Chordate Medical Holding
Annual Report 2020

Plain-text annual report

ANNUAL REPORT AND ACCOUNTS for the year ended 31 March 2020 STOCK CODE: CMH c h a m b e r l i n p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 M a r c h 2 0 2 0 DIFFICULT THINGS DONE WELL DIFFICULT THINGS DONE WELL Success in UK engineering has not been easy to achieve in recent years, but its requirements can be simply stated; winners must do difficult things and must do them well. We define “difficult things” as activities with high engineering content delivering technically demanding products or processes. To take profitable advantage of them, it is essential that a business is properly managed and performs well. ”The year under review has been difficult. However, down-sizing cost reductions and careful cash management allowed the Group to operate effectively. Chairman, Keith Butler-Wheelhouse Investment Proposition Æ Operating in markets with high barriers to entry protected by process know-how or market regulation Æ Operating across diversified markets with sales driven by the global engineering economy – 66% of sales are exported Æ Growth opportunity in the turbocharger castings market benefiting from regulatory drivers Æ Strong, credible management team with a proven track record Æ Focused UK manufacturing in niche markets Visit us online For more information on Chamberlin Group operations please visit our website at www.chamberlin.co.uk ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcHighlights Financial Æ Revenue of £26.1m (2019: £33.0m) was 21% lower than prior year reflecting tough trading conditions in the first half Æ Second-half revenues increased by 4% compared to the first half Æ Underlying operating loss before non-underlying costs of £1.1m (2019: £1.0m loss), with the second half broadly break-even Æ Underlying loss before taxation reduced to £1.4m (2019: £1.5m), reflecting lower financing costs on reduced net debt Æ Non-underlying costs of £0.9m include significant downsizing costs of £0.8m, mostly taken in the first half, which contributed to the improved operating result in the second half Æ Statutory loss before tax reduced to £2.3m (2019: £5.0m) as impairment charge taken in 2019 was not repeated Æ Underlying diluted loss per share for continuing operations reduced to 18.7p (2019: 19.5p) Æ Total diluted loss per share of 30.1p (2019: earnings per share of 18.2p) Æ Net debt reduced to £4.6m (2019: £5.4m) Operational Æ Foundry revenues fell by 21% to £23.1m (2019: £29.3m) reflecting difficult trading conditions in the automotive sector Æ Foundry operating loss reduced to £0.1m (2019: £0.2m loss) driven by strong profit contribution of £0.4m in the second half Æ Engineering revenues decreased by 16% to £3.0m (2019: £3.6m), primarily due to Brexit uncertainties impacting customer demand, with the operating result reducing to break- even (2019: £0.2m profit) REVENUE £26.1m 2020 2019 26.1 33.0 STATUTORY LOSS BEFORE TAX (£2.3m) 2020 2019 (2.3) (5.0) UNDERLYING LOSS BEFORE TAX (£1.4m) 2020 2019 (1.4) (1.5) TOTAL (LOSS)/ EARNINGS PER SHARE (30.1p) 2020 2019 (30.1) 19.2 Overview Contents OVERVIEW Highlights Chairman’s Statement Group Overview STRATEGIC REPORT Chief Executive’s Review (including performance review of Engineering and Foundry divisions) Measurements and Targets Principal Risks and Uncertainties CORPORATE GOVERNANCE The Board Corporate Governance Report Remuneration Report Directors’ Report 01 02 03 04 06 07 11 12 16 18 Statement of Directors’ Responsibilities 20 FINANCIAL STATEMENTS Introduction Primary Statements Section 1 – Basis of Preparation Section 2 – Results of the Year 23 24 32 33 Section 3 – Operating Assets and Liabilities 41 Section 4 – Capital Structure Section 5 – Other Supporting Notes Independent Auditor’s Report Audit Committee Report Parent Company Financial Statements Five Year Financial Summary Shareholder Information 50 52 68 74 75 78 79 Underlying figures are stated before non-underlying costs (restructuring costs, hedge ineffectiveness, impairment, GMP equalisation, onerous leases and share based payment costs) together with the associated tax impact. Underlying comparative figures have been restated as disclosed in Note 27. 01 www.chamberlin.co.ukSTOCK CODE: CMHOverviewCHAIRMAN’S STATEMENT KEITH BUTLER-WHEELHOUSE CHAIRMAN ”The year under review was a difficult period for Chamberlin. However, downsizing cost reductions and careful cash management allowed the Company to operate effectively. Future expectations will depend on a continued increase in non-automotive activity, reasonable turbocharger related business and the impact of COVID-19 diminishing.” The year under review was a difficult period for Chamberlin. Revenue was 21% below the prior year, with a loss before tax of £2.3m, including £0.8m of restructuring costs. However, downsizing, cost reductions and careful cash management allowed the Company to operate effectively. The Board and Staff In July 2019, Keith Jackson retired from the Board after 14 years, having joined as a Non-Executive Director in 2005. Keith will continue in his role as Trustee Chairman of the Chamberlin and Hill Staff Pension and Life Assurance Scheme. David Flowerday has replaced Keith as chair of the Audit Committee. On behalf of the Board, we would like to place on record our thanks to Keith for his many years of service to Chamberlin. He has made a significant contribution and we wish him well in the future. Subsequent to the year end the Board was strengthened by the appointment of Trevor Brown in March 2021. There have been no other changes to the Board. As part of the overall restructuring mentioned above, there has been a consolidation of many positions, including senior roles, in order to reduce costs. On behalf of the Board, I would like to give our thanks to all our employees during what has been a difficult and challenging period. Subsequent events COVID-19 hit us very hard in April 2020 and to a lesser degree in the months since. In December 2020 our principal customer BorgWarner gave notice of the early termination of all existing contracts, dealing a body blow to the company. This required Chamberlin to seek additional finance in order to remain solvent and pursue substantial further restructuring. A share issue was successfully undertaken in March 2021 generating £3.5m before costs. The publication of these accounts was delayed first by Covid, then by the loss of the BorgWarner contract and finally by the share issue. Outlook This outlook statement was first prepared in November 2020, prior to events concerning BorgWarner. As penned in November the outlook was uncertain, principally due to COVID 19. As rewritten in April 2021 the market outlook is more positive, with all businesses enjoying sales levels above those of the prior year in recent months, excluding the effect of BorgWarner. Whilst the COVID-19 outlook in the UK is much brighter, things remain uncertain, particularly in Continental Europe where many of our customers are based. The substantial further restructuring mentioned above will reduce the overhead structure and the direct workforce to that needed for the reduced turnover caused by the BorgWarner contract termination. The Company continues to explore additional opportunities for all business units, including non- traditional products and e-commerce. Management are confident that sales at Chamberlin will stabilise in the first half of the 2021/22 financial year and will then grow from the post BorgWarner low, with the growth gathering pace in the second half. The Board expects growth from all business units and a return to profitability and cash generation post our restructuring. KEITH BUTLER_WHEELHOUSE CHAIRMAN 15 April 2021 02 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcGROUP AT A GLANCE GROUP OVERVIEW Product Areas Chamberlin operates across four locations in the UK. The Foundry Division specialises in technically demanding castings in complex shapes and in specialist metallurgies. Work is allocated across its two foundry sites and one machining facility based on size and metallurgy as follows: Æ Light Castings based in Walsall produce castings up to 20kg in grey iron. Æ Heavy Castings based in Scunthorpe make 100kg and 6 tonne castings, again in a wide variety of iron grades. Æ The machining centre, opened in 2017, supports the light castings made in Walsall. The engineering business supplies to regulated markets operating from a site in Birmingham. UK Manufacturing FOUNDRIES 1 Plc Head Office & Chamberlin & Hill Castings, Walsall 2 Chamberlin & Hill Castings, machining facility, Walsall 3 Russell Ductile Castings, Scunthorpe ENGINEERING 4 Petrel, Birmingham Global Sales Engineering activity outside of the UK is a key driver of demand. Direct exports account for 66% of output with our customers located in Europe, America, the Middle East and Asia. Global demand for engineered products is strong and our customers are typically leaders in their sectors. 3 1 2 4 03 www.chamberlin.co.ukSTOCK CODE: CMHOverviewCHIEF EXECUTIVE’S REVIEW KEVIN NOLAN CHIEF EXECUTIVE ”A reduction in first-half revenues necessitated action to right-size the cost base. This action laid the foundation for an improved operating performance in the second-half of the year. ” been clarified. In the second half, the increase in revenue from the new non-automotive contracts helped to outweigh the continuing effect of automotive contracts winding down. Overall, second-half revenues were 4% above those in the first half. The lower cost base enabled the second half pre-tax loss to be reduced to £0.5m, including a further £0.1m restructuring costs and a small initial COVID-19 effect in March. Excluding both, profit before tax for the second half was essentially break-even. Looking at the year, revenues at £26.1m were 21% below the prior year, with a loss before tax of £2.3m, including £0.8m restructuring costs. The lower activity enabled working capital to be reduced, capital spend was constrained to the diminished business opportunity and, despite the loss for the year, net debt decreased from £5.4m to £4.6m. KEVIN NOLAN CHIEF EXECUTIVE 15 April 2021 Early in this financial year, Chamberlin’s revenues suffered a reduction, with several factors impacting the Group in the first half: Æ A reduction in European car production adversely affected both the Walsall foundry and machining facility. Æ The issues at British Steel impacted our Scunthorpe heavy castings foundry Æ Petrel, our emergency lighting business, found many construction projects were delayed by uncertainties in the UK economy associated with Brexit. Most importantly, and particularly for our dominant turbocharger market, the continuing lack of clarity over future tariffs on trade with the EU frustrated securing contracts on new models needed to replace contracts on older vehicles reaching the end of their production run. This all reflected in first half revenues of £12.8m, a reduction of 26% compared with the previous year. This necessitated a substantial reduction in the cost base, which occurred during the first half, with the number of employees reducing in line with sales. The Group produced a pre-tax loss of £1.8m in the first half, which included £0.7m of restructuring costs. The restructuring programme was designed to right-size the cost base to the expected future demand, with the latter buoyed in the second half by the successful negotiation of several new non-automotive contracts, and the potential to be further improved by additional automotive work now the future trading regime with the EU has 04 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc PERFORMANCE REVIEW FOUNDRY Division Our three foundry division sites cast a range of products ranging from 1kg up to 6,000kg and deliver castings with complex geometry and challenging metallurgy. Operating (loss)/profit 2019 2020 438 133 (344) (211) (522) (84) H1 H2 Total H1 H2 Total ENGINEERING Division Our engineering site produces lighting for use in hazardous and explosive environments and other industrial applications. Operating (loss)/profit 2019 251 2020 119 132 18 H1 H2 Total (63) (45) H1 H2 Total Revenue split 24% 76% Heavy Castings Light Castings Revenue split 100% Hazardous environments 05 www.chamberlin.co.ukSTOCK CODE: CMHStrategic ReportMEASUREMENTS AND TARGETS Business performance is measured through Group-wide targets and improvement measures. Each Chamberlin business unit participates in an annual round of planning meetings with the Executive Management, during which performance and future plans for that business are reviewed and updated.These business plans are all aligned with the Group business strategy and include specific local and divisional targets and key performance indicators (‘KPIs’). In addition, individual business reviews take place throughout the year on a regular basis enabling the Board to assess performance against tactical and strategic milestones. Key Performance Indicators (KPIs) 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 (£M) The net decrease/ (increase) in net debt Foundries Engineering (0.4) (1.5) GROUP Year ended 31 March 2020 (4.3) 2020 2019 (0.4) (0.7) 2020 2019 (1.5) 6.9 2020 2019 0.8 2020 2019 4.2 (4.3) (3.1) 0.8 RETURN ON NET ASSETS (%) The ratio of the segment’s trading profit to the segment’s net assets (as analysed in Note 3). 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. (1.0) (10.1) (44.2) (1.0) (1.9) 2020 2019 (10.1) 41.4 2020 2019 100.0 108.5 97.2 100.0 104.1 2020 2019 108.5 109.5 2020 2019 (44.2) (20.7) 97.2 100.8 9.4 9.4 2.1 8.6 2020 2019 17.0 2.1 2.2 2020 2019 8.6 13.2 2020 2019 2020 2019 2020 2019 The Directors note that the KPIs reflect the trading conditions of the Group during the year. Calculations are based on numbers disclosed in the segmental analysis in Note 3 to the accounts and are shown before non- underlying items as detailed in Note 11 to the accounts. The Group percentages incorporate shared costs. 06 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcPRINCIPAL RISKS AND UNCERTAINTIES Management throughout the Group uses a common model to identify and assess the impact of risks to their businesses. The Group’s risk management process is described further in the Corporate Governance Report on pages 12 to 15. Risk COVID-19 Description of risk & potential impact Mitigation Global pandemic (also known as the coronavirus) has had a severe impact world-wide on both product demand, human behaviour and also working practices. Brexit/foreign currency fluctuation Machine shop capacity utilisation Raw material pricing fluctuation Failure of our health, safety and environmental (‘HSE’) controls resulting in harm to employees or other stakeholders IT failure/system collapse and loss of data Market deterioration Approximately 63% of Group revenue is derived in Euros. Significant Brexit disruption in the event of no trade deal with the EU could lead to exchange rate fluctuations and the imposition of tariffs on goods sold to and purchased from the EU which could have a material impact on the financial performance of the Group. As mentioned in the outlook statement, a major customer has informed Chamberlin of an earlier than planned transition to the next product evolution, with the new product awarded to another supplier. This reduction in revenue could have a material impact on the financial performance of the Group. The price of many raw materials is dependent upon movements in commodity prices, especially iron. We recognise that we have a duty of care to our employees. We have made great progress in recent years but understand the impact on our employees from the failure of this obligation. This could result in injury or death to our employees or to others and environmental damage with the consequential impact of reputational damage and risk of regulator action. We utilise a significant number of IT systems to support the Group’s production, technology, marketing, sales and financial functions. Failure of any of the systems, corruptions or loss of data could have a major impact on operations. We are a 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. Production failures Due to the complex technical nature and fine production tolerances of our products, an unstable production process can result in significant scrap, which could have a significantly adverse impact on results. The Group is managing the business, especially cash, extremely closely, and has taken various actions to mitigate the impact of COVID-19. It has taken advantage of various Government financial initiatives such as the Job Retention Scheme and deferment of VAT payments. The Group has revisited working practices, such as social distancing from fellow employees and working from home,and have adjusted said practices accordingly. The 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. A claim is being pursued against the customer for breach of contract, costs are being minimised, and additional business opportunities to increase revenue are being actively sought. The Group negotiates, where appropriate, price surcharge arrangements into its customer contracts. 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. Development and regular testing of business continuity plans. Ensuring business continuity plans are robust and address temporary unavailability of IT systems. Strategy to upgrade and replace key systems. The Group sells into a wide variety of different markets, selling a diversified product range. We strive to work with our key customers to introduce new products and are constantly seeking to identify new business segments and geographical locations into which to sell our products. 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. 07 www.chamberlin.co.ukSTOCK CODE: CMHStrategic ReportPRINCIPAL RISKS AND UNCERTAINTIES Director’s statutory duties The Companies (Miscellaneous Reporting) Regulations 2018 (‘2018 MRR’) require Directors to explain how they considered the interests of key stakeholders and the broader matters set out in section 172(1) (A) to (F) of the Companies Act 2006 (‘S172’) when performing their duty to promote the success of the Group under S172. This includes considering the interest of other stakeholders which will have an impact on the long-term success of the group. This S172 statement, which is reported for the first time, explains how the Directors: Æ have engaged with employees, suppliers, customers and others; and Æ have had regard to employee interests, the need to foster the company’s business relationships with suppliers, customers and others, and the effect of that regards, including on the principal decisions taken by the company during the financial year. The Board of Directors, in the course of their collective and individual daily activities and decision- making, are continually mindful of their duties under S172 to act in good faith, in a way that promotes the success of the Company for the benefit of its members and other key stakeholders. In order to fulfil their duties, the Board has regard to the following matters: 08 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcMatter Board’s approach Further details Each year, the Board produces a three-year strategic plan that establishes the future direction and goals of the business. This strategic review provides the guiding principles for decisions that need to be made on a day to day basis. The Board recognises that the Group’s employees are fundamental to the successful delivery of its strategic objectives. The Board is particularly aware that the nature of foundry operations means that the working environment of our employees can be challenging and therefore health and safety issues are always a priority. The success of the business is dependent upon strong relationships with our customers and suppliers. We work closely with customers to understand their needs and to provide products that meet the exacting standards they require. Day to day management of customer and supplier relationships is delegated to business unit senior management, with the Chief Executive and Finance Director providing support and guidance where required. The Board is mindful of it’s obligations to the wider community in which it operates and the impact on the environment of our operations, particularly in relation to the Foundry division given the nature of the business. The environmental impact of our operations are carefully monitored and regular discussions are held with local councils and communities, in particular in relation to air quality issues which are a bi-product of the production process. The Board promotes a culture of high standards, ethics and integrity in all of its business dealings and expects all employees to act appropriately in all dealings with external parties. The Board believes that all shareholders should be treated equally, with no particular group of shareholders unfairly favoured over any other. The Board believes that open communication with all shareholders is key to achieving this objective. The likely consequence of any decision in the long term The interests of the Company’s employees The need to foster business relationships with suppliers, customers and others The impact of the Company’s actions on the community and the environment Maintaining high standards of business conduct The need to act fairly between shareholders KEVIN NOLAN CHIEF EXECUTIVE 15 April 2021 Paragraph 9 of the Corporate Governance Report on page 14. Paragraph 3 of the Corporate Governance Report on page 12. Paragraph (a) of the Directors’ Report on page 18. Paragraph 3 of the Corporate Governance Report on page 12. Paragraph 3 of the Corporate Governance Report on page 12. Paragraph (b) of the Directors’ Report on page 18. Paragraph 8 of the Corporate Governance Report on page 14. Paragraph 2 on page 12 and paragraph 10 on page 15 of the Corporate Governance Report. 