Chordate Medical Holding Annual Report 2019

Plain-text annual report

26038 Proof 5 21 June 2019 10:38 am26038 Proof 5 21 June 2019 10:38 amAnnual Report and Accounts for the year ended 31 March 2019chamberlin plc DIFFICULT THINGSDONE WELLSTOCK CODE: CMHANNUAL REPORT AND ACCOUNTS for the year ended 31 March 201926775_Chamberlin_AR_2019.indd 321/06/2019 10:39:3426038 Proof 5 21 June 2019 10:38 am26038 Proof 5 21 June 2019 10:38 amSuccess in UK engineering has not been easy to achieve in recent years, but its requirements can be simply stated; winners must do difficult things and must do them well.We define “difficult things” as activities with high engineering content delivering technically demanding products or processes. To take profitable advantage of them it is essential that a business is properly managed and performs well.DIFFICULT THINGS DONE WELLInvestment Proposition Æ Operating in markets with high barriers to entry protected by process know-how or market regulation ÆOperating across diversified markets with sales driven by the global engineering economy – 63% of sales are exported Æ Growth opportunity in the turbocharger castings market benefiting from regulatory drivers ÆStrong, credible management team with a proven track record Æ Focused UK manufacturing in niche marketsVisit us onlineFor more information on Chamberlin Group operations please visit our website atwww.chamberlin.co.ukANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019chamberlin plc26775_Chamberlin_AR_2019.indd 421/06/2019 10:39:3726038 Proof 5 21 June 2019 10:38 amHighlightsFinancial ÆSale of engineering subsidiary, Exidor Ltd (‘Exidor’), was completed in December 2018 ÆRevenue growth continued on a like-for-like basis following the sale of Exidor ÆRevenues on continuing operations up 9.3% to £33.0m (2018: £30.2m) ÆGross margin of 11.4% (2018: 15.5%) ÆUnderlying operating loss before tax* of £0.9m (2018: £0.3m). This result is not directly comparable to 2018’s due to the adoption of IFRS 16, which has resulted in increased finance expense of £0.1m and reduced operating expenses of £0.1m in the year ÆNon-underlying profit of £2.9m, which was mainly generated from the sale of Exidor (£6.2m net profit) offset by an impairment of £3.0m on the fixed assets of the foundry operations ÆIFRS diluted loss per share for continuing operations increased to 16.8p (2018: loss per share of 12.4p) ÆCapital expenditure of £1.2m (2018: £3.0m), excluding £0.8m of leased assets due to early adoption of IFRS 16 ÆNet debt reduced to £5.4m as at the year-end (2018: £9.6m). This includes machining facility investment and IFRS 16 liabilities of £1.0m Operational ÆFoundry revenues grew by 11.2% to £29.3m, mainly reflecting a strong first half ÆContinuing Engineering revenues decreased by 3.8% to £3.6m primarily due to a weaker Quarter 4 because of Brexit uncertainties although profitability increased ÆSale of Exidor to ASSA ABLOY Limited for a headline consideration of £10.0m: —generated cash proceeds of £8.5m after deductions for net debt transferred, working capital, retentions and costs; —strengthened the Group’s balance sheet; —facilitated a one-off contribution of £2.5m towards the defined benefit pension liability201919.2(10.2)2018TOTAL EARNINGS PER SHARE 19.2pUNDERLYING LOSSBEFORE TAX (£1.3m)2019(1.3)(0.7)2018NET DEBT DECREASE/(INCREASE)£4.2m 20194.2(2.1)2018REVENUE ON CONTINUING OPERATIONS £33.0m 201933.030.22018STATUTORY LOSS BEFORE TAX (£5.0m)20192018(5.0)(1.1)CONTENTSOVERVIEWHighlights 01Chairman’s Statement 02Group Overview 03STRATEGIC REPORTChief Executive’s Review (including performance review of Engineering and Foundry divisions) 04Measurements and Targets 06Principal Risks and Uncertainties 07CORPORATE GOVERNANCEThe Board 09Corporate Governance Report 10Remuneration Report 12Directors’ Report 14 Statement of Directors’ Responsibilities 16FINANCIAL STATEMENTSIntroduction 19Primary Statements 20Section 1 – Basis of Preparation 28Section 2 – Results of the Year 30Section 3 – Operating Assets and Liabilities 38Section 4 – Capital Structure 48Section 5 – Other Supporting Notes 54Independent Auditor’s Report 66Audit Committee Report 74Parent Company Financial Statements 75Five Year Financial Summary 78Shareholder Information 79Chairman, Keith Butler–Wheelhouse, commented:“Although revenues are expected to reduce, we are positioning Chamberlin to deliver an improved operating financial performance in the 2019/20 financial year.”* Underlying figures relate to continuing operations and are stated before exceptional items (GMP equalisation, impairment of fixed assets and onerous leases) and non-underlying costs (administration costs of the pension scheme, net financing costs on pension obligations, and share based payment costs) together with the associated tax impact. www.chamberlin.co.ukSTOCK CODE: CMH01Overview26775_Chamberlin_AR_2019.indd 121/06/2019 10:39:4026038 Proof 5 21 June 2019 10:38 amFor the last several years we have been seeking to grow both our Foundry business and our two smaller engineering businesses. During the year we concluded that we did not have the financial resources to continue this growth on all fronts and accordingly set about finding a new owner for Exidor who would be better placed to develop this business, and who could reflect the potential of the business in the price. Exidor was accordingly sold to Assa Abloy for a headline consideration of £10m during the year.The proceeds were used to reduce both the level of debt and the pension deficit. The pension deficit as at the year-end was £2.6m compared to £5.1m last year.On a like-for-like basis net debt reduced from £9.6m in 2018 to £5.4m in 2019. Chamberlin chose to early adopt the new IFRS 16 accounting standard to capitalise finance leases, increasing the overall reported debt by £1.0m.Although each of our businesses grew during the year, the performance of our principal Foundry business deteriorated in the second half, with our automotive turbocharger customers reducing their schedules, partly reflecting upheavals in their activities as the car makers adjust their offerings in response to the new emissions testing regime.Our profit after tax of £1.5m incorporated the gain on the sale of Exidor which amounted to £6.2m, offset by an impairment of £3.0m on the fixed assets in the foundry division. The underlying operating loss on continuing operations was £0.9m (2018: £0.3m). We are now engaged in right-sizing our structure to reflect the reduced scale of the Group and the trading prospects ahead. The Board and StaffDavid Roberts resigned as Finance Director and Company Secretary and was replaced by Neil Davies in December 2018. Neil, formerly Finance Director of European Operations for International Automotive Components, has over 20 years’ experience in senior finance roles within high volume automotive manufacturing. I would like to record my thanks to David for his strong contribution to the Group and to extend a warm welcome to Neil.Chamberlin has a hard-working and dedicated team and, on behalf of the Board, I would like to thank everyone for their high level of commitment during the year. OutlookAlthough revenues are expected to show some reduction, we are positioning Chamberlin to deliver an improved financial performance in the 2019/20 financial year.KEITH BUTLER-WHEELHOUSECHAIRMAN3 June 2019CHAIRMAN’S STATEMENTKEITH BUTLER-WHEELHOUSE CHAIRMANANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019chamberlin plc0226775_Chamberlin_AR_2019.indd 221/06/2019 10:39:4326038 Proof 5 21 June 2019 3:32 pmGROUP AT A GLANCEGROUP OVERVIEWGlobal salesEngineering activity outside of the UK is a key driver of demand. Direct exports account for 63% 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 ManufacturingHEAD OFFICE 1 WalsallFOUNDRIES 2 Chamberlin & Hill Castings, Walsall 3 Chamberlin & Hill Castings, machining facility, Walsall 4 Russell Ductile Castings, ScunthorpeENGINEERING 5 Petrel, Birmingham2345 1Product areasChamberlin 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: ÆLight Castings based in Walsall produce castings up to 5kg in grey iron; ÆHeavy Castings based in Scunthorpe make 100kg and 6 tonne castings, again in a wide variety of iron grades. ÆThe 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.www.chamberlin.co.ukSTOCK CODE: CMHOverview0326775_Chamberlin_AR_2019.indd 321/06/2019 15:32:2826038 Proof 5 21 June 2019 10:38 amCHIEF EXECUTIVE’S REVIEWThe Group is pleased to report a profit after tax of £1.5m based on revenue of £33.0m. This was driven by a one-off profit of £6.2m from the disposal of Exidor, part of our engineering operations, partly offset by an impairment charge of £3.0m against some of our foundry fixed assets. Operationally, the technical issues faced during 2017-18 were mainly resolved by mid-2018 but the lower revenues in the second half resulted in the Group posting an underlying operational loss on continuing operations before finance cost and tax of £0.9m (2018: £0.3m loss).FoundriesFoundry revenues increased by 11% year-on-year from £26.4m to £29.3m benefiting from a full year contribution from our machining facility. Sales slowed in the second half due to the demand tightening in the European turbocharger market partly arising from the disruption to vehicle manufacturer’s schedules by the new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) emissions testing regime. Operating profits were held back in the first half by operational issues in our new machining facility which are now mainly resolved. In the second half the reducing volumes constrained the profit opportunity. Second half volumes in the turbocharger-focused Walsall business unit were 16% below the first half levels, and it was not possible to immediately reduce overheads in step with sales. Additionally, a foundry customer fell into administration, impacting our profit by approximately £0.1m.Underlying operating profit for the year for the continuing businesses was below break-even with a negative margin of -0.7% (2018: +2.0%). Overhead reduction and cost control are a main focus of the business as we adjust to the lower demand. The Group operates two foundries, at Walsall and Scunthorpe, each with a different specialisation. Our foundry at Walsall is our main operation and drives the majority of the foundry division’s sales. Walsall’s expertise is in producing small castings, typically below 3kg in weight, which have complex internal geometry. The complex geometry is achieved through the use of innovative core design and assembly techniques and, importantly, the foundry is capable of producing these castings in high volumes.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 increased as we continued to work to deepen and broaden customer relationships, and to achieve competitive pricing by means of operational efficiency.EngineeringThe sale of our Exidor business was a key event in the year. The headline consideration of £10m (giving rise to a profit on sale of £6.2m) allowed the Group to strengthen its balance sheet and make a one-off cash contribution into our closed final salary pension fund of £2.5m. Petrel, our remaining engineering business, 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. Revenues decreased by 3.8% year-on-year mainly due to concerns over Brexit by our customers but the business managed to grow profits by 9.6%, mainly due to excellent cost control. The transition to LED lighting provides growth opportunities and continues to be a main focus as well as developing the business’ portable light fittings range. ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019chamberlin plc04KEVIN NOLAN CHIEF EXECUTIVE26775_Chamberlin_AR_2019.indd 421/06/2019 10:39:4726038 Proof 5 21 June 2019 10:38 am100%Hazardous environments76%24%Light CastingsHeavy CastingsOUR ENGINEERING SITE PRODUCES LIGHTING AND CONTROL EQUIPMENT FOR USE IN HAZARDOUS AND EXPLOSIVE ENVIRONMENTS. OUR THREE FOUNDRY SITES CAST A RANGE OF PRODUCTS RANGING FROM 1KG UP TO 6,000KG AND DELIVER CASTINGS WITH COMPLEX GEOMETRY AND CHALLENGING METALLURGY. 2019(211)528201820192292018251Operating profitRevenue splitRevenue splitOperating profitFOUNDRY DIVISION ENGINEERING DIVISIONPERFORMANCE REVIEWFinancial Matters and OutlookChamberlin has adopted IFRS 16 ‘Accounting for Right-of-Use Assets’ early and the effect has been an increase in the reported net debt of £751k. Including this reclassification, net debt at the year-end was £5.4m compared to £9.6m in the prior year. Following the cash injection into the pension fund it is now 86% funded on the IAS 19 accounting basis.During the year the carrying value of our fixed assets was reviewed, and a non-cash impairment charge was made where the value of the asset could not be supported by the current level of business.Cash is, and will remain, a key performance measure for the Group.Looking to the new financial year, near-term lower volumes from the automotive market will result in lower revenues. Petrel faces a prospective business move during the year, involving some one-off cash outflows. We are continuing to work with our customers on new projects that will increase the sales opportunity in future years. The major focus in the next financial year will be reducing costs to match the lower level of output and on improving margins, in addition to developing opportunities for revenue growth.www.chamberlin.co.ukSTOCK CODE: CMHStrategic Report0526775_Chamberlin_AR_2019.indd 521/06/2019 10:39:49MEASUREMENTS 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 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 RETURN ON SALES (%) The ratio of the segment’s trading profit to the segment’s sales. The trading profit is defined in the segmental analysis in Note 3. CASH FLOW (£000) (£M) The net decrease/ (increase) in net debt. FOUNDRIES ENGINEERING (0.7) 6.9 GROUP Year ended 31 March 2019 (2.7) 2019 (0.7) 2019 2018 2.0 2018 6.9 6.1 2019 2018 (2.7) (1.0) 4.2 2019 4.2 2018 (2.1) RETURN ON NET ASSETS (%) The ratio of the segment’s trading profit to the segment’s net assets (as analysed in Note 3). (1.9) 41.4 (18.2) 2019 (1.9) 2019 2018 4.1 2018 41.4 37.3 2019 2018 (18.2) (10.0) SALES PER EMPLOYEE (£000) The ratio of the segment’s sales to the segment’s average number of employees. ACCIDENT FREQUENCY RATE The number of accidents per 100,000 hours worked averaged for the full year. 2019 2018 2019 2018 104.1 109.5 100.8 104.1 101.1 2019 2018 109.5 2019 110.5 2018 17.0 2.2 13.2 17.0 2019 2.2 15.8 2018 4.9 2019 2018 100.8 98.2 13.2 12.3 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 11 to the accounts. The Group percentages incorporate shared costs. 