Chamberlin Plc Regulatory News (CMH)

CMH

CHAMBERLIN plc

("Chamberlin", the "Company" or the "Group")

FINAL RESULTS

for the year ended 31 March 2011

KEY POINTS

·; Group returns to full year profitability and dividends restored

·; Revenues increased by 40% to £39.801m (2010: £28.453m)

- driven by continuing recovery across core business

·; Underlying* operating profit of £0.904m (2010: loss of £0.895m)

- H2 profit £0.682m versus H1 profit of £0.222m, a 306% improvement

Statutory operating profit of £0.508m (2010: loss of £1.049m)

·; Underlying* profit before tax of £0.804m (2010: loss before tax of £1.028m)

Statutory profit before tax of £0.333m (2010: loss before tax of £1.421m)

·; Cash generated from operations increased to £1.791m (2010: £0.502m)

·; Net debt reduced to £2.9m (2010: £3.45m) - lowest level since March 2008

·; Underlying* earnings per share of 6.7p (2010: loss per share of 12.8p)

Statutory earnings per share of 1.3p (2010: loss of 16.4p)

·; Restoration of dividend payments, with proposed final dividend of 1.0p (2010: nil)

·; Net assets of £7.8m at 31 March 2011 (2010: £7.9m)

·; Foundry activities saw continuing recovery - light castings at 100% of pre-recession levels and heavy castings above pre-recession levels in Quarter 4

·; February 2011, addition of assets and intellectual property of Jebron Ltd, UK engineering business.

Expected to add over £1m of profitable sales annually

·; Board expects continuing growth in new financial year

Chairman, Tom Brown, commented,

"The financial year to 31 March 2011 marked a turning point for Chamberlin, with the Company returning to profit and recommencing the payment of dividends. Demand recovered throughout the year and the final quarter saw volumes at the Group's Walsall and Scunthorpe foundries match or exceed pre-recession levels. Production at Chamberlin's third foundry at Leicester was at 85% of pre-recession levels but volumes are continuing to build.

Chamberlin is well positioned for growth, helped by the modernisation and investment programme completed prior to recession and we expect the Group to make progress over the financial year. With demand for our products linked to global engineering activity, we see powerful long term trends favouring our business."

* Underlying items are stated before Non-Underlying items which represent business reorganisation costs, goodwill impairment costs, and net financing costs on pension obligations and share based payment costs. In prior periods Non-Underlying items also included the movement in unrealised mark-to-market foreign currency gains and losses on monetary assets and liabilities and forward foreign currency contracts, net of realised losses on surplus foreign exchange contracts. 

Chamberlin plc

Tom Brown, Chairman T: 020 3178 6378 (today)

Tim Hair, Chief Executive T: 01922 707100 (thereafter)

Charles Stanley Securities T: 020 7149 6000

(Nominated Adviser)

Russell Cook

Luke Webster

Biddicks T: 020 3178 6378

Katie Tzouliadis

Sophie Lane

Chairman's Statement

Introduction

At the half year stage, we were pleased to announce that Chamberlin had returned to profitability. We expected revenues and profits in the second half of the financial year to continue to build and this was the case, with operating profit in the second half at £682,000 against £222,000 in the first half, a 305% increase. For the year as a whole the Group delivered an underlying profit before tax of £804,000 (2010: underlying loss of £1,028,000). This is slightly ahead of market forecasts, which were upgraded in November 2010, and represents a turnaround of over £1.8m over the prior year.

Results

Demand recovered throughout the year, with revenues for the year ended 31 March 2011 rising to £39.8m (2010: £28.5m), a 40% improvement. Increased activity in our established customer base underpinned this recovery but I am encouraged to note that new business made a strong contribution, especially in the second half of the year, leaving Chamberlin well placed for the current financial year and beyond.

The rise in gross profit margins of 3.0 percentage points to 18.7% from 15.7% is noteworthy and the Group delivered an underlying operating profit of £904,000 against an operating loss of £895,000 in the prior year. The underlying profit before tax was £804,000 (2010: underlying loss before tax of £1,028,000) and underlying earnings per share were 6.7p (2010: underlying loss per share of 12.8p).