09 www.chamberlin.co.ukSTOCK CODE: CMHStrategic ReportThe Board Corporate Governance Report Directors’ Remuneration Report Directors’ Report 11 12 – 15 16 – 17 18 – 21 G O V E R N A N C E 10 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcTHE BOARD EXECUTIVE DIRECTORS KEVIN NOLAN NEIL DAVIES Aged 64, 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 that 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 52, Neil joined the Board and was appointed Finance Director and Company Secretary 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) Limited, 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. INDEPENDENT NON-EXECUTIVE DIRECTORS KEITH BUTLER-WHEELHOUSE DAVID FLOWERDAY TREVOR BROWN Aged 75, Keith joined the Board and was appointed Non-Executive Chairman in March 2012. Previously Keith was 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 68, 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 the Audit Committee and a member of the Nominations Committee. Aged 74. Trevor Brown was appointed to the Board in March 2021 and has worked as a director in a number of businesses over many years and is currently CEO of IQ-AI Limited and CEO of Braveheart Investment Group plc. He was previously a director of Feedback plc, Management Resource Solutions plc, Advanced Oncotherapy plc and Non-Executive Director of Remote Monitored Systems plc. 11 www.chamberlin.co.ukSTOCK CODE: CMHGovernanceCORPORATE GOVERNANCE REPORT Governance Statement The Board of Directors of the Company fully endorses the importance of good corporate governance and has adopted the Quoted Companies Alliance Corporate Governance Code (2018) (the “QCA Code”), which they believe is the most appropriate recognised governance code for a company of its size with shares admitted to trading on the AIM market of the London Stock Exchange. The QCA Code provides the Company with the framework to help ensure that a strong level of governance is maintained, enabling the Company to embed the governance culture that exists within the organisation as part of building a successful and sustainable business for all its stakeholders.. Details of the Group’s compliance with the code are set out below: 1. Establish a strategy and business model which promote long-term value for 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 for hazardous areas and industrial applications. 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 on 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. 3. Take into account wider stakeholder and social responsibilities and their implications for long-term success Chamberlin aims to ensure that the highest standards of corporate behaviour are maintained throughout its business. We do this through monitoring and actively managing our impact on the locations where we operate and our relationships with key stakeholders. The main mechanisms for wider stakeholder engagement and feedback can be summarised as follows: Health and Safety Health and safety is a key issue for the board, management and employees. Our policies require all sites to operate to high standards with the objective of continuous improvement in health and safety performance. Health and safety management is aligned to the operations of the business. All employees are responsible for ensuring that health and safety policies are implemented and for identifying opportunities for improvement. The business is supported in this by a number a qualified health and safety professionals. All sites are required to report on health and safety performance on a monthly basis to the Board. The key health and safety performance indicators focus on accident reporting. These indicators are used to monitor the effectiveness the health and safety systems and to drive improvements. Health and safety is the first standard agenda item at all Board meetings. 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 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. Chamberlin aims to involve its employees in the activities of the business. 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. Employees are informed of business performance via a number of routes including shop floor visual performance charts, management/employee briefings, dialogue with trade union representatives and health and safety meetings. 12 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcCommunity Chamberlin recognises the role that local communities play in our business, and we aim to be a responsible partner in the localities in which we operate throughout the UK. We encourage all of our businesses to support the needs of their local communities through contributing to local charities and community initiatives. Examples of recent initiatives include: Æ Involvement of our employees on the governing boards of local schools and colleges; Æ Partnership with a local further education college to develop in house training facilities; Æ Sponsorship of local initiatives such as funding a school football team and a children’s garden project. 4. Embed effective risk management, considering both opportunities and threats, throughout the organisation Financial control The Group has an established framework of financial controls, the effectiveness of which is reviewed regularly by senior management, the Board and the Audit Committee. Key areas of control are as follows: Æ The 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. Æ Key performance metrics are reported to the Executive Directors weekly, including invoicing, sales orders, order book and cash. Æ Financial performance on a monthly basis is reported to the Board comparing to forecast, budget and prior year. Æ There 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. Æ Monthly management meetings are held with each business in the Group, chaired by the Group Chief Executive. Æ A 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. Æ Return 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 controls The 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: Æ Monthly management meetings for each business, chaired by the Group Chief Executive and attended by the Group Finance Director, provide the mechanism for reporting 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. Æ All contracts are approved by the Finance Director prior to signing. Æ Dedicated 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. 5. Maintain the Board as a well-functioning balanced team led by the Chair; The Board has been led by the Chairman, Keith Butler- Wheelhouse, since 2012 and comprises two Executive Directors and three Non-Executive Directors. Board decisions are made at regular Board meetings following discussions between all five Directors, with the Non-Executive Directors providing the necessary challenge and balance to proposals made by the Executive Directors. 6. Ensure that between them the directors have the necessary up to date experience, skills and capabilities Details of the Director’s careers and experience can be found on page 11 The Board. 13 www.chamberlin.co.ukSTOCK CODE: CMHGovernanceCORPORATE GOVERNANCE REPORT CONTINUED 7. Evaluate Board performance based on clear and relevant objectives, seeking continuous improvement The Directors consider seriously the effectiveness of the Board, Committees and individual performance. The Board meets formally seven times a year with ad hoc Board meetings as the business demands. Details of the Directors’ attendance at board meetings are set out on page 15. There is a strong flow of communication between the Directors, in particular the relationship between the CEO and Chairman. The agenda is set with the consultation of both the CEO and Chairman, with consideration being given to both standing agenda items and the strategic and operational needs of the business. Papers are circulated well in advance of the meetings, giving Directors ample time to review the documentation and enabling an effective meeting. Resulting actions are tracked for appropriate delivery and follow up. In addition to the above, the Directors have a wide knowledge of the business and requirements of director’s fiduciary duties. The Directors have access to the Company’s NOMAD and auditors. On-going review of the functioning of the Board and ensuring that the highest level of governance is maintained whilst being mindful of the size and stage of development of the Company. The Board has not to date adopted a board performance evaluation process however this is something that the Board may consider in future. The Board and executives’ performance will be judged on the delivery of certain desired outcomes as summarised in the annual report. 8. Promote a corporate culture that is based on ethical values and behaviours All Directors, managers and employees at Chamberlin plc are required to exercise high standards of ethics and integrity in conducting the Group’s business. Specifically they should adhere to both the letter and spirit of relevant laws and regulations. The Group applies these standards to all of its dealings with customers, suppliers, employees and other stakeholders. The Board has adopted a Whistleblowing Policy and Procedure, to encourage employees to raise concerns about misconduct or malpractice, and to ensure that such concerns can be reviewed and considered fairly and properly. This forms part of the Board’s processes for monitoring adherence to the ethical values and behaviours expected from the Group’s employees. The Board has recently introduced formal anti-bribery policies and procedures to comply with the requirements of the Bribery Act 2010. The Group values its reputation for ethical behaviour and for honesty and transparency. Its aim therefore is to limit its exposure to bribery by: Æ Setting out a clear anti-bribery policy; Æ Encouraging its employees to be vigilant and to report any suspicion of bribery; Æ Rigorously investigating instances of alleged bribery and assisting the police and other appropriate authorities in any resultant prosecution; Æ Taking firm and vigorous action against any individual(s) involved in bribery. 9. Maintain governance structures and processes that are fit for purpose and support good decision-making by the Board The Board retains ultimate accountability for good governance and is responsible for monitoring the activities of the executive team. The Chairman has the responsibility of ensuring that the Board discharges its responsibilities. No one individual has unfettered powers of decision. The roles of Chairman and CEO are split in accordance with best practice. The Chairman has the responsibility of ensuring that the Board discharges its responsibilities and is also responsible for facilitating full and constructive contributions from each member of the Board in determination of the Group’s strategy and overall commercial objectives. The role of the CEO is to provide the vision for the strategic direction of the Group and to ensure that the Group has sufficient resources to be able to deliver its strategy and goals. The CEO is responsible for the day to day running of the Group, providing leadership to the senior management team and establishing a framework that enables the Group to operate in an efficient manner to achieve its objectives and in line with the strategy. The CEO is also responsible for ensuring that appropriate risk management policies and procedures are implemented to minimise exposure risk, be they financial, ethical, environmental, health and safety or operational risks. The Audit Committee, which consists of two Non-Executive Directors, David Flowerday (Chairman) and Keith Butler- Wheelhouse, meets at least twice per year with the external auditors in attendance when required. It has formal terms of reference which include reviewing and monitoring internal financial control and risk management systems, consideration of the annual, interim and auditor’s reports and making recommendations to the Board in relation to the appointment and remuneration of auditors. The Audit Committee also assists the Board in ensuring that appropriate accounting policies, financial systems, internal controls and compliance procedures are in place. It also reviews the relationship 14 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcbetween the Group and the external auditors in terms of the provision of non-audit services and ensuring that auditor independence and objectivity is maintained. including reserved matters such as acquisitions and disposals, the raising of finance, entry or exit to and from key markets and all commercial and legal matters impacting the Group. The auditors have direct access to the Chairman of the Audit Committee and a formal “whistle-blowing” policy is in operation, in relation to any concerns staff may have concerning the propriety of Group operations and activities. No issues or incidents have come to light as a result of this policy. All proposals for the provision of non-audit services by the external auditor are pre-approved by the Audit Committee or its delegated member, the overriding consideration being to ensure that the provision of non-audit services does not impact the external auditor’s independence and objectivity. The Remuneration Committee comprises two Non-Executive Directors: David Flowerday (Chairman) and Keith Butler- Wheelhouse. 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. The Board retains full and effective control over the Company and holds regular Board meetings at which financial, operational and other reports are considered and where appropriate voted upon. The Board is responsible for the Group’s strategy and key financial and compliance issues, Summary of attendance at meetings 10. Communicate how the Company is governed and is performing by maintaining a dialogue with shareholders and other relevant stakeholders Details of the Company’s Governance structure is contained within this report and our compliance with the QCA code is also published on our website. The performance of the business is communicated to shareholders through the Annual Report, which together with the notice of AGM, interim report and regulatory announcements released throughout the year are available to all shareholders and can be downloaded from the investors section of our website. The website also includes interim and annual reports issued for at least the last five years. We update shareholders via notifications to the market through a regulatory news service (“RNS”) on matters of a material substance and regulatory nature. The primary contact for shareholders in the first instance is the Chairman of the Board, who can be contacted via the contact details on the corporate website. Board meetings 7 Note 1 7 7 3 7 Nominations Committee Remuneration Committee Audit Committee 1 Note 1 1 n/a 1 – 1 Note 1 1 n/a 1 1 2 Note 1 2 2 1 2 7 1 n/a 2 Number of meetings in the year Trevor Brown Keith Butler-Wheelhouse Neil Davies Keith Jackson David Flowerday Kevin Nolan Note 1 Appointed 8 March 2021 n/a – indicates that a Director was not a member of a particular committee. By order of the Board NEIL DAVIES COMPANY SECRETARY 15 APRIL 2021 15 www.chamberlin.co.ukSTOCK CODE: CMHGovernanceDIRECTORS’ REMUNERATION REPORT 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 £000 221 161 – – 56 10 26 474 525 2 1 – – – – – 3 3 – – – – – – – – 31 Total remuneration excluding pensions 2020 £000 223 162 – – 56 10 26 477 2019 £000 244 64 116 – 75 30 30 559 Executive Kevin Nolan* Neil Davies David Roberts Non-Executive Trevor Brown*** Keith Butler- Wheelhouse Keith Jackson** David Flowerday Total 2020 Total 2019 * Highest paid Director in 2020 and 2019. ** Retired 23 July 2019. *** Appointed 8 March 2021 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. Remuneration Committee The Remuneration Committee comprises two Non-Executive Directors: David Flowerday (Chairman) and Keith Butler- Wheelhouse, following the retirement of Keith Jackson on 23 July 2019. 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. COVID-19 Response The Remuneration Committee resolved that sacrifices at senior level were required, bearing in mind the serious threat to the Company. Accordingly, the Chairman has agreed to reduce his fee to £30,000 per annum, and Mr Flowerday has agreed to reduce his to £15,000 per annum. The total non-executive remuneration has now reduced to about a third of the level a year previously. The Committee has also resolved that the 2019/20 Executive bonus plan be suspended. 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 a company car allowance and health insurance. The Company operates a defined contribution pension scheme 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 2020 the bonus in respect of Kevin Nolan and Neil Davies was linked to Group profit and net debt and the achievement of personal objectives. The maximum amount of bonus payable is 100% of their basic salary. (c) Share options No new options have been granted in the year to 31 March 2020. 16 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcDirectors’ Pensions No retirement benefits accrued during the year, or prior years, to Directors under the Chamberlin & Hill Staff Pension and Life Assurance Scheme (2019: nil), which is a closed defined benefit scheme. Contributions into personal pension plans Kevin Nolan Neil Davies Percentage of basic salary 10% 10% Contribution paid 2020 £000 21 15 Contribution paid 2019 £000 21 5 For Directors who have served during the year, no other pension contributions were paid other than as disclosed above. Directors’ Options Kevin Nolan Kevin Nolan 31 March 2019 207,363 216,616 423,979 Granted in year – – – Exercised in year – – – Lapsed or forfeited in year (207,363) – (207,363) 31 March 2020 – 216,616 216,616 Option exercise price 25.0p* 97.5p Exercisable between 14.12.19 – 14.12.26 19.06.21 – 19.06.28 * 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. 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 grant. 