30 November 2023
CHAMBERLIN plc
("Chamberlin", the "Company" or the "Group")
FINAL RESULTS
for the year ended 31 May 2023
Chamberlin plc (AIM: CMH.L), the specialist castings and engineering group, is pleased to announce its final results for the year ended 31 May 2023:
Key Points
Financial
? Improvement in Group operational performance continued in FY23, with a 68% increase in adjusted EBITDA and 94% reduction in cash outflow from operations
? Revenue of £20.7m (2022: £16.8m) was 23% higher than the prior year, following a 24% increase in revenue from the Foundry division and an 18% increase from the Engineering division
? The underlying operating loss reduced 17% to £0.6m (2022: £0.7m loss), with improving gross profit margins across both divisions being held back by an unexpected bad debt charge of £0.2m in the Foundry division. Excluding the bad debt, the operating loss would have reduced by 44% to £0.4m
? Underlying loss before taxation amounted to £1.1m (2022: £1.0m), and was adversely impacted by the effect of increases in the Bank of England base rate on financing costs
? The statutory result before tax was just above break-even (2022: £0.5m loss) and represents a 107% reduction from the prior year following the reversal of impairment losses previously taken in the Foundry division, reflecting the improved current year performance and future prospects at Chamberlin & Hill Castings (CHC)
? Loss after tax of £0.1m (2022: £0.1m profit) reflects one-off deferred tax charge of £0.3m relating to prior year enhanced capital allowance claims. Excluding the one-off deferred tax charge, profit after tax would have been £0.2m and ahead of last year
? Underlying diluted loss per share of (0.8)p (2022: (0.5)p loss per share)
? Total diluted loss per share of (0.1)p (2022: 0.1p earnings per share)
Operational
? Foundry revenues increased by 24% to £16.9m (2022: £13.6m) reflecting a recovery in revenue at CHC which increased by 22% and continued strong growth of 26% at RDC
? Foundry operating loss reduced to £0.2m (2022: (£0.5m loss) driven by a 48% reduction in losses at CHC following a successful period of new order intake. Excluding a bad debt charge of £0.2m, the operating result improved by 100% to break-even
? Engineering revenues of £3.8m increased by 18% (2022: £3.2m) continuing impressively from the 21% increase in 2022. This continued growth contributed to another record operating profit of £0.6m (2022: £0.5m), a 13% improvement on the prior year
? Completed the sale and leaseback of the freehold property in Walsall in June 2023, generating gross proceeds of £2.2m
Underlying figures are stated before non-underlying costs (restructuring costs, impairment, onerous leases and share based payment costs) together with the associated tax impact.
Adjusted EBITDA defined as operating profit before interest, taxation, depreciation, amortisation and non-underlying items
Keith Butler Wheelhouse, Chairman of Chamberlin, commented: "I am pleased to report significant operational improvements across the Group for the year ended 31 May 2023. The Group is well positioned to continue its journey to a full recovery and expects to return to a more sustainable level of profitability"
Printed copies of the Annual Report and Accounts for the year ended 31 May 2023 and Notice of Annual General Meeting ("AGM") will be posted today to those shareholders who requested to receive them, along with the Form of Proxy in relation to the AGM to all shareholders. A digital copy of the Annual Report and Accounts and Notice of Annual General Meeting will shortly be available for download from the Company's website at https://www.chamberlin.co.uk/investors/financials/financial-reports.
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.
| Chamberlin plc Kevin Price, Chief Executive Alan Tomlinson, Finance Director
|
| T: 01922 707100 |
| Cavendish Capital Markets Limited (Nominated Adviser and Joint Broker) Katy Birkin Stephen Keys George Lawson
|
| T: 020 7220 0500 |
| Peterhouse Capital Limited (Joint Broker) Lucy Williams Duncan Vasey |
| T: 020 7469 0930 |
Chairman's Statement
I am pleased to report to shareholders a continuation this year of the turnaround in the fortunes of Chamberlin from the low point of our recent history in 2021. The vast majority of our key operational metrics have again taken a significant step forward in the year, building on the progress made in 2022. Revenue increased by 23%, adjusted EBITDA improved by 68%, the loss before tax reduced by 107% to just above break-even and operating cash outflow reduced by 94%.
The most satisfying part of the Group's operating performance in 2023 has been the turnaround in the fortunes at Chamberlin & Hill Castings (CHC), which in the previous two financial years had been diluting the strong performances of Russell Ductile Castings (RDC) and Petrel. Although CHC was not profitable overall in 2023 due largely to headwinds in the first half, it increased its revenue by 22% and reduced operating losses by 48% and was successful in securing new programs with customers, the full benefit of which will come through in 2024 and for several years ahead.
RDC and Petrel continue to go from strength to strength and continue to win new business and market share, delivering revenue growth of 26% and 18% respectively in 2023. Both of these businesses have been re-invigorated further by the appointment of new management teams that share the Board's ambitions to continue their recent growth trajectory and to develop the business as leaders in product development, innovation and technical excellence in their respective markets.