The statutory results show operating profit of £508,000 (2010: loss of £1,049,000), statutory profit before tax of £333,000 (2010: loss before tax of £1,421,000) and statutory earnings per share of 1.3p (2010: loss per share of 16.4p).

The business continues to remain very cash generative. Chamberlin generated net cash from operations throughout the downturn and growing profitability in the second half year has accentuated this trend. Cash from operations was £1.41m in the second half, bringing the total cash generated from operations for the year to £1.79m (2010: £0.5m). As a result, during the year we reduced net borrowing by over £0.5m and at 31 March 2011, net debt stood at £2.9m (2010: £3.45m) the lowest point since March 2008. We remain well financed, with an overdraft facility of £5.0m with HSBC, which has recently been renewed with a reduced interest rate.

Dividend

In view of the Group's return to profitability and our belief that we will see Chamberlin's performance continue to strengthen, I am very pleased to announce that the Board proposes to return to the payment of dividends. The Directors are recommending the payment of a final dividend of 1.0p per share, to be paid on 14 July 2011 to shareholders on the register at 1 July 2011.

In the future our dividend policy will be progressive and we will seek to pay regular dividends at a level covered adequately by earnings.

Business Performance and Growth Strategy

It was very pleasing to see business volumes in our three foundries recover strongly over the course of the year. We closed the year with our light castings foundry at Walsall operating at 100% of pre-recession volumes and our heavy castings foundry at Scunthorpe exceeding pre-recession levels. Our medium castings operation at Leicester was at 85% of pre-recession production but is continuing to recover.

Looking forwards, we see very good growth opportunities across all our foundries and our engineering operations, Exidor and Petrel, which contribute about 20% of Group sales are also well positioned.

With return to growth firmly established and Chamberlin in good operational shape we are, as I noted in my previous statement, again looking at the expansion of the Group. In February 2011 we acquired certain assets from the administrators of Jebron Ltd, a door closer manufacturer. This is an excellent fit with Exidor, extending the product offering, and it should add over £1.0m of profitable sales on an annualised basis.

As we look for acquisitions, we are considering businesses which meet our theme 'difficult things done well' and which will complement our existing operations. Potential targets include foundry operations which add to the capabilities already in the Group.

The Board

I have been very pleased to lead the Board as Chairman since 2004, after joining as a non-executive director in 2003. Having overseen Chamberlin through both a modernisation programme and a severe recession, and now with the Company restored to profitability and dividend payments and entering a new phase of development, I have decided that it is an appropriate time for me to consider retiring from the Board. I intend to do this in due course once the Board's succession planning has been finalised.

Outlook

The financial year to the end of March 2011 marked a turning point for Chamberlin, with the Company returning to profit and recommencing the payment of dividends. Chamberlin has come through recession very robustly, helped by the modernisation and investment programme completed prior to recession. We have continued to seek process improvements during the downturn and also maintained our skill base and output capability. These factors stand us in good stead as volume recovery continues. In addition, Chamberlin's very high level of technical skills means that we are very well positioned in our target markets.

We expect Chamberlin to continue to make good progress over the new financial year and, with demand for our products linked to global engineering activity, we see powerful long term trends favouring our business. We view prospects for the year very positively.

Tom Brown

Chairman

23 May 2011

Chief Executive's Review

We are pleased with Chamberlin's trading results and our recommendation to recommence the payment of dividends signals our confidence in the business and its growth prospects.

Markets

Recovery in demand has gathered pace during the past year and Chamberlin, having returned to profit in the first half of the year, delivered improving profitability in the second half. We ended the year with overall activity around pre-recession levels and with continuing growth opportunities in our key markets.

The recession and subsequent recovery have highlighted features of our business and markets that are worth examining as we look to future growth and I discuss below some of the more important elements.