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. No new options were granted during the year. No consideration is payable for the grant of an option. No share options have been exercised in 2020 or 2019. There have been no changes in the interests set out above between 1 April 2020 and 15 April 2021. The mid-market price of the shares at 31 March 2020 was 18.0p and during the year ranged between 18.0p and 44.0p. On behalf of the Board DAVID FLOWERDAY CHAIRMAN, REMUNERATION COMMITTEE 15 April 2021 17 www.chamberlin.co.ukSTOCK CODE: CMHGovernanceDIRECTORS’ REPORT The Directors present their report together with the audited financial statements for the year ended 31 March 2020. 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 2020 Year to 31 March 2019 231 28 10 269 282 33 12 327 * includes Non-Executive Directors. The Group’s employment policy includes a commitment to the principles of equal opportunity for all, and specifically prohibits discrimination of any type. Our policy is always to ensure that all persons are treated fairly irrespective of their colour, race, sex, sexual orientation, age or youth, religion, political beliefs, trade union membership or non-membership, marital and physical or mental status, or any other factors including pregnancy and maternity. In particular, the Group gives full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled by a disabled person. We endeavour to provide those who have physical or mental disabilities with specific assistance, and arrangements are made to enable them to work for us wherever and whenever this is reasonably practical. We expect all employees to comply in every respect with the Group’s employment policies at all times. The Group has arrangements in place for the involvement of all employees in the activities of the business, including management/employee briefings, dialogue with trade union representatives and health and safety meetings. A safety policy is in place throughout the Group and all employees are required to be aware of their responsibilities under the Health and Safety at Work Act. A copy of the policy and all relevant Codes of Practice are available at the workplace. It is the policy of the Group to recognise that the training of employees is important to the efficiency of the business and each employee’s welfare and safety. Promotion is encouraged within the organisation and it is Group policy to promote from within wherever this is appropriate. (b) Environment The Board recognises that our operations have an effect on the local, regional and global environment, and as a consequence of this, the Board is committed to continuous improvements in environmental performance and the prevention of pollution. Specifically, the Group has and will: Æ comply with the requirements of all relevant environmental legislation, meeting any set emission limits and standards laid down, and use best available techniques in order to control impacts on the environment; Æ maintain and develop environmental management policies and practices to continually monitor and progress the minimisation of the effects of the business on the environment. Environmental management is considered to be a key part of the business strategy at all levels within the Group; Æ actively encourage the minimisation of waste from all aspects of the business and promote the benefits of recycling and re-use; Æ reduce energy use and emissions of carbon dioxide by increasing energy efficiency through all parts of the Group and to seek new opportunities of improving energy efficiency as part of the overall improvement of the business; Æ consider environmental factors in respect of the growth of the business, seeking as far as is practical to reduce harmful environmental impacts and to integrate new developments into the local environment; and Æ actively encourage the consideration of the environmental impact of all raw materials and services purchased by the business, and where practical to use the options with the least impact and to reduce the consumption of raw materials. (c) Research and Development The Group’s research and development activities in the year, as in previous years, consist primarily of devising methods for achieving the casting of complex shaped and/or multi- cored products in the foundry businesses and the design and development of new products in our engineering business, principally hazardous area lighting products. The Board views such activities as key to the future prosperity of the business. Expenditure expensed through the income statement is shown in Note 7 and expenditure capitalised in Note 13 to the accounts. 18 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcFinancial instruments The Company’s policy in respect of financial instruments is disclosed in Note 24. Dividends The Directors do not recommend the payment of a final dividend (2019: nil p). No interim dividend (2019: nil p) has been paid during the year. Directors Details of the Directors of the Company 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 page 17. See Board of Directors on page 11 for details of all Directors during the year, including appointments and resignations. Directors’ Shareholdings Beneficial interests of the Directors in the shares of the Company, including those of their immediate families were: Trevor Brown At 31 March 2020 Number of shares – At 31 March 2019 Number of shares – Keith Butler-Wheelhouse 120,127 120,127 Kevin Nolan Neil Davies David Flowerday – – – – – – capital of the Company at 15 April 2021. Authority to purchase own shares At the Annual General Meeting in 2019, 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 AIM. 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 that may be paid for each share is 25 pence (the then nominal value of an ordinary shares). No purchases have been made. That authority to make market purchases has since expired. The Directors 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 6,962,478 of its own shares, again representing just under 10% of its issued share capital at 15 April 2021. The authority is sought by way of a special resolution, details of which are also included at item 13 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. In the period between 1 April 2020 and 15 April 2021, Trevor Brown purchased 20,833,333 and Keith Butler-Wheellhouse purchased 500,000 ordinary shares of 0.1p each at a subscription price of 6p each. There have been no other changes in the above shareholdings. These authorities are to be for the period commencing on the date of passing of the requisite resolutions until the earlier of the next Annual General Meeting and 15 months. The proposed resolutions are set out as items 10 to 13 in the notice of meeting on pages 79 and 80. Special Business at the Annual General Meeting Directors’ authority to allot shares As in previous years, (and indeed at the recent general meeting held on 8 March 2021), approval will be sought 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 £23,208 (which represents approximately 33% of the issued ordinary share capital of the Company as at 15 April 2021). 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 £6,962. This sum represents 6,962,478 ordinary shares of 0.1 pence each, being equivalent to 10% of the issued share 19 www.chamberlin.co.ukSTOCK CODE: CMHGovernanceDIRECTORS’ REPORT CONTINUED Significant Shareholders At 15 April 2021, 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 Chelverton UK Dividend Trust Plc AXA Investment Managers S.A. 6,000,000 4,475,000 8.6 6.4 At the Annual General Meeting to be held on 8 June 2021 (see the Notice of Annual General Meeting on pages 79 and 80), all of the Directors will retire and, being eligible, offer themselves for election and re-election as applicable. 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. Directors’ Responsibility Statement 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 prepared the Group financial statements in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. 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 International Accounting Standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements; and Æ prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose, with reasonable accuracy at any time, the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors confirm that: Æ so far as each Director is aware there is no relevant audit information of which the Company’s Auditor is unaware; and Æ the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the Company’s Auditor is aware of that information. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Going Concern The group is funded principally by an invoice finance facility of up to 90% of the value of outstanding invoices, subject to a maximum of £6.0m (previously £7.75m as this included the Exidor business which was sold in December 2018), and by £3.1m finance leases for major items of capital equipment. At the balance sheet date £1.9m was drawn under the invoice finance facility. The IF facility is a rolling contract with 3 months notice and has been in place for 7 years with no change in terms and conditions. It is reviewed annually every March but there was a post COVID-19 review in October 2020 where it was confirmed that the IF facility was renewed. The available headroom under the invoice finance facility at 31 March 2020 was £2.5m. As at 31 October 2020 the available headroom was £1.0m. Finance leases liabilities are repayable by 2025, with agreement from the bank for repayments to be deferred during the current COVID-19 crisis. The group also occupies various properties under right of use leases, the future payments giving rise to liabilities of £0.9m. 20 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcDirectors’ Statement as to Disclosure of Information to Auditors The Directors who were members of the Board at the time of approving the Directors’ Report are listed on page 11. Having made enquiries of fellow Directors and of the Company’s Auditor, each of these Directors confirms that: Æ to the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s Auditor is unaware; and Æ each Director has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s Auditor is aware of that information. Post Balance Sheet Events On 16 December 2020, the Company announced that it had received notice from its major customer, BorgWarner Turbo Systems Worldwide Headquarters GmbH, of its intention to cancel all contracts with effect from 22 January 2021. Following this announcement, it became evident that the Company was not in a position to publish its 2020 Accounts by 31 December 2020 in accordance with AIM listing rules. Consequently, the Company’s shares were suspended from trading on AIM with effect from 4 January 2021. Further details of the subsequent equity raise that secured the continuing solvency of the Group can be found in note 28. Auditor A 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 Board NEIL DAVIES COMPANY SECRETARY 15 April 2021 During April 2020, Chamberlin’s two Walsall factories were mainly closed, and in this month the company incurred a loss before tax of £0.4m. Trading in subsequent months has been in line with expectations, although losses continue to be incurred but at a lower run rate compared to April. The Group’s detailed budget for the year ending 31 March 2022 and extended forecast for the six months to 30 September 2022 take into account the £3.3m net funds raised from the Share Placing and Subscription announced on 26 March 2021 and the Director’s view of most likely trading conditions. These forecasts and projections indicate that existing bank facilities are expected to remain adequate. The budget and extended forecast provides for significant revenue growth in the second half of the year to 31 March 2022 and the six months to 30 September 2022, which is needed to replace the lost BorgWarner contracts. The budget includes the significant but necessary benefits and costs of the restructuring that will be required to right-size the cost-base to the lower level of revenue. As the implementation and delivery of the restructuring benefits and costs are within the control of the Directors, no downside sensitivities have been applied in relation to these. The Directors have, however, applied reasonably foreseeable downside sensitivities to the budget and forecast, which assumes that sales growth from October 2021 onwards is only 3% above the first half average and the machine shop has no sales output. In the detailed budget, extended forecast and sensitised scenario, the possible receipt of compensation from BorgWarner has been entirely discounted, as has any sales of no-longer required machinery. As a consequence, after making enquiries, the Directors have an expectation that, in the circumstances of a reasonably foreseeable downside scenario as described above, the Group and Company have adequate resources to continue in operational existence for the foreseeable future. However, the rate at which new work can be secured to replace the lost BorgWarner activity is difficult to predict resulting in material uncertainty, which may cast significant doubt over the ability of the Group and the Company to realise its assets and discharge its liabilities in the normal course of business and hence continue as a going concern. The Directors continue to adopt the going concern basis, whilst recognising there is material uncertainty relating to the above matter. Matters Covered in the Strategic Report Key performance indicators and principal risks have been covered in the Strategic Report. 21 www.chamberlin.co.ukSTOCK CODE: CMHGovernanceIntroduction Primary Statements Section 1 – Basis of Preparation Section 2 – Results of the Year Section 3 – Operating Assets and Liabilities Section 4 – Capital Structure and Financing Costs Section 5 – Other Supporting Notes Independent Auditor’s Report Audit Committe Report Parent Company Financial Statements Five Year Financial Summary 23 24–31 32 33–40 41–49 50–51 52–67 68–73 74 75–77 78 F I N A N C A L I S T A T E M E N T S 22 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc INTRODUCTION NEIL DAVIES FINANCE DIRECTOR Welcome to the financial statements section of our Annual Report. The Directors have included the annual financial review on the following pages as commentary on the primary statements. 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 28 Notes to the Group financial statements in the previous year and while all of this information is necessary to ensure we comply with International Financial Reporting Standards, it does not always make it easy to find what you are looking for. We have therefore structured the notes into five categories (as outlined in the table of contents on the following pages) for easier navigation. Introduction and Table of Contents These financial statements have been presented in a manner which attempts to make them less complex and more relevant to Shareholders. We have grouped notes in sections under five headings: ‘Basis of Preparation’, ‘Results 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 DAVIES FINANCE DIRECTOR 15 April 2021 23 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsCONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2020 Year ended 31 March 2020 Year ended 31 March 2019 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 Profit for the year from discontinued operations (Loss)/profit for the year attributable to equity holders of the parent company Underlying loss per share from continuing operations: Basic Diluted Earnings per share from discontinued operations: Basic Diluted Total (loss)/earnings per share: Basic Diluted 3 4 6 8 9 10 10 10 10 10 10 Notes Underlying £000 Non- underlying* £000 Total £000 Underlying £000 Non- underlying* £000 26,143 (23,632) 2,511 (3,635) (1,124) (310) (1,434) (50) (1,484) – – – (909) (909) – (909) – (909) 26,143 (23,632) 2,511 (4,544) (2,033) (310) (2,343) (50) (2,393) 32,958 (29,192) 3,766 (4,776) (1,010) (499) (1,509) (39) (1,548) – – – (3,448) (3,448) – (3,448) 87 (3,361) Total £000 32,958 (29,192) 3,766 (8,224) (4,458) (499) (4,957) 48 (4,909) – – – – 6,435 6,435 (1,484) (909) (2,393) (1,548) 3,074 1,526 – – – – – – – – – – – – (18.7)p (18.7)p – – (30.1)p (30.1)p – – – – – – – – – – – – (19.5)p (19.5)p 80.9p 76.8p 19.2p 18.2p * Non-underlying items include restructuring costs, hedge ineffectiveness, impairment, GMP equalisation, onerous leases and share-based payment costs together with the associated tax impact. Underlying and non-underlying figures for the year ended 31 March 2019 have been restated as detailed in Note 27. 24 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc COMMENTARY ON THE CONSOLIDATED INCOME STATEMENT Overview Revenue reduced by 21% during the year to £26.1m (2019: £33.0m) as trading conditions in our automotive market were challenging. Gross profit margin, defined as gross profit divided by revenue, decreased to 9.6% from 11.4% in 2019. Underlying operating loss before tax only increased slightly to £1.1m (2019: £1.0m) despite the 21% reduction in revenue. Financing costs were 38% lower than 2019 at £0.3m (2019: £0.5m) as a result of a reduction in net debt and a reduced finance cost of pensions on a lower deficit. Underlying loss before tax of £1.4m (2019: £1.5m loss) was 5% lower than 2019 due primarily to the lower financing costs. The statutory loss before tax of £2.3m (2019: loss of £5.0m) was 53% lower than 2019 as an asset impairment charge of £3.0m taken in 2019 was not repeated. Non-underlying items Non-underlying items in the year of £0.9m (2019: £3.4m) included £0.8m relating to the realignment of the cost base of the Group and £0.1m of foreign currency related hedge ineffectiveness resulting from Covid-19 induced revenue reductions. Tax The effective rate of taxation on a statutory basis was 2% compared to the mainstream corporation tax rate of 19%, primarily as a result of not recognising deferred tax on trading losses due to the inherent uncertainty surrounding future profitability. Diluted loss per share Underlying diluted loss per share from continuing operations of 18.7p (2019: 19.5p loss) was 4% lower than 2019, with total diluted loss per share of 30.1p (2019: earnings of 18.2p). Foreign exchange It is the Group’s policy to minimise risk to exchange rate movements affecting sales and purchases by economically hedging or netting currency exposures at the time of commitment, or when there is a high probability of future commitment, using currency instruments (primarily forward exchange contracts). A proportion of forecast exposures are hedged depending on the level of confidence and hedging is topped up following regular reviews. On this basis up to 90% 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 2020, the average exchange rate used to translate into GBP Sterling was €1.15 (31 March 2019: €1.13). 25 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2020 (Loss)/profit for the year Other comprehensive income Movements in fair value of cash flow hedges taken to other comprehensive income Ineffective portion of movement in cash flow hedges recycled to income statement Deferred tax on movement in cash flow hedges Net other comprehensive (expense)/income that may be recycled to profit and loss Remeasurement gain on pension scheme assets and liabilities Deferred tax on remeasurement gain on pension scheme Net other comprehensive income that will not be recycled to profit and loss Other comprehensive (expense)/income for the year net of tax Total comprehensive (expense)/income for the year attributable to equity holders of the parent company Notes 8 21 8 2020 £000 (2,393) (614) 138 81 (395) 460 (87) 373 (22) 2019 £000 1,526 134 - (23) 111 76 (15) 61 172 (2,415) 1,698 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 cash flow hedge derivatives, which are used to protect the Group from foreign exchange exposure are subject to marked to market valuations, with the effective portion of movements included within the consolidated statement of comprehensive income. These items (including the related taxation effect) amounted to a loss of £0.4m in 2020 (2019: profit of £0.1m). Remeasurement gains and losses relating to the Group’s defined benefit pension obligations are also booked to other comprehensive income. These are explained in detail in Note 21 in Section 5. 