Chamberlin Plc Regulatory News (CMH)

4 November 2022

CHAMBERLIN plc

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

FINAL RESULTS

for the year ended 31 May 2022

Chamberlin plc (AIM: CMH.L), the specialist castings and engineering group, is pleased to announce its final results for the year ended 31 May 2022:

Key Points

Financial

1. Underlying figures are stated before non-underlying costs (restructuring costs, impairment, onerous leases and share based payment costs) together with the associated tax impact.

2. Adjusted EBITDA defined as operating profit before interest, taxation, depreciation, amortisation and non-underlying items

Operational

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

Chairman's Statement

The difficulties that Chamberlin faced in the previous financial period have been well documented but I am pleased to report that these difficulties are now largely behind us. This financial year has seen the Group execute its restructuring plan to significantly reduce its cost base following the loss of the BorgWarner work in 2021 and effectively manage a rapidly changing economic landscape that has seen unprecedented cost and supply chain pressures.

The Group strengthened the balance sheet through a £1.6m fundraise in February 2022 and completed a sale and leaseback of the property owned by RDC in May 2022. These actions have contributed to the Group returning to a positive net asset position of £0.4m at the end of the financial year compared to a £2.6m net liability position in 2021.

In addition, the Group launched two new e-commerce brands in Iron Foundry Weights ("IFW") and Emba cookware and developed and pursued a new, ambitious strategic direction to enhance shareholder value over the medium to long term.

The journey to a full recovery in the operational performance and financial standing of the Group has begun extremely well and the financial results for 2022 are evidence of the progress made. All of the operating divisions have made substantial improvements to their performance compared to the prior financial period, although progress at CHC has been slower than anticipated. These operational improvements have enabled the Group to deliver a profit after tax of £0.1m, a significant turnaround from the £9.6m loss made in 2021.This is the first time in over five years that Chamberlin has reported a profit after tax to shareholders and is the first step towards our future growth ambitions.

The Board and Staff

The Board have worked tirelessly through these challenging times to return the Group to a stable financial position and I have been pleased with the seamless transition made by Kevin Price, Alan Tomlinson and Trevor Brown to their new roles on the Board.

The success of Chamberlin in the future will not only be determined by the leadership and strategic vision provided by the Board but as importantly, will be shaped by the outstanding professionalism, dedication and expertise provided by our loyal workforce. Our employees have a passion for innovation and a keen focus on delivering excellence to all our customers, which enhance Chamberlin's reputation and contribute to making the Group a leader in many of its markets. I would like to place on record the Board's thanks to all our employees for their considerable efforts during the past year.

Outlook

The Group is well positioned to continue its recovery and expects to return to a more sustainable level of profitability, having taken the appropriate steps to reduce its cost base and improve performance at CHC, and to develop and invest in new growth strategies for each business.

The overall economic outlook for global markets remains uncertain, but the Board is pleased to report that all three operating divisions have made a positive start to the new financial year. At the present time, demand across all of the Group's businesses remains buoyant driven in particular at CHC and RDC by an increasing trend towards UK on-shore supply. This has contributed to higher than expected levels of orders for Q1 FY 2023 and strong ongoing order books.

The Board continues to focus on opportunities to provide the Group with adequate resources to meet the requirements of the Group's growth strategy and insulate the Group from potential adverse macro-economic risks.

Keith Butler-Wheelhouse

Chairman

Chief Executive's Review

I am delighted to report that Chamberlin has returned to profitability for the first time in over five years. This performance is even more pleasing given the challenges faced by the Group over the last 12 months. During this period, the Board and the senior management team have worked together to:

• Substantially reduce the cost base at Chamberlin and Hill Castings in the wake of the loss of the BorgWarner contracts at the end of the last financial period

• Mitigate the unprecedented level of raw material price increases to maintain margins at the required level

• Raise £1.6m from shareholders to strengthen the balance sheet and to implement the new growth strategy and investment plans

• Generate £1.25m from the sale and leaseback of the property owned by RDC, providing

further funds for investment in its capacity expansion plans and to reduce the pension deficit by £0.6m

• Launch new products at Chamberlin and Hill Castings through its IFW fitness and Emba cookware brands

• Navigate an uneven level of demand from our automotive customers

• Refinance historic debts relating to machine shop plant and equipment

The Group has been able to successfully navigate its way through these issues to deliver a significant improvement in financial performance and to place the Group on a solid financial base from which our strategic plans for growth can be delivered.