06 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 6 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:39:50 26038 Proof 5 21 June 2019 10:38 amPRINCIPAL RISKS AND UNCERTAINTIESManagement 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 11. RiskDescription of Risk & Potential ImpactMitigationBrexit/Foreign currency fluctuationApproximately 63% 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 fluctuationThe 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 stakeholdersWe recognise that we have a duty of care to our employees. We have made great progress in recent years but understand the impact on our employees from the failure of this obligation. This could result in injury or death to our employees or to others and environmental damage with the consequential impact of reputational damage and risk of regulator action. Established processes are in place to ensure that health, safety and environmental matters are appropriately addressed and any such risks are minimised including monthly reporting to, and review at the Executive Committee. Specialist HSE employees provide support and guidance to businesses including the conduct of regular risk control and health and safety audits. IT failure/system collapse and loss of data 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 deteriorationWe are a capital 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 customers to introduce new products and are constantly seeking to identify new business segments and geographical locations into which to sell our products.Production failuresDue to the complex technical nature and fine production tolerances of our products, an unstable production process can result in significant scrap which could have an 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 24 to the financial statements. The Strategic Report, which comprises pages 4 to 7, together with the commentary on the primary statements on pages 21 to 27, has been approved by the Board of Directors and signed on their behalf by:KEVIN NOLANCHIEF EXECUTIVE3 June 2019www.chamberlin.co.ukSTOCK CODE: CMHStrategic Report0726775_Chamberlin_AR_2019.indd 721/06/2019 10:39:5026038 Proof 5 21 June 2019 10:38 amANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019chamberlin plc08The Board 09Corporate Governance Report 10 – 11Directors’ Remuneration Report 12 – 13Directors’ Report 14 – 17GOVERNANCE26775_Chamberlin_AR_2019.indd 821/06/2019 10:39:5126038 Proof 5 21 June 2019 10:38 amTHE BOARDKEVIN NOLANNEIL DAVIESEXECUTIVE DIRECTORSAged 73, Keith joined the Board and was appointed Non-Executive Chairman in March 2012. He was 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 70, 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 currently Chairman of a number of pension funds. Keith is Senior Independent Director and Chairman of the Audit Committee.Aged 66, David joined the Board in April 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 Committees.KEITH BUTLER-WHEELHOUSEKEITH JACKSONDAVID FLOWERDAYINDEPENDENT NON-EXECUTIVE DIRECTORSAged 62, Kevin joined the Board and was appointed Chief Executive on 9 September 2013. Kevin has over 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. Aged 51, Neil joined the Board and was appointed Finance Director on 10 December 2018. Neil has over 20 years’ experience in senior finance roles within high volume manufacturing. He joined Chamberlin from International Automotive Components Group, the international supplier of interior systems and components to the global automotive sector, where he was Finance Director for six years. Prior to that, he was UK Finance Director of Mann+Hummel UK Ltd, the German manufacturing group. In his earlier career, Neil worked in the petro-chemical sector, most notably for Shell, Air Products and Invensys. Neil, a member of the Chartered Institute of Management Accountants, is also the Company Secretary.www.chamberlin.co.ukSTOCK CODE: CMHGovernance0926775_Chamberlin_AR_2019.indd 921/06/2019 10:39:57CORPORATE GOVERNANCE REPORT Customers We have dedicated staff in each of the businesses that are responsible for customer relationships. In addition the technical support and development teams will regularly engage with customers as a fundamental part of delivering ongoing services. Through these well-established channels, Chamberlin can ensure that the needs of our customers are fully understood. We are then well positioned to initiate appropriate actions in response. Suppliers The third party supply base can be the key to the success of the Chamberlin business. As such, there are processes in place within each of the business units to actively manage supplier relationships in the normal course of business, taking appropriate feedback and developing actions as necessary. Employees Regular staff briefings are held at all of our main offices which are normally attended by at least one Executive Director. These serve not only as a valuable opportunity to keep staff up to speed with the overall Group, but also as an important mechanism for staff to provide feedback. Community Chamberlin actively engages with the local community where practical. We are firm believers in supporting the local economies in which we operate and therefore always look to employ local people and engage local trades where possible. Governance Statement The Group has adopted the Quoted Companies Alliance (‘QCA’) corporate governance code following the recent changes to the AIM rules which require all AIM companies to comply with a recognised corporate governance code. Details of the Group’s compliance with the code are set out below: 1. Establish a strategy and business model which promotes long-term value for the shareholders Chamberlin is a well-established specialist provider of small and large castings in the Tier 2 automotive sector (automotive turbocharger market) and high-quality lighting and control equipment. The Group has a strong revenue model with the majority of revenue arising from recurring agreements. Further details are provided in the Chairman’s Statement, Chief Executive’s Business Review and Strategic Report. 2. Seek to understand and meet shareholder needs and expectations Chamberlin highly values regular two-way engagement with Shareholders to discuss strategy and performance levels. The Executive Directors invest considerable time in ensuring both current and potential future investors have the opportunity to fully understand the business alongside being able to understand the needs of investors and analysts. We offer to meet with all institutional investors that wish to do so at least twice a year in the results period. These meetings include a presentation of the latest financial performance, a wider business update and discussion of the longer-term plan. These meetings are normally attended by the Group Chief Executive and Group Finance Director. We also welcome engagement with our key shareholders throughout the year. We answer and respond to any shareholder calls or correspondence on an individual and personal basis as they are received and then endeavour to keep in contact with the Shareholder. The AGM presents the main opportunity for engagement with private Shareholders. This meeting is typically well attended by the Board and often several senior managers from across the business. 3. Take into account wider stakeholder and social responsibilities and their implications for long- term success The main mechanisms for wider stakeholder engagement and feedback can be summarised as follows: 10 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 10 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:39:57 26038 Proof 5 21 June 2019 10:38 am4. Embed effective risk management, considering both opportunities and threats, throughout the organisationFinancial controlThe Group has an established framework of financial controls, the effectiveness of which is reviewed regularly by senior management, the Board and the Audit Committee. The Audit Committee report for the year can be found on page 74. Key areas of control are as follows: ÆThe Board has responsibility for approving all annual budgets, longer-term strategy and plans, dividend policy, financial and funding structure of the Group and any material investments. ÆKey performance metrics are reported to the Executive Directors daily, including invoicing, sales orders, order book and cash. ÆFinancial performance on a monthly basis is reported to the Board comparing to forecast, budget and prior year. ÆThere is a comprehensive forecast process in place providing the Board with an updated view of the likely performance for the financial year on a monthly basis (in the absence of ad hoc material events) including revenue, profit and cash. ÆMonthly management meetings are held with each business in the Group, chaired by the Group Chief Executive. ÆA robust system of controls exist to cover all types of cost including recruitment, promotions, salary costs and capital expenditure. All payments are approved by senior finance staff. ÆReturn on investment and payback are tracked for all prior acquisitions as well as other types of investments. These are reported to the Board on a monthly basis.Other controlsThe Board continually reviews whether the system of controls and risk management in place is appropriate for the size, complexity and risk profile of the Group. The controls currently in place include: ÆMonthly management meetings for each business, chaired by the Group Chief Executive and attended by the Group Finance Director, provide the mechanism for reporting any identified risks and setting required actions to mitigate. Any risks of a material nature are then reported to the Board through the monthly Board Meeting. These meetings incorporate a monthly Health and Safety review meeting in which each site responsible officer reports on current status against set criteria. A monthly health and safety dashboard is also reported to the Board. These mechanisms facilitate ensuring each site has appropriate roles and processes in place including first aiders, fire wardens, regular fire alarm tests and regular health and safety checks. ÆAll contracts are approved by the Finance Director prior to signing. ÆDedicated resource and appropriate tools are in place that proactively monitor the Group’s IT infrastructure to ensure high levels of security are maintained, as well as looking to continually improve. This is reviewed at regular intervals with the Group Finance Director.A summary of the Group’s principal risks, potential impact and mitigations are included in the Strategic Report.Summary of attendance at meetingsBoard meetingsNominations CommitteeRemuneration CommitteeAudit CommitteeNumber of meetings in the year10122Keith Butler-Wheelhouse 10122Neil Davies*41n/an/aKeith Jackson 10122David Flowerday10–22Kevin Nolan 101n/an/aDavid Roberts**7–n/an/a* appointed as Company Secretary and Director on 10 December 2018 ** resigned as Company Secretary and Director on 10 December 2018n/a – indicates that a Director was not a member of a particular committeeBy order of the BoardNEIL DAVIESCOMPANY SECRETARY3 June 2019www.chamberlin.co.ukSTOCK CODE: CMHGovernance1126775_Chamberlin_AR_2019.indd 1121/06/2019 10:39:57DIRECTORS’ 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 2019 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 scheme. The key features of the scheme are summarised on page 13: Service Contracts All Executive Directors who served during the year have rolling service contracts terminable on no more than one year’s notice. Non-Executive Directors Remuneration of the Non-Executive Directors, apart from the Chairman, is approved each year by the Chairman and the Executive Directors. The Chairman’s remuneration is approved by the Remuneration Committee. Directors’ Remuneration Basic salary £000 Benefits £000 Annual bonus £000 Executive Kevin Nolan* 221 David Roberts** Neil Davies*** Non-Executive Keith Butler- Wheelhouse Keith Jackson David Flowerday David Nicholas**** Total 2019 Total 2018 120 49 75 30 30 – 525 501 2 1 – – – – – 3 3 21 (5) 15 – – – – 31 44 Total remuneration excluding pensions 2019 £000 2018 £000 244 249 116 64 75 30 30 – 559 – 174 – 75 30 – 20 548 548 * ** Highest paid director in 2019 and 2018 Resigned 10 December 2018. The bonus in 2019 is a credit as part of prior year awards were deferred and dependent on a performance criteria. The criteria has not been met and the bonus forfeited. *** Appointed 10 December 2018 **** Resigned 28 November 2017 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 25. 12 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 12 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:39:57 26038 Proof 5 21 June 2019 10:38 amDirectors’ PensionsNo retirement benefits accrued during the year, or prior years, to Directors under the Chamberlin & Hill Staff Pension and Life Assurance Scheme (2018: nil) which is a closed defined benefit scheme.Contributions into personal pension plansPercentage ofbasic salaryContribution paid2019£000Contribution paid2018£000K Nolan10%2121D Roberts*10%1115N Davies**10%5–* Resigned 10 December 2018.** Appointed 10 December 2018For Directors who have served during the year, no other pension contributions were paid other than as disclosed above.Directors’ Options31 March2018Granted in year Exercised in yearLapsed or forfeitedin year31 March 2019Option exercise priceExercisable betweenKevin Nolan207,363–––207,36325.0p*14.12.19 – 14.12.2026216,616216,61697.5p19.06.21 – 19.06.2028David Roberts142,637––(142,637)–25.0p*14.12.19 – 14.12.2026149,390–(149,390)–97.5p19.06.21 – 19.06.2028350,000366,006–(292,027)423,979* These options were initially granted at a nil exercise price. The options were with the agreement of the holders reissued during 2019 at a 25p exercise price.A Share Option Plan (‘SOP’) has issued a fourth tranche of share options during the year. This fourth tranche of share options are exercisable at 97.5p. 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 the time of granting. The proportion of awards that become exercisable varies on a straight-line basis, from 20% to 100%, depending upon the average share price in the three-month period ending on the anniversary of the date of grant. A share price of 80p is required for 20% of the options to be exercisable and 120p for 100% of the options to be exercisable. Where applicable, option grants are exercisable only upon the achievement of the performance targets explained above.No consideration is payable for the grant of an option, which is exercisable at a price to be determined by the Remuneration Committee at the time when the option is granted as detailed above.No share options have been exercised in 2019 or 2018.There have been no changes in the interests set out above between 1 April 2019 and 3 June 2019.The mid-market price of the shares at 31 March 2019 was 41.0p and during the year ranged between 41.0p and 101.5p.On behalf of the BoardDAVID FLOWERDAYCHAIRMAN, REMUNERATION COMMITTEE3 June 2019www.chamberlin.co.ukSTOCK CODE: CMHGovernance1326775_Chamberlin_AR_2019.indd 1321/06/2019 10:39:57DIRECTORS’ REPORT The Directors present their report together with the audited financial statements for the year ended 31 March 2019. The Company is registered in England and its registration number is 00076928. (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 2019 Year to 31 March 2018 282 33 12 327 261 34 12 307 * includes three 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; 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. 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 13 to the accounts. 