26 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcCONSOLIDATED STATEMENT OF CHANGES IN EQUITY Balance at 1 April 2018 Profit for the year Other comprehensive income for the year net of tax Total comprehensive income Share-based payment Deferred tax on employee share options Total of transactions with Shareholders Balance at 1 April 2019 Loss for the year Other comprehensive (expense)/income for the year net of tax Total comprehensive expense Share-based payment Deferred tax on employee share options Total of transactions with Shareholders Share capital £000 1,990 Share premium account £000 1,269 Capital redemption reserve £000 109 – – – – – – – – – – – – – – – – 1,990 1,269 109 – – – – – – – – – – – – – – – – – – Hedging reserve £000 Retained earnings £000 Attributable to equity holders of the parent £000 (15) – 111 111 – – – 96 – (395) (395) – – – (197) 1,526 61 1,587 40 (26) 14 1,404 (2,393) 373 (2,020) 59 33 92 3,156 1,526 172 1,698 40 (26) 14 4,868 (2,393) (22) (2,415) 59 33 92 Balance at 31 March 2020 1,990 1,269 109 (299) (524) 2,545 COMMENTARY ON CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Share premium account The share premium account balance includes the proceeds that were above the nominal value from issuance of the Company’s equity share capital . Capital redemption reserve The capital redemption reserve has arisen on the cancellation of previously issued shares and represents the nominal value of those shares cancelled. Hedging reserve The hedging reserve records the effective portion of the net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred. Retained earnings Retained earnings include the accumulated profits and losses arising from the Consolidated Income Statement and certain items from the Statement of Comprehensive Income attributable to equity Shareholders, less distributions to Shareholders. 27 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements CONSOLIDATED BALANCE SHEET AT 31 MARCH 2020 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 15 April 2021 31 March 2020 £000 31 March 2019 £000 Notes 12 13 17 14 15 16 16 17 17 17 21 18 7,209 341 611 8,161 2,589 6,082 457 9,128 17,289 3,028 7,481 10,509 2,037 39 200 1,959 4,235 14,744 1,990 1,269 109 (299) (524) 2,545 17,289 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 28 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc COMMENTARY ON THE CONSOLIDATED BALANCE SHEET Property, plant and equipment (PPE) The net book value of the Group’s investment in PPE at 31 March 2020 was £7.2m (2019: £7.8m). Capital expenditure on PPE of £0.3m (2019: £1.2m) represented 32% (2019: 71%) of depreciation of £1.0m (2019: £1.7m). Working capital Working capital, comprising inventories, trade and other receivables, and trade and other payables represented 5% of annual sales (2019: 13%) as at year-end. Overdue receivables, defined as receivables that are past their agreed terms with the customer, at 31 March 2020 reduced to 2% (2019: 20%). Pensions The Group has one defined benefit pension scheme. It is closed to future accrual, with the Group operating a defined contribution pension scheme for its current employees. The deficit for the defined benefit pension scheme at 31 March 2020 was £2.0m (2019: £2.6m). The Group’s defined benefit pension scheme was closed to future accrual in 2007. During the year the latest triennial valuation, as at 31 March 2019, was concluded and contributions were set at £0.3m for 2021, £0.33m for 2022 and £0.36m for 2023. The next triennial valuation is due as at 31 March 2022. Administration costs of the defined benefit pension scheme were £0.2m in 2020 (2019: £0.2m), and are shown in other operating expenses. The Group cash contribution during the year was £0.3m (2019: £2.7m). 29 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsCONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2020 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 Impairment charge on property, plant and equipment Hedge ineffectiveness Depreciation of property, plant and equipment Amortisation of software Amortisation and impairment of development costs Profit on disposal of property, plant and equipment Foreign exchange rate movements Share-based payments One-off contribution to defined benefit pension scheme Difference between pension contributions paid and amounts recognised in the Consolidated Income Statement Decrease/(increase) in inventories (Increase)/decrease in receivables Increase/(decrease) in payables Corporation tax received Net cash inflow/(outflow) from continuing operations Cash inflow from discontinued operations Net cash inflow/(outflow) from operating activities Investing activities Purchase of property, plant and equipment Purchase of software Development costs Disposal of property, plant and equipment Proceeds from sale of subsidiary Cash and cash equivalents disposed Investing activities from discontinued operations Net cash (outflow)/inflow from investing activities Year ended 31 March 2020 £000 Year ended 31 March 2019 £000 Note (2,343) (4,957) 6 11 12 13 13 19 21 14 12 13 13 310 – 138 980 52 25 (12) (91) 59 – (279) 113 (95) 2,265 424 1,546 – 1,546 (316) (20) (30) 12 – – – (354) 499 3,043 – 1,688 59 25 – – 40 (2,500) 25 (388) 419 (1,332) – (3,379) 491 (2,888) (1,188) – (22) – 8,520 (1,146) (125) 6,039 30 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcFinancing activities Interest paid Net invoice finance inflow/(outflow) Import loan outflow Principal element of lease payments Finance leases taken Financing activities from discontinued operations Net cash outflow from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the start of the year Impact of foreign exchange rate movements Cash and cash equivalents at the end of the year Cash and cash equivalents comprise: Cash at bank Year ended 31 March 2020 £000 Year ended 31 March 2019 £000 (252) 279 – (1,066) – – (1,039) 153 291 13 457 457 457 (387) (1,832) (873) (781) 1,291 207 (2,375) 776 (485) – 291 291 291 Note 6 26 26 26 COMMENTARY ON THE CONSOLIDATED CASH FLOW STATEMENT Operating Cash Flow Operating cash inflow from continuing operations was £1.5m (2019: outflow of £3.4m). This included a contractually agreed advance payment from a customer of £1.5m and £0.4m of corporation tax refunds received during the year offset by restructuring costs of £0.7m. Cash spent on property, plant and equipment and capitalised software and development costs in the year was £0.4m (2019: £1.2m). Net proceeds from the sale of subsidiary in 2019 of £8.5m related to the disposal of Exidor Limited. Interest paid of £0.3m (2019: £0.4m) was lower than 2019 due to lower average net debt in 2020. Lease payments of £1.1m (2019: £0.8m) primarily relate to assets at the Group’s machining facility. Closing Net Debt Net debt at 31 March 2020 decreased by £0.8m to £4.6m (2019: £5.4m). The Group debt facility has two elements: a £6.0m invoice discounting facility limited to 90% of outstanding invoice value and finance leases of £3.1m. The invoice discounting facility has the following covenant at year-end, which was complied with: Æ Without prior written consent of HSBC, no dividends are payable in the year ended 31 March 2020, 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. 31 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 1 BASIS OF PREPARATION 1 Authorisation of financial statements and statement of compliance with IFRS The Group and Company’s financial statements of Chamberlin Plc (the ‘Company’) for the year ended 31 March 2020 were authorised for issue by the Board of Directors on 15 April 2021, 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 admitted to trading on AIM, a market of the same name operated by the London Stock Exchange. However, as mentioned in the Post Balance Sheet Events paragraph of the Director’s Report on page 21, the Company’s shares were suspended from trading on AIM with effect from 4 January 2021. The Group’s financial statements have been prepared in accordance with International Accounting Standards in conformity with the requirements of the Companies Act 2006. The Company’s financial statements have been prepared in accordance with Financial Reporting Standard 101 ‘The Reduced Disclosure Framework’. 2 New standards adopted There are no new accounting standards adopted in the year that have a material impact on the financial statements. There are no new accounting standards effective in the next financial year that are expected to have a material impact on the financial statements. 32 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcSECTION 2 RESULTS OF THE YEAR 3 Segmental analysis For management purposes, the Group is organised into two operating divisions according to the nature of the products and services. Operating segments within those divisions are combined on the basis of their similar long-term characteristics and the similar nature of their products, services and end users as follows: The Foundries segment supplies 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 supplies manufactured products to distributors and end-users operating in hazardous area and industrial lighting markets. 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 (loss)/profit Segment operating (loss)/profit Shared costs 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 Total net assets Segmental revenue 2020 £000 23,106 3,037 26,143 2019 £000 29,343 3,615 32,958 Segmental operating profit/(loss) 2020 £000 2019 £000 (84) (45) (129) (129) (995) (909) (310) (2,343) 14,974 1,247 16,221 (6,880) (801) (7,681) 8,540 (5,995) 2,545 (211) 251 40 40 (1,050) (3,448) (499) (4,957) 15,244 1,402 16,646 (3,840) (794) (4,634) 12,012 (7,144) 4,868 Unallocated net liabilities include the pension liability of £1,959,000 (2019: £2,640,000), financial liabilities of £4,608,000 (2019: £5,357,000) and deferred tax asset of £572,000 (2019: £853,000). 33 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 2 CONTINUED RESULTS OF THE YEAR 3 Segmental analysis continued Capital expenditure, depreciation, amortisation and impairment Capital additions Property, plant and equipment (Note 12) Software (Note 13) Development costs (Note 13) Depreciation, amortisation and impairment Property, plant and equipment (Note 12) Software (Note 13) Development costs (Note 13) (ii) Geographical information Revenue by location of customer United Kingdom Italy Germany Rest of Europe Other countries Foundries 2020 £000 426 97 – (965) (45) – 2019 £000 1,047 – – (4,563) (52) – Engineering 2020 £000 – 1 30 (15) (7) (25) 2019 £000 8 – 22 (49) (7) (25) Total 2020 £000 426 98 30 (980) (52) (25) The Group’s assets and costs are all located within the United Kingdom. The Group has one individual customer in Italy that represents 8% of Group revenue (2019: 11%). 4 Other operating expenses Distribution costs Administration and selling expenses Operating expenses before exceptional items Exceptional and non-underlying items (Note 11) Operating expenses 34 2019 £000 1,055 – 22 (4,612) (59) (25) 2019 £000 12,203 3,743 3,124 13,024 864 32,958 2019 £000 838 3,938 4,776 3,448 8,224 2020 £000 9,008 2,051 2,602 11,863 619 26,143 2020 £000 386 3,249 3,635 909 4,544 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc5 Staff numbers and costs The average number of people employed by the Group during the year was: Management and administration Production Total employees The aggregate employment costs, including redundancy, of these employees were as follows: Wages and salaries Social security costs Other pension costs (Note 21) 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 of options granted to Directors (see Note 19) Number of Directors accruing benefits under: Defined contribution pension schemes 2020 Number 40 229 269 2020 £000 8,707 1,056 396 59 10,218 2020 Number 10 2020 £000 818 95 49 59 1,021 2020 £000 477 36 59 2019 Number 46 281 327 2019 £000 12,176 1,183 423 40 13,822 2019 Number 12 2019 £000 599 103 52 40 794 2019 £000 559 37 40 Number Number 2 3 Directors’ remuneration is analysed in detail in the Directors’ Remuneration Report on pages 16 and 17. The total amount payable to the highest paid Director in respect of remuneration was £223,000 (2019: £244,000). Company pension contributions of £21,000 (2019: £21,000) were made to a money purchase pension scheme on his behalf. 35 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 2 CONTINUED RESULTS OF THE YEAR 6 Finance costs Bank overdraft and invoice finance interest payable Interest expense on lease liabilities and other interest payable Finance cost of pensions (see Note 21) 7 Operating profit/ (loss) This is stated after charging/(crediting): Profit on disposal of fixed assets Depreciation of owned assets Depreciation of right-of-use assets: Land and buildings Plant and machinery Motor vehicles Software Amortisation of owned software Non-underlying items (Note 11) Research and development expenditure (excluding capitalised development costs: Note 13) Amortisation of development costs Cost of inventories recognised as an expense Exchange gain Auditor's remuneration: Group audit fees Audit fees for statutory accounts of subsidiaries Audit related assurance services Non-audit related services Rentals under operating leases*: Hire of plant and equipment Motor vehicles Land and buildings * This is the expense for short-term low value leases excluded from IFRS 16 right-of-use assets. 2020 £000 (164) (88) (58) (310) 2020 £000 (12) 279 88 587 26 11 41 909 – 25 2019 £000 (335) (52) (112) (499) 2019 £000 – 1,030 83 546 29 - 59 3,448 – 25 10,863 11,585 (91) (57) 73 30 7 – 92 – 106 27 30 7 – 36 23 91 36 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc 8 Taxation Current tax: UK Corporation tax at 19% (2019: 19%) Adjustments in respect of prior years Deferred tax: Origination and reversal of temporary differences Adjustments in respect of prior years Change in tax rate Tax expense/(credit) reported in the consolidated income statement 2020 £000 - (259) (259) 310 41 (42) 309 50 2019 £000 697 - 697 (385) (321) (39) (745) (48) Following changes that were substantively enacted on 17 March 2020, the corporation tax rate will remain at 19% from 1 April 2020 rather than the previously enacted rate of 17%. No brought forward tax losses of the Group were utilised in the year (2019: £nil). 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 Tax charge reported in the consolidated statement of comprehensive income Current tax: Deferred tax: Employee share options Tax (credit)/charge reported in the consolidated statement of changes in equity Reconciliation of total tax charge Loss on ordinary activities before tax Corporation tax charge at standard rate of 19% (2019: 19%) on loss before tax Adjusted by the effects of: Expenses not deductible for tax purposes TAX PURPOSES Income not taxable Unprovided deferred tax differences Adjustments in respect of prior years Rate differential on timing differences Total tax expense/(credit) reported in the consolidated income statement 2020 £000 – – 87 (81) 6 6 2020 £000 – – (33) (33) 2020 £000 (2,343) (445) 31 – 724 (218) (42) 50 2019 £000 – – 15 23 38 38 2019 £000 – – 26 26 2019 £000 (4,957) (942) 1,370 (245) 33 (225) (39) (48) 37 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 2 CONTINUED RESULTS OF THE YEAR 9 Discontinued operations On 19 December 2018, the Group sold its entire interest in Exidor Limited. As a result, the results of Exidor Limited were classified as a discontinued operation in the prior year and presented as such in the financial statements. An analysis of the disposal calculation is given below: Property, plant and equipment Intangible assets Deferred tax Inventories Trade and other receivables Cash and cash equivalents Trade and other payables Net assets disposed Headline consideration Adjustment for movement in working capital Adjustment for movement in debt Claim retention Disposal costs Net cash received relating to disposal Cash proceeds Net assets disposed Profit on disposal 2019 £000 1,135 75 70 1,491 1,882 1,146 (3,508) 2,291 10,000 (98) (639) (350) 8,913 (393) 8,520 8,520 (2,291) 6,229 Included in the consideration is a retention of £350,000 relating to a customer claim. This claim has not yet been finalised and is still ongoing. The results prior to 19 December 2018 for the discontinued operations included in the Consolidated Income Statement were: Revenue Operating profit Finance costs Profit before tax Tax Profit on disposal of discontinued operations Profit after tax from discontinued operations Exidor Limited contributed the following to the Group’s cashflows: Operating activities Investing activities Financing activities 38 2019 £000 5,924 305 (23) 282 (76) 6,229 6,435 2019 £000 491 (125) 207 573 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc(Loss)/earnings per share 10 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 29 on page 66, has also been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group. Continuing operations loss for basic earnings per share Non-underlying items Taxation effect of the above Loss for underlying loss per share (continuing operations) Underlying loss per share (pence) from continuing operations: Basic Diluted Discontinued operations earnings for basic earnings per share Earnings for basic earnings per share (discontinued operations) Earnings per share (pence) from discontinued operations: Basic Diluted Total (loss)/earnings 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 2020 £000 (2,393) 909 – (1,484) (18.7) (18.7) 2020 £000 – – – – (30.1) (30.1) 2020 Number ’000 7,958 217 8,175 2019 £000 (4,909) 3,448 (87) (1,548) (19.5) (19.5) 2019 £000 6,435 6,435 80.9 76.8 19.2 18.2 2019 Number ’000 7,958 424 8,382 There is no adjustment in the total diluted loss per share calculation for the 217,000 (2019:424,000) 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. 39 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 2 CONTINUED RESULTS OF THE YEAR 11 Non-underlying items Group reorganisation Hedge ineffectiveness Asset impairment Onerous leases GMP equalisation Share-based payment charge Non-underlying operating costs Taxation Tax effect of non-underlying costs 2020 £000 712 138 – – – 59 909 – 909 2019 £000 54 – 3,043 16 295 40 3,448 (87) 3,361 During the year ended 31 March 2020, the Group undertook a Group-wide restructuring programme in order to realign the cost base to the reduced levels of revenue. Group reorganisation costs of £712,000, which include redundancy and related costs, relate to this restructuring programme. The hedge ineffectiveness charge of £138,000 in 2020 arises from a short-term reduction in highly probable Euro denominated sales as a result of economic disruption to our customers caused by COVID-19. The share-based payment charge in 2020 is £59,000 (2019: £40,000). In 2019, the Group undertook an impairment review of two of its sites within the Foundry Division, which identified that the prior carrying value of its assets could not be supported by their future value to the business, resulting in the recognition of an impairment charge of £3,043,000. Furthermore in 2019, a Guaranteed Minimum Pension (GMP) equalisation review was undertaken, which resulted in an increase in the pension liability of £295,000. 