Group revenue of £16.8m for the year ended 31 May 2022 (14 months to 31 May 2021: £26.4m) was 26% lower than the prior period on a pro rata basis, largely reflecting the loss of revenue at Chamberlin and Hill Castings from the cancellation of contracts by BorgWarner in 2021. However, revenue at RDC and Petrel continued the strong upward trajectory from 2021, leading to increases of 20% and 21% respectively on a pro rata basis. The 20% increase in revenue at RDC was in addition to an 18% pro rata increase in 2021 and continues to be driven by reduced competition in the UK foundry industry and the trend to re-shoring to the UK from overseas. Petrel's revenue growth in 2022 has been primarily driven by a recovery in export markets following a reduction in the immediate aftermath of Brexit, with export revenues now representing 31% of Petrel's total revenue (2021: 10%).

The underlying operating loss reduced by 76% to £0.7m (2021: £2.9m), with the underlying loss before interest, tax, depreciation and amortisation reducing to £0.4m (2021: £2.1m loss). This improvement in financial operating performance compared to 2021 came from all three sites, although the pace of the improvement in results at Chamberlin and Hill Castings was slower than anticipated due to the uneven recovery in automotive volumes. RDC improved its operating profit significantly through increased revenues and gross margin improvement whilst Petrel's performance benefitted from higher revenues and gross margin together with the full year benefit of overhead cost reductions implemented in 2021.

After net interest costs of £0.3m (2021: £0.3m), the Group made an underlying loss before tax of £1.0m (2021: £3.2m loss). With non-underlying items amounting to a £0.5m credit in 2022 compared to the £7.2m charge taken in 2021, the statutory loss before tax of £0.5m was 95% lower than the £10.4m loss incurred in 2021. The tax credit in 2022 amounted to £0.6m (2021: £0.8m) and reflected research and development tax credits receivable from the prior period of £0.3m and deferred tax of £0.3m recognised on trading losses in respect of RDC in the light of their continued improved financial performance. On an after tax basis, the Group delivered a modest but pleasing £0.1m profit (2021: £9.6m loss), a significant turnaround compared to the prior period and giving the Group a basis for delivering future sustainable profitable growth.

In conjunction with returning the Group to profitability, there has been substantial progress made in the key objective of strengthening the balance sheet after the significant loss incurred in 2021. With this in mind, the Group successfully raised £1.6m net of expenses from shareholders in February 2022 to provide funds for investment in new growth strategies and provide working capital during the implementation. In addition, as part of the Group's initiative to improve financial stability, a sale and leaseback transaction was completed in May 2022 on the property owned by RDC generating gross proceeds of £1.25m. The proceeds were used to reduce the pension scheme deficit by £0.6m and to provide the funds for further investment in the business. These actions have contributed to the improvement in the Group's financial position, with the balance sheet returning to a positive net asset position of £0.4m compared to a £2.6m net liabilities position in 2021. Although net debt increased at 31 May 2022 to £5.0m (31 May 2021: £1.8m), this was largely due to the payment of redundancy costs provided for in 2021 of £1.3m, the unwind of working capital associated with the loss of the BorgWarner contracts in 2021 and an increase in lease liabilities of £1.0m arising from the sale and leaseback of the property at RDC.

During this financial year, the Group embarked upon its strategy to deliver sustainable profitable growth over the medium to long term by diversifying away from reliance on the automotive sector, investing in plant and machinery to increase capacity and investing in new products in markets with strong growth characteristics and opportunities. The progress made in each of our three businesses in the context of the above strategy is discussed below:

Chamberlin & Hill Castings Ltd - Casting Facility and Machining Facility ("CHC")

The Board has continued to implement the strategy to reduce sole reliance on the automotive industry, diversify the Group's customer base and pursue more attractive markets.