14 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 14 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:39:57 26038 Proof 5 21 June 2019 10:38 amFinancial instrumentsThe Company’s policy in respect of financial instruments is disclosed in Note 24.DividendsThe Directors do not recommend the payment of a final dividend (2018: nil p). No interim dividend (2018: nil p) has been paid during the year.DirectorsDetails 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 12 to 13.See Board of Directors on page 9 for details of all Directors who served during the year, including appointments and resignations.Directors’ ShareholdingsBeneficial interests of the Directors in the shares of the Company, including those of their immediate families were:At 31 March 2019Number of sharesAt 31 March 2018Number of shares Keith Butler-Wheelhouse120,127120,127Neil Davies (appointed 10 Dec 2018)––David Flowerday––Keith Jackson13,52513,525Kevin Nolan––David Roberts (resigned 10 Dec 2018)–5,000There have been no changes in the interests of the Directors set out above between 1 April 2019 and 3 June 2019.Special Business at the Annual General MeetingDirectors’ authority to allot sharesAs 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 £656,545 (which represents approximately 33% of the issued share capital of the Company as at 3 June 2019). 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 3 June 2019.Authority to purchase own sharesAt the Annual General Meeting in 2018, 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 3 June 2019. 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 79 and 80.www.chamberlin.co.ukSTOCK CODE: CMHGovernance1526775_Chamberlin_AR_2019.indd 1521/06/2019 10:39:57DIRECTORS’ REPORT CONTINUED Substantial Shareholders At 3 June 2019 the Company was aware of the following interests of 3% or more of the Company’s share capital, other than those of Directors: Number of Shares % of Issued Share Capital Discretionary Unit Fund Managers 1,000,000 Miton Asset Management Janus Henderson Investors Armstrong Investments Limited Chelverton Asset Management R J Keeling Esq Schroder Investment Management AXA Framlington Charlton T W G Esq Perfecta Assets Ltd Barclays Stockbrokers Limited 990,471 791,000 540,000 500,000 433,800 348,500 300,000 281,500 275,000 265,992 12.6 12.4 9.9 6.8 6.3 5.5 4.4 3.8 3.5 3.5 3.3 At the Annual General Meeting to be held on 23 July 2019 (see the Notice of Annual General Meeting on pages 78 to 79), all of the Directors will retire and, being eligible, offer themselves for re-election. No Director had a material interest during the year in any significant contract with the Company or with any subsidiary undertaking. The Group provides indemnities to the Directors in respect of liabilities or claims arising in the performance of their duties. For all the Directors serving during the year, and up to the date of this annual report, there are indemnity arrangements in place with each Director in respect of costs defending civil, criminal and regulatory proceedings brought against them in their capacity as Directors, where not covered by insurance and subject always to the limitations set by the Companies Act 2006. Statement of Directors’ Responsibilities The Directors are responsible for preparing the Strategic Report, Directors’ Report and Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the European Union (‘IFRSs’). Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and the Group for that period. In preparing these financial statements, the Directors are required to: Æ select suitable accounting policies and then apply them consistently; Æ make judgments and accounting estimates that are reasonable and prudent; Æ state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; 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. 16 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 16 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:39:58 26038 Proof 5 21 June 2019 10:38 amThe 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.Going ConcernThe 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 £7.75m ongoing invoice discounting facility and finance leases of £4.0m repayable over five years. 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.Matters covered in the Strategic ReportKey performance indicators and principal risks have been covered in the Strategic ReportDirectors’ Statement as to Disclosure of Information to AuditorsThe Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 9. Having made enquiries of fellow Directors and of the Company’s Auditor, each of these Directors confirms that Æso far as each Director is aware, there is no relevant audit information of which the Company’s Auditor is unaware; and Æthe 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.Post Balance Sheet EventsThere have been no post balance sheet events.AuditorA resolution will be proposed to reappoint Grant Thornton UK LLP as Auditor and to authorise the Directors to determine their remuneration.By order of the BoardNEIL DAVIESCOMPANY SECRETARY3 June 2019www.chamberlin.co.ukSTOCK CODE: CMHGovernance1726775_Chamberlin_AR_2019.indd 1721/06/2019 10:39:5826038 Proof 5 21 June 2019 10:38 amANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019chamberlin plc18Introduction 19Primary Statements 20–27Section 1 – Basis of Preparation 28–29Section 2 – Results of the Year 30–37Section 3 – Operating Assets and Liabilities 38–47Section 4 – Capital Structure and Financing Costs 48–49Section 5 – Other Supporting Notes 50–65Independent Auditor’s Report 66–73Independent Auditor’s Report 66–73Audit Committee Report 74Parent Company Financial Statements 75–77Five Year Financial Summary 78Shareholder Information 79–82FINANCIAL STATEMENTS26775_Chamberlin_AR_2019.indd 1821/06/2019 10:39:5926038 Proof 5 21 June 2019 10:38 amINTRODUCTIONWelcome 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.While 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 26 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.Introduction and Table of ContentsThese 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 of 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 clear 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. NEIL DAVIESFINANCE DIRECTOR03 June 2019NEIL DAVIES FINANCE DIRECTORwww.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements1926775_Chamberlin_AR_2019.indd 1921/06/2019 10:40:01CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2019 Year ended 31 March 2019 Year ended 31 March 2018 Revenue Cost of sales Gross profit Other operating expenses Operating loss Finance costs Loss before tax Tax (expense)/ credit Loss for the year from continuing operations Discontinued operations 3 4 6 8 9 Notes Underlying £000 Non- underlying £000 + Total £000 Underlying £000 32,958 30,153 (29,192) (25,474) 32,958 (29,192) 3,766 (4,652) (886) (387) – – – (3,572) (3,572) (112) 3,766 (8,224) (4,458) (499) (1,273) (3,684) (4,957) (63) 111 48 (1,336) (3,573) (4,909) 4,679 (4,995) (316) (346) (662) (324) (986) Non- + underlying £000 – – – (324) (324) (126) (450) 85 Total £000 30,153 (25,474) 4,679 (5,319) (640) (472) (1,112) (239) (365) (1,351) Profit for the year from discontinued operations – 6,435 6,435 – 538 538 (Loss)/ profit for the year attributable to equity holders of the parent company Loss per share from continuing operations: Basic Diluted Earnings per share from discontinued operations: Basic Diluted Total earnings / (loss) per share: Basic Diluted (1,336) 2,862 1,526 (986) 173 (813) 10 10 10 10 10 10 – – – – – – – – – – – – (16.8)p (16.8)p 80.9p 80.9p 19.2p 19.2p – – – – – – – – – – – – (12.4)p (12.4)p 6.8p 6.8p (10.2)p (10.2)p * Underlying figures are stated before exceptional items (GMP equalisation, impairment of fixed assets and onerous leases) and non-underlying costs (administration costs of the pension scheme, net financing costs on pension obligations and share based payment costs) together with the associated tax impact (see Note 11). 20 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 20 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:01 26038 Proof 5 21 June 2019 10:38 amCOMMENTARY ON THE CONSOLIDATED INCOME STATEMENTOverviewSales from continuing operations increased by 9.3% during the year to £33.0m (2018: £30.2m). Gross profit margin decreased to 11.4% from 15.5% in 2018. Underlying operating loss before tax increased to £1.3m (2018: £0.7m). The IFRS results show a profit for the year of £1.5m (2018: loss of £0.8m) which includes an asset impairment of £3.0m (2018: nil) and a statutory profit per share of 19.2p (2018: loss per share of 10.2p).Non-underlying exceptional itemsExceptional items in the year included £0.1m (2018: £0.1m) relating to the realignment of the cost base of the Group, £3.0m for the impairment of assets and £0.3m for Guaranteed Minimum Pension (‘GMP’) equalisation.TaxThe effective rate of taxation at Group level was 1% primarily due to the impairment loss and profit from the sale of Exidor, both being exempt from tax. The tax position will be aided in the coming years through the reduced rate of tax to 17% and as we utilise elements of losses carried forward.Cash generation and financingOperating cash outflow from continuing operations was £0.9m (2018: inflow of £0.8m) excluding the £2.5m one-off payment into the Group’s defined benefit pension scheme.Capital expenditure for the year decreased to £1.2m (2018: £2.7m) excluding £0.8m on leased assets included under IFRS 16. Depreciation and amortisation amounted to £1.8m (2018: £1.3m) for the year.Our net proceeds from the sale of subsidiary was £8.5m with £2.5m paid towards the pension deficit. Net debt as at 31 March 2019 decreased by £4.2m (2018: increase of £2.1m). Foreign exchangeIt 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 63% 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 63% of the Group’s revenues are denominated in Euros. During the year to 31 March 2019 the average exchange rate used to translate into GBP sterling was €1.13 (31 March 2018: €1.26). PensionThe 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 £0.2m in 2019 (2018: £0.3m), and is shown in non-underlying results. The Group cash contribution during the year was £0.2m (2018: £0.3m) in addition to a special one-off payment of £2.5m following the sale of Exidor.The Group operates a defined contribution pension scheme for its current employees. The cost of £0.2m (2018: £0.2m) is included within underlying operating performance.A Guaranteed Minimum Pension (‘GMP’) equalisation review was undertaken resulting in an increase in the pension liability of £295,000. The IAS 19 deficit at 31 March 2019 was £2.6m (2018: £5.1m). www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements2126775_Chamberlin_AR_2019.indd 2121/06/2019 10:40:01CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2019 Profit/ (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 Net other comprehensive income that may be recycled to profit and loss Re-measurement gain/(loss) on pension assets and liabilities Deferred/ current tax (expense)/ credit on re-measurement losses on pension scheme Net other comprehensive income/ (expense) that will not be recycled to profit and loss Other comprehensive income for the year net of tax Notes 8 21 8 2019 £000 1,526 – 134 (23) 111 76 (15) 61 172 2018 £000 (813) (18) 87 (12) 57 (8) 2 (6) 51 Total comprehensive income/ (expense) for the period attributable to equity holders of the parent company 1,698 (762) 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 IAS 1, 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 2019 (2018: profit of £0.1m). Remeasurement 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. 22 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 22 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:01 26038 Proof 5 21 June 2019 10:38 amShare capital£000Sharepremiumaccount£000Capitalredemptionreserve£000Hedging reserve£000Retainedearnings£000Attributable to equity holders of the parent£000Balance at 1 April 2017 1,990 1,269 109 (72) 582 3,878 Loss for the year – – – – (813) (813) Other comprehensive income for the year net of tax – – – 57 (6) 51 Total comprehensive income/ (expense) – – – 57 (819) (762) Share based payment – – – – 46 46 Deferred tax on employee share options – – – – (6) (6) Total of transactions with Shareholders – – – – 40 40 Balance at 1 April 2018 1,990 1,269 109 (15) (197) 3,156 Profit for the year – – – – 1,526 1,526 Other comprehensive income for the year net of tax – – – 111 61 172 Total comprehensive income – – – 1111,5871,698Share based payment – – – – 40 40Deferred tax on employee share options––––(26)(26)Total of transactions with Shareholders1414Balance at 31 March 2019 1,990 1,269 109 96 1,404 4,868 Share premium accountThe 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 reserveThe capital redemption reserve has arisen on the cancellation of previously issued shares and represents the nominal value of those shares cancelled.Hedging reserveThe 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 earningsRetained earnings include the accumulated profits and losses arising from the Consolidated Income Statement and certain items from the Statement of Comprehensive Income attributable to equity Shareholders, less distributions to Shareholders.CONSOLIDATED STATEMENT OF CHANGES IN EQUITYwww.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements2326775_Chamberlin_AR_2019.indd 2321/06/2019 10:40:01CONSOLIDATED BALANCE SHEET AT 31 MARCH 2019 Non-current assets Property, plant and equipment Intangible assets Deferred tax asset Current assets Inventories Trade and other receivables Cash at bank 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 NEIL DAVIES DIRECTORS The accounts were approved by the Board of Directors on 3 June 2019 31 March 2019 £000 31 March 2018 £000 Notes 12 13 17 14 15 16 16 17 17 17 21 18 7,769 290 906 8,965 2,702 6,052 291 9,045 18,010 2,683 4,600 7,283 2,966 53 200 2,640 5,859 13,142 1,990 1,269 109 96 1,404 4,868 18,010 12,454 427 1,136 14,017 3,551 7,985 – 11,536 25,553 7,091 7,465 14,556 2,538 23 200 5,080 7,841 22,397 1,990 1,269 109 (15) (197) 3,156 25,553 24 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 24 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:01 26038 Proof 5 21 June 2019 10:38 amCOMMENTARY ON THE CONSOLIDATED BALANCE SHEETNet DebtNet debt at the year-end was £5.4m compared to £9.6m at the end of the previous year (including £751k of additional liabilities (right-of-use) recognised on transition to IFRS 16 in the year). Total committed bank facilities available to the Group at the year-end was £11.8m (2018: £11.9m) of which £5.4m (2018: £9.6m) was drawn.Property, plant and equipment (PPE)The net book value of the Group’s investment in PPE at 31 March 2019 was £7.8m following an impairment to assets of £3.0m. Capital expenditure on PPE of £1.2m (2018: £2.7m) represented 70% (2018: 207%) of depreciation of £1.7m (2018: £1.4m).Cash generation and financingOperating cash outflow from continuing operations was £2.9m (2018: inflow of £1.3m). This included a one-off contribution made to the pension scheme of £2.5m. Capital expenditure for the year decreased to £1.2m (2018: £2.7m) excluding £0.8m for leased assets included under IFRS 16. Our overdraft and net borrowings at 31 March 2019 decreased to £5.4m (2018: £9.6m). The Group debt facility has two elements: a £7.75m invoice discounting facility and finance leases of £4.0m.The facility has the following covenant at year-end which was complied with: ÆWithout prior written consent of HSBC no dividends were payable in the year ended 31 March 2019, 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 capitalWorking capital, comprising inventories, trade and other receivables and trade and other payables was 13% of annual sales (2018: 11%) as at year-end. Overdue receivables at 31 March 2019 represented 19.7% (2018: 3.6%) of trade receivables. PensionsThe Group has one defined benefit pension scheme which is closed to future accrual. In addition the Group operates a defined contribution pension scheme for its current employees. The deficit for the defined benefit obligations at 31 March 2019 was £2.6m (2018: £5.1m). 