40 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcSECTION 3 OPERATING ASSETS AND LIABILITIES 12 Property, plant and equipment Group Cost At 1 April 2018 Additions Disposals Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Additions Disposals At 31 March 2020 Depreciation/impairment At 1 April 2018 Charge for year Impairment charge Disposals Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Charge for year Disposals At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 At 1 April 2018 Net book value of land and buildings comprises: Freehold Short leasehold (leasehold improvements) Land and buildings £000 Plant and machinery £000 Motor vehicles £000 7,088 22 – (954) 6,156 147 – 6,303 2,838 331 1,068 – (378) 3,859 219 – 4,078 2,225 2,297 4,250 25,171 1,091 (8) (3,070) 23,184 258 – 23,442 17,014 1,328 1,925 (1) (2,511) 17,755 735 – 18,490 4,952 5,429 8,157 95 75 (8) (16) 146 21 (13) 154 48 29 50 (8) (16) 103 26 (7) 122 32 43 47 2020 £000 2,209 16 2,225 Total £000 32,354 1,188 (16) (4,040) 29,486 426 (13) 29,899 19,900 1,688 3,043 (9) (2,905) 21,717 980 (7) 22,690 7,209 7,769 12,454 2019 £000 2,297 – 2,297 Additions to right-of-use assets in the year amounted to £111,000 (2019: £371,000). 41 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 3 CONTINUED OPERATING ASSETS AND LIABILITIES 12 Property, plant and equipment continued Right-of-use assets net book value included in the above comprise: At 31 March 2019 At 31 March 2020 Land and buildings £000 633 545 Plant and machinery £000 4,482 4,029 Motor vehicles £000 43 32 Total £000 5,158 4,606 The maturity analysis of lease liabilities associated with right-of-use assets are disclosed in Note 24. The interest cost and the cash flows associated with these lease liabilities are disclosed in Note 6 and the consolidated cash flow statement respectively. Company Cost At 1 April 2018 Additions At 31 March 2019 Additions Disposals At 31 March 2020 Depreciation At 1 April 2018 Charge for year At 31 March 2019 Charge for year Disposals At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 At 1 April 2018 Land and buildings £000 Plant and machinery £000 Motor vehicles £000 1,670 – 1,670 – – 1,670 925 27 952 27 – 979 691 718 745 97 1 98 17 – 115 74 6 80 7 – 87 28 18 23 47 75 122 21 (13) 130 – 79 79 26 (7) 98 32 43 47 Total £000 1,814 76 1,890 38 (13) 1,915 999 112 1,111 60 (7) 1,164 751 779 815 The net book value of motor vehicles in the Company of £32,000 (2019: £43,000) relates entirely to right-of-use assets under lease. Freehold land included above not subject to depreciation amounted to: 2020 2019 Group £000 Company £000 275 275 275 275 42 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc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 these CGUs. 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 CGUs 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 the three year financial plan approved by the Board. The projected cashflows reflect the latest expectations of demand for products in years one to three and are extrapolated to year ten using a 2.0% growth rate that approximates to the long-term growth rate of the UK economy. The projected cashflows reflect an expected return to profitability in 2020/21 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. In light of the adverse impact that Covid-19 is currently having on market conditions and the uncertainty surrounding the extent and timing of a future economic recovery in the Group’s UK and worldwide markets, the Board have applied significant downside sensitivity analysis to the financial plans that models reductions to cash flows of 33% in years one to three, 50% in years four to seven and 66% in years eight to ten. 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 11.1%. Based on the assumptions noted above, including the downside sensitivities arising from Covid-19 induced uncertainty, the Board concluded that the recoverable amount of the CGUs were higher than the book value of the CGUs assets and as such no impairment charge is deemed necessary. 43 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 3 CONTINUED OPERATING ASSETS AND LIABILITIES 13 Intangible assets Software Development costs Software Cost At 1 April 2018 Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Additions At 31 March 2020 Amortisation/impairment At 1 April 2018 Charge for the year Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Charge for year At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 At 1 April 2018 Group Company 2020 £000 249 92 341 2019 £000 203 87 290 2020 £000 22 – 22 2019 £000 2 – 2 Group £000 Company £000 1,008 (33) 975 98 1,073 736 59 (23) 772 52 824 249 203 272 27 – 27 25 52 24 1 – 25 5 30 22 2 3 Software has an estimated useful life of between three and ten years In the Group, software includes right-of-use assets with a net book value of £67,000 (2019: £nil) relating to assets held under leases. Additions in the year relating to right-of-use assets amounted to £78,000 (2019: £nil). In the Company, software includes right-of use assets with a net book value of £16,000 (2019: £nil) relating to assets held under leases. Additions in the year relating to right-of-use assets amounted to £18,000 (2019: £nil). 44 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc13 Intangible assets continued Development costs capitalised Cost At 1 April 2018 Additions Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Additions At 31st March 2020 Amortisation/ impairment At 1 April 2018 Charge for year Disposal of subsidiary undertakings (Note 9) At 31 March 2019 Charge for year At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 At 1 April 2018 Group £000 Company £000 424 22 (86) 360 30 390 269 25 (21) 273 25 298 92 87 155 – – – – – – – – – – – – – – – 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 five years from the commencement of commercial sales. 14 Inventories Raw materials Work in progress Finished goods Group 2020 £000 811 696 1,082 2,589 2019 £000 911 812 979 2,702 Company 2020 £000 – – – – 2019 £000 – – – – Stock recognised in cost of sales during the period as an expense was £10,863,000 (2019: £11,585,000). The impairment charge for stock during the year was £25,000 (2019: £2,000). There is no material difference in the value of stock held on the balance sheet and its replacement cost. 45 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 3 CONTINUED OPERATING ASSETS AND LIABILITIES 15 Trade and other receivables Trade receivables Amounts due from subsidiary undertakings Other receivables Corporation tax Prepayments Group Company 2020 £000 5,222 – 411 – 449 6,082 2019 £000 5,189 – 232 165 466 6,052 2020 £000 12 3,696 133 – 15 3,856 2019 £000 112 3,761 39 132 14 4,058 Invoice finance liabilities are directly secured against the trade receivables of the Group. The Group retains the risk and rewards, such as default, associated with the holding of trade receivables. The Group has trade receivables as at 31 March 2020 of £5,222,000 (2019: £5,189,000) against which an invoice finance liability of £1,925,000 (2019: £1,628,000) was secured. The total available invoice finance facility as at 31 March 2020 was £6,000,000 (2019: £7,750,000). Trade receivables are denominated in the following currencies: Sterling Euro Group Company 2020 £000 2,080 3,142 5,222 2019 £000 2,722 2,467 5,189 2020 £000 12 – 12 2019 £000 112 – 112 Of the carrying amount of trade receivables of £5,222,000 (2019: £5,189,000), £3,708,000 (2019: £4,181,000) 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 2020, trade receivables at a nominal value of £219,000 (2019: £345,000) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows: At 1 April 2019 Disposal of Exidor Limited Charge for year Amounts written off Provision increase At 31 March 2020 Group 2020 £000 345 – 17 (143) – 219 2019 £000 23 (6) 203 (6) 131 345 Company 2020 £000 2019 £000 – – – – – – – – – – – – 46 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc15 Trade and other receivables continued The analysis of trade receivables that were past due but not impaired is as follows: 2020 2019 Neither past due nor impaired £000 5,088 4,166 Total £000 5,222 5,189 Past due <30 days £000 30-60 days £000 60-90 days £000 90-120 days £000 >120 days £000 35 707 3 90 8 186 43 31 45 9 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 2020 £000 5,210 12 5,222 2019 £000 4,986 203 5,189 2020 £000 – – – Of the balance in respect of counterparties with internal ratings, nil% (2019: 3%) is in respect of new customers, and 100% (2019: 97%) 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 16 Current liabilities Financial liabilities Bank overdraft Invoice finance facility Lease liabilities Group Company 2020 £000 – 2019 £000 165 2020 £000 – Group Company 2020 £000 – 1,925 1,103 3,028 2019 £000 – 1,628 1,055 2,683 2020 £000 1,654 – 38 1,692 2019 £000 – – – 2019 £000 132 2019 £000 23 – 34 57 47 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 3 CONTINUED OPERATING ASSETS AND LIABILITIES 16 Current liabilities continued The Group has no net overdraft facility. However, under the terms of the Group’s banking arrangements, individual companies within the Group are permitted to have an overdraft position, provided the Group’s net position is cash positive. Lease liabilities are secured against the specific item to which they relate. These leases are repayable by monthly instalments for a maximum period of five years to February 2025. Interest is payable at fixed amounts that range between 3.1% and 9.4%. 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 2020 was £6,000,000 (2019: £7,750,000). Management has assessed the treatment of the financing arrangements and has determined it is appropriate to recognise trade receivables and invoice finance liabilities separately. Trade and other payables Trade payables Amounts owed to other Group companies Other taxation and social security Other payables Accruals Fair value of derivative forward contracts Group Company 2020 £000 3,730 – 708 1,931 617 495 7,481 2019 £000 2,665 – 432 499 1,004 – 4,600 2020 £000 126 470 28 257 115 – 996 2019 £000 71 527 31 403 268 – 1,300 Trade payables are non-interest bearing and are normally on terms of 30 to 60 days. 17 Non-current liabilities Financial liabilities Lease liabilities Group 2020 £000 2019 £000 2,037 2,966 Company 2020 £000 57 2019 £000 59 Lease liabilities are secured against the specific item to which they relate. These leases are repayable by monthly instalments for a period of upto five (2019: five) years to February 2025. £1,071,000 is repayable in one to two years (2019: £1,052,000) and £966,000 within two to five years (2019: £1,914,000). Interest is payable at a fixed amount that ranges between 3.1% and 9.4%. Provisions for liabilities As at 1 April 2019 Charge for the year As at 31 March 2020 Dilapidations £000 200 – 200 Dilapidations The dilapidation provision relates to expected future lease dilapidations and is expected to be utilised within 1-2 years. 48 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc17 Non-current liabilities continued Deferred taxation Group liabilities Temporary differences relating to share options Fair value hedges Temporary differences relating to capital allowances Deferred tax assets Temporary differences relating to capital allowances Temporary differences relating to pension scheme deficit Temporary differences relating to cash flow hedges Other temporary differences Group Company 2020 £000 39 2019 £000 53 2020 £000 – 2020 £000 – – 39 39 Group Company 2020 £000 – 333 61 217 611 2019 £000 119 448 – 339 906 2020 £000 7 333 – 212 552 2019 £000 33 2019 £000 20 33 – 53 2019 £000 15 448 – 354 817 The tax value of Group trading losses carried forward for which a deferred tax asset has not been recognised total £1,345,000 (2019: £669,000). 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 2032. The deferred tax assets have been assessed as recoverable against forecasts of future taxable profits. All deferred tax assets are recoverable, and deferred tax liabilities will be settled, in greater than one year. Of the total deferred tax charge of £282,000 (2019: £681,000 credit), a charge of £309,000 (2019: £745,000 credit) was recognised within the Consolidated Income Statement, a charge of £6,000 (2019: £38,000 charge) was recognised within other comprehensive income and a credit of £33,000 (2019: £26,000 charge) recognised within the Consolidated Statement of Changes in Equity. 49 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 4 CAPITAL STRUCTURE 18 Share capital Allotted, called up and fully paid 7,958,126 (2019: 7,958,126) ordinary shares of 25p 2020 £000 1,990 2019 £000 1,990 During the year no shares (2019: none) were issued to Directors to satisfy share options at nil (2019: nil) cost. During the year, no share options were granted (2019: 366,066) and 207,363 (2019: 292,027) were forfeited or lapsed. On 8 March 2021, a general meeting of the Company approved the sub-division of the existing ordinary shares of 25p into ordinary shares of 0.1p and deferred shares of 24.9p. The rights attaching to the new ordinary shares of 0.1p are identical to those of the existing ordinary shares of 25p. Holders of the deferred shares of 24.9p are only entitled to the amount paid up on those shares and have no other rights to participate in the assets of the Company. Following the sub-division of the share capital on 8 March 2021, a £200,000 convertible loan received on 19 February 2021 from Mr Trevor Brown was converted into 3,333,333 ordinary shares of 0.1p at a conversion price of 6p each. On 26 March 2021, the Company announced that it had raised gross proceeds of £3.5 million by way of a Share Placing and Subscription. As a result, the Company issued 58,333,333 ordinary shares of 0.1p each at a subscription price of 6p each. As a result of the above post-balance sheet events, the Company’s issued share capital now comprises 69,624,792 ordinary shares of 0.1p and 7,958,126 deferred shares of 24.9p each, with a total nominal value of £2,051,000. 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 17. 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 2018 Granted Lapsed At 1 April 2019 Lapsed At 31 March 2020 No. of options 350,000 366,006 (292,027) 423,979 (207,363) 216,616 Weighted average Exercise price (p) Remaining contractual life (years) 25.0 97.5 62.1 62.1 25.0 97.5 7.7 9.3 8.5 8.5 6.5 8.3 No share options were exercised during the current or prior year. The cost of share options charged to the Consolidated Income Statement was £59,000 (2019: charge of £40,000). The fair value of options granted in the year was £nil (2019: £128,000). 50 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc20 Fixed asset investments Shares in subsidiary undertakings Cost At 1 April 2018 Disposal of subsidiary At 31 March 2019 and 2020 Impairment At 1 April 2018 Impairment charge At 31 March 2019 Impairment charge At 31 March 2020 Net book value At 31 March 2020 At 31 March 2019 At 1 April 2018 £000 8,159 (2,004) 6,155 - 3,260 3,260 1,079 4,339 1,816 2,895 8,159 Wholly owned operating subsidiaries Chamberlin & Hill Castings Limited Russell Ductile Castings Limited Petrel Limited Chamberlin Foundry Limited Principal activity Manufacture and sale of engineering castings Manufacture and sale of engineering castings Manufacture and sale of lighting and electrical installation products Intermediary holding company Wholly owned dormant subsidiaries Chamberlin Group Limited Chamberlin & Hill Ltd Ductile Castings Limited Fred Duncombe Limited Fitter & Poulton Limited Webb Lloyd Limited The Company owns 100% of the issued ordinary share capital of the above companies, all of whom are registered and operate principally in England and Wales. As a result of the trading loss for the Group in the year, a review of the carrying value of investments in subsidiaries was undertaken, leading to an impairment charge of £1,079,000 (2019: £3,260,000) being recognised in the income statement of the Company. 51 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements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 2020 was £199,000 (2019: £124,000), with the increase being due to costs associated with the triennial valuation, together with £58,000 of financing cost (2019: £112,000). 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 £396,000 (2019: £423,000). 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 31 March 2020 31 March 2019 31 March 2018 n/a 2.6% 2.3% 2.6% 1.7% n/a 3.2% 2.3% 3.3% 2.3% n/a 3.1% 2.5% 3.2% 2.2% Demographic assumptions are all based on the S3PA (2019: S2PA) mortality tables with a 1.25% 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 15 years from the balance sheet date. Current pensioners at 65 Male Female Future pensioners at 65 Male Female 2020 years 21.0 23.2 21.9 24.3 2019 years 20.9 23.1 21.8 24.2 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 triennial valuation as at 31 March 2019 was completed during the year and concluded that Company contributions would increase to £300,000 for the year ended 31 March 2021, £330,000 for the year ended 31 March 2022 and £360,000 for the year ended 31 March 2023, with the deficit reduction period reducing to 2032. The Company has given security over the Group’s land and buildings to the pension scheme. There will be a further triennial review with effect from 31 March 2022, which will establish future deficit payments. 52 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc 21 Pension arrangements continued The scheme assets are stated at the market values at the respective balance sheet dates. The assets and liabilities of the scheme were: Equities/diversified growth fund Bonds Insured pensioner assets Cash Market value of assets Actuarial value of liabilities Scheme deficit Related deferred tax asset Net pension liability 2020 £000 12,534 1,565 24 415 14,538 (16,497) (1,959) 333 (1,626) 2019 £000 14,286 1,580 26 173 16,065 (18,705) (2,640) 448 (2,192) Due to the nature of the investments held, the scheme is subject to normal market risks that affect the world’s stock markets, and in particular the UK market. Net benefit expense recognised in profit and loss Net interest cost Net interest expense Remeasurement losses/(gains) in other comprehensive income Actuarial (gains)/losses arising from changes in financial assumptions Actuarial gains arising from changes in demographic assumptions Experience adjustments Loss/(return) on assets (excluding interest income) Total remeasurement gain shown in other comprehensive Income Actual loss on plan assets Movement in deficit during the year Deficit in scheme at beginning of year Movement in year: Past service cost Employer contributions Net interest expense Actuarial gain Deficit in scheme at end of year 2020 £000 (58) (58) 2020 £000 (593) (244) (931) 1,308 (460) 2020 £000 (946) 2020 £000 2019 £000 (112) (112) 2019 £000 622 (151) 91 (638) (76) 2019 £000 (976) 2019 £000 (2,640) (5,080) – 279 (58) 460 (1,959) (295) 2,771 (112) 76 (2,640) 53 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 5 CONTINUED OTHER SUPPORTING NOTES 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 (gains)/losses 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 years (2019: 13.5 years). A quantitative sensitivity analysis for significant assumptions as at 31 March 2020 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 one year older 2020 £000 16,065 362 (1,308) 279 (860) – 2019 £000 13,207 338 638 2,771 (889) – 14,538 16,065 2020 £000 2019 £000 18,705 18,287 420 (593) (244) (931) (860) – 450 622 (151) 91 (889) 295 16,497 18,705 2020 £000 14,635 17,340 17,266 The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the year. 22 Contingent liabilities Cross guarantees exist between the Company and its subsidiary undertakings in respect of the Group’s bank overdrafts, asset finance loans and invoice finance facilities. The total borrowings of subsidiaries at 31 March 2020 amounted to £4,970,000 (2019: £4,674,000). 54 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc23 Financial commitments Capital expenditure Contracted for but not provided in the accounts Capital commitments relate to office equipment replacements. Group Company 2020 £000 14 2019 £000 – 2020 £000 – 2019 £000 – Lease commitments The Group had total outstanding commitments under operating leases as follows: Future minimum payments due: Not later than one year After one year but not more than five years After five years Group Company 2020 £000 149 60 – 209 2019 £000 77 – – 77 2020 £000 35 44 – 79 2019 £000 23 – – 23 Leases on land and buildings comprise the premises of Petrel Limited (£114,000 per annum with an end date of 20 May 2021). 