In relation to the Group's automotive products, well publicised global economic conditions such as inflation, escalating raw material costs, supply chain shortages and a slowdown in the automotive industry remain challenges to trading conditions. As a result, management continue to reduce costs, improve efficiencies, and optimise pricing at CHC in order to improve margins and restore sustainable profitability to the Group. Unfortunately, these actions are taking longer to implement than anticipated and the division continues to operate at a loss and is not yet cash generative, albeit the losses are reducing on a monthly basis. However, longer term demand for the Group's automotive products is expected to improve in the second half of FY 2023 and the Group has been successful in winning new contracts in the niche supercar market and the commercial vehicle sector.

The Group, as the sole UK based foundry manufacturer and distributor of UK made cast iron cookware, launched its Emba range at the end of November 2021, which continues to be very well received by consumers. The Group has utilised targeted marketing to businesses, subsequently entering into a number of small distribution deals, with traditional and digital retailers, for the Emba products, as well as focusing on more penetrative marketing strategies for sales direct to consumers including advertising through social media platforms, such as Instagram.

The Board was very encouraged by the rapid increase in sales, new leads and social media followers in the final quarter of FY 2022. With the in-house capability to design, manufacture and distribute new products into a global marketplace, the Board firmly believe that further development and investment in Emba cookware will position the brand to be a material contributor to growth over the coming months and years.

The IFW brand was launched in May 2021 selling direct to the consumer, where the Group can offer high-quality, UK made products that have a significantly reduced carbon footprint compared to products imported from overseas. Demand in the fitness equipment market has reduced considerably in the final quarter of the financial year and the Board are continuing to assess the most cost effective options for securing market share. However, Chamberlin is well positioned to take advantage of market opportunities as they arise through our unique ability to design, manufacture and machine fitness products on a high-volume or bespoke basis.

Driven by the exciting progress of the consumer products brands and the feedback from consumers, Chamberlin has designed a number of new premium products to support the existing Emba and IFW offerings and plans to launch these products in 2023. Chamberlin has recently installed a new shotblast system at CHC to support the growth plans and ensure that it provides premium quality, competitively priced products.

Russell Ductile Castings Ltd ("RDC")

The Company's Scunthorpe foundry continues to operate at near full capacity in response to both a growing customer demand and pipeline of opportunities, with the current order book at sufficient levels to ensure already that around 70% of the full-year FY 2023 management sales expectations are met. The substantial opportunities for RDC arise from a combination of reduced competition in the UK as competitor foundry numbers continue to dwindle and the growing trend of re-shoring production back to the UK from overseas foundries. With planning permission now secured, the investment programme to expand both the production capacity by up to 40% and the types of product that can be manufactured at RDC's facilities to exploit new growth opportunities, including in the offshore and green energy generation markets, is expected to be completed towards the end of November 2022.

Petrel Ltd

Petrel, Chamberlin's specialist lighting business, delivered a record operating profit during FY 2022 and continues to exceed the Board's expectations significantly. Petrel continues to benefit from a strong order book, reflecting recovery from the lows brought about by both COVID-19 and Brexit. Petrel is developing a pipeline of new and innovative products that can be brought to market swiftly and potentially move Petrel into a market leading position. Management is also investigating the provision of additional services (such as warranty, inspection and maintenance) to its customers that have a significant installed base of Petrel products. In addition, management continue to review and update Petrel's existing product range through in-house design and manufacture of new products as new technology evolves.

Outlook

The Board's strategy has already begun both to shape the future direction of the business and to be reflected in the financial performance of the Group, having generated a modest profit after tax in 2022. We have made good progress on implementing the strategy in a relatively short period of time and have improved the financial stability of the Group to provide the platform to accelerate our plans. There remains work to do in order to achieve our growth ambitions and the Board are mindful of the resources that will be required. Consequently, the Board continues to evaluate the use of its property assets with the objective of strengthening the balance sheet and ensuring that the Group has adequate resources to deliver on its growth strategy. Overall, the Board remain confident that the Group is heading in the right direction, with a strategic plan that will deliver shareholder value in the future.

Kevin Price

Chief Executive

Finance Review

Overview

Revenue for the year ended 31 May 2022 of £16.8m (14 months ended 31 May 2021: £26.4m) represents a 26% reduction on a pro rata basis compared to the prior period, largely due to the effect of the cancellation of all contracts by BorgWarner in 2021.