Diverse Markets

Chamberlin serves a diverse range of markets including automotive, hydraulics, mining, hazardous environments, power generation and construction equipment. This diversity has benefited us during recession, reducing our exposure to any single market, and continues to do so by presenting a wide range of opportunities for future growth.

In recent years we have focused our automotive activity on turbocharger castings, a high growth area that currently represents 21% of Group sales. As one of only four specialist foundries in Europe with the technical capability of supplying these castings for turbochargers we are in an excellent position to benefit from the increasing trend for car manufacturers to apply turbochargers to petrol engines. This trend is being driven by the need to comply with emissions regulations and to provide an indication of its scale, in 2010 some 10% of petrol engines were turbocharged however, by 2015 approximately 80-90% of car petrol engines are expected to be turbocharged causing the existing market to grow by over 50%.

Direct and Indirect Export

It is a notable feature of the business that c.70% of output is ultimately exported. Direct exports account for 35% of output with our customers located in Europe, America and Asia. Indirect exports, where Chamberlin businesses supply products to UK-based equipment manufacturers whose products are then shipped worldwide, account for approximately 35% of our output. Against this, only some 30% of sales are driven by demand from the UK economy. Global demand for engineered products is strong and our UK customers, which include companies such as Siemens, Howden, CAT, JCB and Tata Steel, are typically leaders in their sectors.

Extended Supply Chains

The decade before the recession was marked by manufacturers in America and Europe transferring production to lower labour cost countries in the East in an attempt to reduce cost. In the engineering sector this transfer started with simple parts but came to include more complex items, and the supply chains typically involve fixed volume commitments, several months for transport by sea and stock buffers at the customer. During the recession many businesses suffered severe problems because of the length and inflexibility of their supply chain and continuing difficulties from unreliable product quality. As a result we are now seeing reversals to the model and a number of major manufacturers are returning to European sourcing, with some formally announcing changed sourcing policies.

Engineering Capability

Historically, original equipment manufacturers ("OEMs") were vertically integrated, designing and assembling their products and making many of the component parts in-house. This model has changed over the years as OEMs, led by the automotive industry, have outsourced component manufacture to specialist suppliers while retaining their own core expertise. The recession appears to have accelerated this trend and in many industries OEMs are narrowing their focus even further, reducing their cost base by eliminating their own engineering expertise in component areas. Chamberlin already participates in the design of our customers' products, and as more OEMs outsource engineering design to their supply base our technical strengths will become increasingly important. I also believe that there will be opportunities to expand into machining our castings, supply logistics and possibly sub-assembly so creating new revenue streams for the Group.

Operations

In a year of recovery, we have focused on increasing volumes while maintaining the tight cost and cash controls that were central to steering a successful course through the recession. Having retained our production capacity, backed by a skilled staff base, we were well placed to handle the upturn in demand and all our operating sites returned to full-time working during the year.

All operations achieved process improvements during the recession and these have been maintained during recovery. The investment programme carried out by management between 2007-2009 means that none of our sites currently requires further major investment and I look forward to significant organic growth with capital spending now running at a level approximately equal to our depreciation cost.

Foundries

Chamberlin & Hill Castings ("CHC")

This subsidiary incorporates our Walsall and Leicester foundries with combined financial and sales functions. Both foundries have recovered well and in the fourth quarter Walsall operated at 100% of pre-recession volumes while Leicester was at approximately 85%.

Walsall specialises in small castings with complex internal passages and has built a strong position in automotive turbochargers, and over the last two years has worked with a major new customer to develop castings for a family of new turbochargers. I am pleased to report that during the second half we commenced volume production of the first castings for this contract, and that the development programme for the remaining parts is on schedule and will be completed over the coming 18 months. We anticipate that this will generate annual sales of approximately €6m once all castings are in production. CHC continues to build on its longstanding relationship with Borg Warner and we believe that in future there will be opportunities to add further value by machining the castings that we produce.

Our Leicester foundry experienced a slow but sustained recovery over the year as construction equipment manufacturers, which make up its largest market, have seen volumes recover. The site specialises in producing mid-size iron castings with complex metallurgy designed to give high strength, corrosion or wear resistance, or low temperature capability and its expertise is relevant to many sectors.