In January 2023, Chamberlin completed a placing and subscription raising £650,000 to support the Group's working capital requirements as it enters a period of profitable growth. At that time, the Board stated that it was continuing to evaluate further opportunities to strengthen the balance sheet, including in relation to the Group's property assets and in June 2023 the sale and leaseback of its freehold property in Walsall was completed. The transaction generated gross proceeds of £2.2m, of which £1.1m was paid to the pension fund to reduce the deficit by around half on a trustee's basis and to eliminate the 31 May 2023 deficit entirely from the Group balance sheet. The Board continues to review the various options available to support the Group's working capital requirements as we continue to deal with repaying legacy debt and providing adequate funding for three growing businesses.
The Board and Staff
The Board has remained focused on continuing to improve the operational performance of the business and their dedication to the cause is continuing to be reflected in the operational results across all divisions.
Our employees have continued to remain loyal through some challenging times in recent years, but we are now beginning to see the fruits of their endeavours and the green shoots of a prosperous future. Chamberlin's transformation to a sustainably profitable Group will be driven through the tireless efforts of our people and I am confident that we have a workforce that share the Board's aims and who have the right skills, attitude, and talent to take the Group forward for the benefit of all our stakeholders.
Outlook
Whilst having delivered incrementally modest improvements to operating performance in the last two years, the Board firmly believes that all of the Group's businesses will make further progress in 2024 and that Chamberlin will deliver the step change in performance we have been working towards. The Board is anticipating a further increase in revenue of between 15% and 20% and profit after tax of between £0.8m and £1.0m in FY24.
KEITH BUTLER-WHEELHOUSE
CHAIRMAN
30 November 2023
Chief Executive's Review
2023 has been a year of consolidation and modest progress that gives the Board the confidence of a return to sustainable operational profitability in 2024. It was particularly satisfying that all three of the Group's trading subsidiaries, Chamberlin and Hill Castings (CHC), Russell Ductile Castings (RDC) and Petrel, improved their revenue and operating results when compared to 2022. Work winning across the divisions has been strong during the year and they each enter the new financial year with solid order books and opportunities to further enhance growth.
Group revenue of £20.7m (2022: £16.8m) was 23% higher than the prior year reflecting a strong increase in operational performance across all divisions, with revenue increasing by 22% at CHC, 26% at RDC and 18% at Petrel. The improvement at CHC included new programs secured at the foundry and more importantly, new orders for the machining facility which had been significantly under-utilised for around 18 months from the end of the 2021 financial period. The investment made at RDC at the end of 2022 to improve its production capacity was a contributing factor to the increase in revenue, as customer demand that previously would have been unfulfilled was able to be delivered. The increase in revenue at Petrel in 2023 was largely driven by the UK market, and in particular growth in sales of portable lighting.
The underlying operating loss reduced to £0.6m (2022: £0.7m), with an improvement in gross profit margins and financial operating performance from the trading divisions partially offset by increased corporate costs and a one-off bad debt charge of £0.2m. Excluding the bad debt charge, the operating loss would have been 44% lower than the previous year at £0.4m. The improved gross profit margin at CHC and RDC was largely due to operational efficiencies deriving from higher revenue, thereby increasing productivity and achieving economies of scale savings. Petrel maintained its operating profit margin at around 16% despite some supply chain cost pressures in the early part of the financial year associated with the war in Ukraine, which initially limited the availability of certain electronic components.
Net interest costs increased to £0.5m (2022: £0.3m), primarily reflecting the impact on invoice financing costs of consecutive monthly increases in the Bank of England base rate during the year. This resulted in the Group making an underlying loss before tax of £1.1m (2022: £1.0m loss). With non-underlying items amounting to a £1.1m credit (2022: £0.5m credit), the statutory result before tax was just above break-even (2022: £0.5m loss), a 107% improvement on the previous year. The non-underlying credit of £1.1m in 2023 is largely the result of the reversal of £1.4m of the £3.8m impairment charge recognised in 2021 against plant and machinery at CHC's machining facility. This impairment reversal reflects an increase in activity during the year and the return to sustainable profitability in the medium term for the machining facility based on the new programs it has secured. The tax charge in 2023 amounted to £0.2m (2022: £0.6m credit) and reflected a one-off deferred tax charge adjustment of £0.3m relating to enhanced capital allowances claimed in the prior tax year, and losses arising in the current year on which a deferred tax asset could not be recognized of £0.3m. These charges were largely offset by research and development tax credits receivable of £0.3m and a deferred tax asset of £0.3m recognised on trading losses in respect of RDC in the light of their continued improved financial performance. The loss after tax amounted to £0.1m (2022: £0.1m profit) but excluding the one-off prior year deferred tax charge of £0.3m would have been ahead of the prior year at £0.2m profit.
