machining or assembly operations on the castings before selling them on to their customers. The Engineering segment provides manufactured and imported products to distributors and end-users operating in the safety and security markets. The products fall into the categories of door hardware, hazardous area lighting and control gear. Management monitors the operating results of its divisions separately for the purposes of making decisions about resource allocation and performance assessment. The 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) (Loss)/ profit 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 2018 £000 26,396 11,274 37,670 – 37,670 2017 £000 21,333 10,786 32,119 2,810 34,929 2018 £000 528 901 1,429 – 1,429 1,429 (1,073) (324) (503) – (471) 18,357 5,770 24,127 (5,522) (2,141) (7,663) 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) 16,464 15,270 (13,308) (11,392) 3,156 3,878 Unallocated net liabilities include the pension liability of £5,080,000 (2017: £5,209,000), financial liabilities of £8,878,000 (2017: £6,828,000) and deferred tax asset of £650,000 (2017: £645,000). www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 31 26038 Proof Five 27 June 2018 10:11 AM 31 27/06/2018 10:22:28 SECTION 2 RESULTS OF THE YEAR CONTINUED 3 SEGMENTAL ANALYSIS continued Capital expenditure, depreciation, amortisation and impairment Foundries Engineering Total 2018 £000 2017 £000 Capital additions Property, plant and equipment (note 13) 2,720 3,611 Software (note 14) Development costs (note 14) Depreciation, amortisation and impairment 9 – Property, plant and equipment (note 13) (1,208) Software (note 14) Development costs (note 14) (54) – 35 – (984) (81) – 2018 £000 238 7 24 (217) (10) (10) 2017 £000 127 6 133 (213) (12) (7) (ii) Geographical information Revenue by location of customer United Kingdom Italy Germany Rest of Europe Other countries 2018 £000 2,958 16 24 2017 £000 3,738 41 133 (1,425) (1,197) (64) (10) (93) (7) 2018 £000 2017 £000 15,417 15,031 5,835 4,138 9,645 2,635 4,702 3,736 6,159 2,491 37,670 32,119 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 (2017: none), they account for 15.5% (2017: 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 2018 £000 1,160 5,352 6,512 324 6,836 2017 £000 808 5,395 6,203 365 6,568 32 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 32 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:28 Financial Statements 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) The average number of people employed by the Company during the year was: Management and administration The aggregate employment costs, including redundancy, of these employees were as follows: Wages and salaries Social security costs Other pension costs 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 2018 Number 2017 Number 64 312 376 2018 £000 12,831 1,339 369 46 79 264 343 2017 £000 12,132 1,162 353 28 14,585 13,675 2018 Number 12 2017 Number 12 2018 £000 993 126 50 46 2017 £000 1,155 140 49 28 1,215 1,372 2018 £000 548 36 46 2017 £000 773 35 28 Number Number 2 2 Directors’ remuneration is analysed in detail in the Directors’ Remuneration Report on pages 13 to 15. The total amount payable to the highest paid director in respect of remuneration was £250,000 (2017: £376,000). Company pension contributions of £21,000 (2017: £21,000) were made to a money purchase pension scheme on his behalf. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 33 26038 Proof Five 27 June 2018 10:11 AM 33 27/06/2018 10:22:28 SECTION 2 RESULTS OF THE YEAR CONTINUED 6 FINANCE COSTS Bank overdraft interest payable Finance cost of pensions (see note 22) (cid:26) (cid:50)(cid:51)(cid:40)(cid:53)(cid:36)(cid:55)(cid:44)(cid:49)(cid:42) (cid:51)(cid:53)(cid:50)(cid:41)(cid:44)(cid:55)(cid:483) (cid:480)(cid:47)(cid:50)(cid:54)(cid:54)(cid:481) 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 loss/ (gain) 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 19% (2017: 20%) 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 2018 £000 (377) (126) (503) 2018 £000 (16) 1,425 64 55 10 2017 £000 (164) (160) (324) 2017 £000 (1) 1,197 93 33 7 15,352 12,257 60 127 24 40 6 – 117 95 205 2018 £000 138 (21) 21 40 5 – 188 87 398 2017 £000 (38) 212 430 (49) (1) 380 342 (147) (26) 61 (112) 100 34 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 34 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:28 Financial Statements The Corporation tax rate will fall 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 £nil (2017: £292,000) and wrote off £445,000 of deferred tax assets relating to brought forward losses previously recognised. 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 (Loss)/ profit on ordinary activities before tax Corporation tax charge at standard rate of 19% (2017: 20%) on (loss)/ profit before tax Adjusted by the effects of:- Expenses not deductible for tax purposes Timing differences Deferred tax asset write off 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 2018 £000 – (2) 12 – 10 10 2018 £000 – 6 6 2018 £000 (471) (89) 51 (15) 445 – (49) (1) 342 2017 £000 – (122) 60 53 (9) (9) 2017 £000 – (1) (1) 2017 £000 54 11 69 (15) – – (26) 61 100 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 35 26038 Proof Five 27 June 2018 10:11 AM 35 27/06/2018 10:22:28 SECTION 2 Results of the Year CONTINUED 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 2018 £000 – – 2017 £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: 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 2018 £’000 Underlying 2018 £’000 Non Underlying 2018 £’000 Total 2017 £’000 Underlying – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,810 (1,942) 868 (572) 296 (22) 274 (55) 219 2017 £’000 Non Underlying – – – (1,451) (1,451) – 2017 £’000 Total 2,810 (1,942) 868 (2,023) (1,155) (22) (1,451) (1,177) 305 (1,146) Cash flows generated by Chamberlin & Hill Leicester Ltd for the reporting periods under review are as follows: Operating activities Investing activities Financing activities 2018 £000 – – – – 250 (927) 2017 £000 203 (7) (554) (358) 36 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 36 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:28 Financial Statements SECTION 3 Operating Assets and Liabilities (cid:20)(cid:20) (cid:480)(cid:47)(cid:50)(cid:54)(cid:54)(cid:481)(cid:483) (cid:40)(cid:36)(cid:53)(cid:49)(cid:44)(cid:49)(cid:42)(cid:54) (cid:51)(cid:40)(cid:53) (cid:54)(cid:43)(cid:36)(cid:53)(cid:40) 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 28, 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 (continuing operations) (Loss)/ earnings per share (pence) from continuing operations: underlying diluted underlying Discontinued operations (loss)/ earnings for basic earnings per share Exceptional costs Taxation effect of the above Earnings for underlying earnings per share (discontinued operations) Earnings per share (pence) from discontinued operations: underlying diluted underlying Total (loss)/ earnings per share (pence): underlying diluted underlying Weighted average number of ordinary shares Adjustment to reflect shares under options Weighted average number of ordinary shares - fully diluted 2018 £000 (813) 60 344 46 (85) (448) (5.6) (5.6) 2018 £000 – – – – – – (5.6) (5.6) 2018 Number ’000 7,958 350 8,308 2017 £000 (46) 138 359 28 (104) 375 4.7 4.5 2017 £000 (927) 1,451 (305) 219 2.8 2.6 7.5 7.1 2017 Number ’000 7,958 350 8,308 As at 31 March 2018 and 31 March 2017, 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 37 26038 Proof Five 27 June 2018 10:11 AM 37 27/06/2018 10:22:28 SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 2 RESULTS OF THE YEAR CONTINUED (cid:20)(cid:21) (cid:40)(cid:59)(cid:38)(cid:40)(cid:51)(cid:55)(cid:44)(cid:50)(cid:49)(cid:36)(cid:47) (cid:38)(cid:50)(cid:54)(cid:55)(cid:54) (cid:36)(cid:49)(cid:39) (cid:49)(cid:50)(cid:49)(cid:482)(cid:56)(cid:49)(cid:39)(cid:40)(cid:53)(cid:47)(cid:60)(cid:44)(cid:49)(cid:42) 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 2018 £000 60 60 46 218 324 2017 £000 138 138 28 199 365 – 1,451 (52) 272 (363) 1,453 During 2017 and continuing into 2018 the Group continued to rationalise its operations. 