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 £0.2m in 2019 (2018: £0.3m), and is shown in non-underlying in the income statement. The Group cash contribution during the year was £0.2m (2018: £0.3m) plus the one-off contribution of £2.5m. www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements2526775_Chamberlin_AR_2019.indd 2521/06/2019 10:40:01CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2019 Operating activities (Loss) for the year before tax Adjustments to reconcile (loss) for the year to net cash (outflow)/ inflow from operating activities: Net finance costs excluding pensions Impairment charge on property, plant and equipment 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 One-off contribution made to defined benefit pension scheme Remaining difference between pension contributions paid and amounts recognised in the Consolidated Income Statement (Increase)/ decrease in inventories Decrease/ (increase) in receivables (Decrease)/ increase in payables Cash (outflow)/ inflow from continuing operations Cash inflow from discontinued operations Net cash (outflow)/ inflow from operating activities Investing activities Purchase of property, plant and equipment Purchase of software Development costs Proceeds from sale of subsidiary Cash and cash equivalents disposed Investing activities from discontinued operations Net cash inflow/ (outflow) from investing activities Financing activities Interest paid Repayment of asset loan Net invoice finance (outflow)/ inflow Import loan (outflow)/ inflow Import loan facility repayment Finance lease payment Finance lease additions Financing activities from discontinued operations Net cash (outflow)/ inflow from financing activities Notes 6 11,12 12 13 13 19 21 21 9 12 13 13 9 9 9 6 9 Year ended 31 March 2019 £000 Year ended 31 March 2018 £000 (4,957) (1,112) 387 3,043 1,688 59 25 - 40 (2,500) 136 (388) 419 (1,331) (3,379) 491 (2,888) 347 - 1,280 50 10 5 46 - (137) 74 (315) 543 791 509 1,300 (1,188) (2,726) – (22) 8,520 (1,146) (125) 6,039 (387) – (1,832) (873) - (781) 1,291 207 (2,375) (16) (24) – – (207) (2,973) (347) (175) 918 1,137 (1,235) – 849 257 1,404 26 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 26 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:01 26038 Proof 5 21 June 2019 10:38 amCONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2019 CONTINUEDYear ended31 March2019£000Year ended31 March2018£000Net increase/ (decrease) in cash and cash equivalents776 (269) Cash and cash equivalents at the start of the year (485) (216) Cash and cash equivalents at the end of the year291 (485) Cash and cash equivalents included in discontinued operations– 572 Cash and cash equivalents for continuing operations 291 (1,057) Cash and cash equivalents comprise:Cash at bank/ (overdraft) 291 (485) 291 (485) COMMENTARY ON THE CONSOLIDATED CASH FLOW STATEMENTOperating cash flowOperating cash outflow from continuing operations was £3.4m (2018: inflow of £0.8m) which included a £2.5m one-off payment to the Group’s defined benefit pension scheme.Net working capital balances were adverse £1.3m (2018: positive £0.3m) during the year. Cash spent on property, plant and equipment and capitalised software and development costs in the year was £1.2m (2018: £2.7m) which was equivalent to 70% (2018: 207%) of depreciation and amortisation thereon. Our net proceeds from the sale of subsidiary was £8.5m with £2.5m paid towards the pension deficit.Closing net debtOpening net debt was £9.6m after adjusting for IFRS 16 lease liabilities of £0.7m. After the net debt decrease in the year of £4.2m (2018: increase of £2.1m) closing net debt was £5.4m (2018: £9.6m).www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements2726775_Chamberlin_AR_2019.indd 2721/06/2019 10:40:02SECTION 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 31st March 2019 were authorised for issue by the Board of Directors on 3rd June 2019 and the balance sheets were signed on the Board’s behalf by Kevin Nolan and Neil Davies. The Company is a public limited company incorporated and domiciled in England and 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 adopted by the European Union and as applied in accordance with the Companies Act 2006. 2 New standards adopted Amended IFRS that have become effective in the period have had a material impact on the financial statements. IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” and applies to three aspects of accounting for financial instruments: classification and measurement of financial assets, impairment and hedge accounting. The Group adopted IFRS 9 for the current reporting period commencing 1st April 2018. There are no changes from previous practice; consequently, this standard did not have any impact on the results for the period. IFRS 15 establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a client. The Group adopted IFRS 15 for the current reporting period commencing 1st April 2018. There are no changes from previous practice; consequently, this standard did not have any impact on the results for the period. In the current year, the Group, for the first time, has applied IFRS 16 Leases (as issued by the IASB in January 2016) in advance of its effective date. IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and lease liability at commencement for all leases, except for short-term leases and low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. The impact of the adoption of IFRS 16 on the Group’s consolidated financial statements is described below. The date of initial application is 1st April 2018 and, consequently, there is no change of the previously reported 2018 Consolidated Income Statement. The Group has applied IFRS 16 using the modified retrospective approach, recognising the cumulative effect of IFRS 16 as an adjustment to equity at the beginning of the current period and not restating prior period figures. The Group has used the practical expedients permitted by IFRS 16, including: — Applying a single discount rate to leases with similar characteristics; — Not applying the requirements to leases that end within 12 months of the date of application, and account for these leases as short-term lease expense. Impact of the new definition of a lease The change in definition of a lease mainly relates to the concept of control. IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has the right to control the use of an identified asset for a period of time in exchange for consideration. The Group has applied the definition of a lease and related guidance set out in IFRS 16 to all existing and new contracts from 1st April 2018. In preparation for the first-time application of IFRS 16, the Group has carried out an implementation project. The project has shown that the new definition in IFRS 16 will change the scope of contracts that meet the definition of a lease for the Group. 28 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 28 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:02 26038 Proof 5 21 June 2019 10:38 amImpact on lessee accountingFormer operating leasesIFRS 16 changes how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance-sheet.Applying IFRS 16, for all leases (except as noted below), the Group:a. Recognises right-of-use assets and lease liabilities in the consolidated balance sheet, initially measured at the present value of future lease payments;b. Recognises depreciation of right-of-use assets and interest on lease liabilities in the Consolidated Income Statement; andc. Separates the amount of cash paid into principal and interest and presents them separately within financing activities in the consolidated cash flow statementUnder IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts.For short-term leases (lease terms of 12 months or less) and leases of low-values-assets (such as personal computers and office furniture), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within other expenses in the Consolidated Income Statement in Note 7.Former finance leasesThe main difference between IFRS 16 and IAS 17 with respect to assets formerly held under a finance lease is the measurement of residual value guarantees provided by a lessee to a lessor. IFRS 16 requires that the Group recognises as part of its lease liability only the amount expected to be repayable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. This change did not have a material effect on the Group’s consolidated financial statements.Impact on lessor accountingIFRS 16 does not change substantially how a lessor accounts for leases. Under IFRS 16, a lessor continues to classify leases as either finance leases or operating leases and account for those two types of leases differently. However, IFRS 16 has changed and expanded the disclosures required, in particular regarding how a lessor manages the risks arising from its residual interest in leased assets. This change did not have a material effect on the Group’s consolidated financial statements.Financial impact of initial application of IFRS 16The table below shows the amount of adjustment for each financial statement line item affected by the application of IFRS 16 for the current year.The weighted average incremental borrowing rate applied to lease liabilities recognised in the consolidated balance sheet at the date of initial application is 4.8%.Impact on assets, liabilities and equity as at 1 April 2018As previously reported£000IFRS 16 adjustment£000As restated£000Property, plant and equipmentLand and buildings – NBV3,5467044,250Plant and machinery – NBV8,157–8,157Motor vehicles – NBV–4747Total11,70375112,454Financial liabilities <1 year6,9891027,091Financial liabilities >1 year1,8896492,538Total8,8787519,629www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements2926775_Chamberlin_AR_2019.indd 2921/06/2019 10:40:02SECTION 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 market. The products fall into the categories of 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 Segment results Reconciliation of reported segmental operating profit/(loss) Segment operating profit Shared cost (excluding share based payment charge) Exceptional and non-underlying costs (Note 11) Net finance costs (Note 6) Loss before tax Segmental assets Foundries Engineering Segmental liabilities Foundries Engineering Segmental net assets Unallocated net liabilities Unallocated/discontinued Total net assets Segmental revenue Segmental operating profit/loss 2019 £000 29,343 3,615 32,958 2018 £000 26,396 3,757 30,153 2019 £000 (211) 251 40 40 (926) (3,684) (387) (4,957) 15,244 1,402 16,646 (3,840) (794) (4,634) 12,012 (7,144) – 4,868 2018 £000 528 229 757 757 (1,073) (450) (346) (1,112) 18,320 1,563 19,883 (5,522) (949) (6,471) 13,412 (12,564) 2,308 3,156 Unallocated net liabilities in 2019 include the pension liability of £2,640,000, financial liabilities of £5,358,000 and deferred tax asset of £854,000. 30 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 30 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:02 26038 Proof 5 21 June 2019 10:38 amCapital expenditure, depreciation, amortisation and impairment for continuing operationsFoundriesEngineeringTotal2019£0002018£0002019£0002018£0002019£0002018£000Capital additionsProperty, plant and equipment 716 2,720 8 238 724 2,958 Software– 9 – 7 – 16 Development costs–– 22 24 22 24 Depreciation, amortisation and impairmentProperty, plant and equipment) (1,458) (1,208) (49) (217) (1,507) (1,425) Software (49) (54) (7) (10) (56) (64) Development costs– – (18) (10) (18) (10) (ii) Geographical informationRevenue by location of customer2019£0002018£000United Kingdom 12,203 10,292 Italy 3,743 5,835 Germany 3,124 4,100 Rest of Europe 13,024 9,291 Other countries 864 635 32,958 30,153 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 11% of Group revenue (2018: 19%).4 Other operating expenses2019£0002018£000Distribution costs837984Administration and selling expenses3,8154,011Operating expenses before exceptional items 4,6524,995Exceptional and non-underlying items (Note 11) 3,572 324 Operating expenses8,2245,319www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements3126775_Chamberlin_AR_2019.indd 3121/06/2019 10:40:02SECTION 2 RESULTS OF THE YEAR CONTINUED 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 Share based payment expense (Note 19) 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 19) Directors’ remuneration summary Directors’ remuneration Company contributions to money purchase pension scheme Share based payment charge/ (credit) of options granted to directors (see Note 19) Number of directors accruing benefits under: Defined contribution pension schemes 2019 Number 2018 Number 46 281 327 2019 £000 12,176 1,183 423 40 47 260 307 2018 £000 10,848 1,162 321 46 13,822 12,377 2019 Number 12 2018 Number 12 2019 £000 599 103 52 40 794 2019 £000 559 37 40 2018 £000 993 126 50 46 1,215 2018 £000 548 36 46 Number Number 3 2 Directors’ remuneration is analysed in detail in the Directors’ Remuneration Report on pages 12 to 13. The total amount payable to the highest paid director in respect of remuneration was £244,000 (2018: £250,000). Company pension contributions of £21,000 (2018: £21,000) were made to a money purchase pension scheme on his behalf. 