The Board and senior management have continued to prioritise improving liquidity and cash flow and strengthening the Group balance sheet during this period of high revenue growth. Net cash outflow from operations of £0.2m (2022: £4.0m outflow) was a considerable improvement on the prior year due to a rigorous focus on working capital flows, which improved from a £2.7m outflow in 2022 to a £0.2m inflow in the current year. The Board recognises the belief that shareholders have in the prospects of the Group and appreciate the support shareholders provided through a £0.65m equity fundraising in January 2023, and then subsequent to the year end, a further £0.33m to support the investment and growth opportunities that the Group has. In addition, to further improve balance sheet strength and liquidity, the Group completed the sale and leaseback of its Walsall property in June 2023. The transaction generated gross proceeds of £2.2m, of which £1.1m was used to reduce the pension scheme deficit. This payment to the pension scheme effectively reduced the deficit in the scheme on a Trustee basis by half and eliminated the deficit on the balance sheet at 31 May 2023 of £0.6m. With the ongoing repayment of legacy debts and three growing businesses that need working capital to execute Chamberlin's growth plans, the Board continues to maintain a rigorous focus on cash management and to review its funding options to improve liquidity.
At the end of June 2023, the triennial valuation of the pension scheme was completed, and a revised schedule of deficit recovery payments was agreed with the Trustees. The deficit recovery payments now being made to the scheme are expected to eliminate the deficit by September 2027, a significant improvement on the expectations at the previous valuation date in 2019 of August 2032.
This financial year has seen the Group maintain its strategic course for a return to sustainable operational profitability and the Board now believe that 2024 will see a return to a level of sustainable profitability not seen at Chamberlin for almost a decade The prospects of the Group's three trading subsidiaries that support the Board's view regarding profitability are discussed below:
Chamberlin & Hill Castings Ltd - Casting Facility and Machining Facility ("CHC")
CHC has been successful in its strategy of diversification away from the automotive sector having secured a number of new programs and orders that will utilise some of the excess capacity at the foundry and machining facility.
During the year, orders with a potential aggregate annualised revenue value of approximately £1.2m were secured in the construction, cast iron radiator and commercial vehicle markets. Production commenced on all these programs at the end of the first quarter of the 2023 calendar year, with volumes ramping up through the course of the 2024 financial year. A significant proportion of these new orders are the result of the concerted efforts of customers to source from local UK supply chains and CHC has the excess capacity and technical expertise to be able to benefit further from this trend.
In June 2023, the company also secured a major new contract worth approximately ?7.3 million of revenue over an eight-year term with a leading European automotive industry components supplier. Under the contract, CHC will supply complex turbo-charger bearing housing castings to the European automotive OEM that will be utilised in its passenger car engines. Secured after a rigorous competitive tender process, tooling production commenced in July 2023 and supply of the pre-series sample production parts will take place throughout FY24. Serial production commences in July 2024 and is expected to contribute annual revenues of approximately ?1.1 million. This contract provides an element of long-term visibility and security of revenue and utilises some of the excess capacity at CHC which will drive labour productivity improvements and enhance profitability.
Furthermore, in November 2023, CHC received a letter of intent and tooling orders from an existing customer in relation to two 10-year serial production programs for products in the heavy plant sector. Manufacture of the tooling has commenced, and sample production will take place through 2024, with the approval to enter production expected in the final quarter of the 2024 calendar year. These programs will ramp up through the early part of 2025 and are expected to contribute approximately ?7.1 million of revenue over their lifetime.
CHC's machining facility has also won several recent new orders that will see production ramp up by the end of this calendar year as these programs gather momentum. These orders are expected to have an aggregate annualised revenue value of around £1.0m and will enable five out of the six machining cells to be fully occupied on a single shift basis for the first time in nearly two years.
In addition, CHC, through its Emba cookware brand, has entered into an agreement with a well-established cookware company to develop, market and sell, a jointly branded cookware range, through their substantial existing network of distributors and retailers. The initial product range entered production in October 2023 and became available for retail sale in November. This arrangement is a promising and exciting development for the Group's Emba brand, providing access to a much wider customer base than could have been established with the Group's in-house resources and supporting the potential for Emba to become a more meaningful contributor to CHC's diversification strategy.
CHC has a strong order book, supported by sizeable long-term contract wins, and is expected to achieve further revenue growth in 2024. In addition, CHC is in the process of developing its capability to deliver products in ductile iron for the first time. This is in response to a substantial increase in enquiries from new and existing customers for products made from this type of iron, which will open up access to a vastly greater market where demand is extremely buoyant and foundry capacity is limited.
Russell Ductile Castings Ltd ("RDC")
RDC's prospects for continuing its progress in the new financial year are positive, supported by a large, high-quality order book. RDC has been extremely successful in winning new orders from blue-chip companies with an annualised value in excess of £4m following the demise of a competitor foundry. In addition, RDC has signed a two-year exclusivity agreement for an established company in the renewables sector, with the potential to generate up to £1m of revenue per annum. This agreement further entrenches RDC's strong position in the buoyant renewables market, which is expected to continue to expand with further UK Government funding for wind and tidal power announced in August 2023. In addition, RDC is enhancing its current steel making capabilities in order to fulfill demand from existing customers that previously the Group had to turn away.
Year to date operating profit in the 2024 financial year is 50% higher than the corresponding period in 2023 and the strength of the order book gives the Board confidence that this trend can continue for the remainder of this financial year.