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. 38 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 38 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:28 Financial Statements Land and buildings £000 Plant and machinery £000 Motor vehicles £000 6,099 240 (35) 6,304 80 – 6,384 2,379 227 (7) 2,599 239 – 2,838 3,546 3,705 3,720 20,693 3,498 (1,731) 22,460 2,878 (167) 25,171 16,313 967 (1,294) 15,986 1,186 (158) 17,014 8,157 6,474 4,380 89 – (41) 48 – – 48 77 3 (32) 48 – – 48 – – 12 Total £000 26,881 3,738 (1,807) 28,812 2,958 (167) 31,603 18,769 1,197 (1,333) 18,633 1,425 (158) 19,900 11,703 10,179 8,112 SECTION 3 OPERATING ASSETS AND LIABILITIES 13 PROPERTY, PLANT AND EQUIPMENT Group Cost At 1 April 2016 Additions Disposals At 31 March 2017 Additions Disposals At 31 March 2018 Depreciation At 1 April 2015 Charge for year Disposals At 31 March 2017 Charge for year Disposals At 31 March 2018 Net book value At 31 March 2018 At 31 March 2017 At 1 April 2016 Included within plant and machinery is £nil (2017: £1,063,000) relating to assets under the course of construction which is not depreciated. Included within plant and machinery are assets with net book value of £2,962,000 (2017:£1,815,000) relating to assets held under finance leases. Included within prior 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 previous year. Net book value of land and buildings comprises: Freehold Short leasehold (leasehold improvements) 2018 £000 3,433 113 3,546 2017 £000 3,592 113 3,705 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 39 26038 Proof Five 27 June 2018 10:11 AM 39 27/06/2018 10:22:28 SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 13 PROPERTY, PLANT AND EQUIPMENT continued Company Cost At 1 April 2016 Disposals At 31 March 2017 Additions Disposals At 31 March 2018 Depreciation At 1 April 2016 Charge for year Disposals At 31 March 2017 Charge for year Disposals At 31 March 2018 Net book value At 31 March 2018 At 31 March 2017 At 1 April 2016 Freehold land included above not subject to depreciation amounted to: 2018 2017 Land and buildings £000 Plant and machinery £000 Motor vehicles £000 1,670 – 1,670 – – 1,670 870 27 – 897 28 – 925 745 773 800 106 (13) 93 4 – 97 70 9 (13) 66 8 – 74 23 27 36 27 (27) – – – – 15 2 (17) – – – – – – 12 Total £000 1,803 (40) 1,763 4 – 1,767 955 38 (30) 963 36 – 999 768 800 848 Group £000 743 743 Company £000 743 743 40 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 40 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:29 Financial Statements Impairment Testing The Group has identified indications of impairment at one of its cash generating units (CGUs), Russell Ductile Castings Limited, within the foundry segment, and as such has performed an impairment review on the carrying value of the property, plant and equipment and intangible assets at this CGU. The decline in turnover and the losses generated at Russell Ductile Castings are the impairment indications which have led to the impairment review being performed. Impairment has been assessed by comparing the book value of assets against their recoverable amounts. The recoverable amount of a CGU’s assets is the higher of its fair value less costs to sell and its value in use. Value in use is determined using cash flow projections from financial budgets approved by the Board. The projected cash flows reflect the latest expectations of demand for products in year 1 and 2 and are extrapolated to year 10 using a 2.0% growth rate that is the long-term growth rate of the UK economy. The projected cash flows reflect an expected return to profitability in 2018/19 and a full realisation of cost saving programmes that require a certain gestation period to fully mature. The key sensitivities around these projections are the return of sales volumes and the full fruition of cost saving initiatives. The key assumptions in these calculations are the long-term growth rates and discount rate applied to the forecast cash flows in addition to the achievement of the forecasts themselves. The long term growth rate used is based on economic forecasts of the long-term growth rate for the UK. The pre-tax discount rate used is based on the Group pre-tax weighted average cost of capital of 7.9%. It was concluded that the recoverable amount of the CGU was greater than the book value of the CGU’s assets and as such no impairment charge is deemed necessary. 14 INTANGIBLE ASSETS Software Development costs Group Company 2018 £000 272 155 427 2017 £000 320 141 461 2018 £000 3 – 3 2017 £000 4 – 4 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 41 26038 Proof Five 27 June 2018 10:11 AM 41 27/06/2018 10:22:29 SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 14 INTANGIBLE ASSETS continued Software Cost At 1 April 2016 Additions Disposals At 31 March 2017 Additions Disposals At 31 March 2018 Amortisation/ impairment At 1 April 2016 Charge for the year Disposals At 31 March 2017 Charge for year Disposals At 31 March 2018 Net Book Value At 31 March 2018 At 31 March 2017 At 1 April 2016 Group £000 Company £000 1,021 41 (70) 992 16 – 1,008 649 93 (70) 672 64 – 736 272 320 372 22 5 – 27 – – 27 22 1 – 23 1 – 24 3 4 – Included within prior 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 previous year. 42 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 42 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:29 Financial Statements Group £000 Company £000 267 133 400 24 424 252 7 – 259 10 269 155 141 15 – – – – – – – – – – – – – – Software has an estimated useful life of between 3 and 10 years. Development costs capitalised Cost At 1 April 2016 Additions At 31 March 2017 Additions At 31 March 2018 Amortisation/ impairment At 1 April 2016 Charge for year Disposal At 31 March 2017 Charge for year At 31 March 2018 Net Book Value At 31 March 2018 At 31 March 2017 At 1 April 2016 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 2018 £000 1,270 941 1,340 3,551 2017 £000 1,198 940 1,209 3,347 2018 £000 2017 £000 – – – – – – – – www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 43 26038 Proof Five 27 June 2018 10:11 AM 43 27/06/2018 10:22:29 SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 16 TRADE AND OTHER RECEIVABLES Trade receivables Amounts due from subsidiary undertakings Other receivables Prepayments Group Company 2018 £000 