32 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 32 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:02 26038 Proof 5 21 June 2019 10:38 am6 Finance costs2019£0002018£000Bank overdraft interest payable (335) (346) Interest expense on lease liabilities (52) – Finance cost of pensions (see Note 21) (112) (126) (499) (472) 7 Operating profit/ (loss)This is stated after charging/(crediting):2019£0002018£000Profit on disposal of fixed assets – (5) Depreciation of owned assets 1,537 1,281 Depreciation of right-of-use assets 151 –Amortisation of software 59 61 Impairment of fixed assets 3,043 –Research and development expenditure (excluding capitalised development costs: Note 13)– 55 Amortisation of development costs 25 10 Cost of inventories recognised as an expense 11,585 11,785 Exceptional costs (Note 11) 3,572 324 Exchange (gain)/ loss (57) 127 Auditor's remuneration: Group audit fees 27 24 Audit fees for statutory accounts of subsidiaries 30 28 Audit related assurance services 7 6 Non-audit related services––Rentals under operating leases: Hire of plant and equipment 36 117 Motor vehicles 23 95 Land and buildings 91 205 8 Taxation2019£0002018£000Current tax:UK Corporation tax at 19% (2018: 19%)697 (124) Deferred tax:Origination and reversal of temporary differences (386) 419 Adjustments in respect of prior years (320) (57) Change in tax rate (39) 1 (745) 363 Tax (credit)/expense reported in the consolidated income statement (48) 239The 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 (2018: £nil).www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements3326775_Chamberlin_AR_2019.indd 3321/06/2019 10:40:02SECTION 2 Results of the Year CONTINUED SECTION 2 RESULTS OF THE YEAR CONTINUED 8 Taxation continued 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 charge reported in the consolidated statement of comprehensive income Current tax: Deferred tax: Employee share options Tax charge reported in the consolidated statement of changes in equity Reconciliation of total tax charge Loss on ordinary activities before tax Corporation tax charge at standard rate of 19% (2018: 19%) on loss before tax Adjusted by the effects of: Expenses not deductible for tax purposes Income not taxable Capital gain rolled over now crystallised 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 (credit)/expense reported in the consolidated income statement 2019 £000 – 15 23 – 38 38 2019 £000 – 26 26 2019 £000 (4,957) (942) 1,370 (245) 20 152 (139) 95 (320) (39) (48) 2018 £000 – (2) 12 – 10 10 2018 £000 – 6 6 2018 £000 (1,112) (211) 87 (10) (15) 445 (7) (57) 1 233 34 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 34 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:02 26038 Proof 5 21 June 2019 10:38 am9 Discontinued operationsOn 19 December 2018 Exidor Ltd was sold. As a result, the results of Exidor Ltd are classified as a discontinued operation and presented as such in these financial statements.The balance sheet of Exidor Ltd at the date of disposal is summarised as follows:£000Property, plant and equipment1,135Intangible assets75Deferred Tax70Inventories1,491Trade and other receivables1,882Cash and cash equivalents1,146Trade and other payables(3,508)Net assets disposed2,291Consideration10,000Working capital adjustment(98)Debt adjustment(639)Claim retention(350)8,913Disposal costs(393)Net cash received relating to disposal8,520Cash proceeds8,520Net asets disposed(2,291)Profit on disposal6,229Included in the consideration is a retention of £350,000 relating to a customer claim.The results prior to 19 December 2018 for the discontinued operations included in the consolidated income statement were:2019£0002018£000Revenue 5,924 7,517 Operating profit 305 672 Finance costs (23) (31) Profit before tax 282 641 Tax expense (76) (103) Profit on disposal of discontinued operations 6,229 –Profit after tax from discontinued operations 6,435 538Exidor Ltd contributed the following to the Group’s cashflows:2019£0002018£000Operating activities 491 509 Investing activities (125) (207) Financing activities 207 257 573559www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements3526775_Chamberlin_AR_2019.indd 3521/06/2019 10:40:03SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 2 RESULTS OF THE YEAR CONTINUED 10 (Loss)/ earnings per share The calculation of (loss)/ earnings per share is based on the (loss)/ profit attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted (loss)/ earnings per share, adjustment has been made for the dilutive effect of outstanding share options. Underlying (loss)/ earnings per share, as analysed below, which excludes non-underlying items as defined in Note 27, summary of significant accounting policies, has also been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group. Exceptional costs are detailed in Note 11. 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 earnings for basic earnings per share Earnings for underlying earnings per share (discontinued operations) Earnings per share (pence) from discontinued operations: basic diluted Total earnings/ (loss) per share (pence): basic diluted Weighted average number of ordinary shares Adjustment to reflect shares under options Weighted average number of ordinary shares – fully diluted 2019 £000 (4,909) 3,113 531 40 (111) (1,336) (16.8) (16.8) 2019 £000 6,435 6,435 80.9 80.9 19.2 19.2 2019 Number ’000 7,958 716 8,674 2018 £000 (1,351) 60 344 46 (85) (986) (12.4) (12.4) 2018 £000 538 538 6.8 6.8 (10.2) (10.2) 2018 Number ’000 7,958 350 8,308 As at 31 March 2019 and 31 March 2018 there is no adjustment in the total diluted loss per share calculation for the 716,000 (2018: 350,000) shares 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. 36 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 36 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:03 26038 Proof 5 21 June 2019 10:38 am11 Exceptional costs and non-underlying2019£0002018£000Group reorganisation 54 60 Asset impairment 3,043 – Onerous leases 16 –Share based payment charge 40 46 Defined benefit pension scheme administration costs 124 218 GMP Equalisation 295 –Non-underlying other operating expenses 3,572 324 Finance cost of pensions112126Total Non-underlying Exceptional costs before tax3,684450Taxation– tax effect of exceptional and non-underlying costs(111)(85)3,573365During 2018 the Group continued to rationalise its operations. Group reorganisation costs, including redundancy and recruitment, relate to this rationalisation.The Group undertook an impairment review of two of its sites within the Foundry division which identified that assets were overstated by £3,043,000. Guaranteed Minimum Pension (GMP) equalisation review was undertaken resulting in an increase in the pension liability of £295,000.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements3726775_Chamberlin_AR_2019.indd 3721/06/2019 10:40:03SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES 12 Property, plant and equipment Group Cost At 1 April 2017 Additions Disposals At 31 March 2018 IFRS 16 right of use assets Additions Disposals Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Depreciation At 1 April 2017 Charge for year Disposals At 31 March 2018 Charge for year Impairment charge Disposals Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Net book value At 31 March 2019 At 31 March 2018 At 1 April 2017 Land and buildings £000 Plant and machinery £000 Motor vehicles £000 6,304 80 – 22,460 2,878 (167) 6,384 25,171 704 22 – (954) 6,156 2,599 239 – 2,838 331 1,068 – (378) 3,859 2,297 3,546 3,705 – 1,091 (8) (3,070) 23,184 15,986 1,186 (158) 17,014 1,328 1,925 (1) (2,511) 17,755 5,429 8,157 6,474 48 – – 48 47 75 (8) (16) 146 48 – – 48 29 50 (8) (16) 103 43 – – Total £000 28,812 2,958 (167) 31,603 751 1,188 (16) (4,040) 29,486 18,633 1,425 (158) 19,900 1,688 3,043 (9) (2,905) 21,717 7,769 11,703 10,179 Included within plant and machinery are assets with net book value of £4,237,000 (2018:£2,962,000) relating to assets held under finance leases. Net book value of land and buildings comprises: Freehold Short leasehold (leasehold improvements) 2019 £000 2,297 – 2,297 2018 £000 3,433 113 3,546 38 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 38 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:03 26038 Proof 5 21 June 2019 10:38 amLand andbuildings£000Plant andmachinery£000Motorvehicles£000Total£000Right-of-use assets Net book value included in the above comprise:At 1 April 2018704–47751At 31 March 201963324594972CompanyLand andbuildings£000Plant andmachinery£000Motorvehicles£000Total£000CostAt 1 April 2017 1,670 93 – 1,763 Additions– 4 – 4 At 31 March 2018 1,670 97 – 1,767 IFRS right of use assets–– 47 47 Additions– 1 75 76 Disposals – –––At 31 March 2019 1,670 98 122 1,890 DepreciationAt 1 April 2017 897 66 – 963 Charge for year 28 8 – 36 Disposals––––At 31 March 2018 925 74 – 999 Charge for year 27 6 79 112 Disposals––––At 31 March 2019 952 80 79 1,111 Net book valueAt 31 March 2019 718 18 43 779 At 31 March 2018 745 23 – 768 At 1 April 2017 773 27 – 800 Group£000Company£000Freehold land included above not subject to depreciation amounted to:20192752752018275275www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements3926775_Chamberlin_AR_2019.indd 3921/06/2019 10:40:03SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 12 Property, plant and equipment continued Impairment testing The Group has identified indications of impairment at two of its cash generating units (CGUs), 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 profitability and the losses generated 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 cashflow projections from financial budgets approved by the Board. The projected cashflows 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 cashflows reflect an expected return to profitability in 2019/20 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 cashflows 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 9.8%. It was concluded that the recoverable amount of the CGU was lower than the book value of the CGU’s assets and as such an impairment charge of £3.0m is deemed necessary. 40 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 40 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:03 26038 Proof 5 21 June 2019 10:38 am13 Intangible assetsGroupCompany2019£0002018£0002019£0002018£000Software 203 272 2 3 Development costs 87 155 – – 290 427 2 3 SoftwareGroup£000Company£000CostAt 1 April 2017 992 27 Additions 16 –At 31 March 2018 1,008 27 Disposal of subsidiary undertakings (Note 9) (33) –At 31 March 2019 975 27 Amortisation/ impairmentAt 1 April 2017 672 23 Charge for the year 64 1 At 31 March 2018 736 24 Charge for year 59 1 Disposal of subsidiary undertakings (Note 9) (23) –At 31 March 2019 772 25 Net Book ValueAt 31 March 2019 203 2 At 31 March 2018 272 3 At 1 April 2017 320 4 Software has an estimated useful life of between 3 and 10 years.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements4126775_Chamberlin_AR_2019.indd 4121/06/2019 10:40:03SECTION 3 Operating Assets and Liabilities CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 13 Intangible assets continued Development costs capitalised Cost At 1 April 2017 Additions At 31 March 2018 Additions Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Amortisation/ impairment At 1 April 2017 Charge for year At 31 March 2018 Charge for year Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Net Book Value At 31 March 2019 At 31 March 2018 At 1 April 2017 Group £000 Company £000 400 24 424 22 (86) 360 259 10 269 25 (21) 273 87 155 141 – – – – – – – – – – – – – – – – – 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. 14 Inventories Raw materials Work in progress Finished goods Group Company 2019 £000 911 812 979 2,702 2018 £000 1,270 941 1,341 3,551 2019 £000 2018 £000 – – – – – – – – Stock recognised in cost of sales during the period as an expense was £11,585,000 (2018: £11,785,000) 42 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 42 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:03 26038 Proof 5 21 June 2019 10:38 am15 Trade and other receivablesGroupCompany2019£0002018£0002019£0002018£000Trade receivables 5,189 6,773 112 –Amounts due from subsidiary undertakings– – 3,761 156 Other receivables 232 668 39 70 Corporation tax 165 –132107Prepayments 466 544 14 28 6,052 7,9854,058361Invoice 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 2019 of £5,189,000 (2018: £6,773,000) of which an invoice finance liability of £1,628,000 (2018: £4,740,000) was secured against. The total available invoice finance facility as at 31 March 2019 was £7,750,000 (2018: £7,000,000).Trade receivables are denominated in the following currencies:GroupCompany2019£0002018£0002019£0002018£000Sterling2,722 3,728 – – Euro 2,467 2,955 – – US Dollar– 90 – – 5,189 6,773 – – Out of the carrying amount of trade receivables of £5,189,000 (2018: £6,773,000), £4,181,000 (2018: £3,443,000) 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 2019 trade receivables at a nominal value of £345,000 (2018: £23,000) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:GroupCompany2019£0002018£0002019£0002018£000At 1 April 2018 23 6––Disposal of Exidor Ltd(6)–––Charge for year 203 17 ––Amounts written off (6) –––Provision increase 131 –––At 31 March 2019 345 23 ––www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements4326775_Chamberlin_AR_2019.indd 4321/06/2019 10:40:03SECTION 4 Capital Structure CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 15 Trade and other receivables continued The analysis of trade receivables that were past due but not impaired is as follows: 2019 2018 Neither past due nor impaired £000 4,166 6,528 Total £000 5,189 6,773 Past due but not impaired <30 days £000 30-60 days £000 60-90 days £000 90-120 days £000 >120 days £000 707 207 90 21 186 2 31 14 9 1 The credit quality of trade receivables that are neither past due nor impaired is assessed by reference to external credit ratings, where available, otherwise historical information relating to the counterparty default rates is used. Debtors where external credit ratings have been sought Debtors where internal credit assessments have been made Group Company 2019 £000 4,986 203 5,189 2018 £000 6,680 93 6,773 2019 £000 – – – 2018 £000 – – – Of the balance in respect of counterparties with internal ratings 3% (2018: 2%) is in respect of new customers, and 97% (2018: 98%) 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 2019 £000 165 2018 £000 – 2019 £000 132 2018 £000 107 44 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 44 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:03 26038 Proof 5 21 June 2019 10:38 am16 Current liabilities GroupCompanyFinancial liabilities2019£0002018£0002019£0002018£000Bank overdraft– 485 23 1,772 Invoice finance facility 1,628 4,740 ––Import loan facility– 1,137 ––Finance lease liability (right of use) 184 – 34 –Current instalments due on finance leases 871 627 –– 2,683 6,989 57 1,772 The overdraft which was held with HSBC Bank plc as part of the Group net facility was reviewed in December 2018 as part of the Exidor disposal and was fully settled. 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 2019 was £7,750,000 (2018: £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.GroupCompanyTrade and other payables2019£0002018£0002019£0002018£000Trade payables 2,665 4,669 71 –Amounts owed to other Group companies–– 527 –Other taxation and social security 432 600 31 33 Other payables 499 208 403 24 Accruals 1,004 1,970 268 510 Fair value of derivative forward contracts– 18 ––4,6007,4651,300567Trade payables are non-interest bearing and are normally on terms of 30 to 60 days. www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements4526775_Chamberlin_AR_2019.indd 4521/06/2019 10:40:04SECTION 5 Other Supporting Notes CONTINUED SECTION 3 OPERATING ASSETS AND LIABILITIES CONTINUED 17 Non current liabilities Financial liabilities Instalments due on finance leases Finance lease liability (right of use) Group Company 2019 £000 2,175 791 2,966 2018 £000 1,889 – 1,889 2019 £000 59 – 59 2018 £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 (2018: five) years to January 2024. £870,000 is repayable in 1-2 years (2018: £609,000), £1,303,000 within 2-5 years (2018: £1,280,000) and £nil in greater than 5 years (2018: £nil). Interest is payable at a fixed amount that ranges between 3.1% and 6.2%. Provisions for liabilities As at 1 April 2018 Charge for the year As at 31 March 2019 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 Fair Value Hedges Capital gains rolled over 2019 £000 53 2018 £000 23 2019 £000 33 2019 £000 20 33 – 53 Dilapidations £000 200 – 200 2018 £000 6 2018 £000 6 – 17 23 46 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 46 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:04 26038 Proof 5 21 June 2019 10:38 amGroupCompanyDeferred tax assets2019£0002018£0002019£0002018£000Temporary differences relating to capital allowances 119 239 15 13 Temporary differences relating to pension scheme deficit 448 864 448 864 Temporary differences relating to cash flow hedges– 3 – –Other temporary differences 339 30 354 23 906 1,136 817 900 A deferred tax asset is recognised in respect of tax losses carried forward only to the extent that there is a reasonable expectation that the losses will be recoverable within the forseeable future. Group tax losses carried forward for which a deferred tax asset has not been recognised total £669,000 (2018: £579,000). The deferred tax asset relating to the pension scheme deficit is deemed recoverable based upon the contributions into the pension scheme which are designed to return the scheme to a fully funded position by April 2038, based on the April 2016 actuarial valuation, and that there will be future taxable profits which the contributions can be utilised against.Deferred 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 credit of £681,000 (2018: £379,000 charge), a credit of £745,000 (2018: charge of £363,000) was recognised within the consolidated income statement, a charge of £38,000 (2018: £10,000) was recognised within other comprehensive income and a charge of £26,000 (2018: £6,000) recognised within the consolidated statement of changes in equity.