Gross profit margin increased to 10.7% from 8.3% in 2021 reflecting the recovery in performance of the Foundry division, which reduced its operating loss to £0.5m from a £1.9m loss in the previous period, and a substantial increase in operating margin at Petrel in the Engineering division.

Underlying operating loss before tax reduced to £0.7m (14 months ended 31 May 2021: £2.9m) due to the improved operating results noted above together with a pro rata 22% reduction in Head Office costs.

Financing costs were maintained at £0.3m (14 months ended 31 May 2021: £0.3m) with a reduction in the interest charge associated with the pension scheme offset by increased interest on higher average net debt.

As a result of the above, the underlying loss before tax amounted to £1.0m (14 months ended 31 May 2021: £3.2m loss).

The statutory loss before tax reduced dramatically to £0.5m (14 months ended 31 May 2021: £10.4m) largely reflecting £7.2m of non-underlying items in 2021 that were not repeated in the current year.

Tax

The tax credit in the year of £0.6m (14 months ended 31 May 2021: £0.8m) includes the recognition of a deferred tax asset on trading losses in RDC reflecting the confidence the Group has in the future profitability of this business.

Diluted earnings per share

Diluted earnings per share of 0.1p (14 months ended 31 May 2021: 55.1p loss per share) reflects the return to profitability of the Group for the first time in over five years and a significant turnaround compared to the prior period.

Cash generation and financing

Operating cash outflow of £4.0m (14 months ended 31 May 2021: inflow of £0.3m) includes £1.3m of cash payments relating to restructuring the business in 2021, £0.9m paid to the Group's defined benefit pension scheme and increased working capital.

Cash spent on property, plant and equipment and capitalised software and development costs in the year ended 31 May 2022 was £0.5m (14 months ended 31 May 2021: £0.2m).

New equity of £1.6m was raised in February 2022 following a fundraise and was net of transaction costs of £0.2m.

Lease payments of £0.5m (14 months ended 31 May 2021: £0.9m) primarily relate to assets at the Group's machining facility and were lower than the prior period due to a payment holiday agreed with HSBC. These asset leases were subsequently refinanced with HSBC in April 2022 over a 42 month term ending in September 2025.

Net debt

Net debt at 31 May 2022 increased by £3.2m to £5.0m (31 May 2021: £1.8m) reflecting the operating cash outflow described above and an increase in lease liabilities of £1.0m relating to the sale and leaseback of the property owned by RDC partially offset by the £1.6m fundraise in February 2022. The Group debt facility has two elements: a £3.5m invoice discounting facility limited to 90% of outstanding invoice value (of which £2.3m was drawn at the year end) and lease liabilities of £2.7m.

Foreign exchange

It is the Group's policy to minimise risk arising from 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 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.

During the year ended 31 May 2022, the average exchange rate used to translate into GBP Sterling was €1.18 (14 months ended 31 May 2021: €1.13).

Pension

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 defined benefit pension scheme moved from a liability position of £1.2m at 31 May 2021 to a £0.1m surplus at 31 May 2022, as reduced liabilities arising from an increase in bond yields and Company contributions of £0.9m more than offset a reduction in the market value of scheme assets.

The 31 March 2019 triennial valuation established that employer contributions are £0.30m for 2021, £0.33m for 2022 and £0.36m for 2023. The next triennial valuation as at 31 March 2022 is currently in progress.

Administration costs of the defined benefit pension scheme were £0.2m in the year ended 31 May 2022 (14 months ended 31 May 2021: £0.2m) and are shown in other operating expenses. The Group cash contribution during the year ended 31 May 2022 was £0.9m (14 months ended 31 May 2021: £0.4m), which included an additional £0.6m payment following completion of the sale and leaseback of a property over which the pension scheme had a charge.

Audit Opinion

The auditors have reported on the accounts for the year ended 31 May 2022 and have given a modified audit opinion drawing attention to a material uncertainty regarding going concern. After making enquiries, the Directors have an expectation that, in the circumstances of reasonably foreseeable downside scenarios, the Group and Company have adequate resources to continue in operational existence for the foreseeable future.