6,773 – 668 544 2017 £000 6,857 – 373 326 7,985 7,556 2018 £000 – 156 70 28 254 2017 £000 – 153 88 9 250 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 2018 of £6,773,000 (2017: £6,857,000) of which an invoice finance liability of £4,740,000 (2017: £3,510,000) was secured against. The total available invoice finance facility as at 31 March 2018 was £7,000,000 (2017: £7,000,000). Trade receivables are denominated in the following currencies: Sterling Euro US Dollar Group Company 2018 £000 3,728 2,955 90 6,773 2017 £000 4,178 2,547 132 6,857 2018 £000 2017 £000 – – – – – – – – Out of the carrying amount of trade receivables of £6,773,000 (2017: £6,857,000), £3,443,000 (2017: £2,988,000) 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 2018 trade receivables at a nominal value of £23,000 (2017: £6,000) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows: At 1 April Charge for year Amounts written off Provision release At 31 March Group Company 2017 £000 16 9 (7) (12) 6 2018 £000 2017 £000 – – – – – – – – 2018 £000 6 17 – – 23 44 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 44 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:29 Financial Statements The analysis of trade receivables that were past due but not impaired is as follows: Neither past due nor impaired £000 6,528 6,638 Total £000 6,773 6,857 Past due but not impaired <30 days £000 30-60 days £000 60-90 days £000 90-120 days £000 > 120 days £000 207 239 21 (20) 2 – 14 – 1 – 2018 2017 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 2018 £000 6,680 93 6,773 2017 £000 6,608 249 6,857 2018 £000 – – – 2017 £000 – – – Of the balance in respect of counterparties with internal ratings 2% (2017: 1%) is in respect of new customers, and 98% (2017: 99%) 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 2018 £000 – 2017 £000 – 2018 £000 107 2017 £000 101 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 45 26038 Proof Five 27 June 2018 10:11 AM 45 27/06/2018 10:22:29 SECTION 4 Capital Structure CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 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 2018 £000 485 – 4,740 1,137 627 6,989 2017 £000 216 200 3,510 1,235 359 5,520 2018 £000 1,772 – – – – 1,772 2017 £000 – – – – – – 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 2019. The net overdraft position as at 31 March 2018 was £485,000 (2017: £216,000), this comprises cash balances of £1,735,000 (2017: £533,000) and bank overdrafts of £2,220,000 (2017: £749,000). Interest is payable at 2.0% (2017: 2.0%) over base rate. Asset finance loans were fully repaid in the year. Previously they were secured against various items of plant and machinery across the Group. 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 2018 was £7,000,000 (2017: £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 2018 £000 4,669 600 208 1,970 18 7,465 2017 £000 4,196 516 223 1,877 87 6,899 2018 £000 – 33 24 510 – 567 2017 £000 – 35 7 1,094 – 1,136 Trade payables are non-interest bearing and are normally on terms of 30 to 60 days. 46 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 46 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:29 Financial Statements 18 NON CURRENT LIABILITIES Financial liabilities Instalments due on finance leases Group Company 2018 £000 1,889 1,889 2017 £000 1,308 1,308 2018 £000 – – 2017 £000 – – Finance leases are secured against the specific item to which they relate. These leases are repayable by monthly instalments for a period of five (2017: five) years to January 2023. £609,000 is repayable in 1-2 years (2017: £344,000), £1,280,000 within 2-5 years (2017: £943,000) and £nil in greater than 5 years (2017: £21,000). Interest is payable at a fixed amount that ranges between 3.1% and 6.2%. Provisions for liabilities As at 31 March 2016 & 2017 Charge for the year As at 31 March 2018 Dilapidations £000 200 – 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 share options Capital gains rolled over 2018 £000 23 2017 £000 27 2018 £000 6 2018 £000 6 17 23 Total £000 200 – 200 2017 £000 – 2017 £000 – 27 27 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 47 26038 Proof Five 27 June 2018 10:11 AM 47 27/06/2018 10:22:29 SECTION 5 Other Supporting Notes CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 18 NON CURRENT LIABILITIES continued 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 Temporary differences relating to cash flow hedges Other temporary differences Group Company 2018 £000 239 864 – – 3 30 1,136 2017 £000 473 886 1 103 – 35 1,498 2018 £000 13 864 – – – 23 900 2017 £000 13 886 1 – – 6 906 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 carried forward for which a deferred tax asset has not been recognised total £579,000 (2017: £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 2038, based on the April 2016 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 2038. 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 charge of £380,000 (2017: credit of £122,000), a charge of £361,000 (2017: credit of £112,000) was recognised within the consolidated income statement, a charge of £10,000 (2017: credit of £9,000) was recognised within other comprehensive income and a charge of £6,000 (2017: credit of £1,000) recognised within the consolidated statement of changes in equity. 48 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 48 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:29 SECTION 4 CAPITAL STRUCTURE 19 SHARE CAPITAL Allotted, called up and fully paid 7,958,126 (2017: 7,958,126) Ordinary shares of 25p Financial Statements 2018 £000 1,990 2017 £000 1,990 During the year no shares (2017: none) were issued to directors to satisfy share options at nil (2017: nil) cost. During the year 600,000 share options lapsed (2017: 830,255), none were granted (2017: 350,000) and none (2017: 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 Remuneration Committee Report on page 13 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 2017 Granted Lapsed At 31 March 2017 Lapsed At 31 March 2018 Weighted average Exercise price (p) Remaining contractual life (years) 81.7 nil 70.2 61.7 97.7 nil 5.3 9.7 3.1 8.8 8.3 8.7 No. of options 1,430,255 350,000 (830,255) 950,000 (600,000) 350,000 Nil (2017: Nil) 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 2018, the total fair value of options was £22,000 (2017: £22,000), of which £7,000 was charged to the consolidated income statement (2017: charge of £2,000). The fair value of options granted in the year was £nil (2017: £22,000). The exercise price of options as at 31 March 2018 is nil (2017: nil p and 97.7p). www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 49 26038 Proof Five 27 June 2018 10:11 AM 49 27/06/2018 10:22:29 SECTION 5 Other Supporting Notes CONTINUED SECTION 4 CAPITAL STRUCTURE CONTINUED 20 SHARE BASED PAYMENTS continued The key assumptions in relation to the valuation of the outstanding options were: Grant date Maturity date Share price Expected volatility Expected life Risk free rate Expected dividend yield 2018 14-Dec-16 14-Dec-19 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 2018 was 63.5p (2017: 99.5p) and during the year ranged between 63.5p and 176.5p (2017: between 50.5p and 108.5p). 