Petrel Ltd
Petrel's operating performance has improved markedly in the last two financial years and the Board expects this to continue in the 2024 financial year. Having delivered two consecutive years of record operating profit, Petrel is on track to improve again this year. Having changed the management team in 2022, the Board has supported the addition to the sales force of a European Business Development Manager and an Eastern European Agent to drive the strategy of increasing export sales from around 20-25% to 35-40% of total sales by 2026. Petrel continues to improve its offering through enhancing existing product ranges and providing lighting design services that give customers tailor-made lighting solutions that exactly meet their requirements and needs in an energy efficient and cost-effective way.
During 2023, Petrel has invested in two new machines that will enhance productive capacity and deliver cost-saving efficiencies. In the first half of the current financial year, Petrel has introduced upgrades to its product range, including a self-test emergency option for the popular 7 series. With expectations of double-digit revenue growth again in 2024 at operating margins that have consistently been around 16% for the last 2 years, the Board believes that Petrel is well placed to contribute a materially enhanced operating profit in 2024.
Outlook
From the challenging position Chamberlin found itself in at the end of the 2021 financial period, the Group has made year on year progress on its journey to a sustainable return to operational profitability. The economic headwinds that have been a feature of the last two years have made this journey more challenging and therefore it has taken longer than the Board anticipated. However, these headwinds are now largely in the past and the improvements and building blocks that have been hard fought over the last two years have put the Group into the position where the strategic goal of returning to operational profitability is expected to be delivered in the 2024 financial year.
KEVIN PRICE
CHIEF EXECUTIVE
30 November 2023
Consolidated Income Statement
for the YEAR ended 31 MAY 2023
| | | 2023 | 2022 | ||||
| | Notes |
Underlying £000 | Non- underlying* £000 | Total £000 |
Underlying £000 | Non- underlying* £000 | Total £000 |
| Revenue | 3 | 20,718 | - | 20,718 | 16,836 | - | 16,836 |
| Cost of sales | | (17,892) | - | (17,892) | (15,038) | - | (15,038) |
| Gross profit | | 2,826 | - | 2,826 | 1,798 | - | 1,798 |
| Other operating expenses | 4,10 | (3,413) | 1,155 | (2,258) | (2,501) | 505 | (1,996) |
| Operating (loss)/profit | 7 | (587) | 1,155 | 568 | (703) | 505 | (198) |
| Finance income | | 136 | - | 136 | 26 | - | 26 |
| Finance costs | 6 | (666) | - | (666) | (337) | - | (337) |
| (Loss)/profit before tax | | (1,117) | 1,155 | 38 | (1,014) | 505 | (509) |
| Tax credit/(charge) | 8 | 180 | (343) | (163) | 581 | - | 581 |
| (Loss)/profit for the year attributable to equity holders of the parent company | | (937) | 812 | (125) | (433) | 505 | 72 |
|
Total (loss)/earnings per share: | | | | | | | |
| Basic | 9 | | | (0.1)p | | | 0.1p |
| Diluted | 9 | | | (0.1)p | | | 0.1p |
* Non-underlying items as disclosed in note 10 include restructuring costs, reversal of impairment of assets, dilapidation costs and share-based payment costs, together with the associated tax impact.
Consolidated Statement of Comprehensive Income
for the YEAR ended 31 May 2023
| | Notes | 2023 £000 |
2022 £000 |
| (Loss)/profit for the year | | (125) | 72 |
| Other comprehensive income/(expense) | | | |
| Movements in fair value of cash flow hedges taken to other comprehensive income/(expense) | | 5 | (158) |
| Recycled to the income statement | | (135) | - |
| Deferred tax on movement in cash flow hedges (including change in tax rate) | 8 | 32 | 40 |
| Net other comprehensive expense that may be recycled to profit and loss | | (98) | (118) |
| Remeasurement (loss)/gain on pension scheme assets and liabilities | 20 | (1,073) | 332 |
| Deferred tax on remeasurement (loss)/gain on pension scheme (including change in rate) | 8 | 204 | (63) |
| Gain on revaluation of property, plant and equipment | | - | 1,003 |
| Net other comprehensive (expense)/income that will not be recycled to profit and loss | | (869) | 1,272 |
| Other comprehensive (expense)/income for the year net of tax | | (967) | 1,154 |
| Total comprehensive (expense)/income for the year attributable to equity holders of the parent company | | (1,092) | 1,226 |
Consolidated Balance Sheet
at 31 May 2023
| | Notes | 2023 £000 | 2022 £000 |
| Non-current assets | | | |
| Property, plant and equipment | 11 | 5,235 | 3,506 |
| Intangible assets | 12 | 127 | 283 |
| Deferred tax asset | 16 | 1,173 | 1,434 |
| Defined benefit pension scheme surplus | 20 | - | 64 |
| | | 6,535 | 5,287 |
| Current assets | | | |
| Inventories | 13 | 3,262 | 3,143 |
