Chamberlin Plc Regulatory News (CMH)

AIM: CMH

16 April 2021

CHAMBERLIN plc

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

FINAL RESULTS

for the year ended 31 March 2020

Chamberlin plc (AIM: CMH.L) has today published the Company's Report and Accounts for the year ended 31 March 2020 ("FY2020 Accounts"). The Company has also published the Company's interim results for the six months to 30 September 2020 ("FY2021 Interim Results"). Upon publication of the FY2020 Accounts and the FY2021 Interim Results, the Company anticipates that suspension of trading in the Company's ordinary shares on AIM will be lifted with effect from 8.00am today.

The FY2020 Accounts, including Notice of the Company's AGM, are available on the Group's website, www.chamberlin.co.uk and will be posted to Shareholders on 19 April 2021. The AGM, which will be held as a closed meeting given the restrictions in relation to COVID-19, will be held on 8 June 2021 at Chuckery Road, Walsall, West Midlands, WS1 2DU.

Highlights

Financial

Post balance Sheet Events

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

Chairman, Keith Butler-Wheelhouse, commented:

"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."

Enquiries

Chairman's Statement

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 continues 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

Chief Executive's Review

Early in this financial year, Chamberlin's revenues suffered a reduction with several factors hitting hard in the first half:-

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 first half experienced a pre-tax loss of £1.8m 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 been clarified.

In the second half, the increase in revenue from the new non-automotive contracts helped to out-weigh 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 2020. 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

Finance Review

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 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).

Cash generation and financing

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).

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.

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:

- 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.

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).

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 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).

Audit Opinion

The auditors have reported on the accounts for the year ended 31 March 2020 and have given a modified audit opinion drawing attention to a material uncertainty regarding going concern. The Board has addressed these issues through the restructuring exercise referred to above and through £3.5m raised by the share issue in March 2021. As a consequence, the Directors have an expectation that, in the circumstances of a reasonably foreseeable downside scenario, the Group has adequate resources to continue to operate 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, as referred to in note 2 below. The Directors continue to adopt the going concern basis, whilst recognising there is material uncertainty relating to the above matter.

Neil Davies

Group Finance Director

Consolidated Income Statement

for the year ended 31 March 2020

*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 10.

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2020

Consolidated Balance Sheet

at 31 March 2020

Consolidated Cash Flow Statement

for the year ended 31 March 2020

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.

NOTES TO THE PRELIMINARY ANNOUNCEMENT

The Group and Company's financial statements of Chamberlin Plc 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 disclosed in Note 11 Subsequent Events, 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 as adopted by the European Union.

The financial information set out in this announcement does not constitute the statutory accounts of the Group for the years to 31 March 2020 or 31 March 2019 but is derived from the 2020 Annual Report and Accounts. The Annual Report and Accounts for 2019 have been delivered to the Registrar of Companies and the Group Annual Report and Accounts for 2020 will be delivered to the Registrar of Companies in due course. The auditors, Grant Thornton UK LLP, have reported on the accounts for the year ended 31 March 2020 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 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 2020. There were no new accounting standards adopted in the year that have a material impact on the financial statements.

Going concern

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 net proceeds of £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 6 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 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.

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 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).

(ii) By geographical segment

4. FINANCE COSTS

5. (LOSS)/ EARNINGS PER SHARE

The calculation of (loss)/ earnings per share is based on the (loss)/profit attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted (loss)/ earnings per share, adjustment has been made for the dilutive effect of outstanding share options. Underlying (loss)/ earnings per share, which excludes non-underlying items, as analysed below, has also been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group. Non-underlying items are detailed in note 6.

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.

6. NON-UNDERLYING ITEMS

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.

7. 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.

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:

Exidor Limited contributed the following to the Group's cashflow:

8. 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 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 have assessed the treatment of the financing arrangements and have determined it is appropriate to recognise trade receivables and invoice finance liabilities separately.

9. PENSIONS ARRANGEMENTS

During the year, the Group operated funded defined benefit and defined contribution pension schemes for the majority of its employees, 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 contribution 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):-

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 pensions relating to an employee retiring in 15 years from the balance sheet date.

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.

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 13 years (2019: 13.5 years).

A quantitative sensitivity analysis for significant assumptions as at 31 March 2020 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.

10. 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.

11. 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 an agreed extended date of 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.

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.

12. REPORT AND ACCOUNTS

The FY2020 accounts are available on the Group's website, www.chamberlin.co.uk and from the Group's head office at Chuckery Road, Walsall, West Midlands, WS1 2DU. The AGM, which will be a closed meeting given the current restrictions in relation to COVID-19, will be held on 8 June 2021 at Chuckery Road, Walsall, West Midlands, WS1 2DU.