21 FIXED ASSET INVESTMENTS Shares in subsidiary undertakings Cost at 1 April 2017 and 1 April 2018 £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 products Chamberlin Foundry Ltd Intermediary holding company 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. 50 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 50 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:29 Financial 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 2018 was £218,000 (2017: £199,000) plus £126,000 of financing cost (2017: £160,000). 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 £369,000 (2017: £353,000). 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 2018 At 31 March 2017 At 31 March 2016 n/a 3.1% 2.5% 3.2% 2.2% n/a 3.3% 2.5% 3.3% 2.3% n/a 2.9% 3.5% 2.9% 2.1% Demographic assumptions are all based on the S2PA (2017: S2PA) 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 Future pensioners at 65 female male female 2018 Years 21.1 23.0 22.1 24.1 2017 Years 21.1 22.9 22.1 24.0 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 2019 are £271,000. Apart from this amount there are no other minimum funding requirements. The triennial valuation as at 1 April 2017 was completed during the year and concluded that in return for maintaining the previous contribution arrangements and extending the deficit reduction period to 2038, the Company has given security over the Group’s land and buildings to the pension scheme. With effect from 1 April 2018 deficit reduction contributions will increase to £22,547 per month (previously £21,890 per month), with a 3% annual increase thereafter. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 51 26038 Proof Five 27 June 2018 10:11 AM 51 27/06/2018 10:22:30 SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 22 PENSION ARRANGEMENTS continued 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 2018 £000 11,802 1,280 28 97 2017 £000 12,325 1,143 30 50 13,207 13,548 (18,287) (18,757) (5,080) 864 (4,216) (5,209) 886 (4,323) 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 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 Year to 31 March 2018 £000 Year to 31 March 2017 £000 (126) (126) (160) (160) Year to 31 March 2018 £000 Year to 31 March 2017 £000 (151) (129) 291 (3) 8 2,703 (599) (254) (1,238) 612 Year to 31 March 2018 £000 Year to 31 March 2017 £000 334 1,673 Year to 31 March 2018 £000 Year to 31 March 2017 £000 (5,209) (4,692) 263 (126) (8) 255 (160) (612) (5,080) (5,209) 52 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 52 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:30 Financial Statements 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 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 13.5 years (2017: 14.0 years). A quantitative sensitivity analysis for significant assumptions as at 31 March 2018 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 2018 £000 Year to 31 March 2017 £000 13,548 12,974 331 3 263 (938) – 435 1,238 255 (1,354) – 13,207 13,548 Year to 31 March 2018 £000 Year to 31 March 2017 £000 18,757 457 (151) (129) 291 (938) 18,287 17,666 595 2,703 (599) (254) (1,354) 18,757 2018 £000 16,111 19,324 19,102 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 2018 amounted to £7,106,000 (2017: £7,134,000). www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 53 26038 Proof Five 27 June 2018 10:11 AM 53 27/06/2018 10:22:30 SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 24 FINANCIAL COMMITMENTS Capital expenditure Contracted for but not provided in the accounts Group Company 2018 £000 173 2017 £000 137 2018 £000 – 2017 £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. Lease commitments The Group had total outstanding commitments under operating leases as follows: Future minimum payments due: Not later than one year After one year but not more than five years After five years Group Company 2018 £000 297 562 374 2017 £000 535 694 401 1,233 1,630 2018 £000 67 91 – 158 2017 £000 63 52 – 115 Leases on land and buildings comprise the lease 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. 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 50% 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 assets denominated in Euros of £1,146,000 (2017: liabilities of £1,290,000). 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 2018, 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. 54 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 54 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:30 Financial Statements 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 £738,000 (2017: £684,000). 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 2018 At 31 March 2017 Contracted amount (Euros ‘000) 17,547 16,781 Weighted average contract rate 1.13 1.17 Contracted amount £’000 15,502 14,373 Contracted amount at year end rate £’000 15,463 14,392 Unrealised gain/ (loss) £’000 39 (19) 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 £26,000 reduction in profit before tax (2017: £19,000). An equivalent decrease in rates would increase profit before tax by £26,000 (2017: £19,000). 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 2018 £000 (2,190) 1,705 (2,284) (2,377) (79) – (2,516) (1,137) (8,878) 2017 £000 1,944 (2,160) (1,791) (1,580) (139) (200) (1,667) (1,235) (6,828) 2018 £000 (1,772) – – – – – – – (1,772) 2017 £000 – – – – – – – – – 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 £17,000 (2017: £9,000). www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 55 26038 Proof Five 27 June 2018 10:11 AM 55 27/06/2018 10:22:30 SECTION 5 Other Supporting Notes CONTINUED 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, hire purchase and equity. The Group’s £0.5m overdraft facility is renewable annually and is renewable in March 2019. The Group’s £7.0m invoice finance facility is renewable in March 2019, 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. 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 Group’s finance team performs valuations of financial items for financial reporting purposes. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to the Group Finance Director and to and the audit committee. Valuation processes fair value changes are discussed among the audit committee and the valuation team at least every year, in line with the Group’s reporting dates. The following valuation techniques are used for instruments categorised in Levels 2 and 3: Æ Foreign currency forward contracts (Level 2) – The Group’s foreign currency forward contracts are not traded in active markets. These contracts have been fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. The effects of non-observable inputs are not significant for foreign currency forward contracts. The table below summarises the maturity profile of the Group’s financial assets and liabilities, which are all classified as level 2, at 31 March 2018 and 31 March 2017. 