However, the rate at which revenue growth and margin improvement can be achieved during a potentially future recessionary period and uncertain global trading conditions is difficult to predict. Furthermore, the ability to renew or source alternative invoice finance facilities or to agree deferred settlement terms with HMRC results 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 matters.

Alan Tomlinson

Group Finance Director

Consolidated Income Statement

for the year ended 31 May 2022

Consolidated Statement of Comprehensive Income

for the year ended 31 May 2022

Consolidated Balance Sheet

at 31 May 2022

Consolidated Cash Flow Statement

for the year ended 31 May 2022

Consolidated statement of changes in equity

NOTES TO THE FINAL RESULTS ANNOUNCEMENT

The Group and Company financial statements of Chamberlin Plc (the 'Company') for the year ended 31 May 2022 were authorised for issue by the Board of Directors on 4 November 2022, and the balance sheets were signed on the Board's behalf by Kevin Price and Alan Tomlinson. 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.

The Group's financial statements have been prepared in accordance with UK adopted 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'.

The financial information set out in this announcement does not constitute the statutory accounts of the Group for the year ended 31 May 2022 or for the 14 months ended 31 May 2021 but is derived from the 2022 Annual Report and Accounts. The Annual Report and Accounts for the 14 months ended 31 May 2021 have been delivered to the Registrar of Companies and the Group Annual Report and Accounts for the year ended 31 May 2022 will be delivered to the Registrar of Companies by 30 November 2022. The auditors, Crowe UK LLP, have reported on the accounts for the year ended 31 May 2022 and have given a modified audit opinion drawing attention to a material uncertainty regarding going concern.

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.

Basis of consolidation

The consolidated financial statements comprise the financial statements of Chamberlin plc and its subsidiaries as at 31 May. 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 May 2022. There were no new accounting standards adopted in the year that have a material impact on the financial statements.

Going concern

The Director's assessment of going concern is based on the Group's detailed forecast for the three years ending 31 May 2023, 31 May 2024 and 31 May 2025, which reflect the Director's view of the most likely trading conditions. Since the balance sheet date, HSBC have confirmed their agreement to an increase in the Group's invoice finance facilities and the forecasts indicate that these bank facilities are expected to remain adequate.

The forecasts include revenue growth and margin improvement assumptions across all of the Group's businesses. At Chamberlin and Hill Castings, these assumptions include an improvement in automotive volumes as this sector recovers from the backlog of passenger vehicle orders arising from the shortage of vital electronic and other components in the last 18 months, modest growth from fitness equipment and cookware products and diversification into new markets. At RDC, the forecasts assume that revenue and margin growth will be achieved from the investment being made in the expansion of its capacity and the ability to manufacture and sell a wider range of products using new materials. At Petrel, revenue and margin growth assumptions are based on the introduction of new products, including the use of new technology, and services, including warranty, inspection and maintenance.

The Directors have applied reasonably foreseeable downside sensitivities to the forecast, including sales growth and margin improvement at Chamberlin and Hill Castings is 40% and 20% lower than expectations respectively, sales growth and margin improvement at RDC are both 20% lower than expectations and sales growth and margin at Petrel are 20% and 10% lower than expectations respectively. Furthermore, the Group is reliant on an invoice finance facility to fund its working capital needs. The renewal of the facility at the next annual review in March 2023 cannot be guaranteed, although there are no indications at the date of the approval of the financial statements that a renewal with the existing provider would not be granted or that alternative providers could not be found. In addition, the Directors have assumed that deferred settlement terms will be agreed with HMRC in relation to PAYE arrears of £1.5m for one subsidiary in the Group that have arisen in the period since the announcement by BorgWarner, having already agreed deferred settlement terms with HMRC for two subsidiaries.

As a consequence, after making enquiries, the Directors have an expectation that, in the circumstances of the reasonably foreseeable downside scenarios described above, the Group and Company have adequate resources to continue in operational existence for the foreseeable future.

However, the rate at which revenue growth and margin improvement can be achieved during a potentially future recessionary period and uncertain global trading conditions is difficult to predict. Furthermore, the ability to renew or source alternative invoice finance facilities or to agree deferred settlement terms with HMRC results 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 matters.