In 2010 we combined the management of our Leicester and Walsall operations and began the merger of their respective support functions. This process was completed in 2011 and is delivering a significant reduction in overheads. At Leicester, the increased focus on operations is delivering efficiency improvements and the combined sales approach is identifying new opportunities. I am confident that Leicester will see sustained profitable growth in the current financial year and beyond.

Russell Ductile Castings ("RDC")

RDC, which is based in Scunthorpe and specialises in heavy castings for a wide variety of industries, has seen a robust recovery in demand which started in the first half year. The site suffered significant disruption from the freezing weather in the third quarter of the financial year but recovered well in the final quarter when we saw demand exceed pre-recession levels.

The majority of RDC customers are OEMs and the site is benefiting from the global demand for engineered products. In October 2010, we announced a major contract win, worth £1.4m, with a UK manufacturer to supply castings for specialist compressors which will be exported to a natural gas installation in Asia. This contract is proceeding as expected and will be completed during the current financial year. We continue to win other OEM contracts and I am pleased to report that RDC customers have recently extended the timescale covered by their future orders. This is normally an indication that customers are expecting strong demand and are therefore reserving future capacity. During the downturn the casting operations were re-configured to create capacity and improve efficiency, and significant growth can now be accommodated at our Scunthorpe site.

Engineering

Exidor

Exidor specialises in emergency exit hardware, i.e. the crash bars fitted to fire escape doors that allow rapid opening in the event of an emergency. These crash bars have both a safety and security function, as they are required to provide protection against break-ins during normal conditions.

Exidor has a strong management team, good distribution channels and an excellent reputation in its market. Our acquisition of the intellectual property and certain assets of Jebron Ltd, from the administrators, in February 2011 has added a complementary product range and its integration into our Cannock site is proceeding smoothly to timeframe and budget. We expect this will add profitable sales of over £1m on an annualised basis.

Petrel

Petrel, which produces lighting and controls for hazardous environments, serves a market which is very highly regulated and has seen little reduction in demand during the recession. We have recently strengthened our UK sales team and added an experienced agent to cover a territory in Germany, and this should help to stimulate ongoing growth.

Acquisition Strategy

We continue to pursue acquisitions opportunities that fit our criteria of "difficult things done well". We have reviewed our target sectors in light of the market developments discussed above and in general our acquisition criteria remain unchanged. However, we believe that these developments have made foundry investments more attractive and have therefore increased our research in the sector.

Outlook

Chamberlin has been tested by recession and emerged strongly. The Group is continuing to see volume recovery and we believe that prospects for growth in the current financial year are very encouraging.

Tim Hair

Chief Executive

23 May 2011

Finance Director's Review

Overview

Sales increased during the year by 40% to £39.8m (2010: £28.5) as the business both recovered from recession and won new work. £1.5m of the increase in sales was as a consequence of increases in raw material surcharges, which pass onto customers certain rises in input costs at zero margin. Gross profit margin improved to 18.7%, from 15.7% in the previous year. Surcharges have the effect of diluting margins and excluding this impact, the gross profit improvement would have been 3.7% compared to the 3.0% reported.

The Group returned to profit with an underlying operating result of £904,000, which equated to a £1,799,000 turnaround on the prior year (2010: £895,000 operating loss). Financing costs reduced in the year, in line with borrowings, resulting in underlying profit before tax of £804,000 (2010: £1,028,000 loss). Underlying earnings per share improved to 6.7p (2010: 12.8p loss).

The statutory results also improved significantly over the previous year with statutory operating profit of £508,000 (2010: operating loss of £1,049,000); statutory profit before tax of £333,000 (2010: loss before tax of £1,421,000); and statutory earnings per share of 1.3p (2010: loss per share of 16.4p).