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 a 90% hedge; on this basis up to 75% of the Group’s annual exposures are likely to be hedged at any point in time and the Group’s net transactional exposure to different currencies varies from time to time. At the year-end it had net monetary assets denominated in Euros of £1,108,000 (2019: assets of £2,671,000). A proportion of the Group’s financial liabilities are denominated in Euros, reducing the currency risk of the Group. Because up to 90% 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 2020, 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 £936,000 (2019: £440,000). 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. 55 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 5 CONTINUED OTHER SUPPORTING NOTES 24 Derivatives and financial instruments continued The uncertain economic outlook caused by the impact of Covid-19 on the Group’s European markets has resulted in the Group undertaking a review of future Euro denominated sales. This review has led the Group to conclude that a proportion of the Group’s expected sales are no longer highly probable and the Group is likely to be over-hedged in the near term. Consequently, a hedge ineffectiveness loss of £138,000 (2019: nil) has been recognised in the income statement. At 31 March 2020 At 31 March 2019 Contracted amount (€ 000) 21,605 10,030 Weighted average contract rate 1.1543 1,1383 Contracted amount £000 18,717 8,812 Contracted amount at year-end rate £000 19,228 8,629 Unrealised gain/(loss) £000 (511) 183 Interest rate risk The Group has 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 £10,000 reduction in profit before tax (2019: £8,000). An equivalent decrease in rates would increase profit before tax by £10,000 (2019: £8,000). An analysis of interest bearing financial assets and liabilities is given below. Financial liabilities Bank overdraft (Sterling denominated) Invoice finance (Sterling denominated) Invoice finance (Euro denominated) Lease liabilities (Sterling denominated) Group Company 2020 £000 – (198) (1,727) (3,140) (5,065) 2019 £000 – (1,099) (529) (4,021) (5,649) 2020 £000 (1,654) – – (95) (1,749) 2019 £000 (23) – – (93) (116) Credit risk The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in Note 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 £17,000 (2019: £334,000). Liquidity risk The Group aims to mitigate liquidity risk by managing the cash generation of its operating units, and applying cash generation targets across the Group. Investment is carefully controlled, with authorisation limits operating up to Group Board level and cash payback periods applied as part of the investment appraisal process. In this way, the Group aims to maintain a good credit rating and operate within its existing facilities. 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 £6.0m invoice finance facility is ongoing, as discussed in the Consolidated Cash Flow commentary on page 31. 56 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc24 Derivatives and financial instruments continued Fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. All derivative financial assets and liabilities are valued by Level 2 techniques. The fair values of short-term receivables, short-term payables, and the invoice finance facility and overdraft (both of which are repayable on demand) are not disclosed, as permitted by IFRS 7, where the carrying amount is a reasonable approximation to fair value. The Group’s finance team performs valuations of financial items for financial reporting purposes. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to the Group Finance Director and the Audit Committee. Valuation processes and fair value changes are discussed among the Audit Committee and the valuation team at least every year, in line with the Group’s reporting dates. The following valuation techniques are used for instruments categorised in Level 2. Foreign currency forward contracts (Level 2) – the Group’s foreign currency forward contracts are not traded in active markets. These contracts have been fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. The effects of non-observable inputs are not significant for foreign currency forward contracts. The table below summarises the maturity profile of the Group’s financial assets and liabilities, which are all classified as Level 2, at 31 March 2020 and 31 March 2019. The carrying value of the Group’s financial assets and liabilities is considered to be the same as the fair value. At 31 March 2020 Financial assets Trade receivables Non-derivative financial liabilities Invoice finance Lease liabilities, including interest Trade payables At 31 March 2019 Financial assets Trade receivables Non-derivative financial liabilities Invoice finance Lease liabilities, including interest Trade payables On demand Less than one year One to two years Two to five years Greater than five years 5,222 1,925 – – 1,925 5,189 1,628 – – 1,628 – – 1,244 3,730 4,974 – – 1,200 – 1,200 – – 1,080 – 1,080 – – – – 1,055 2,665 3,720 – 1,055 – 1,055 – 1,911 – 1,911 – – – – – – – – – – Total 5,222 1,925 3,524 3,730 9,179 5,189 1,628 4,021 2,665 8,314 57 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 5 CONTINUED OTHER SUPPORTING NOTES 24 Derivatives and financial instruments continued The gross undiscounted future cashflows are analysed as follows: At 31 March 2020 Foreign exchange forward contracts On demand Less than one year One to two years Two to five years Total – – 13,445 13,445 5,226 5,226 – – 18,671 18,671 The outflows above relate to the settlement of the derivative contracts which are a fair value liability at the year-end as disclosed in Note 16. At 31 March 2019 Foreign exchange forward contracts On demand Less than one year One to two years Two to five years Total – – 7,682 7,682 946 946 – – 8,628 8,628 The Company’s financial liabilities comprise the bank overdraft of £1,654,000 (2019: £23,000) and is payable on demand, and lease liabilities of £95,000 (2019: £93,000). Capital management The Group defines capital as the total equity of the Group, which at the year-end is £2,545,000 (2019: £4,868,000). The Group objective for managing capital is to deliver competitive, secure and sustainable returns to maximise long-term Shareholder value. The Group is subject to net worth covenants and debtor turn covenants on its invoice finance facility. There are no financial covenant restrictions on the Group’s overdraft facility or asset loans. 25 Related party transactions Group All transactions between the parent Company and subsidiary companies and between subsidiary companies have been eliminated on preparation of the consolidated accounts. The Group has not entered into any other related party transactions. Company The Company provides certain management services to subsidiary companies. Certain payments in relation to items settled or provided on a central basis, principally corporation tax and insurance payments, are made by the Company and are then recharged to subsidiaries at cost. Compensation of key management personnel (including Directors) Short-term employee benefits (including employer's NI) Termination costs (including employer's NI) Share-based payments Pension contributions Group Company 2020 £000 1,100 141 59 65 1,365 2019 £000 1,320 – 40 64 1,424 2020 £000 538 – 59 36 633 2019 £000 638 – 40 37 715 Key management, other than Directors of the Company, comprise the Managing Directors and Finance Directors of the main operating subsidiaries, and are included in Group figures above. Details of key management share options are disclosed in Note 19. 58 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc26 Net debt At 1 April 2018 Cashflow Interest At 1 April 2019 Cashflow New leases in the year Impact of foreign exchange rates At 31 March 2020 Balances comprise: Current assets Current liabilities Non-current liabilities Net overdraft/ (cash at bank) £000 485 (971) 195 (291) (154) – (12) (457) (457) – – (457) Invoice finance £000 4,740 (3,218) 106 1,628 279 – 18 1,925 – 1,925 – 1,925 Lease liabilities £000 3,267 668 86 4,021 (1,066) 185 – 3,140 – 1,103 2,037 3,140 Import loan £000 1,137 (1,137) – – – – – – – – – – Total 9,629 (4,658) 387 5,358 (941) 185 6 4,608 (457) 3,028 2,037 4,608 27 Restatement of comparatives During the year, a change has been made to the presentation of administration costs and interest costs associated with the Company’s defined benefit pension scheme. Previously, these costs were shown as non-underlying items. Management is now of the view that such costs should be reported as part of underlying results reflecting the ongoing recurring nature of these costs. As a result of this presentational change, the underlying results in the comparative periods have been restated. There is no change to statutory results as a consequence of this presentational change. Impact on underlying loss for the year ended 31 March 2019 Income statement Underlying operating loss Underlying finance costs Underlying loss before taxation Taxation Underlying loss from continuing operations As reported £000 Reclassification £000 As restated £000 (886) (387) (1,273) (63) (1,336) (124) (112) (236) 24 (212) (1,010) (499) (1,509) (39) (1,548) 28 Subsequent events On 16 December 2020, the Company announced that it had received notice from its major customer, BorgWarner Turbo Systems Worldwide Headquarters GmbH, of its intention to cancel all contracts with effect from 22 January 2021. Following this announcement, it became evident that the Company was not in a position to publish its 2020 Accounts by 31 December 2020 in accordance with AIM rules. Consequently, the Company’s shares were suspended from trading on AIM with effect from 4 January 2021. The Board and its advisers immediately implemented measures to reduce costs and preserve cash whilst exploring options to strengthen the balance sheet in order to safeguard the Company’s future. After evaluating a number of alternative options with its advisers, the Company issued a £200,000 unsecured convertible loan note to Mr Trevor Brown in February 2021 to provide immediate short-term working capital, which was converted into 3,333,333 Ordinary Shares following Shareholder approval at the General Meeting held on 8 March 2021. On that same date, Mr Trevor Brown was appointed to the Board of Chamberlin as a Non-Executive Director. 59 www.chamberlin.co.ukSTOCK CODE: CMHFinancial Statements SECTION 5 CONTINUED OTHER SUPPORTING NOTES 28 Subsequent events continued The Board continued to explore further funding possibilities and on 26 March 2021 announced that the Company had raised net proceeds of £3.3 million by way of a Share Placing and Subscription. The primary purpose of the Share Placing and Subscription was to fund working capital and to meet the restructuring costs associated with reducing the cost base to a level appropriate to the lower ongoing revenue of the Group. Following the publication and filing of the annual audited accounts for the year end 31 March 2020 and the publication of the interim results for the six months ended 30 September 2020, the Company will immediately apply for the suspension of trading of the Company’s Ordinary Shares on AIM to be lifted by the London Stock Exchange. 29 Summary of significant accounting policies Basis of preparation The consolidated financial statements have been prepared on a historical cost basis and are presented in Sterling and all values are rounded to the nearest thousand pounds (£000) except when otherwise indicated. The Company has taken advantage of the exemption provided under section 408 of the Companies Act 2006 not to publish its individual income statement and related notes. Basis of consolidation The consolidated financial statements comprise the financial statements of Chamberlin Plc and its subsidiaries as at 31 March each year. The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Subsidiaries are entities which are controlled by the Group. Control is achieved when the Group has power over the investee, has the right to variable returns from the investee and has the power to affects its returns. The Group obtains and exercises control through voting rights and control is reassessed if there are indications that the status of any of the three elements have changed. Going concern The Group’s activities together with the factors likely to affect its future development, performance and financial position, including its cash flows, liquidity position and borrowing facilities, are described in the Strategic Report on pages 4 to 9. 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 detailed budget for the year ending 31 March 2022 and extended forecast for the six months to 30 September 2022 take into account the £3.3m raised from the Share Placing and Subscription announced on 26 March 2021 and the Director’s view of most likely trading conditions. These forecasts and projections indicate that existing bank facilities are expected to remain adequate. The budget and extended forecast provides for significant revenue growth in the second half of the year to 31 March 2022 and the six months to 30 September 2022, which is needed to replace the lost BorgWarner contracts. The budget includes the significant but necessary benefits and costs of the restructuring that will be required to right-size the cost-base to the lower level of revenue. As the implementation and delivery of the restructuring benefits and costs are within the control of the Directors, no downside sensitivities have been applied in relation to these. The Directors have, however, applied reasonably foreseeable downside sensitivities to the budget and forecast, which assumes that sales growth from October 2021 onwards is only 3% above the first half average and the machine shop has no sales output. In the detailed budget, extended forecast and sensitised scenario, the possible receipt of compensation from BorgWarner has been entirely discounted, as has any sales of no-longer required machinery. As a consequence, after making enquiries, the Directors have an expectation that, in the circumstances of a reasonably foreseeable downside scenario as described above, the Group and the Company have adequate resources to continue in operational existence for the foreseeable future. However, the rate at which new work can be secured to replace the lost BorgWarner activity is difficult to predict resulting in material uncertainty, which may cast significant doubt over the ability of the Group and the Company to realise its assets and discharge its liabilities in the normal course of business and hence continue as a going concern. 60 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc29 Summary of significant accounting policies continued The Directors continue to adopt the going concern basis, whilst recognising there is material uncertainty relating to the above matter. Presentation of the Consolidated Income Statement The Consolidated Income Statement is allocated between underlying items that relate to the trading activities of the business, and non-underlying items that 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 items accounting policy note, the Directors believe that this format sets out the performance of the Group more clearly. Business combinations and goodwill Business combinations from 1 April 2010 Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree’s identifiable net assets,is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with 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 1 April 2010 Business combinations are accounted for using the purchase method. The cost of an acquisition is measured as the cash paid, and the fair value of other assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair value at the date of acquisition. 61 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 5 CONTINUED OTHER SUPPORTING NOTES 29 Summary of significant accounting policies continued Business combinations prior to 1 April 2010 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 – two to ten years Motor vehicles – four 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. 62 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc29 Summary of significant accounting policies continued Intangible assets Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses. Computer software, intellectual property rights and other intangible assets are initially recorded at cost. Where these assets have been acquired through a business combination, this will be the fair value allocated in the acquisition accounting. Where these have been acquired other than through a business combination, the initial cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Computer software and other intangible assets, such as capitalised development expenditure under IAS 38, are amortised over their useful lives on a straight-line basis with the amortisation charge included within other operating expenses. Estimated useful life is the shorter of legal duration and economic useful life, which represents the Directors’ best estimate of the period over which the asset may be used to generate significant economic benefits to the Group. Software has an estimated useful life of between 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 costs Research costs are expensed as incurred. Clearly defined and identifiable development projects in which the technical degree of exploitation, adequacy of resources and potential market or development possibility in the undertaking can be clearly demonstrated, and where it is the intention to produce, market or execute the project, are capitalised when a correlation exists between the costs incurred and future benefits. Costs not meeting such criteria are expensed as incurred. Amortisation is applied as set out for intangible assets above, the useful life being determined for individual development projects. For projects capitalised to date, a useful life of five years was considered appropriate. The Company’s investments in subsidiaries Investments in subsidiaries are stated at cost, less impairment and dividends from subsidiaries, are taken to profit or loss when the right to receive payment is established. Inventories Inventories are valued at the lower of cost and net realisable value, which is arrived at as follows: Æ Raw materials – purchase cost on a first-in, first-out basis or weighted average cost basis; Æ Finished goods and work in progress – where detailed individual product costing information is available, actual cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Previously, the engineering division included inventory valued at selling price less the calculated margin on certain finished goods in the absence of more detailed individual product costing information. During the year, a change in estimate was made to value all finished goods using the method described above to be consistent with the rest of the Group. Management 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 receivables Trade receivables, which generally have 30-60 day terms, are recognised and carried at original invoice amount less any provision for bad debts. Expected credit losses in respect of trade receivables are recognised 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 receivables is reduced by expected credit losses and are derecognised when they are assessed as uncollectible. 