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements4726775_Chamberlin_AR_2019.indd 4721/06/2019 10:40:04SECTION 5 Other Supporting Notes CONTINUED SECTION 4 CAPITAL STRUCTURE 18 Share capital Allotted, called up and fully paid 7,958,126 (2018: 7,958,126) Ordinary shares of 25p 2019 £000 1,990 2018 £000 1,990 During the year no shares (2018: none) were issued to directors to satisfy share options at nil (2018: nil) cost. During the year 292,027 share options lapsed (2018: 600,000), 366,006 were granted (2018: nil) and none (2018: none) were forfeited. 19 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. 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 1 April 2017 Granted Lapsed At 1 April 2018 Granted Lapsed At 31 March 2019 Weighted average Exercise price (p) Remaining contractual life (years) 97.7 – 97.7 25.0 97.5 62.1 62.1 5.3 – 8.3 7.7 9 8.5 8.5 No. of options 950,000 – (600,000) 350,000 366,006 (292,027) 423,979 Nil (2018: 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 2019, the total fair value of options was £149,000 (2018: £22,000), of which £40,000 was charged to the consolidated income statement (2018: charge of £7,000). The fair value of options granted in the year was £128,000 (2018: £nil). The exercise price of options as at 31 March 2019 is 25.0p and 97.5p (2018: 25.0p). 48 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 48 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:04 26038 Proof 5 21 June 2019 10:38 amThe key assumptions in relation to the valuation of the outstanding options were:2019Grant date19 Jun 18Maturity date19 Jun 21Share price 99pExpected volatility59.4%Expected life3 yearsRisk free rate1.5%Expected dividend yieldNilExpected 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 2019 was 41p (2018: 63.5p) and during the year ranged between 101.5p and 41p (2018: between 63.5p and 176.5p).20 Fixed asset investmentsShares in subsidiary undertakings£000 Cost at 1 April 2018 8,159 Disposal of subsidiary (2,004) Impairment (3,260) Cost as at 31 March 20192,895 Wholly owned operating subsidiariesPrincipal activityChamberlin & Hill Castings Ltd Manufacture and sale of engineering castingsRussell Ductile Castings Ltd Manufacture and sale of engineering castingsPetrel LtdManufacture and sale of lighting, switchgear and electrical installation productsChamberlin Foundry LtdIntermediary holding companyWholly owned dormant subsidiariesChamberlin Group LtdChamberlin & Hill LtdDuctile Castings LtdFred Duncombe LtdFitter & Poulton LtdWebb Lloyd LtdThe 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.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements4926775_Chamberlin_AR_2019.indd 4921/06/2019 10:40:04SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES 21 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 2019 was £124,000 (2018:£218,000) plus £112,000 of financing cost (2018: £126,000). 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 £191,000 (2018: £190,000). 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 2019 n/a 3.2% 2.3% 3.3% 2.3% 2018 n/a 3.1% 2.5% 3.2% 2.2% 2017 n/a 3.3% 2.5% 3.3% 2.3% Demographic assumptions are all based on the S2PA (2018: 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 – female Future pensioners at 65 – male – female 2019 Years 20.9 23.1 21.8 24.2 2018 Years 21.1 23.0 22.1 24.1 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 2020 are £279,000. 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 increased to £22,547 per month (previously £21,890 per month), with a 3% annual increase thereafter. 50 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 50 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:04 26038 Proof 5 21 June 2019 10:38 amThe scheme assets are stated at the market values at the respective balance sheet dates. The assets and liabilities of the scheme were:2019£0002018£000Equities/diversified growth fund 14,286 11,802 Bonds 1,580 1,280 Insured pensioner assets 26 28 Cash 173 97 Market value of assets 16,065 13,207 Actuarial value of liability (18,705) (18,287) Scheme deficit (2,640) (5,080) Related deferred tax asset 448 864 Net pension liability (2,192) (4,216) 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 loss2019£0002018£000Net interest cost (112) (126) Net benefit expense (112) (126) Re-measurement losses/ (gains) in other comprehensive income2019£0002018£000Actuarial losses/ (gains) arising from changes in financial assumptions 622 (151) Actuarial gains arising from changes in demographic assumptions (151) (129) Experience adjustments 91 291 Return on assets (excluding interest income) (638) (3) Total re-measurement of the net defined liability shown in other comprehensive Income (76) 8 2019£0002018£000Actual return on plan assets976334Movement in deficit during the year2019£0002018£000Deficit in scheme at beginning of year(5,080) (5,209) Movement in year:Past service cost(295)–Employer contributions2,771 263 Net interest expense(112) (126) Actuarial gain/(loss)76 (8) Deficit in scheme at end of year(2,640) (5,080) www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements5126775_Chamberlin_AR_2019.indd 5121/06/2019 10:40:04SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 21 Pension arrangements continued 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 Past service cost Benefit obligation at end of year The weighted average duration of the pension scheme liabilities is 13.5 years (2018: 13.5 years). A quantitative sensitivity analysis for significant assumptions as at 31 March 2019 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 2019 £000 2018 £000 13,207 13,548 338 638 2,771 (889) – 331 3 263 (938) – 16,065 13,207 2019 £000 2018 £000 18,287 18,757 450 622 (151) 91 (889) 295 457 (151) (129) 291 (938) – 18,705 18,287 2019 £000 16,497 19,734 19,594 The sensitivity analysis above has been determined based on a method that extrapolates the impact on the defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the year. 52 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 52 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:04 26038 Proof 5 21 June 2019 10:38 am22 Contingent liabilitiesCross guarantees exist between the Company and its subsidiary undertakings in respect of the Group’s asset finance loans and invoice finance facilties. The total borrowings of the subsidiaries at 31 March 2019 amounted to £4,674,000 (2018: £7,106,000).23 Financial commitmentsGroupCompanyCapital expenditure2019£0002018£0002019£0002018£000Contracted for but not provided in the accounts– 173 – – 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 commitmentsThe Group had total outstanding commitments under operating leases as follows:GroupCompany2019£0002018£0002019£0002018£000Future minimum payments due:Not later than one year 77 297 23 67 After one year but not more than five years– 562 – 91 After five years– 374 –– 77 1,233 23 158 Leases on land and buildings comprise the premises occupied by Petrel Limited (£91,000 per annum with an end date of 20 August 2019).No early termination is permitted on the lease on Petrel’s premises or the machining facility.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements5326775_Chamberlin_AR_2019.indd 5321/06/2019 10:40:04SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 24 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 63% 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 the Group had net monetary assets denominated in Euros of £2,671,000 (2018: £1,146,000). 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 2019, the Group held forward currency hedging contracts designated as hedges of expected future Euro exports for highly probable forecast sales transactions. The forward currency contracts are being used to hedge the foreign currency risk of highly probable forecast sales over 18 months. The terms of the forward currency hedging contracts have been negotiated to match the terms of the commitments and the cash flow hedges of expected future sales were assessed to be highly effective. Forward currency contracts for the sale of Euros outstanding at the year end have been recorded at fair value with the movement being recognised directly in other comprehensive income through the consolidated statement of comprehensive income. If these contracts were not in place and the Euro/Sterling exchange rate moved by plus or minus 5% the corresponding gain/loss to equity would be £440,000 (2018: £738,000). 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 2019 At 31 March 2018 Contracted amount (Euros 000) 10,030 17,547 Weighted average contract rate 1.1383 1.1319 Contracted amount £000 8,812 15,502 Contracted amount at year end rate £000 8,629 15,463 Unrealised gain/ (loss) £000 183 39 Interest rate risk The Group operates 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 £8,000 reduction in profit before tax (2018: £26,000). An equivalent decrease in rates would increase profit before tax by £8,000 (2018: £26,000). 54 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 54 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:04 26038 Proof 5 21 June 2019 10:38 amAn analysis of interest bearing financial assets and liabilities is given below.GroupCompanyFinancial liabilities2019£0002018£0002019£0002018£000Bank overdraft (Sterling denominated)– (2,190) (23) (1,772) Bank overdraft (Euro denominated)– 1,705 ––Invoice finance (Sterling denominated) (1,099) (2,284) ––Invoice finance (Euro denominated) (529) (2,377) ––Invoice finance (US Dollar denominated)– (79) ––Asset finance loans (Sterling denominated)––––Finance leases (Sterling denominated) (4,021) (2,516) ––Import finance loan (Euro denominated) – (1,137) –– (5,649) (8,878) (23) (1,772) Credit riskThe 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 15. 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 £328,000 (2018: £17,000).Liquidity riskThe 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, 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 £7.75m invoice finance facility is ongoing, as discussed in the consolidated balance sheet commentary on page 25.Fair value hierarchyThe 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 :Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements5526775_Chamberlin_AR_2019.indd 5521/06/2019 10:40:04SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 24 Derivatives and financial instruments continued All derivative financial assets and liabilities are valued using level 2 techniques. The fair values of short term receivables, short term payables, and the invoice finance facility (which is 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 the audit committee. Valuation processes and fair value changes are discussed by 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 carrying value of the Group’s financial assets and liabilities is considered to be the same as the fair value. 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 2019 and 31 March 2018. On demand Less than one year 1 to 2 years 2 to 5 years Greater than 5 years Total At 31 March 2019 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 2018 Financial assets Trade receivables Non-derivative financial liabilities Bank overdraft Invoice finance Finance leases, including interest Import loan, including interest Trade payables 5,189 – 1,628 – – – 1,628 6,773 485 4,740 – – – 5,225 – – – 1,102 – 2,665 3,767 – – – 691 1,182 4,669 6,542 – – – – – – 1,090 1,993 – – – – 1,090 1,993 – – – – – – 672 1,417 – – – – 672 1,417 – – – – – – – – – – – – – – 5,189 – 1,628 4,185 – 2,665 8,478 6,773 485 4,740 2,780 1,182 4,669 13,856 56 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 56 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:05 26038 Proof 5 21 June 2019 10:38 amThe gross undiscounted future cashflows are analysed as follows:Derivative financial liabilitiesOn demandLess thanone year1 to 2 years2 to 5 yearsTotalAt 31 March 2019Foreign Exchange forward contracts– 7,682 946 – 8,628 – 7,682 946 – 8,628 The outflows above relate to the settlement of the derivative contracts which are a fair value asset at the year end as discosed in Note 16.At 31 March 2018Foreign Exchange forward contracts– 11,989 3,474 – 15,463 – 11,989 3,474 – 15,463 The Company’s financial liabilities comprise the bank overdraft of £23,000 (2018: £1,772,000) and is payable on demand, and Finance lease liabilities £93,000 (2018: £nil).Capital managementThe Group defines capital as the total equity of the Group, which at the year end is £4,868,000 (2018: £3,156,000). 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 asset loans. Further details are discussed in the consolidated balance sheet commentary on page 25.25 Related party transactionsGroupAll 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.CompanyThe 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.GroupCompanyCompensation of key management personnel (including directors)2019£0002018£0002019£0002018£000Short term employee benefits (including employer's NI) 1,320 1,388 638 619 Termination costs (including employer's NI)––––Share based payments 40 46 40 46 Pension contributions 64 66 37 36 1,424 1,500 715 701 Key management, other than directors of the Company, comprise the Managing Directors and Finance Directors of the main operating subsidiaries and are included in the Group figures above.Details of key management share options are disclosed in Note 19.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements5726775_Chamberlin_AR_2019.indd 5721/06/2019 10:40:05SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 26 GROSS DEBT At 1 April 2017 Cashflow Interest At 1 April 2018 Cashflow Interest At 31 March 2019 Balances comprise: Current liabilities Non-current liabilities Net overdraft £000 216 238 31 485 (680) 195 0 – – – Invoice finance £000 3,510 1,083 147 4,740 (3,218) 106 1,628 1,628 – 1,628 IFRS 16 Liability £000 – – – – 935 40 975 184 791 975 Finance leases £000 1,667 792 57 2,516 484 46 3,046 871 2,175 3,046 Import loan £000 1,235 (145) 47 1,137 (1,137) – – – – Total £000 6,628 1,968 282 8,878 (3,616) 387 5,649 2,683 2,966 5,649 27 Summary of significant accounting policies Basis of preparation The consolidated financial statements have been prepared on a historical cost basis and are presented in sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. Basis of consolidation The consolidated financial statements comprise the financial statements of Chamberlin Plc and its subsidiaries as at 31st 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 3 to 7. In addition, Note 24 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 £7.75m ongoing invoice discounting and finance leases of £4.0m repayable over five years. 