3. SEGMENTAL ANALYSIS

For management purposes, the Group is organised into two operating divisions according to the nature of the products and services. Operating segments within those divisions are combined on the basis of their similar long-term characteristics and similar nature of their products, services and end users as follows:

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

The Engineering segment 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

Unallocated net liabilities include the pension asset of £64,000 (2021: £1,190,000), net debt of (£4,974,000) (2021: £1,835,000) and a net deferred tax asset of £1,364,000 (2021: £1,056,000).

In addition to the above, property, plant and equipment in the Foundries division in 2021 were impaired by £3,809,000.

(ii) By geographical segment

4. FINANCE COSTS

5. EARNINGS/(LOSS) PER SHARE

The calculation of earnings/(loss) per share is based on the earnings/(loss) attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted earnings/(loss) per share, adjustment has been made for the dilutive effect of outstanding share options where applicable. Underlying earnings/(loss) per share, which excludes non-underlying items, as disclosed in Note 6, has also been disclosed.

There is no adjustment in the diluted loss per share calculation for the 3,798,000 shares under option in 2021 as they are required to be excluded from the weighted average number of shares for diluted loss per share as they are anti-dilutive. The weighted average number of shares used in the fully diluted calculation is 83,069,000 (2021:17,387,000).

6. NON-UNDERLYING ITEMS

During the year, an agreement was reached on the settlement of a customer claim relating to Exidor Limited, a subsidiary that was sold in December 2018. Additional costs of £10,000 over and above the original provision made at the time of the disposal were agreed to settle the claim.

In 2022, £84,000 was released from the dilapidations provision following negotiations with the landlord. The charge of £690,000 in 2021 relates to the estimated costs for land and building leases that are nearing their end date.

In 2021, following the cancellation of all contracts by the Group's major customer, BorgWarner, announced on 16 December 2020, the Group embarked upon a significant restructuring programme to realign the cost base of the Foundry division to the reduced level of continuing revenue. Group reorganisation costs of £1,310,000, which include redundancy and associated costs, relate to this restructuring programme.

Following the cancellation of the Group's contracts by BorgWarner, the Group undertook a review of the carrying value of the assets in the Foundry division in 2021. This gave rise to an asset impairment charge of £4,632,000, of which £3,809,000 related to property, plant & equipment, £716,000 related to obsolete inventory and £107,000 related to irrecoverable receivables. In 2022, £498,000 of the impairment charge relating to inventory was reversed, as a number of new contract wins indicates that the inventory will now be utilised.

The share-based payment charge in 2022 of £67,000 (2021: £41,000) relates to the fair value cost of share option schemes for the year.

7. NET DEBT

Lease liabilities are secured against the specific item to which they relate. These leases are repayable by monthly instalments for a period of up to 10 years to May 2032. 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 2.75% over base rate. The maximum facility as at 31 May 2022 was £3,500,000 (2021: £3,500,000). Management have assessed the treatment of the financing arrangements and have determined it is appropriate to recognise trade receivables and invoice finance liabilities separately.

8. PENSIONS 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 2022 was £151,000 (2021: £236,000), with the reduction being due to costs associated with the triennial valuation in 2021 not repeated, together with £13,000 of financing cost (2021: £49,000).

The other scheme within the Group is a defined contribution scheme and the pension cost represents contributions payable. The total cost of the defined contribution scheme was £200,000 (2021: £377,000). 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):-

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 2032.

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 latest triennial valuation was completed as at 31 March 2019 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. During the year, the charge over one of the Group's properties was released following the payment of an additional contribution to the pension scheme of £600,000, paid out of the proceeds of a sale and leaseback transaction. The triennial review with effect from 31 March 2022, which will establish future deficit payments, is currently in progress.

The scheme assets are stated at the market values at the respective balance sheet dates. The assets and liabilities of the scheme were:

The weighted average duration of the pension scheme liabilities are 12 years (2021: 13 years).

A quantitative sensitivity analysis for significant assumptions as at 31 May 2022 is as shown below:

The sensitivity analysis above has been determined based on a method that extrapolates the impact on defined benefit obligations as a result of reasonable changes in key assumptions occurring at the end of the year.