63 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 5 CONTINUED OTHER SUPPORTING NOTES 29 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 the 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 the 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 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 portion (presented within financing activities) and interest (presented within operating 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-value 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 1 April 2010 the Group adopted hedge accounting in respect of certain sales denominated in foreign currencies. Foreign currency forward contracts are being used to hedge the foreign currency risks on highly-probable forecast sales transactions. The fair value of forward currency contracts is calculated by reference to current market prices for contracts with similar maturity profiles. The proportion of the gain or loss on the hedging instrument that is determined as an effective hedge is recognised in other comprehensive income and the gain or loss on any ineffective component of a hedging instrument is recognised in profit and loss. Amounts initially recognised in equity are transferred to the Consolidated Income Statement within sales when the forecast hedged transaction occurs. At 31 March 2020 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 forecast 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. 64 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc29 Summary of significant accounting policies continued Employee benefits Wages, salaries, bonuses, social security contributions, paid annual leave and sick leave are accrued in the year in which the associated services are rendered by employees of the Group. Pensions and other post-employment benefits The Group operates a number of defined contribution schemes, which require contributions to be made to administered funds separate from the Group. The Group also has a defined benefit pension scheme, which is closed to future accrual. The scheme assets are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit 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. Remeasurement 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 taxes Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date. Deferred income tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions: Æ where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss; Æ in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and Æ deferred income tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised within the foreseeable future. Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Income tax is charged or credited directly to other comprehensive income or equity if it relates to items that are credited or charged to other comprehensive income or to equity respectively. Otherwise income tax is recognised in the Consolidated Income Statement. Revenue Revenue is recognised when the significant risks and rewards of ownership of the goods, in line with the International Commercial terms as defined by the International Chamber of Commerce, have passed to the buyer and can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, customs duties and sales taxes. 65 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSECTION 5 CONTINUED OTHER SUPPORTING NOTES 29 Summary of significant accounting policies continued 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; Æ 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 be material. Non-underlying items The Group presents as non-underlying items on the face of the Consolidated Income Statement, those items of income and expenditure which, because they are either non-trading related, non-recurring or are valued using market-derived data which is outside management’s control, merit separate presentation to allow Shareholders to better understand the elements of financial performance in the year, so as to facilitate comparison with prior periods and to allow assessment of trends in financial performance. Non-underlying items in the current year include share-based payment costs, reorganisation costs, foreign currency hedge ineffectiveness and the associated tax impact on these items. Non-underlying items in the prior year include share-based payment costs, reorganisation costs, onerous leases and impairment of fixed assets, GMP equalisation and the associated tax impact on these items. 66 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc29 Summary of significant accounting policies continued Use of judgements and accounting estimates The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amount of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from those estimates and judgements. Where appropriate, details of estimates and assumptions used are set out in the relevant notes to the accounts. The key figures in the accounts that are most sensitive to such judgements and estimates are: Judgements Æ Impairment of property, plant and equipment – the Group performs an impairment review when indications of impairment exist. Following the recognition of an impairment charge in the prior year, the loss before taxation incurred in the current year and the economic impact of COVID-19, the Directors undertook a detailed impairment review of the foundry businesses. 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. Æ Impairment of business incentives – the Group classifies business incentive payments made upfront for the award of contracts within prepayments. These business incentives are amortised to the 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. Æ Going concern - a 18 month forecast has been prepared to assess the Group’s ability to continue to operate as a going concern. This forecast includes assumptions on the future level of trading activity, profitability and cash flow expected during this period and downside sensitivities to reflect scenarios where revenue growth targets are not met. The Directors’ Report on pages 20 and 21 provide further details on the going concern assumption. Accounting estimates Æ Defined benefit scheme pension liabilities: the cost of the closed defined benefit pension plan is determined using actuarial valuations. The actuarial valuation, which is undertaken by external experts, involves making assumptions about discount rates, future salary increases, mortality rates and future pension increases. Note 21 provides details of the defined pension scheme liabilities and valuation assumptions. Æ Recoverability of deferred tax assets: deferred income tax assets are recognised only to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. The Group has assessed that it is probable that future profits will fully utilise current tax losses and other deductible temporary differences. Deferred tax assets relating to the pension scheme deficit are expected to be recovered over the period that contributions are made into the scheme, including the agreed contributions to April 2028. The deferred tax assets have been assessed as recoverable against forecasts of future taxable profits. Note 17 provides details of the deferred tax assets. 67 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsINDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CHAMBERLIN PLC Opinion Our opinion on the financial statements is unmodified We have audited the financial statements of Chamberlin Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March 2020, 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 their preparation is applicable law and and international accounting standards in conformity with the requirements of the Companies Act 2006 and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. In our opinion: Æ the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2020 and of the group’s loss for the year then ended; Æ the group financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006; Æ the parent company financial statements have been properly prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 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. The impact of macro-economic uncertainties on our audit Our audit of the financial statements requires us to obtain an understanding of all relevant uncertainties, including those arising as a consequence of the effects of macro-economic uncertainties such as Covid-19 and Brexit. All audits assess and challenge the reasonableness of estimates made by the directors and the related disclosures and the appropriateness of the going concern basis of preparation of the financial statements. All of these depend on assessments of the future economic environment and the Group’s future prospects and performance. Covid-19 and Brexit are amongst the most significant economic events currently faced by the UK, and at the date of this report their effects are subject to unprecedented levels of uncertainty, with the full range of possible outcomes and their impacts unknown. We applied a standardised firm-wide approach in response to these uncertainties when assessing the Group’s future prospects and performance. However, no audit should be expected to predict the unknowable factors or all possible future implications for a Group associated with these particular events. 68 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcMaterial uncertainty related to going concern We draw attention to note 28 in the financial statements, which indicates that the Group and company is exposed to material uncertainty related to going concern over the rate at which new work can be secured to replace the lost Borg Warner activity which is difficult to predict. As stated in note 28, these events or conditions, indicate that a material uncertainty exists that may cast significant doubt on the group and company’s ability to continue as a going concern. Our opinion is not modified in respect of this matter. In concluding that there is a material uncertainty, we performed the following procedures: Æ Obtained management’s base case forecasts covering the period from 1 April 2020 to 30 September 2022. We assessed how these forecasts were compiled, including assessing the appropriateness of management’s forecasts and sensitivities to the underlying assumptions; Æ Assessed the reliability of management’s forecasting by comparing the actual financial performance in the prior period to prior period forecasts; Æ Obtained management’s reasonable downside scenario to assess the potential impact of sales assumptions not being achieved by the business. We evaluated the assumptions applied, including the reduction in revenue and the resulting effect on working capital, for reasonableness and determined whether they had been applied accurately. We also considered whether the assumptions are consistent with our understanding of the business; Æ Assessed management’s determination of the impact of the mitigating factors available to them to restrict the cash impact arising from the loss of Borg Warner. This assessment included the corroboration of mitigating actions taken by management to relevant documentation and the review of the application in the forecasts for accuracy; Æ Obtained evidence in form of bank statements to ensure £3.3m raised from the share placing and subscription has been received; Æ Obtained management’s consultation form to evidence the restructuring process has commenced; Æ Performed sensitivity analysis on management’s reasonable downside scenarios to determine the reduction in revenue that would lead to elimination of the headroom in their original cash flow forecasts; and Æ Assessed the adequacy of the going concern disclosures included within the annual report. Overview of our audit approach Æ Our group materiality was determined at £450k, being 1.7% of the group’s total revenues. Æ Key audit matters were identified as material uncertainty related to going concern, revenue recognition and valuation of defined benefit pension scheme liabilities for the group. Æ We have performed full-scope audit procedures on the financial statements of Chamberlin Plc and on the financial information of all subsidiaries of Chamberlin Plc. Key audit matters Key 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. In addition to the matter described in the ‘Material uncertainty related to going concern section’, we have determined the matters described below to be the key audit matters to be communicated in our report. 69 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsINDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF CHAMBERLIN PLC Key Audit Matter – Group How the matter was addressed in the audit – Group Revenue recognition Revenue is recognised when the performance obligation to the customer has been achieved, being the sale of manufactured products. ‘Revenue from contracts with customers’. Revenue from the sale of goods is recognised at a point in time when promised goods have been transferred to a customer at which point the performance obligation is considered to have been satisfied. The customer is considered to obtain control of the promised goods at the point of delivery. Revenue is the key driver of the business and used as an important benchmark by analysts for assessing the health of the Group. We deemed the significant risk to be in respect of uncollected revenue as this is the area considered to be most susceptible to manipulation by management in close proximity to the year end where there is an incentive to meet performance targets. We therefore identified revenue recognition as a significant risk, which was one of the most significant assessed risks of material misstatement. Valuation of defined benefit pension scheme liabilities The group operates a defined benefit pension scheme that provides benefits to a number of current and former employees. At 31 March 2020, the defined benefit pension schemes’ net liability was £2.0 million. The gross value of pension scheme liabilities amounted to £16.5 million. The valuation of the pension liabilities 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 liability being recognised within the group financial statements. Therefore, we identified the valuation of the defined benefit pension scheme liabilities as a significant risk, which was one of the most significant assessed risks of material misstatement. Our audit work included, but was not restricted to: Æ evaluating the revenue recognition accounting policies for appropriateness in accordance with the requirements of International Financial Reporting Standard 15 ‘Revenue from Contracts with Customers’ and executing audit procedures to provide evidence that revenue was accounted for in accordance with these policies; Æ assessing the design effectiveness of the relevant controls in place associated with revenue recognition; Æ testing a sample of revenue transactions across the Group to ensure revenue recognition was appropriate by agreeing amounts to contracted amounts, cash receipts and/or proof of delivery where applicable; Æ assessing revenue analytically by comparing revenue recognised during the year to prior years; and Æ reviewing post year end credit notes to ensure there were no significant reversals of revenue recorded relating to pre year end The group’s accounting policy on revenue recognition is shown in note 29 to the financial statements and related disclosures are included in note 3. Key observations Based on our audit work, we did not identify any evidence of material misstatement in the revenue recognised during the year ended 31 March 2020. Our audit work included, but was not restricted to: Æ performing a walkthrough of management’s process for valuing the defined benefit pension scheme and assessing the design effectiveness of key controls; Æ Utilising an auditor expert to test the methodology applied in assessing compliance with IAS 19 ‘Employee Benefits’, including whether the liabilities arising from the defined benefit scheme were being evaluated in accordance with the accounting policy; Æ utilising the work of an auditors expert to evaluate and challenge the assumptions used in the calculation, including discount rates, price inflation, pension rate increases, mortality rates and the methods employed in the calculation of the pension liability; and The group’s accounting policy on defined benefit pension schemes is shown in note 29 to the financial statements and related disclosures are included in note 21. Key observations Based on our audit work, the movements in the key assumptions used are in line with our expectations. . We found no material errors in calculations or in the valuation of the defined benefit pension scheme liability at 31 March 2020. 70 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcOur application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our audit work and in evaluating the results of that work. Materiality was determined as follows: Materiality measure Group Company Financial statements as a whole Performance materiality used to drive the extent of our testing Specific materiality Determined at £450k, being 1.7% of the group’s total revenues. This benchmark is considered the most appropriate because this is a key performance measure used by the Board of Directors to report to investors on the financial performance and financial position of the group. Materiality for the current year is lower than the level that we determined for the year ended 31 March 2019 as a result of the decrease in performance of the group during the year. We determined a performance materiality of 75% of the financial statement materiality. This is consistent with performance materiality percentage in the previous year. We determined a lower level of specific materiality for certain areas such as non-underlying costs and related party transactions. £115k, which was determined based on 1.5% of 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 and financial position of the company, whose principal activity is that of an investment holding company. Materiality for the current year is lower than the level that we determined for the year ended 31 March 2019 as a result of a decrease in total assets. We determined a performance materiality of 75% of the financial statement materiality. This is consistent with performance materiality percentage in the previous year. We determined a lower level of specific materiality for certain areas such as non-underlying costs and related party transactions. Communication of misstatements to the audit committee £22.5k and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. £5.8k and misstatements below that threshold that, in our view, warrant reporting on qualitative grounds. 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 and included 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 determine the planned audit response. In order to address the audit risks described above as identified during our planning procedures, we performed a full-scope audit of the financial statements of the parent company, Chamberlin Plc, and on the financial information of the group’s subsidiaries. The operations that were subject to full-scope audit procedures made up 100 per cent of consolidated revenues and 100 per cent of total profit before tax for continuing operations. 71 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsINDEPENDENT AUDITOR’S REPORT CONTINUED TO THE MEMBERS OF CHAMBERLIN PLC Other information The directors are responsible for the other information. The other information comprises the information included in the annual report and accounts, 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 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 company financial statements are not in agreement with the accounting records and returns; or Æ certain disclosures of directors’ remuneration specified by law are not made; or Æ we have not received all the information and explanations we require for our audit. Responsibilities of directors for the financial statements As explained more fully in the directors’ responsibilities statement set out on page 20, 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. 