56 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 56 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:30 Financial Statements The carrying value of the Group’s financial assets and liabilities is considered to be the same as the fair value. On demand Less than one year 1 to 2 years 2 to 5 years Greater than 5 years Total At 31 March 2018 Financial assets Trade receivables Non-derivative financial liabilities Bank overdraft Invoice finance Finance leases, including interest Import loan, including interest Trade payables At 31 March 2017 Financial assets Trade receivables Non-derivative financial liabilities Bank overdraft Invoice finance Asset loans, including interest Finance leases, including interest Import loan, including interest Trade payables 6,773 485 4,740 – – – 5,225 6,857 216 3,510 – – – – 3,726 – – 691 1,182 4,669 6,542 – – 211 428 1,284 4,196 6,119 – – – – 672 1,417 – – – – 672 1,417 – – – – – – 413 1,044 – – – – 413 1,044 6,773 485 4,740 2,780 1,182 4,669 13,856 6,857 216 3,510 211 1,906 1,284 4,196 11,323 – – – – – – – – – 21 – – 21 The gross undiscounted future cash flows are analysed as follows: Derivative financial liabilities At 31 March 2018 Foreign Exchange forward contracts On demand Less than one year 1 to 2 years 2 to 5 years Total – – 11,989 11,989 3,474 3,474 – – 15,463 15,463 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 2017 Foreign Exchange forward contracts – – 11,198 11,198 3,194 3,194 – – 14,392 14,392 The Company’s financial liabilities comprise the bank overdraft of nil £1,772,000 (2017: £nil) and is payable on demand. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 57 26038 Proof Five 27 June 2018 10:11 AM 57 27/06/2018 10:22:30 SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 25 DERIVATIVES AND FINANCIAL INSTRUMENTS continued Capital management The Group defines capital as the total equity of the Group, which at the year end is £3,156,000 (2017: £3,878,000). 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. 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 2018 £000 1,388 – 46 66 2017 £000 1,722 57 28 66 1,500 1,873 2018 £000 619 – 46 36 701 2017 £000 880 – 28 35 943 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. 58 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 58 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:30 Financial Statements 27 NET DEBT At 1 April 2016 Cashflow Interest At 31 March 2017 Cashflow Interest At 31 March 2018 Balances comprise: Current liabilities Non-current liabilities Net overdraft £’000 126 64 26 216 238 31 485 485 – 485 Invoice finance £’000 2,582 851 77 3,510 1,083 147 4,740 4,740 – 4,740 Asset loan £’000 400 (206) 6 200 (206) 6 – – – – Finance leases £’000 84 1,581 2 1,667 792 57 2,516 627 1,889 2,516 Import loan £’000 – 1,186 49 1,235 (145) 47 1,137 1,137 – 1,137 Total £’000 3,192 3,476 160 6,828 1,762 288 8,878 6,989 1,889 8,878 28 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. 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 04 to 07. 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 2019 (no indication that this won’t be renewed in March 2019), £0.5m overdraft renewable in March 2019 (the Group is not reliant on this renewal), finance leases of £2.5m repayable over 5 years and an import loan of £1.1m. 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 59 26038 Proof Five 27 June 2018 10:11 AM 59 27/06/2018 10:22:30 SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 28 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued 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. 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. 60 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 60 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:30 Financial Statements Business Combinations prior to 1 April 2010 Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the cash paid, and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair value at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the 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. 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 61 26038 Proof Five 27 June 2018 10:11 AM 61 27/06/2018 10:22:31 SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 28 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued 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. 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. 62 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 62 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:31 Financial Statements 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 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 2018 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 63 26038 Proof Five 27 June 2018 10:11 AM 63 27/06/2018 10:22:31 SECTION 5 OTHER SUPPORTING NOTES CONTINUED 28 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued 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: Æ 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. 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. 64 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 64 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:31 Financial Statements 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. 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. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 65 26038 Proof Five 27 June 2018 10:11 AM 65 27/06/2018 10:22:31 SECTION 5 OTHER SUPPORTING NOTES CONTINUED 28 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued 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 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. Financial Leases Management applies judgement in considering the substance of a lease agreement and whether it transfers substantially all the risks and rewards incidental to ownership of the leased asset. Key factors considered include the length of the lease term in relation to the economic life of the asset, the present value of the minimum lease payments in relation to the asset’s fair value, and whether the Group obtains ownership of the asset at the end of the lease term. For leases of land and buildings, the minimum lease payments are first allocated to each component based on the relative fair values of the respective lease interests. Each component is then evaluated separately for possible treatment as a finance lease, taking into consideration the fact that land normally has an indefinite economic life. The interest element of lease payments is charged to profit or loss, as finance costs over the period of the lease. 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. 66 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 66 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:31 Financial Statements 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. No development costs have been deemed to be impaired during the year. 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. Note 13 provides details of the impairment review undertaken during the period. Æ Defined benefit scheme pension liabilities – the cost of the closed defined benefit pension plan is determined using actuarial valuations. The actuarial valuation, which is undertaken by external experts, involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Note 22 provides details of the defined pension scheme liabilities and valuation assumptions. 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. No restructuring provisions are included in the current year figures. 