| Trade and other receivables | 14 | 4,506 | 3,997 |
| Income tax receivable | 14 | 286 | 306 |
| Cash at bank | | 157 | - |
| | | 8,211 | 7,446 |
| Total assets | | 14,746 | 12,733 |
| Current liabilities | | | |
| Financial liabilities | 15 | 4,096 | 2,877 |
| Trade and other payables | 15 | 7,572 | 6,475 |
| | | 11,668 | 9,352 |
| Non-current liabilities | | | |
| Financial liabilities | 16 | 1,602 | 2,097 |
| Deferred tax | 16 | 40 | 70 |
| Provisions | 16 | 806 | 806 |
| Defined benefit pension scheme deficit | 20 | 639 | - |
| | | 3,087 | 2,973 |
| Total liabilities | | 14,755 | 12,325 |
| Capital and reserves | | | |
| Share capital | 17 | 2,107 | 2,087 |
| Share premium account | | 6,882 | 6,308 |
| Capital redemption reserve | | 109 | 109 |
| Hedging reserve | | 2 | 100 |
| Revaluation reserve | | 1,003 | 1,003 |
| Retained earnings | | (10,112) | (9,199) |
| Total equity | | (9) | 408 |
| Total equity and liabilities | | 14,746 | 12,733 |
Kevin Price
Director
Alan Tomlinson
Director
The accounts were approved and authorised for issue by the Board of Directors on 30 November 2023
Consolidated Cash Flow Statement
for the YEAR ended 31 May 2023
| | Note | 2023 £000 |
2022 £000 |
| Operating activities | | | |
| Profit/(loss) for the year before tax | | 38 | (509) |
| | | | |
| Adjustments to reconcile profit/(loss) for the year to net cash outflow | | | |
| Finance income | | (136) | (26) |
| Finance costs | 6 | 666 | 337 |
| Impairment reversal on property, plant and equipment, inventory and receivables | 10 | (1,372) | (498) |
| Dilapidations provision reversal | 10 | - | (84) |
| Depreciation of property, plant and equipment | 11 | 436 | 324 |
| Amortisation of intangible assets | 12 | 39 | 24 |
| Profit on disposal of property, plant and equipment | | - | (66) |
| Foreign exchange rate movements | | (140) | (1) |
| Share-based payments | 10 | 99 | 67 |
| Defined benefit pension contributions paid | | (362) | (935) |
| Increase in inventories | | (303) | (945) |
| Increase in receivables | | (499) | (168) |
| Increase/(decrease) in payables | | 1,000 | (1,557) |
| Corporation tax received | | 306 | - |
| Net cash outflow from operating activities | | (228) | (4,037) |
| Investing activities | | | |
| Purchase of property, plant and equipment | 11 | (410) | (520) |
| Purchase of software | 12 | (5) | (20) |
| Development costs | 12 | (10) | (24) |
| Interest received | | 128 | 26 |
| Disposal of plant and equipment | | - | 1,189 |
| Net cash (outflow)/inflow from investing activities | | (297) | 651 |
| Financing activities | | | |
| Interest paid | | (567) | (324) |
| Net invoice finance inflow | 25 | 1,297 | 1,585 |
| New share capital issued | 17 | 594 | 1,624 |
| Principal element of lease payments | 25 | (642) | (537) |
| Net cash inflow from financing activities | | 682 | 2,348 |
| Net increase/(decrease) in cash and cash equivalents | | 157 | (1,038) |
| Cash and cash equivalents at the start of the year | | - | 1,038 |
| Cash and cash equivalents at the end of the year | 25 | 157 | - |
| Cash and cash equivalents comprise: | | | |
| Cash at bank | 25 | 157 | - |
| | | 157 | - |
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| | Share capital £000 | Share premium account £000 | Capital redemption reserve £000 |
Hedging reserve £000 |
Revaluation reserve £000 | Retained earnings £000 | Attributable to equity holders of the parent £000 |
| Balance at 1 June 2021 | 2,051 | 4,720 | 109 | 218 | - | (9,664) | (2,566) |
| Profit for the year | - | - | - | - | - | 72 | 72 |
| Other comprehensive (expense)/income for the year net of tax | - | - | - | (118) |
1,003 | 269 | 1,154 |
| Total comprehensive (expense)/income | - | - | - | (118) |
1,003 | 341 | 1,226 |
| New share capital issued | 36 | 1,588 | - | - | - | - | 1,624 |
| Share-based payment | - | - | - | - | - | 67 | 67 |
| Deferred tax on share-based payment | - | - | - | - |
- | 57 | 57 |
| Total of transactions with shareholders | 36 | 1,588 | - | - |
- | 124 | 1,748 |
| Balance at 1 June 2022 | 2,087 | 6,308 | 109 | 100 | 1,003 | (9,199) | 408 |
| Loss for the year | - | - | - | - | - | (125) | (125) |
| Other comprehensive expense for the year net of tax | - | - | - | (98) |
- | (869) | (967) |
| Total comprehensive expense | - | - | - | (98) |
- | (994) | (1,092) |
| New share capital issued (net of transaction costs) | 20 | 574 | - | - | - | - | 594 |
| Share-based payment | - | - | - | - | - | 99 | 99 |
| Deferred tax on share-based payment | - | - | - | - |
- | (18) | (18) |
| Total of transactions with shareholders | 20 | 574 | - | - |
- | 81 | 675 |
| Balance at 31 May 2023 | 2,107 | 6,882 | 109 | 2 | 1,003 | (10,112) | (9) |
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. Transaction costs directly associated with the share placing and subscription in January 2023 of £0.1m have been debited to share premium in the year.