72 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcAuditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. Use of our report This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. MATTHEW BUCKINGHAM SENIOR STATUTORY AUDITOR for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants Birmingham 15 April 2021 73 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsAUDIT 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: David Flowerday (Chairman) Keith Butler-Wheelhouse David Flowerday became Chairman of the Audit Committee following the departure of Keith Jackson in July 2019. The Audit Committee meets at least twice during the year and details of the attendance at meetings are shown on page 15. 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 2020, and the unaudited results for the six months to 30 September 2019, 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 2020 were as follows: Æ impairment of fixed assets. Following the recognition of an impairment charge in the prior year, the loss before taxation incurred in the current year and the economic impact of COVID-19, the Directors undertook a detailed impairment review of the foundry businesses. The review concluded that no impairment was required in the current year. The Audit Committee discussed the assumptions made in the value-in-use assessment concerning the future performance of the businesses, including the downside sensitivity analysis used to reflect the current Covid-19 induced uncertainties, and the discount rate applied to future cash flows and found them to be reasonable; Æ pension scheme valuation. The closed defined benefit pension scheme liability of £2.0m 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 going concern. The Audit Committee reviewed the appropriateness of the 18 month forecasts used to assess the Group’s ability to continue to operate as a going concern. This review included discussion of the assumptions used in the forecasts, including the downside sensitivity analysis used to reflect the uncertainties regarding revenue growth and found them to be reasonable in the light of the current information available. 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 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcPARENT COMPANY BALANCE SHEET AT 31 MARCH 2020 Non-current assets Property, plant and equipment Intangible assets Investments Deferred tax asset Current assets Trade and other receivables Income taxes receivable Amounts due from subsidiary undertakings Total assets Current liabilities Financial liabilities Trade and other payables Non-current liabilities Financial liabilities Deferred tax Defined benefit pension scheme deficit Total liabilities Capital and reserves Share capital Share premium Capital redemption reserve Retained earnings Total equity Total equity and liabilities 31 March 2020 £000 31 March 2019 £000 Notes 12 13 20 17 15 15 15 16 16 17 17 21 18 751 22 1,816 552 3,141 160 – 3,696 3,856 6,997 1,692 996 2,688 57 – 1,959 2,016 4,704 1,990 1,269 109 (1,075) 2,293 6,997 779 2 2,895 817 4,493 165 132 3,761 4,058 8,551 57 1,300 1,357 59 33 2,640 2,732 4,089 1,990 1,269 109 1,094 4,462 8,551 The loss dealt with in the accounts of the parent Company was £2,634,000 (2019: profit of £1,621,000). KEVIN NOLAN NEIL DAVIES DIRECTORS The accounts were approved by the Board of Directors on 15 April 2021. 75 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsPARENT COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2020 Operating activities (Loss)/profit for the year before tax Adjustments to reconcile (loss)/ profit for the year to net cash outflow from operating activities: Net finance costs Impairment of investments Depreciation of property, plant and equipment Amortisation of software Profit on sale of Exidor Share-based payments Difference between pension contributions paid and amounts recognised in the Income Statement Decrease/(increase) in receivables (Decrease)/increase in payables Corporation tax received Net cash outflow from operating activities Investing activities Purchase of property, plant and equipment Purchase of software Proceeds from sale of subsidiary Net cash (outflow)/inflow from investing activities Financing activities Interest paid Principal element of lease payments Net cash outflow from financing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the start of the year Cash and cash equivalents at the end of the year Cash and cash equivalents comprise: Bank overdraft Notes 2020 £000 2019 £000 (2,355) 1,562 12 13 19 12 128 1,079 60 5 – 59 (279) 69 (299) 31 (1,502) (17) (7) – (24) (70) (35) (105) (1,631) (23) (1,654) (1,654) (1,654) 210 3,260 112 1 (6,515) 40 (2,475) (3,671) 879 – (6,597) (76) – 8,520 8,444 (98) – (98) 1,749 (1,772) (23) (23) (23) 76 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcPARENT COMPANY STATEMENT OF CHANGES IN EQUITY Balance at 1 April 2018 Profit for the year Other comprehensive income for the year net of tax Total comprehensive income Share-based payment Deferred tax on employee share options Total of transactions with Shareholders Balance at 1 April 2019 Loss for the year Other comprehensive income for the year net of tax Total comprehensive expense Share-based payment Deferred tax on employee share options Total of transactions with Shareholders Balance at 31 March 2020 Share capital £000 1,990 – – – – – – 1,990 – – – – – – 1,990 Share premium account £000 Capital redemption reserve £000 Retained earnings £000 Attributable to equity holders of the parent £000 1,269 – – – – – 1,269 – – – – – – 1,269 109 – – – – – 109 – – – – – – 109 (602) 1,621 61 1,682 40 (26) 14 1,094 (2,634) 373 (2,261) 59 33 92 (1,075) 2,766 1,621 61 1,682 40 (26) 14 4,462 (2,634) 373 (2,261) 59 33 92 2,293 Share premium account The share premium account balance includes the proceeds that were above the nominal value from issuance of the Company’s equity share capital. Capital redemption reserve The capital redemption reserve has arisen on the cancellation of previously issued shares and represents the nominal value of those shares cancelled. Retained earnings Retained earnings include the accumulated profits and losses arising from the Company Income Statement and items from the Company Statement of Comprehensive Income attributable to equity Shareholders, less distributions to Shareholders and share-based compensation expense. 77 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsFIVE YEAR FINANCIAL SUMMARY Revenue (£m) Underlying loss before tax (£’000) Statutory loss before tax (£’000) Underlying diluted earnings per share (pence) Cash generated from operations (£’000) 2020 26.1 (1,434) (2,343) (18.7) 1,546 2019* 33.0 (1,509) (4,957) (19.5) (3,379) 2018* 30.2 (1,006) (1,112) (15.8) 791 2017* 24.9 (299) (516) (4.5) (454) 2016* 22.7 (713) (854) (7.7) 1,037 *Restated for change in presentation of pension administration and pension interest costs. REVENUE (£m) UNDERLYING LOSS BEFORE TAX (£000) 2020 2019 2018 2017 2016 26.1 33.0 30.2 24.9 22.7 2020 2019 2018 2017 2016 (1,434) (1,509) (1,006) (299) (713) STATUTORY LOSS BEFORE TAX (£000) UNDERLYING DILUTED EARNINGS PER SHARE (p) (18.7) (19.5) (15.8) (4.5) (7.7) 2020 2019 2018 2017 2016 (2,343) (4,957) (1,112) (516) (854) 2020 2019 2018 2017 2016 CASH GENERATED FROM OPERATIONS (£000) 2020 2019 2018 2017 2016 1,546 791 1,037 (454) (3,379) 78 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcNOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the Annual General Meeting of the Company will be held on Tuesday 8 June 2021 at the Registered Office, Chuckery Road, Walsall, WS1 2DU at 11 a.m. Due to the current restrictions arising from the COVID-19 pandemic, in-person attendance at the meeting this year is not permitted. Therefore, it is requested that Shareholders exercise their right to vote by proxy. The meeting is convened 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 2020 (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 David Flowerday (Resolution 5). 6. To elect as a Director Trevor Brown (Resolution 6) 7. To approve the Directors’ Remuneration Report for the year ended 31 March 2020 (Resolution 7). 8. To reappoint Grant Thornton UK LLP as Auditors of the Company until the conclusion of the next annual general meeting of the Company (Resolution 8). 9. To authorise the Directors to determine the remuneration of the Auditors (Resolution 9). 10. That the Directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 (in substitution for alll 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 £23,208 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 8 September 2022, but so that this authority shall allow the Company to make, before the expiry of this authority, offers or agreements which would or might require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after such expiry and notwithstanding such expiry the Directors may allot shares or grant such rights in pursuance to such offers or agreements as if this authority had not expired (Resolution 10). To consider and, if thought fit, to pass the following resolutions as special resolutions: 11. That, subject to the passing of resolution 10 and pursuant to section 570 of the Companies Act 2006 the Directors be and are hereby generally empowered (in substitution for all existing powers under section 570 of the Companies Act 2006 which, to the extent unused at the date of this resolution, are revoked with immediate effect) to allot equity securities (as defined in Section 560 of the Companies Act 2006) for cash pursuant to the authority granted by resolution 10 as if Section 561(1) of the Companies Act 2006 did not apply to such allotment, provided that this power shall be limited to the allotment of equity securities 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 11(a) of this resolution, up to an aggregate nominal amount of £13,924 (representing 20% of the current issued ordinary share capital of the Company), 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 8 September 2022, but so that this authority shall allow the Company to make, before the expiry of this authority, offers or agreements which would or might require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after such expiry and notwithstanding such expiry the Directors may allot shares or grant such rights in pursuance of such offers or agreements as if this authority had not expired (Resolution 11) 79 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsNOTICE OF ANNUAL GENERAL MEETING CONTINUED 12. That, subject to the passing of resolution 10 and pursuant to section 570 of the Companies Act 2006 the Directors be and are hereby generally empowered (in addition to any authority granted under resolution 11) to allot equity securities (as defined in Section 560 of the Companies Act 2006) for cash pursuant to the authority granted by resolution 10 as if Section 561(1) of the Companies Act 2006 did not apply to such allotment, provided that this power shall be limited to the allotment of equity securities: authority shall expire at the earlier of the conclusion of the next Annual General Meeting of the Company or 8 September 2022, 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 13). a. up to an aggregate nominal amount of £13,924 By order of the Board (representing 20% of the current issued share capital of the Company); and b. used only for the purpose of financing (or refinancing, if the authority is to be used within 6 months after the original transaction) a transaction which the Directors determine to be an acquisition or other capital investment of a kind contemplated by the Statement of Principles on Disapplying Pre-Emption Rights most recently published by the Pre-Emption Group prior to the date of this notice, 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 8 September 2022, 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 12) 13. That the Company be and hereby is generally and unconditionally authorised pursuant to section 701 of the Companies Act 2006 to make market purchases (within the meaning of section 693(4) of the Companies Act 2006) of Ordinary Shares on such terms and in such manner as the Directors may from time to time determine provided that: a. the maximum aggregate number of Ordinary Shares which may be purchased is 6,962,478; b. the minimum price (exclusive of expenses) which may be paid for each Ordinary Share is 0.1 pence; c. the maximum price which may be paid for each Ordinary Share is an amount equivalent to 105 per cent. of the average of the middle market quotations for an Ordinary Share as derived from the Daily Official List of the London Stock Exchange Plc for the five business days immediately preceding the day on which the Ordinary Share in question is purchased, and (unless previously revoked, varied or renewed) this NEIL DAVIES COMPANY SECRETARY 15 April 2021 Chuckery Road Walsall WS1 2DU General Information 1. A member entitled to attend and vote at the Meeting is entitled to appoint a proxy or proxies to attend and vote, on a poll, instead of him. However, in light of the ongoing COVID-19 pandemic, Shareholders, proxies (other than the Chairman of the meeting), advisers and other guests will not be allowed to attend the Meeting in person and anyone seeking to attend the Meeting will be refused entry. The Company will arrange for the minimum quorum of two Shareholders present in person or by proxy necessary to conduct the business of the Meeting to attend the Meeting and social distancing guidelines will be observed. Any other Shareholders attempting to attend the Meeting in person will be refused admission. Shareholders are strongly encouraged to therefore submit their votes on the Resolutions as early as possible. Shareholders should appoint the ‘Chairman of the meeting’ as their proxy. If a Shareholder appoints someone else as their proxy, that proxy will not be able to attend the Meeting in person and cast the Shareholder’s vote. 2. A Form of Proxy is enclosed for your use if desired. Please carefully read the instructions on how to complete the Form of Proxy. For a Form of Proxy to be effective, the instrument appointing a proxy together with the power of attorney or such other authority (if any) under which it is signed or a notarially certified copy of such power of attorney or other authority must reach the Registrars, Neville Registrars Limited, Neville House, Steelpark Road, Halesowen B62 8HD not less than 48 hours before the time of holding of the Meeting. The Form of Proxy should therefore be completed and deposited with the Company’s Registrars by 11 a.m. on 4 June 2021. 80 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plc3. Pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, the Company specifies that only those Shareholders on the register of members at close of business on 4 June 2021, or in the event that the above General Meeting is adjourned, on such register at 6.00 p.m. on the date two days before the adjourned Meeting (excluding any part of a day that is not a business day), shall be entitled to attend or vote at the Meeting in respect of the number of Shares registered in their name at the time. Changes to the register of members after that time will be disregarded in determining the rights of any person to attend or vote at the Meeting. 4. You may only appoint Chairman of the meeting as your proxy. 5. To appoint Chairman of the meeting as your proxy or to give an instruction to your proxy (whether previously appointed or otherwise) via the CREST system, CREST messages must be received by the issuer’s agent (ID number 7RA11) not later than 48 hours before the time appointed for holding the meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp generated by the CREST system) from which the issuer’s agent is able to retrieve the message. The Company may treat as invalid a proxy appointment sent by CREST in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. 6. As at the date of this document, the Company’s issued share capital comprised 69,624,792 ordinary shares of 0.1 pence each. Each Share carries the right to vote at a shareholder meeting of the Company and, therefore, the total number of voting rights in the Company as at the date of this document is 69,624,792. 7. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her decision. As you will only be permitted to appoint the Chairman of the meeting as your proxy, he will vote in favour of all of the resolutions at the Meeting unless you direct him otherwise. 8. In order to revoke a proxy instruction you will need to inform the Company by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment to the Registrars, Neville Registrars Limited, Neville House, Steelpark Road, Halesowen B62 8HD and in the case of a member which is a corporation, the revocation notice must be executed in accordance with note (9) below. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power or authority) must be included with the revocation notice and must be received by the Registrars not less than 48 hours before the time fixed for the holding of the General Meeting or any adjourned meeting (or in the case of a poll before the time appointed for taking the poll) at which the proxy is to attend, speak and to vote provided that in calculating such periods no account shall be taken of any part of a day that is not a working day. If you attempt to revoke your proxy appointment but the revocation is received after the time specified then, subject to the paragraph directly below, your proxy appointment will remain valid. 9. A corporation’s Form of Proxy must be executed pursuant to the terms of section 44 of the Companies Act 2006 or under the hand of a duly authorised officer or attorney. 10. Any power of attorney or any other authority under which the Form of Proxy is signed (or duly certified copy of such power of authority) must be included with the Form of Proxy. 11. 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. 12. 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. 13. Biographical details of all directors who are offering themselves for election and re election at the meeting are set out on page 11 of the enclosed annual report and accounts. 14. An explanation of Resolutions 10 to 13 is set out in the Report of the Directors on page 19. 15. Members should notify the Registrars without delay of any change of address. 81 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsSHAREHOLDER INFORMATION Directors Keith Butler-Wheelhouse (Non-Executive Chairman) Kevin Nolan (Chief Executive) Neil Davies (Finance Director) David Flowerday (Non-Executive Director) Trevor Brown (Non-Executive Director) Company Secretary Neil Davies Registered Office Auditor Solicitors Chuckery Road Walsall WS1 2DU Registered in England No. 00076928 Grant Thornton UK LLP Birmingham DLA Piper Birmingham Nominated Advisers and Joint Brokers Cenkos Securities plc London Bankers Registrars Peterhouse Securities Limited London HSBC Bank plc Birmingham Neville Registrars Limited Neville House Steelpark Road Halesowen West Midlands B62 8HD 82 ANNUAL REPORT AND ACCOUNTS FOR THE YEAR ENDED 31 MARCH 2020chamberlin plcSmall complex grey iron castings, principally for the automotive sector and hydraulic applications. Products associated with cable management, lighting design and manufacture for hazardous area and industrial 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 Limited Chuckery Road Walsall, WS1 2DU Tel: 01922 721411 Fax: 01922 614610 www.chcastings.co.uk Petrel Limited 22 Fortnum Close Kitts Green Birmingham, B33 0LB Tel: 0121 783 7161 Fax: 0121 783 5717 www.petrel-ex.co.uk Russell Ductile Castings Limited Trent Foundry Dawes Lane Scunthorpe, DN15 6UW Tel: 01724 862152 Fax: 01724 280461 www.russellcastings.co.uk 83 www.chamberlin.co.ukSTOCK CODE: CMHFinancial StatementsVisit us online For more information on Chamberlin Group operations please visit our website at: www.chamberlin.co.uk c h a m b e r l i n p l c A n n u a l R e p o r t a n d A c c o u n t s f o r t h e y e a r e n d e d 3 1 M a r c h 2 0 2 0 Chuckery Road, Walsall, West Midlands, WS1 2DU T: 01922 707100 F: 01922 638370 E: plc@chamberlin.co.uk 

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