Chamberlin Plc Regulatory News (CMH)

24 November 2015

AIM: CMH

CHAMBERLIN PLC

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

Half Year Results

For the six months to 30 September 2015

Key Points

· Performance affected by tougher trading conditions and currency

· Revenues of £18.0m (2014: £21.1m) - reflects Euro and subdued demand from steel, oil & gas, and mining sectors

· Underlying* profit before tax of £0.1m (2014: £0.4m) - £0.6m impact from weak Euro

On an IFRS basis, loss before tax of £0.4m (2014: profit of £0.3m)

· Gross profit percentage, on a constant currency basis, increased to 17.5% (2014: 16.6%) - helped by operational improvements and cost reduction

· Cash inflow from operations increased to £0.7m (2014: £0.5m)

· Net debt at 30 September 2015 of £4.3m (31 March 2015: £3.8m and 30 September 2014: £3.8m)

· Diluted underlying* earnings per share of 0.2p (2014: 3.9p)

On an IFRS basis, basic loss per share of 4.6p (2014: earnings per share of 2.6p)

· Investment of £0.7m completed to support automotive contract wins at Walsall - set to enter production in 2016 

· Board expects underlying profit before tax for FY 31 March 2016 to be below the prior year - however the outlook for FY 31 March 2017 remains strong, supported by Walsall contract wins

*All underlying figures are stated before net financing costs on pension obligations, administration costs of the pension scheme, exceptional costs, share-based payment costs and associated tax impact.

Chairman, Keith Butler-Wheelhouse, commented:

"Results have been impacted by both the weak Euro and a slowdown in some of our core markets and therefore, despite the continued drive for efficiency, half year profits are behind the same period last year.

"Looking ahead, given the current tough trading environment, the Board expects underlying profitability for the current financial year to be below the £0.8m achieved in the prior financial year. However, we anticipate the profit outlook for the next financial year to 31 March 2017 to recover, with the major contract wins at Walsall expected to enter into production in 2016. The measures we have taken to achieve cost efficiencies and improve processes also leave the Group better positioned for profitable revenue growth."

Enquiries

CHAIRMAN'S STATEMENT

Introduction

Trading conditions have been generally tougher across the Group during the first half of the financial year compared to the same period last year. This is reflected in Chamberlin's results, with strength of Sterling against the Euro a significant factor and impacting profitability by £0.6m. Against this backdrop, we have continued to focus tightly on the cost base as well as measures to improve the operational performance of the Group's subsidiaries. We also continue to move forward with growth opportunities, with initiatives in place across both divisions, which we expect to benefit trading in 2016.

Results

The Group generated revenues of £18.0m for the six months to 30 September 2015 (2014: £21.1m), with adverse Euro/Sterling currency movement accounting for £0.7m of the period-on-period reduction. Approximately 30% of Group sales are denominated in Euros which were transacted at an average rate of €1.34 over the six months to September 2015 (2014: €1.19).

Underlying profit before tax was £0.1m, £0.3m lower than the comparative period last year (2014: £0.4m). Currency movement reduced profitability by £0.6m and lower volumes reduced margin by £0.4m. A large part of the impact of this was offset by cost reductions, amounting to £0.7m, and our focus on continuous improvement. Diluted underlying* earnings per share were 0.2p (2014: earnings per share of 3.9p).

On an IFRS basis the Group generated a loss of £0.4m (2014: profit of £0.3m) after accounting for restructuring costs of £0.3m, and administration and finance costs on the closed pension scheme of £0.2m. Diluted loss per share was 4.6p (2014: earnings per share of 2.5p).

The net debt position at 30 September 2015 showed an increase of £0.5m to £4.3m from the net debt position at 31 March 2015 of £3.8m (30 September 2014: £3.8m). The Group has debt facilities of £8.1m.

Dividend

No dividend is proposed for the period under review (2014: nil).

Operations

The three foundries at Walsall, Leicester and Scunthorpe, generated total revenues of £13.3m in the period (2014: £16.0m), with £0.7m of the decrease attributable to currency. Without the currency impact, the profit contribution would have been maintained year-on-year. However, including the currency impact of £0.6m, the profit contribution reduced to £0.3m (2014: £0.9m). On a constant currency basis, gross profit margins increased from 12.5% to 13.3% reflecting our focus on continuous improvement and cost reduction.