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. 58 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 58 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:05 26038 Proof 5 21 June 2019 10:38 amPresentation of the Consolidated Income StatementThe 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 goodwillBusiness combinations from 1st April 2010Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree’s identifiable net assets is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses.When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.Goodwill is initially measured at cost, being the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the accquiree) 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. 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 that is disposed of, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.Business combinations prior to 1st April 2010Business 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. www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements5926775_Chamberlin_AR_2019.indd 5921/06/2019 10:40:05SECTION 5 Other Supporting Notes CONTINUED SECTION 5 OTHER SUPPORTING NOTES CONTINUED 27 Summary of significant accounting policies continued 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. 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. 60 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 60 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:05 26038 Proof 5 21 June 2019 10:38 amIntangible assetsIntangible 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 three years for normal software and ten 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 costsResearch 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 five years was considered appropriate.The Company’s investments in subsidiariesInvestments 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.InventoriesInventories are valued at the lower of cost and net realisable value, which is arrived at as follows: ÆRaw materials - purchase cost on a first-in, first-out basis or weighted average cost basis; ÆFinished 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 has evaluated the effect of this change in estimate and does not believe it to be material.Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.Maintenance items are held in inventory and expensed on use unless they exceed a minimum 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 receivablesTrade 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.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements6126775_Chamberlin_AR_2019.indd 6121/06/2019 10:40:05SECTION 5 OTHER SUPPORTING NOTES CONTINUED 27 Summary of significant accounting policies continued 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 IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance leases and requiring the recognition of a right-of-use asset and lease liability at commencement for all leases, except for short-term leases and low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Applying IFRS 16, for all leases the Group: a. Recognises right-of-use assets and lease liabilities in the consolidated balance sheet, initially measured at the present value of future lease payments; b. Recognises depreciation of right-of-use assets and interest on lease liabilities in the Consolidated Income Statement; and c. Separates the amount of cash paid into principal and interest and presents them separately within financing activities in the consolidated cash flow statement. Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts. For short-term leases (lease terms of 12 months or less) and leases of low-values-assets (such as personal computers and office furniture), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within other expenses in the Consolidated Income Statement. 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 1st 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 31st March 2019 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 performs an assessment to confirm the reasonableness of this valuation. 62 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 62 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:05 26038 Proof 5 21 June 2019 10:38 amEmployee benefitsWages, salaries, bonuses, social security contributions, paid annual leave and sick leave are accrued in the year in which the associated services are rendered by employees of the Group. Pensions and other post-employment benefitsThe Group operates a number of defined contribution schemes, which require contributions to be made to administered funds separate from the Group.The Group also has a defined benefit pension scheme which is closed to future accrual. The scheme assets are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit credit method. As the scheme is closed to future accrual, no service cost of providing pension to employees is charged to the Consolidated Income Statement. The cost of making improvements to past pension and other post-retirement benefits is recognised in the Consolidated Income Statement immediately as an expense.Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under non-underlying operating costs in the Consolidated Income Statement: Defined benefit pension scheme administration costs. Remeasurements 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. Remeasurements 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 taxesCurrent 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 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: Æwhere 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; Æin 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 Ædeferred 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 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.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements6326775_Chamberlin_AR_2019.indd 6321/06/2019 10:40:05SECTION 5 OTHER SUPPORTING NOTES CONTINUED 27 Summary of significant accounting policies continued Revenue Revenue is recognised when the significant risks and rewards of ownership of the goods, in line with 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 has assessed the impact of market conditions on the valuation and has determined them not to be material. 64 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 64 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:05 26038 Proof 5 21 June 2019 10:38 amNon-underlying and exceptional itemsThe 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, onerous leases, impairment of fixed assets and investments, and GMP equalisation, together with the 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 the associated tax impact on these items.Financial leasesManagement 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 judgements and accounting estimatesThe preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amount of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from those estimates and judgements. Where appropriate, details of estimates and assumptions used are set out in the relevant notes to the accounts.The key figures in the accounts that are most sensitive to such judgements and estimates are:Judgements ÆImpairment 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 12 provides details of the impairment review undertaken during the period. ÆImpairment 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 Income Statement through sales over a five-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 15.Accounting estimates ÆDefined 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 21 provides details of the defined pension scheme liabilities and valuation assumptions. ÆRecoverability of deferred tax assets; deferred 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. Note 17 provides details of the deferred tax assets.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements6526775_Chamberlin_AR_2019.indd 6521/06/2019 10:40:05INDEPENDENT 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 31st March 2019, which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, Consolidated and Parent Company Balance Sheets, 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 31st March 2019 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. 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 12 months from the date when the financial statements are authorised for issue. Overview of our audit approach Æ Our Group materiality was £659,000, which was determined based on 2.0% of the Group’s preliminary continuing 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. 66 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 66 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:06 26038 Proof 5 21 June 2019 10:38 amKey audit mattersKey audit matters are those matters that, in our professional judgement, 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.Key Audit Matter – GroupHow the matter was addressed in the audit – GroupRevenue 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 management’s assessment that revenue is a KPI and the volume of transactions in the year, we have identified revenue recognition (focusing 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: Æevaluating the revenue recognition accounting policies for appropriateness in accordance with the requirements of International Financial Reporting Standard 15 ‘Revenue’ and executing audit procedures to provide evidence that revenue was accounted for in accordance with these policies. Ætesting a sample of revenue transactions across each subsidiary by agreeing amounts to contracted amounts, cash receipts and/or proof of delivery where applicable. Æassessing 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. Ædetermining 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 dispatched in the correct period.The Group’s accounting policy on revenue recognition is shown in Note 27 to the financial statements and related disclosures are included in Note 3.Key observationsBased on our audit work, we did not identify any evidence of material misstatement in the revenue recognised in the year to 31st March 2019. www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements6726775_Chamberlin_AR_2019.indd 6721/06/2019 10:40:06INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC 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 and involves management judgement. 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. Management’s impairment review identified two CGUs that showed signs of impairment. 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 across both CGUs identified by management that 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, whether they were 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. The Group’s accounting policy on impairment is shown in Note 27 to the financial statements and related disclosures are included in Note 12. 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 12 also appropriately discloses the assumptions used in arriving at the estimate. Based on our audit work, we did not identify any evidence of material misstatement in the impairment of fixed assets at 31st March 2019. 68 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 68 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:06 26038 Proof 5 21 June 2019 10:38 amKey Audit Matter – GroupHow the matter was addressed in the audit – GroupValuation of defined benefit pension schemeThe Group operates a defined benefit pension scheme that provides benefits to a number of current and former employees. At 31st March 2019, the defined benefit pension schemes’ deficit was £2.6 million. The gross value of pension scheme assets and liabilities, which form the deficit, amount to £16.1 million and £18.7 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: Ætesting 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 and the return on plan assets were being evaluated in accordance with the accounting policy; Æusing 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; Æcorroborating 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 27 to the financial statements and related disclosures are included in Note 21. Key observationsBased 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 52 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. During our testing, we found no errors in calculations. Based on our audit work, we did not identify any evidence of material misstatement in the valuation of the defined benefit pension scheme at 31st March 2019.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements6926775_Chamberlin_AR_2019.indd 6921/06/2019 10:40:06INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC Key Audit Matter – Group How the matter was addressed in the audit – Group Sale of Exidor Limited During the year the Company disposed of a subsidiary, Exidor Limited. The consideration received was significant and the nature of the transaction was deemed unusual. Our audit work included, but was not restricted to: Æ corroborating the proceeds for the sale and key terms impacting management’s calculations are consistent with the Share Purchase Agreement; Therefore, we identified the accuracy and presentation of the sale of the subsidiary as a significant risk, which was one of the most significant assessed risks of material misstatement. Æ corroborating the receipt of proceeds to bank statements and agreeing this amount to the terms and conditions of the agreement; Æ testing the mathematical accuracy of management’s calculation of the gain on disposal; Æ assessing the adequacy of disclosures in respect of the disposal to ensure these are in accordance with IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’ and IFRS 10 ‘Consolidated Financial Statements’; Æ performing an analytical review on the completion balance sheet of Exidor Limited, comparing values to prior year and agreeing to further supporting documentation where necessary. Key observations Based on our audit work, we found the calculations used to be accurate and consistent with the Share Purchase Agreement and requirements of the accounting standard. Note 9 appropriately discloses the transaction. Based on our audit work, we did not identify any evidence of material misstatement in the calculation of the gain or loss or proceeds on sale of Exidor Limited. . 70 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 70 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:06 26038 Proof 5 21 June 2019 10:38 amOur application of materialityWe 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 measureGroupParent companyFinancial statements as a whole£659,000, which was determined based on 2.0% of the Group’s preliminary revenues for continued operations. 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 31st March 2018 as a result of increases in total revenue and a 0.5% increase in the threshold applied.£175,000, which is 2.0% of the preliminary figure for the Company’s total assets. 