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.
Revaluation reserve
The revaluation reserve includes the difference between the market valuation of property, plant and equipment and its carrying value at the date of its valuation.
Retained earnings
Retained earnings include the accumulated profits and losses arising from the Consolidated Income Statement, certain items from the Statement of Comprehensive Income attributable to equity Shareholders and the share-based payment expense, less distributions to Shareholders.
NOTES TO THE FINANCIAL STATEMENTS
Section 1
Basis of Preparation
1 Authorisation of financial statements and statement of compliance with UK adopted International Accounting Standards
The Group and Company financial statements of Chamberlin Plc (the 'Company') for the year ended 31 May 2023 were authorised for issue by the Board of Directors on 30 November 2023, 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 United Kingdom adopted International Accounting Standards, "UK adopted IAS", and in accordance with those parts of the Companies Act 2006 relevant to companies which report in accordance with UK adopted IAS.
The Company's financial statements have been prepared in accordance with Financial Reporting Standard 101 'The Reduced Disclosure Framework'.
2 New standards adopted
There are no new accounting standards adopted in the year that have a material impact on the financial statements.
There are no new accounting standards effective in the next financial year that are expected to have a material impact on the financial statements.
3 SEGMENTAL ANALYSIS
For management purposes, the Group is organised into two operating divisions according to the nature of the products and services. Operating segments within those divisions are combined on the basis of their similar long-term characteristics and the similar nature of their products, services and end users as follows:
The Foundries segment supplies iron castings, in raw or machined form, to a variety of industrial customers who incorporate the castings into their own products or carry out further machining or assembly operations on the castings before selling them on to their customers.
The Engineering segment supplies manufactured products to distributors and end-users operating in hazardous area and industrial lighting markets.
Management monitors the operating results of its divisions separately for the purposes of making decisions about resource allocation and performance assessment. The Chief Operating Decision Maker is the Chief Executive.
(i) By operating segment
|
| Segmental revenue | Segmental operating profit/ (loss) | ||
| | 2023 £000 |
2022 £000 | 2023 £000 |
2022 £000 |
| Foundries | 16,889 | 13,604 | (210) | (463) |
| Engineering | 3,829 | 3,232 | 606 | 535 |
| Segment results | 20,718 | 16,836 | 396 | 72 |
| Reconciliation of reported segmental operating profit | | | | |
| Segment operating profit | | | 396 | 72 |
| Shared costs | | | (983) | (775) |
| Non-underlying items (Note 10) | | | 1,155 | 505 |
| Net finance costs (net of finance income of £136,000 (2022:£26,000)) | | | (530) | (311) |
| Profit/(loss) before tax | | | 38 | (509) |
| Segmental assets | | | | |
| Foundries | | | 11,828 | 9,811 |
| Engineering | | | 1,588 | 1,425 |
| | | | 13,416 | 11,236 |
| Segmental liabilities | | | | |
| Foundries | | | (6,806) | (5,771) |
| Engineering | | | (1,572) | (1,511) |
| | | | (8,378) | (7,282) |
| Segmental net assets | | | 5,038 | 3,954 |
| Unallocated net liabilities | | | (5,047) | (3,546) |
| Total net (liabilities)/assets | | | (9) | 408 |
Unallocated net liabilities include the pension liability of (£639,000) (2022: £64,000 asset), net debt of (£,5,541,000) (2022: £4,974,000) and a net deferred tax asset of £1,133,000 (2022: £1,364,000).
Capital expenditure, depreciation, amortisation and impairment
| | Foundries | Engineering | Total | |||
| Capital additions | 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 |
| Property, plant and equipment (Note 11) | 420 | 1,327 | 57 | - | 477 | 1,327 |
| Software (Note 12) | 5 | 20 | - | - | 5 | 20 |
| Development costs (Note 12) | - | - | 10 | 24 | 10 | 24 |
| | Foundries | Engineering | Total | |||
| Depreciation, amortisation and impairment | 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 |
| Property, plant and equipment (Note 11) | (428) | (317) | (8) | (7) | (436) | (324) |
| Software (Note 12) | (18) | 4 | (1) | (1) | (19) | 3 |
| Development costs (Note 12) | - | - | (20) | (27) | (20) | (27) |
(ii) Geographical information
| Revenue by location of customer | 2023 £000 | 2022 £000 |
| United Kingdom | 15,709 | 13,334 |
| Italy | 2,316 | 1,171 |
| Germany | 1,665 | 1,382 |
| Rest of Europe | 274 | 211 |
| Other countries | 754 | 738 |
| | 20,718 | 16,836 |
The Group's assets and costs are all located within the United Kingdom.
The Group has one individual customer in Italy which represents 10% of Group revenue (2022: 6%).