Tax

The Group's underlying tax charge for the year was £305,000 (2010: £77,000 credit). The underlying effective rate of 38% (2010: 7%) is adversely affected by a deferred tax change relating to the reduction in the rate of corporation tax. The Group has been able to utilise brought forward tax losses and as a consequence no tax will be payable for the year. The charge in the income statement represents deferred tax only. The statutory tax charge was £235,000 (2010: £201,000 credit). The effective rate of 70% is additionally impacted by goodwill impairment costs which are not tax allowable.

Foreign Exchange

In order to protect against future exchange rate movements the Group enters into forward currency contracts covering 80% of its estimated Euro denominated sales for the coming year. On 1 April 2010, the Group adopted hedge accounting in relation to these foreign currency contracts, as explained in detail in Note 2 to the Financial Statements. During the period the movement in fair value of £250,000 in respect of effective hedges was recognised in equity.

Asset acquisition

On 4 February 2011, the Group acquired certain fixed assets and inventory from the administrator of Jebron Ltd, a manufacturer of door controllers, for £162,000. Since that date, new staff have been recruited and production of door controllers started during March 2011. It is intended that this activity will be fully integrated into our Exidor business and consequently manufacture of these products will be transferred to our Cannock site during the coming months.

Reorganisation and impairment costs

The cost of bringing the Jebron assets back into production after a period of Administration and integrating the equipment into our Exidor facility, at Cannock, is expected to total £121,000, and has been charged as a non-underlying cost in the income statement. In order to create space for the Jebron assets at Cannock, the Group has decided to withdraw from door handle production. As a consequence, goodwill of £202,000 in relation to this small element of the Exidor business has been fully impaired.

Cash generation and financing

Cash generated from operations was strong at £1,791,000 (2010: £502,000), reflecting the culture of robust cash management throughout the business. The Group has generated positive operating cashflow for each half year throughout the recession and the consequent recovery phase. With year on year sales increasing by £11.0m, limiting working capital increases to £79,000 is a testament to the Group's cash driven ethos.

Capital expenditure restrictions introduced during the recession were lifted during the second half, with spend for the year increasing to £1,217,000 (2010: £610,000). This was marginally below depreciation and amortisation, and included £160,000 for the assets acquired from Jebron Ltd.

Group borrowings reduced during the year by £568,000, to £2,881,000 (2010: £3,449,000). The Group is funded through a £5.0m overdraft facility, which is renewable annually and is not subject to financial covenants.

Pension

The Group's defined benefit pension scheme was closed to future accrual in 2007, and now has 175 deferred and retired members. The triennial valuation as at 1 April 2010 and the associated recovery plan have now been agreed with the trustees. As a consequence contributions will increase by £50,000 per year to £308,000 per year in 2011/12 and by 3% per year thereafter. Based on current assumptions this would eliminate the deficit in approximately 10 years.

The IAS 19 deficit at 31 March 2011 was £2.2m (2010: £2.4m). The reduction principally reflects the change from RPI to CPI in line with the Government's change in the standard inflation measure.

Mark Bache

Finance Director

23 May 2011 

Consolidated Income Statement

for the year ended 31 March 2011

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2011

Consolidated Balance Sheet

at 31 March 2011

Consolidated Cash Flow Statement

for the year ended 31 March 2011

Statement of Changes in Equity

Share Premium Account

The share premium account balance included the proceeds that were above the nominal value from issuance of the Company's equity share capital comprising 25p shares.

Capital redemption reserve

The capital redemption reserve has arisen on the cancellation of previously issued shares and represents the nominal value of those shares cancelled.

Retained earnings

Retained earnings include the accumulated profits and losses arising from the Consolidated Income Statement and certain items from the Statement of Comprehensive Income attributable to equity shareholders, less distributions to shareholders.

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.

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1. Authorisation of financial statements and statement of compliance with IFRS

The Group's and Company's financial statements of Chamberlin for the year ended 31 March 2011 were authorised for issue by the board of directors on 23 May 2011 and the balance sheets were signed on the board's behalf by Tim Hair and Mark Bache. The Company is a public limited company incorporated and domiciled in England & Wales. The Company's ordinary shares are traded on the AIM market of the London Stock Exchange.