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. Note 18 provides details of the deferred tax assets. Æ Impairment of business incentives – the Group classifies business incentive payments made upfront for the award of contracts within prepayments. These business incentives are amortised to the P&L through sales over a 5 year period. The Group undertakes an impairment review at each reporting period to ensure each contract relating to the business incentive payment still has an economic benefit to the Group. Business incentive payments are included within other receivables within note 16. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 67 26038 Proof Five 27 June 2018 10:11 AM 67 27/06/2018 10:22:31 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC Opinion Our opinion on the financial statements is unmodified We have audited the financial statements of Chamberlin Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March 2018, which comprise the consolidated income statement, consolidated and parent company balance sheets, the consolidate statement of comprehensive income, the consolidated and parent company cash flow statements, the consolidated and parent company statements of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. 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 2018 and of the group’s loss for the year then ended; Æ the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; Æ the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and Æ the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Who we are reporting to 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. 68 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 68 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:31 Financial Statements Conclusions relating to going concern We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where: Æ the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or Æ the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue. Overview of our audit approach Æ Overall materiality: £565,000, which represents 1.5% of the group’s total revenues. Æ Key audit matters were identified as revenue recognition, impairment of fixed assets and valuation of defined benefit pension scheme for the group. Æ We have performed full-scope audit procedures on the financial statements of Chamberlin Plc and on the financial information of all subsidiaries of Chamberlin Plc. Key audit matters The graph below depicts the audit risks identified and their relative significance based on the extent of the financial statement impact and the extent of management judgement. Revenue recognition Valuation of defined benefit pension scheme Impairment of fixed assets Debtors existence Inventory valuation Inventory existence Deferred tax asset valuation (Group) Hedge accounting High Potential financial statement impact Low Low Extent of management judgement High Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 69 26038 Proof Five 27 June 2018 10:11 AM 69 27/06/2018 10:22:31 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC CONTINUED Key Audit Matter – Group How the matter was addressed in the audit – Group Revenue recognition Revenue is recognised when the significant risks and rewards of ownership of the goods, 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 is the key driver of the business and used as an important benchmark by analysts for assessing the health of the company. Due to the presumed risk of fraud that revenue may be misstated due to improper revenue recognition, we have identified revenue recognition (focussing on occurrence) as a significant risk, which was one of the most significant assessed risks of material misstatement. Our audit work included, but was not restricted to: Æ evaluating the revenue recognition accounting policies for appropriateness in accordance with the requirements of International Accounting Standard (IAS) 8 ‘Revenue’ and executing audit procedures to provide evidence that revenue was accounted for in accordance with these policies. Æ testing a sample of revenue transaction across each subsidiary by agreeing amounts to contracted amounts, cash receipts and/or proof of delivery where applicable. Æ assessing revenue analytically by comparing revenue recognised during the year to prior years and corroborating fluctuations by computing ratios relevant to the group, verifying that the underlying data used in the analytics is valid and comparing results to expectations. Æ determining that a sale has occurred in the financial year for revenue recorded through journal entries by sampling invoices raised during the cut-off period and testing whether they relate to goods dispatches in the correct period. The group’s accounting policy on revenue recognition is shown in note 28 to the financial statements and related disclosures are included in note 3. Key observations Based on our audit work, we did not identify any evidence of material misstatement in the revenue recognised in the year to 31 March 2018. 70 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 70 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:31 Financial Statements Key Audit Matter – Group How the matter was addressed in the audit – Group Impairment of fixed assets The process for assessing whether an impairment exists under International Accounting Standard (IAS) 36 ‘Impairment of Assets’ is complex. Directors’ assessment of the value in use of the group’s Cash Generating Units (CGUs) involves judgement about the future performance of the CGU and the discount rates applied to future cash flow forecasts. Therefore, we identified impairment of fixed assets as a significant risk, which was one of the most significant assessed risks of material misstatement. Our audit work included, but was not restricted to: Æ testing the methodology applied in the value in use calculation complies with the requirements of IAS 36, ‘Impairment of Assets’, including assessing whether impairment indicators exist and if so, were they evaluated in accordance with the accounting policy. Æ testing the mathematical accuracy of management’s model. Æ corroborating valuation of assets in question to third party valuation reports, where applicable. Æ testing the key underlying assumptions for the financial year 2019 budget by making inquiries of management on its knowledge of future actions that directly impact growth rate and profitability margins and challenging them on the feasibility of such future actions. Æ challenging management on its cash flow forecast and the implied growth rates for the financial year 2019 and beyond, considering evidence available to support these assumptions. Æ assessing the discount rates used in the forecast by performing a sensitivity analysis to test the reactivity of the estimate to possible changes in assumptions. Æ performing a sensitivity analysis in respect of the key assumptions such as discount and growth rates to ensure there was sufficient headroom in their calculation. The group’s accounting policy on impairment is shown in note 28 to the financial statements and related disclosures are included in note 13. Key observations Based on our audit work, we found that the assumptions made and estimates used in management’s assessment of fixed asset impairment were reasonable. Note 13 also appropriately discloses the assumptions used in arriving at the estimate. We found no errors in the calculations. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 71 26038 Proof Five 27 June 2018 10:11 AM 71 27/06/2018 10:22:31 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC CONTINUED Key Audit Matter – Group How the matter was addressed in the audit – Group Valuation of defined benefit pension scheme The group operates a defined benefit pension scheme that provides benefits to a number of current and former employees. At 31 March 2018, the defined benefit pension schemes’ deficit was £5.1 million. The gross value of pension scheme assets and liabilities, which form the deficit amount to £9.5 million and £15.6 million respectively. The valuation of the pension liabilities and assets in accordance with IAS 19 ‘Employee Benefits’ involves significant judgement and is subject to complex actuarial assumptions. Small variations in those actuarial assumptions can lead to a materially different defined benefit pension scheme asset or liability being recognised within the group financial statements. Therefore, we identified the valuation of the defined benefit pension scheme as a significant risk, which was one of the most significant assessed risks of material misstatement. Our audit work included, but was not restricted to: Æ testing the methodology applied in valuation of the pension arrangements and assessing compliance with IAS 19 ‘Employee Benefits’, including assessing whether the liabilities arising from the defined benefit scheme including return on plan assets were being evaluated in accordance with the accounting policy. Æ using an actuarial specialist to review the assumptions used, including discount rates, price inflation, pension rate increases, mortality rates and the calculation methods employed in the calculation of the pension liability. Æ corroborating the pension scheme assets with statements issued by external asset managers. The group’s accounting policy on defined benefit pension scheme is shown in note 28 to the financial statements and related disclosures are included in note 22. Key observations Based on our audit work, we found the valuation methodologies including the inherent actuarial assumptions to be reasonable and consistent with the expectation of our actuarial specialists. We consider that the group’s disclosures on page 51 appropriately describe the significant degree of inherent imprecision in the assumptions and estimates and the potential impact on future periods of revisions to these estimates. We found no errors in calculations. 72 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 72 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:31 Financial Statements Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. Materiality was determined as follows: Materiality measure Group Parent Financial statements as a whole £565,000, which is 1.5% of the group’s total revenues. This benchmark is considered the most appropriate because this is a key performance measure used by the Board of Directors to report to investors on the financial performance of the group. Materiality for the current year is higher than the level that we determined for the year ended 31 March 2017 as a result of increases in revenue. £136,000, which is 1.5% of the company’s total assets excluding the deferred tax asset, income tax receivable and amount due from subsidiary undertakings. This benchmark is considered the most appropriate because this is a key performance measure used by the Board of Directors to report to investors on the financial performance of the company whose principal activity is that of an investment holding company. Materiality for the current year is lower than the level that we determined for the year ended 31 March 2017 as a result of decreases in total assets. Performance materiality used to drive the extent of our testing Specific materiality Based on our risk assessment, including the group’s overall control environment, we determined a performance materiality of 75% of the financial statement materiality. This is consistent with performance materiality in the previous year. Based on our risk assessment, including the company’s overall control environment, we determined a performance materiality of 75% of the financial statement materiality. This is consistent with performance materiality in the previous year. We determined a lower level of materiality for certain areas such as directors’ remuneration and related party transactions. We determined a lower level of materiality for certain areas such as directors’ remuneration and related party transactions. Communication of misstatements to the audit committee £28,250 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £9,700 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 73 26038 Proof Five 27 June 2018 10:11 AM 73 27/06/2018 10:22:31 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC CONTINUED The graph below illustrates how performance materiality interacts with our overall materiality and the tolerance for potential uncorrected misstatements. Overall materiality - group Overall materiality - parent 25% 25% 75% 75% Tolerance for potential uncorrected misstatements Performance materiality An overview of the scope of our audit Our audit approach was a risk-based approach founded on a thorough understanding of the group’s business, its environment and risk profile including performing walkthroughs of management’s processes and assessing the design effectiveness of key controls. The subsidiaries of the group were evaluated by the audit team based on a measure of materiality considering each as a percentage of total group assets, liabilities, revenues and profit before taxes, to assess its significance in relation to the overall group and to determine the planned audit response. In order to address the audit risks described above as identified during our planning procedures, we performed a full-scope audit of the financial statements of the parent company, Chamberlin Plc and on the financial information of the group’s subsidiaries. The operations that were subject to full-scope audit procedures made up 100 per cent of consolidated revenues and 100 per cent of total profit before tax. Other information The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Our opinion on other matters prescribed by the Companies Act 2006 is unmodified 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. 