4 Other operating expenses
| |
2023 £000 | 2022 £000 |
| Distribution costs | 564 | 456 |
| Administration and selling expenses | 2,849 | 2,045 |
| Operating expenses before non-underlying items | 3,413 | 2,501 |
| Non-underlying items (Note 10) | (1,155) | (505) |
| Operating expenses | 2,258 | 1,996 |
5 Staff numbers and costs
|
The average number of people employed by the Group during the year was: | 2023 Number | 2022 Number |
| Management and administration | 30 | 33 |
| Production | 135 | 152 |
| Total employees | 165 | 185 |
Aggregate employment costs, including redundancy, are disclosed below net of £Nil (2022: £58,000) of coronavirus job retention scheme receipts:
| | 2023 £000 | 2022 £000 |
| Wages and salaries | 5,646 | 5,137 |
| Social security costs | 589 | 535 |
| Other pension costs (Note 20) | 201 | 200 |
| Share-based payment expense (Note 18) | 99 | 67 |
| | 6,535 | 5,939 |
|
The average number of people employed by the Company during the year was: | 2023 Number | 2022 Number |
| Management and administration | 7 | 8 |
The aggregate employment costs, including redundancy, of these employees were as follows:
| |
2023 £000 | 2022 £000 |
| Wages and salaries | 491 | 476 |
| Social security costs | 47 | 45 |
| Other pension costs | 15 | 15 |
| Share-based payment expense (Note 18) | 99 | 67 |
| | 652 | 603 |
| Directors' remuneration summary | 2023 £000 | 2022 £000 |
| Directors' remuneration | 396 | 384 |
| Company contributions to money purchase pension scheme | 11 | 11 |
| Share-based payment charge of options granted to Directors (see Note 18) | 35 | 35 |
| Number of Directors accruing benefits under: | 2023 Number | 2022 Number |
| Defined contribution pension schemes | 2 | 2 |
Directors' remuneration is analysed in detail in the Directors' Remuneration Report in the 2023 Annual Report and Accounts.
The total amount payable to the highest paid Director in respect of remuneration was £134,000 (2022: £131,000).
Company pension contributions of £6,000 (2022: £6,000) were made to a money purchase pension scheme on his behalf.
6 Finance costs
| | 2023 £000 |
2022 £000 |
| Finance costs | | |
| Bank overdraft and invoice finance interest payable | (365) | (94) |
| Interest expense on lease liabilities and other interest payable | (301) | (230) |
| Finance cost of pensions (see Note 20) | - | (13) |
| | (666) | (337) |
7 Operating (loss)/profit
| This is stated after charging/(crediting): | 2023 £000 |
2022 £000 |
| Profit on disposal of fixed assets | - | (66) |
| Depreciation of owned assets | 332 | 230 |
| Amortisation of owned software | 10 | 12 |
| Depreciation of right-of-use assets | | |
| Land and Buildings | 71 | 6 |
| Plant and Machinery | 29 | 82 |
| Motor Vehicles | 4 | 6 |
| Software | 9 | (15) |
| Impairment reversal relating to fixed assets (Note 11) | (1,372) | - |
| Amortisation of development costs | 20 | 27 |
| Cost of inventories recognised as an expense | 9,733 | 7,147 |
| Exchange gain | (140) | (1) |
| Auditor's remuneration: | | |
| Group audit fees | 30 | 55 |
| Audit fees for statutory accounts of subsidiaries | 75 | 75 |
| Rentals under operating leases*: | | |
| Hire of plant and equipment | 16 | 60 |
| Land and buildings | 111 | 111 |
* This is the expense for short-term low value leases excluded from IFRS 16 right-of-use assets.
8 Taxation
| | 2023 £000 |
2022 £000 |
| Current tax: | | |
| UK Corporation tax at 19% (2022: 19%) | (161) | - |
| Adjustments in respect of prior years | (125) | (306) |
| | (286) | (306) |
| Deferred tax: | | |
| Origination and reversal of temporary differences | 162 | 22 |
| Adjustments in respect of prior years | 287 | (297) |
| Change in tax rate | - | - |
| | 449 | (275) |
| Tax charge/(credit) reported in the Consolidated Income Statement | 163 | (581) |
The corporation tax rate increased to 25% from 1st April 2023, with the tax value of deferred tax assets and liabilities at the year end adjusted accordingly.
Brought forward tax losses of the Group of £1,116,000 were utilised in the year (2022: £500,000).
In addition to the amount charged to the consolidated income statement, tax movements recognised through other comprehensive income and equity were as follows:
| Consolidated statement of comprehensive income |
2023 £000 |
2022 £000 |
| Current tax: | - | - |
| | | |
| Deferred tax: | | |
| Retirement benefit obligation | (204) | 63 |
| Fair value movements on cash flow hedges | (32) | (40) |
| Change in tax rate | - | - |
| Tax (credit)/charge reported in the consolidated statement of comprehensive income | (236) | 23 |
| Consolidated statement of changes in equity | 2023 £000 | 2022 £000 |
| Current tax: | - | - |
| Deferred tax: |
2023 £000 |
2022 £000 |
| Share-based payment | 18 | (57) |
| Tax charge/(credit) reported in the consolidated statement of changes in equity | 18 | (57) |
| Reconciliation of total tax charge |
2023 £000 |
2022 £000 |
| Profit/(loss) on ordinary activities before tax | 38 | (509) |
| Corporation tax charge at standard rate of 19% (2022: 19%) on profit/(loss) before tax | 7 | (97) |
| Adjusted by the effects of: | | |
| Expenses not deductible | 10 | (34) |
| Unprovided deferred tax differences | 275 | 394 |
| Deferred tax on losses recognised | (286) | (314) |
| Adjustments in respect of prior years | 162 | (603) |
| Rate differential on timing differences | (5) | 73 |
| Total tax charge/(credit) reported in the consolidated income statement | 163 | (581) |
Unprovided deferred tax differences of £275,000 (2022: £394,000) relate to deferred tax not recognised on losses in the year.