The Walsall foundry, which produces small castings with complex internal geometry, saw revenues decrease by 4.6% on a constant currency basis. This mainly reflected the legacy turbo charger bearing housing work entering its final phase of life cycle. The new contracts, announced in late 2014, for turbo charger bearing housing for diesel engines in passenger cars, will enter production in calendar year 2016, with a full ramp up of volumes in 2017. An investment of £0.7m has been made in plant and equipment in the period under review in order to meet the capacity requirements of the new contract.

The Scunthorpe foundry, which produces heavy castings, saw continuing reduced demand, reflecting conditions in the power, construction and mining sectors, and revenues are 25.7% lower on the same period last year. We have completed cost base reductions and also have continued to make operational improvements as well as implementing price increases. These measures moved the foundry back into profitability in the second quarter and we expect an improved performance in the second half of the financial year. We are also seeing some signs of returning volumes with existing customers.

The foundry at Leicester, which produces medium castings, continues to be affected by competition from low cost countries and revenues in the first half decreased by 16.5% over the same period last year. This has necessitated some further adjustments to the foundry's cost base and these were completed in the period.

The engineering division, which comprises Exidor, the UK market leader in panic and emergency exit door hardware, and Petrel, which manufactures lighting and control equipment for use in hazardous areas, saw revenues decrease by 6.4% to £4.7m (2014: £5.1m). This reflected a downturn in demand at Petrel, with reduced oil prices affecting the business's key market of oil and gas. Nonetheless, the division's operating profit contribution increased to 7.1%, helped by ongoing cost control and continuous improvement measures. While the trading backdrop for the division remains more difficult, Petrel is continuing to further extend its product range into LEDs and Exidor's focus on increasing export sales remains ongoing.

Outlook

Looking ahead, given the current tough trading environment, the Board expects underlying profitability for the current financial year to be below the £0.8m achieved in the prior financial year. However, we anticipate the profit outlook for the next financial year to 31 March 2017 to recover, with the major contract wins at Walsall expected to enter into production in 2016. The measures we have taken to achieve cost efficiencies and improve processes also leave the Group better positioned to win profitable revenue growth.

Keith Butler-Wheelhouse

Chairman

23 November 2015

Consolidated Income Statement

for the six months ended 30 September 2015

# Non- underlying items represent exceptional costs as disclosed in note 7, administration costs of the pension scheme and net financing costs on pension obligations, share based payment costs and associated tax impact of these items.

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2015

Consolidated Balance Sheet

At 30 September 2015

 Consolidated Cash Flow Statement

for the six months ended 30 September 2015

Consolidated Statement of Changes in Equity

for the six months ended 30 September 2015

Independent review report to Chamberlin plc

Introduction

We have been engaged by the Company to review the financial information in the half-yearly financial report for the six months ended 30 September 2015 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet, Consolidated Statement of Cash Flows, Consolidated Statement of Changes in Equity and the related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with guidance contained in ISRE (UK and Ireland) 2410, 'Review of Interim Financial Information performed by the Independent Auditor of the Entity'. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in a review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusion we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The AIM rules of the London Stock Exchange require that the accounting policies and presentation applied to the financial information in the half-yearly financial report are consistent with those which will be adopted in the annual accounts having regard to the accounting standards applicable for such accounts.

As disclosed in Note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The financial information in the half-yearly financial report has been prepared in accordance with the basis of preparation in Note 1.

Our responsibility

Our responsibility is to express to the Company a conclusion on the financial information in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the financial information in the half-yearly financial report for the six months ended 30 September 2015 is not prepared, in all material respects, in accordance with the basis of accounting described in Note 1.

GRANT THORNTON UK LLPAUDITOR

Birmingham23 November 2015

Notes to the Interim Financial statements

1 General information and accounting policies

This Interim Financial Report is unaudited, but has been reviewed by the Company's auditor having regard to the International Standard on Review Engagements (UK & Ireland) 2410 "Review of Financial Information Performed by the Independent Auditor of the Entity", issued by the Auditing Practices Board for use in the UK. A copy of their unmodified review report is attached.

The interim condensed consolidated financial statements do not comprise the Group's statutory accounts as defined by section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2015 were approved by the board of directors on 18 May 2015 and were filed at Companies House. The auditor's report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.

Basis of preparation

The annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the AIM Rules issued by the London Stock Exchange.

Accounting policies

The principal accounting policies applied in preparing the interim Financial Statements comply with IFRS and are consistent with the policies set out in the Annual Report and Accounts for the year ended 31 March 2015.