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 higher than the level that we determined for the year ended 31st March 2018 as a result of increases in total assets and a 0.5% increase in the threshold applied.Performance materiality used to drive the extent of our testingBased 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.Specific materialityWe 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£32,000 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.£8,750 and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements7126775_Chamberlin_AR_2019.indd 7121/06/2019 10:40:06INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC 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 each entity’s 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% of consolidated revenues and 100 % of total profit before tax for continuing operations. 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 opinions on other matters prescribed by the Companies Act 2006 are 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. 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. 72 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 72 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:06 26038 Proof 5 21 June 2019 10:38 amResponsibilities of directors for the financial statementsAs explained more fully in the Directors’ responsibilities statement set out on page 16, 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 statementsOur 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.Use of our reportThis 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.DAVID WHITESENIOR STATUTORY AUDITORfor and on behalf of Grant Thornton UK LLPStatutory Auditor, Chartered AccountantsBirmingham 3 June 2019www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements7326775_Chamberlin_AR_2019.indd 7321/06/2019 10:40:06AUDIT COMMITTEE REPORT Key Objective The Audit Committee acts on behalf of the Board and the shareholders to ensure the integrity of the Company’s financial reporting, evaluate its systems of risk management and internal control and oversee the relationship and performance of the external auditors. Membership, Meetings and Attendance The composition of the Audit Committee during the year was: Keith Jackson (Chairman) Keith Butler-Wheelhouse David Flowerday The Audit Committee meets at least twice during the year and details of the attendance at meetings are shown on page 11. Responsibilities The Audit Committee’s main functions include, inter alia, reviewing and monitoring internal financial control systems and risk management systems, considering the annual report, interim accounts and auditor’s reports, and making recommendations to the Board in relation to the appointment and remuneration of the auditors . The main responsibilities of the Committee are: Æ to review accounting policies and the integrity and content of the financial statements; Æ to monitor disclosure controls and procedures and the Company’s internal controls; Æ to monitor the integrity of the financial statements of the Company and to assist the Board in ensuring that the Annual Report and Accounts, when taken as a whole, are fair, balanced and understandable; Æ to review and approve preliminary results announcements; Æ to consider the adequacy and scope of external audits; Æ to review and approve the statements to be included in the Annual Report on internal control and risk management; and Æ to review and report on the significant issues considered in relation to the financial statements and how they are addressed. Key Activities During The Year The key activities and areas covered by the Audit Committee during the year were as follows: Annual And Interim Results At the request of the Board, the Committee reviewed the presentation of the Company’s audited results for the year to 31 March 2019 and the unaudited results for the six months to 30 September 2018 to ensure that they were fair, balanced and understandable and provide sufficient information necessary for shareholders and other users of the accounts to assess the Company’s position and performance, business model and strategy. The most significant areas of focus in relation to the results for the year ended 31 March 2019 were as follows: Æ impairment of fixed assets. Due to a decline in the profitability of the cash generating units in the foundry division, the Directors undertook an impairment review of those businesses, which resulted in an impairment charge of £3.0m being recognised in non-underlying items in the income statement. The Audit Committee discussed the assumptions made in the value in use assessment concerning the future performance of the businesses and the discount rate applied to future cash flows and found them to be reasonable; Æ recognition of revenue. The audit committee reviewed the accounting policies for the recognition of revenue, as revenue is a key driver for the business, and in light of the requirement to adopt IFRS 15 ‘Revenue from contracts with customers’ during the year. The review included discussion of the appropriateness of the Group’s policy to recognise revenue when the risks and rewards of ownership have transferred to the buyer. Æ sale of Exidor Limited. The sale of the Exidor business for £10m during the year was a significant transaction for the group and its impact on the financial statements was reviewed by the Audit Committee. This review included discussion of the treatment of Exidor as a discontinued operation and the associated disclosures required to be made in the financial statements. Æ pension scheme valuation. The closed defined benefit pension scheme liability of £2.6m is a significant liability on the Group’s balance sheet. Consequently the Audit Committee reviewed the appropriateness of the assumptions used by the external actuary in deriving the IAS 19 liability and found them to be reasonable. Æ early adoption of IFRS 16 ‘Leases’. The Audit Committee reviewed the appropriateness of the calculations and the disclosures in the financial statements of adopting IFRS 16 Management Override Of Internal Controls The Audit Committee considered the inherent risk of management override of internal controls as defined by Auditing Standards. In doing so the Audit Committee continues to review the overall robustness of the control environment. 74 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 74 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:06 26038 Proof 5 21 June 2019 10:38 amPARENT COMPANY BALANCE SHEETAT 31 MARCH 2019Notes2019£0002018£000Non-current assetsProperty, plant and equipment12 779 768 Intangible assets13 2 3 Investments20 2,895 8,159 Deferred tax asset17 817 900 4,493 9,830 Current assetsTrade and other receivables15 165 98 Income taxes receivable15 132 107 Amounts due from subsidiary undertakings15 3,761 156 4,058 361 Total assets 8,551 10,191 Current liabilitiesFinancial liabilities16 57 1,772 Trade and other payables16 1,300 567 1,357 2,339 Non-current liabilitiesFinancial liabilities17 59 –Deferred tax17 33 6 Defined benefit pension scheme deficit21 2,640 5,080 2,732 5,086 Total liabilities 4,089 7,425 Capital and reservesShare capital18 1,990 1,990 Share premium 1,269 1,269 Capital redemption reserve 109 109 Retained earnings 1,094 (602) Total equity 4,462 2,766 Total equity and liabilities 8,551 10,191 The profit dealt with in the accounts of the parent company was £1,621,000 (2018: loss of £1,449,000).KEVIN NOLAN NEIL DAVIES DIRECTORSThe accounts were approved by the Board of Directors on 3 June 2019www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements7526775_Chamberlin_AR_2019.indd 7521/06/2019 10:40:06PARENT COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2019 Operating activities Profit/ (loss) 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 Impairment of investments Depreciation of property, plant and equipment Amortisation of software Profit on sale of Exidor Share based payments One-off contribution made to defined benefit pension scheme Difference between pension contributions paid and amounts recognised in the Income Statement (Increase)/ decrease in receivables Increase /(decrease) in payables Net cash outflow from operating activities Investing activities Purchase of property, plant and equipment Proceeds from sale of subsidiary Net cash inflow/(outflow) from investing activities Financing activities Interest paid Net cash outflow from financing activities Net increase/ (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 comprise: Bank overdraft Notes 2019 £000 2018 £000 1,562 (1,579) 12 13 19 12 98 3,260 112 1 (6,516) 40 (2,500) 136 (3,670) 880 81 – 36 1 – 46 – (137) 128 (569) (6,597) (1,993) (76) 8,520 8,444 (98) (98) 1,749 (1,772) (23) (23) (23) (4) – (4) (81) (81) (2,078) 306 (1,772) (1,772) (1,772) 76 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 76 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:06 26038 Proof 5 21 June 2019 10:38 amPARENT COMPANY CASH FLOW STATEMENTFOR THE YEAR ENDED 31 MARCH 2019PARENT COMPANY STATEMENT OF CHANGES IN EQUITYShare capital£000Sharepremiumaccount£000Capitalredemptionreserve£000Retainedearnings£000Attributable toequity holdersof the Company£000Balance at 1 April 2017 1,990 1,269 109 813 4,181 Loss for the year – – – (1,449) (1,449) Other comprehensive expense for the year net of tax – – – (6) (6) Total comprehensive expense––– (1,455) (1,455) Share based payment––– 46 46 Deferred tax on employee share options– – – (6) (6) Total of transactions with shareholders– – – 40 40 Balance at 1 April 2018 1,990 1,269 109 (602) 2,766 Profit for the year––– 1,621 1,621 Other comprehensive income for the year net of tax – – – 61 61 Total comprehensive income– – – 1,682 1,682 Share based payment––– 40 40 Deferred tax on employee share options– – – (26) (26) Total of transactions with shareholders– – – 14 14 Balance at 31 March 2019 1,990 1,269 109 1,094 4,462 Share premium accountThe 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 reserveThe capital redemption reserve has arisen on the cancellation of previously issued shares and represents the nominal value of those shares cancelled.Retained earningsRetained 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.IFRS16There is no impact on opening reserves due to the early adoption of IFRS16.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements7726775_Chamberlin_AR_2019.indd 7721/06/2019 10:40:06FIVE YEAR FINANCIAL SUMMARY Financial Highlights – continuing operations Revenue (£m) Underlying (loss)/profit before tax (£’000) Statutory (loss)/profit before tax (£’000) Underlying diluted earnings per share (pence) Dividend per share (pence) Cash generated from operations (£’000) 2019 33.0 (1,273) (4,957) (16.8) 0.0 (3,379) 2018 30.2 (662) (1,112) (12.4) 0.0 791 2017 24.9 60 (516) (1.0) 0.0 (454) 2016 22.7 (341) (854) (4.0) 0.0 1,037 2015 27.3 789 250 10.4 0.0 827 REVENUE (£m) UNDERLYING PROFIT BEFORE TAX (£000) 2019 2018 2017 2016 2015 33.0 30.2 24.9 22.7 27.3 2019 2018 2017 2016 2015 (1,273) (662) (341) 60 789 STATUTORY PROFIT BEFORE TAX (£000) UNDERLYING DILUTED EARNINGS PER SHARE (p) 2019 2018 2017 2016 2015 (4,957) (1,112) (516) (854) 2019 2018 2017 2016 2015 250 (16.8) (12.4) (1.0) (4.0) 10.4 DIVIDEND PER SHARE (p) CASH GENERATED FROM OPERATIONS (£000) 2019 0.0 2018 0.0 2017 0.0 2016 0.0 2015 0.0 2019 2018 2017 2016 2015 (3,379) (454) 791 1,037 827 78 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 78 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:07 26038 Proof 5 21 June 2019 10:38 amNOTICE OF ANNUAL GENERAL MEETINGNotice is hereby given that the Annual General Meeting of the Company will be held on Tuesday 23 July 2019 at the Registered Office, Chuckery Road, Walsall, WS1 2DU at 11.30am 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 2019 (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 Neil Davies (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 2019 (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 £656,545 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 23 October 2020, 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).www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements7926775_Chamberlin_AR_2019.indd 7921/06/2019 10:40:07To 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 £99,476, and (unless previously revoked, varied or renewed) this power shall expire at the earlier of the conclusion of the next Annual General Meeting, of the Company or 23 October 2020, 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 23 October 2020, 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 NEIL DAVIES COMPANY SECRETARY 3 June 2019 Chuckery Road Walsall WS1 2DU 80 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 80 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:07 26038 Proof 5 21 June 2019 10:38 amNOTICE OF ANNUAL GENERAL MEETING CONTINUEDGeneral InformationA 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 11.30am on 19 July 2019 (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 15. Members should notify the Registrars without delay of any change of address.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: Æ11.30am on 19 July 2019; or, ÆIf this Meeting is adjourned, at 11.30am on the day two days prior to the adjourned meeting,shall be entitled to attend and vote at the AGM.www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements8126775_Chamberlin_AR_2019.indd 8121/06/2019 10:40:07SHAREHOLDER INFORMATION DIRECTORS Keith Butler-Wheelhouse (Non-Executive Chairman) Kevin Nolan (Chief Executive) Neil Davies (Finance Director) Keith Jackson (Non-Executive) David Flowerday (Non-Executive) COMPANY SECRETARY Neil Davies REGISTERED OFFICE Chuckery Road Walsall WS1 2DU Registered in England No. 00076928 AUDITOR Grant Thornton UK LLP Birmingham SOLICITORS DLA Piper Birmingham NOMINATED ADVISER AND BROKER Cenkos Securities plc London BANKERS HSBC Bank plc Birmingham REGISTRARS Neville Registrars Limited Neville House 18 Laurel Lane Halesowen West Midlands B63 3DA 82 chamberlin plc ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2019 26775_Chamberlin_AR_2019.indd 82 26038 Proof 5 21 June 2019 10:38 am 21/06/2019 10:40:08 26038 Proof 5 21 June 2019 10:38 am26038 Proof 5 21 June 2019 10:38 amSmall complex grey iron castings, principally for the automotive sector and hydraulic applications.Products associated with cable management. Lighting and switchgear associated with petrochemicals and construction applications.Large grey, ductile and alloyed iron castings for a range of applications including power generation, bearing housings, steelworks, construction and compressors.Chamberlin & Hill Castings LtdChuckery Road Walsall, WS1 2DUTel: 01922 721411 Fax: 01922 614610www.chcastings.co.ukPetrel Ltd22 Fortnum Close Kitts Green Birmingham, B33 0LBTel: 0121 783 7161 Fax: 0121 783 5717www.petrel-ex.co.ukRussell Ductile Castings LtdTrent Foundry Dawes Lane Scunthorpe, DN15 6UWTel: 01724 862152 Fax: 01724 280461www.russellcastings.co.ukwww.chamberlin.co.ukSTOCK CODE: CMH83Financial Statements26775_Chamberlin_AR_2019.indd 621/06/2019 10:39:3926038 Proof 5 21 June 2019 10:38 am26038 Proof 5 21 June 2019 10:38 amAnnual Report and Accounts for the year ended 31 March 2019Chuckery Road, Walsall, West Midlands, WS1 2DUT: 01922 707100 F: 01922 638370E: plc@chamberlin.co.ukchamberlin plc Visit us onlineFor more information on Chamberlin Group operations please visit our website at:www.chamberlin.co.uk26775_Chamberlin_AR_2019.indd 121/06/2019 10:39:32

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