74 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 74 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:32 Financial Statements Matters on which we are required to report under the Companies Act 2006 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 in relation to which 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. Responsibilities of directors for the financial statements As explained more fully in the statement of directors’ responsibilities, 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, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. DAVID WHITE SENIOR STATUTORY AUDITOR for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Birmingham 4 June 2018 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 75 26038 Proof Five 27 June 2018 10:11 AM 75 27/06/2018 10:22:32 PARENT COMPANY BALANCE SHEET AT 31 MARCH 2018 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 Deferred tax 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 2018 £000 31 March 2017 £000 Notes 13 14 21 18 16 16 16 17 17 22 19 768 3 8,159 900 9,830 – 98 107 156 361 800 4 8,159 906 9,869 306 97 101 153 657 10,191 10,526 1,772 567 2,339 6 5,080 5,086 7,425 1,990 1,269 109 (602) 2,766 10,191 – 1,136 1,136 – 5,209 5,209 6,345 1,990 1,269 109 813 4,181 10,526 The loss dealt with in the accounts of the parent company was £1,449,000 (2017: profit of £403,000). KEVIN NOLAN DAVID ROBERTS DIRECTORS The accounts were approved by the Board of Directors on 4 June 2018 76 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 76 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:32 PARENT COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2018 Operating activities (Loss)/ profit for the year before tax Adjustments to reconcile (loss)/ profit for the year to net cash inflow/ (outflow) from operating activities: Net finance costs excluding pensions Investment income 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 (Decrease)/ increase in payables Net cash outflow from operating activities Investing activities Dividends received Purchase of property, plant and equipment Disposal of plant and equipment Net cash (outflow)/ inflow from investing activities Financing activities Interest paid Net cash 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 comprise: (Bank overdraft)/ cash in hand Financial Statements Year ended 31 March 2018 £000 Year ended 31 March 2017 £000 Note (1,579) 308 13 14 20 13 81 – 36 1 – 46 (137) 128 (569) 87 (2,450) 38 1 (1) 28 (95) 123 515 (1,993) (1,446) – (4) – (4) (81) (81) (2,078) 306 (1,772) (1,772) (1,772) 2,450 – 8 2,458 (87) (87) 925 (619) 306 306 306 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 77 26038 Proof Five 27 June 2018 10:11 AM 77 27/06/2018 10:22:32 PARENT COMPANY STATEMENT OF CHANGES IN EQUITY 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 Share capital £000 1,990 Share premium account £000 1,269 Capital redemption reserve £000 Retained earnings £000 Attributable to equity holders of the Company £000 109 923 4,291 – – – – – – – – – – – – – – – – – – 403 (542) (139) 28 1 29 813 403 (542) (139) 28 1 29 4,181 Balance at 1 April 2017 1,990 1,269 109 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 – – – – – – – – – – – – – – – – – – (1,449) (1,449) (6) (6) (1,455) (1,455) 46 (6) 40 46 (6) 40 Balance at 31 March 2018 1,990 1,269 109 (602) 2,766 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. 78 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 78 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:32 Financial Statements FIVE YEAR FINANCIAL SUMMARY Financial Highlights Revenue Underlying profit before tax Statutory profit before tax Underlying diluted earnings per share Dividend per share 31 March 2018 £000 31 March 2017 £000 31 March 2016 £000 31 March 2015 £000 37.7 (21) (471) (5.6) 0.0 32.1 579 54 7.1 0.0 35.0 652 (236) 5.5 0.0 40.8 803 76 7.2 0.0 31 March 2014 £000 38.6 (818) (2,116) (7.6) 0.0 Cash generated from operations 1,300 (106) 2,256 1,320 (1,497) REVENUE (£m) UNDERLYING PROFIT BEFORE TAX (£000) 2018 2017 2016 2015 2014 (21) 37.7 32.1 35.0 40.8 2018 2017 2016 2015 38.6 2014 (818) 579 652 803 STATUTORY PROFIT BEFORE TAX (£000) UNDERLYING DILUTED EARNINGS PER SHARE (p) 2018 2017 2016 2015 (5.6) (471) (236) 2018 2017 2016 2015 54 76 5.5 7.1 7.2 2014 (2,116) 2014 (7.6) DIVIDEND PER SHARE (p) CASH GENERATED FROM OPERATIONS (£000) 2018 0.0 2017 0.0 2016 0.0 2015 0.0 2014 0.0 2018 2017 2016 2015 2014 1,300 (106) 2,256 1,320 (1,497) www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 79 26038 Proof Five 27 June 2018 10:11 AM 79 27/06/2018 10:22:32 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 20 July 2018; 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 Tuesday 24 July 2018 at the Registered Office, Chuckery Road, Walsall, WS1 2DU at 10.30am 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 2018 (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 Flowerday 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 2018 (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 24 October 2019, 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). 80 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 26038 Proof Five 16 July 2018 4:11 PM Financial Statements 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) (ii) 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 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 £198,953, 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 24 October 2019, 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) (b) (c) the maximum aggregate number of Ordinary Shares which may be purchased is 795,812; the minimum price (exclusive of expenses) which may be paid for each Ordinary Share is 25 pence; 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 24 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). By order of the Board DAVID ROBERTS COMPANY SECRETARY 4 June 2018 Chuckery Road Walsall WS1 2DU www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 81 26038 Proof Five 27 June 2018 10:11 AM 81 27/06/2018 10:22:32 NOTICE OF ANNUAL GENERAL MEETING CONTINUED General Information A member is entitled to appoint another person (whether a member or not) as his or her proxy to exercise all or any of his or her rights to attend and to speak and vote at the Meeting for which purpose a form of proxy is enclosed. Proxies must be lodged at the office of the Company’s Registrars, Neville Registrars Ltd, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA, not later than 10.30am on 20 July 2018 (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 9 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 page 16‑19. Members should notify the Registrars without delay of any change of address. 82 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 26038 Proof Five 16 July 2018 4:11 PM Financial Statements SHAREHOLDER INFORMATION DIRECTORS Keith Butler-Wheelhouse (Non-Executive Chairman) Kevin Nolan (Chief Executive) David Roberts (Finance Director) Keith Jackson (Non-Executive) David Flowerday (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 www.chamberlin.co.uk STOCK CODE: CMH Chamberlin-AR2018.indd 83 26038 Proof Five 27 June 2018 10:11 AM 83 27/06/2018 10:22:33 SHAREHOLDER NOTES 84 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2018 Chamberlin-AR2018.indd 84 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:33 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. www.chamberlin.co.uk STOCK CODE: CMH 26038 Proof Five 27 June 2018 10:11 AM Chamberlin-AR2018.indd 6 26038 Proof Five 27 June 2018 10:11 AM 85 27/06/2018 10:22:07 Visit us online For more information on Chamberlin Group operations please visit our website at: www.chamberlin.co.uk 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 8 Chuckery Road, Walsall, West Midlands, WS1 2DU T: 01922 707100 F: 01922 638370 E: plc@chamberlin.co.uk Chamberlin-AR2018.indd 1 26038 Proof Five 27 June 2018 10:11 AM 26038 Proof Five 27 June 2018 10:11 AM 27/06/2018 10:22:05
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