The Group's financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The Company's financial statements have been prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006.

The financial information set out in this announcement does not constitute the statutory accounts of the Group for the years to 31 March 2011 or 31 March 2010 but is derived from the 2011 Annual Report and Accounts. The Annual Report and Accounts for 2010 have been delivered to the Registrar of Companies and the Group Annual Report and Accounts for 2011 will be delivered to the Registrar of Companies in due course. The auditors, Ernst & Young LLP, have reported on the accounts for the year to 31 March 2011 and have given an unqualified report which does not contain a statement under Section 498(2) or 498(3) of the Companies Act 2006. The accounts for the year ended 31 March 2010 also received an unqualified audit report from Ernst & Young LLP.

2. Summary of Significant Accounting Policies

Basis of preparation

The consolidated financial statements 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.

Accounting policies

The preliminary announcement has been prepared on the same basis as the financial statements for the year ended 31 March 2010, except for the achievement of hedge accounting criteria as stipulated by IAS 39 detailed below. No new standards or interpretations issued since 31 March 2010 have had a material impact on the accounting of the Group.

Change of hedge accounting - IAS 39 Financial Instruments : Recognition and Measurement

With effect from 1 April 2010 the Group adopted hedge accounting. Foreign currency forward contacts are being used to hedge the foreign currency risks on highly probable forecasted sales transactions. The fair value of forward currency contracts is calculated by reference to current market prices for contracts with similar maturity profiles. The proportion of the gain or loss on the hedging instrument that is determined as an effective hedge is recognised directly in equity through the statement of comprehensive income and the gain or loss on any ineffective component of a hedging instrument is recognised in profit and loss. Amounts initially recognised in equity are transferred to the income statement within cost of sales when the forecast hedged transaction occurs.

Presentation of the Consolidated Income Statement

The Income Statement is allocated between Underlying items which relate to the trading activities of the business and Non-underlying items which are either non-recurring or are valued using market derived data which is outside of management's control. The presentation of the Consolidated Income Statement has been changed to allocate share based payments as Non-underlying items.  Due to the nature of the share schemes, the Directors believe it is helpful to strip out the charge from underlying results. The presentation of the Income Statement for the year ended 31 March 2010 has been restated to be consistent with this treatment. The Directors believe that this format sets out the performance of the Group more clearly.

3. Segmental Analysis

For management purposes, the Group is organised into two operating divisions: Foundries and Engineering.

The Foundries segment is a supplier of iron castings, in raw or machined form, to a variety of industrial customers who incorporate the castings into their own products or carry out further machining or assembly operations on the castings before selling them on to their customers.

The Engineering segment provides manufactured and imported products to distributors and end-users operating in the safety and security markets. The products fall into the categories of door hardware, hazardous area lighting and control gear.

There are no transactions between operating segments.

The Group's geographical segments are determined by the location of the Group's customers.

(i) By operating segment

(ii) By geographical segment

4. Finance Costs and Finance Revenue

5. Dividends Paid and Proposed

6. Earnings Per Share

The calculation of earnings per share is based on the profit attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted earnings per share adjustment has been made for the dilutive effect of outstanding share options. Underlying earnings per share, which excludes business reorganisation costs, goodwill impairment costs, share based payment expenses and net financing costs of pension obligation less related tax thereon, as analysed below, has also been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group. Reorganisation and exceptional costs are detailed in note 7.

7. Reorganisation and Exceptional Costs

Business reorganisation costs relate to bringing the assets acquired from the administrator of Jebron Ltd back in to production and integrating into equipment into Exidor.

Goodwill impairment is as a consequence of withdrawal from door handle production at Exidor.

Restructuring and severance costs relate to redundancies and other costs incurred in reorganising the business in response to the recession.

Inventory write down relates to the stock disposal, at a significant discount, on exit from a business stream within the Engineering Division.

8. Report and accounts

Copies of the Annual Report will be available on the Group's website, www.chamberlin.co.uk and from the Group's headquarters at Chuckery Road, Walsall, West Midlands, WS1 2DU.