No new standards or interpretations issued since 31 March 2015 have had a material impact on the accounting of the Group.

Hedge activities

At 30 September 2015 the Group held 10 months' worth of foreign currency forward contracts designated as hedges of expected future sales to customers in Europe for which the Group has highly probable forecasted transactions

Going concern

After making appropriate enquiries, the directors consider that the Group has adequate resources to continue in operation for the foreseeable future. In forming this view the directors have reviewed internal cashflow and profit forecasts in conjunction with the available headroom on the invoice finance and overdraft facility. For this reason, they continue to adopt the going concern basis in preparing the accounts.

2 Segmental analysis

For management purposes, the Group is organised into two operating divisions: Foundries and Engineering. The operating segments reporting format reflects the Group's management and internal reporting structures for the Chief Operating Decision Maker.

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. The Engineering segment provides manufactured and imported products to distributors and end-users. The products fall into the categories of door hardware, hazardous area lighting and control gear and cable management.

Financing and income tax are managed on a Group basis and are not allocated to operating segments.

3 Finance income and costs

4 Income tax expense

An effective rate of tax for the six months to 30 September 2015 of 14% (30 September 2014: 27%) has been used in these interim statements.

The effective rate of tax is lower than the standard rate because of non-deductible expenses reducing the overall tax credit in the period. The 2014 effective rate of tax was higher than the standard rate because of non-deductible expenses for tax purposes increasing the tax expense.

The corporation tax rate fell from 21% for the year ended 31 March 2015 to 20% for the year ended 31 March 2016. Whilst the Summer 2015 Budget announced that the corporation tax rate will reduce to 19% and then to 18% by 2020, neither of these rate changes have been substantively enacted and as such are not incorporated into this period. It is not anticipated that the subsequent reduction to 18% will have a material effect on the Company's future current or deferred tax charges.

5 Earnings/(loss) per share

The calculation of earnings/(loss) 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/(loss) per share, adjustment has been made for the dilutive effect of outstanding share options. Underlying earnings/(loss) per share, which excludes exceptional costs, net financing cost of pension obligation, administration costs of the pension scheme and share based compensation, less related tax thereon, as analysed below, has been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group.

As at 30 September 2015 there is no adjustment for the 180,177 shares under option for the basic loss per share calculation as they are required to be excluded from the weighted average number of shares for diluted loss per share as they are anti-dilutive for the period then ended.

6 Pensions

The Group operates a defined benefit pension scheme and a number of defined contribution pension schemes on behalf of its employees. For defined contribution schemes, contributions paid in the period are charged to the income statement. For the defined benefit scheme, actuarial calculations are performed in accordance with IAS 19 in order to arrive at the amounts to be charged in the income statement and recognised in the statement of comprehensive income. The defined benefit scheme is closed to new entrants and future accrual.

Under IAS 19, the Group recognises all movements in the actuarial funding position of the scheme in each period. This is likely to lead to volatility in shareholders' equity from period to period.

The IAS 19 figures are based on a number of actuarial assumptions as set out below, which the actuaries have confirmed they consider appropriate. The projected unit credit actuarial cost method has been used in the actuarial calculations.

During the previous year the triennial valuation as at 1 April 2014 was completed. In return for maintaining the previous contribution arrangements and extending the deficit reduction period to 2028, the Company has given security over the Group's land and buildings to the pension scheme.

The demographic assumptions used for 30 September 2015, were the same as used in 31 March 2015, 30 September 2014 and the last full actuarial valuation performed as at 1 April 2014.

The defined benefit scheme funding has changed under IAS 19 as follows:

The decrease in the net pension liability since March 2015 is mainly due to a decrease in the value of liabilities as a consequence of an increase in bond yields increasing the discount rate, partially offset by a negative return on assets in the period.

7 Exceptional costs and non-underlying items

During 2014 the Group rationalised its Foundry operations into one division, enabling the elimination of duplicate roles and implementation of best practice. Group reorganisation costs, including redundancy and recruitment, relate to this rationalisation.

Further reorganisation and redundancy costs were incurred during the period within the Foundry Division as a result of actions taken to reduce headcount in response to decreased revenues at the Leicester and Scunthorpe sites.

Environmental clean-up costs relate to exceptional costs incurred in the clean-up of the Scunthorpe site.

8 Net debt

9 Interim report

Copies of this interim results statement 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.