9 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 10 and defined in Note 26, has also been disclosed.
| | 2023 £000 |
2022 £000 |
| (Loss)/earnings for basic earnings per share | (125) | 72 |
| Non-underlying items (Note 10) | (1,155) | (505) |
| Taxation effect of the above | 343 | - |
| Loss for underlying earnings per share | (937) | (433) |
|
Underlying loss per share (pence): | | |
| Underlying | (0.8) | (0.5) |
| Diluted underlying | (0.8) | (0.5) |
| Total (loss)/earnings per share (pence): | | |
| Basic | (0.1) | 0.1 |
| Diluted | (0.1) | 0.1 |
| | Number '000 | Number '000 |
| Weighted average number of ordinary shares | 112,603 | 79,488 |
| Adjustment to reflect shares under options | 1,888 | 3,581 |
| Weighted average number of ordinary shares - fully diluted | 114,491 | 83,069 |
There is no adjustment in the diluted loss per share calculation for the 1,888,000 shares under option in 2023 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 112,603,000 (2022: 83,069,000).
10 Non-underlying items
| |
2023 £000 |
2022 £000 |
| Group reorganisation | 118 | - |
| Reversal of impairment of property, plant & equipment | (1,372) | - |
| Reversal of impairment of inventory and receivables | - | (498) |
| Additional liability from customer claim relating to disposal of Exidor Limited | - | 10 |
| Dilapidations provision release | - | (84) |
| Share-based payment charge | 99 | 67 |
| Non-underlying operating items | (1,155) | (505) |
| Taxation | | |
| - Tax effect of non-underlying items | 343 | - |
| | (812) | (505) |
During the year, the Group incurred group reorganisation costs of £118,000 (2022: nil) as part of the restructure of the management team at Petrel.
The reversal of impairment of property, plant and equipment in 2023 of £1,372,000 (2022: nil) relates to the partial reversal of the £3,809,000 impairment in 2021 of assets in the foundry division's machining facility. Further details of this impairment reversal can be found in note 11.
The share-based payment charge in 2023 of £99,000 (2022: £67,000) relates to the fair value cost of share option schemes for the year and includes an accelerated charge of £32,000 (2022: nil) relating to employees that left employment of the Group during the year.
11 Property, plant and equipment
| Group | Land and buildings £000 | Plant and machinery £000 | Motor vehicles £000 | Total £000 |
| Cost | | | | |
| At 1 June 2021 | 6,354 | 23,560 | 143 | 30,057 |
| Revaluation | (35) | - | - | (35) |
| Additions | 855 | 472 | - | 1,327 |
| Disposals | (3,434) | - | (20) | (3,454) |
| Reclassification | 70 | (70) | - | - |
| At 31 May 2022 | 3,810 | 23,962 | 123 | 27,895 |
| Additions | 14 | 463 | - | 477 |
| Disposals | - | - | (123) | (123) |
| Reclassification | - | 315 | - | 315 |
| At 31 May 2023 | 3,824 | 24,740 | - | 28,564 |
| Depreciation | | | | |
| At 1 June 2021 | 4,841 | 22,655 | 130 | 27,626 |
| Charge for year | 117 | 201 | 6 | 324 |
| Disposals | (2,506) | - | (17) | (2,523) |
| Revaluation | (1,038) | - | - | (1,038) |
| Reclassification | (166) | 166 | - | - |
| At 31 May 2022 | 1,248 | 23,022 | 119 | 24,389 |
| Charge for year | 163 | 269 | 4 | 436 |
| Impairment reversal | - | (1,372) | - | (1,372) |
| Disposals | - | - | (123) | (123) |
| Reclassification | - | (1) | - | (1) |
| At 31 May 2023 | 1,411 | 21,918 | - | 23,329 |
| Net book value | | | | |
| At 31 May 2023 | 2,413 | 2,822 | - | 5,235 |
| At 31 May 2022 | 2,562 | 940 | 4 | 3,506 |
| At 1 June 2021 | 1,513 | 905 | 13 | 2,431 |
Reclassification of cost of £315,000 to plant and machinery in the year includes £131,000 reclassified from software in intangible assets (see note 12) and £184,000 reclassified from inventory (see note 13).
The net book value of land and buildings of £2,413,000 includes property held at valuation amounting to £1,600,000. The valuation was undertaken by Stephens McBride, Chartered Surveyors, in June 2022 and was prepared in accordance with the Royal Institute of Chartered Surveyors Valuation - Global Standards (January 2020) ('The Red Book') and based on the market value of the freehold interest with vacant possession.
Net book value of land and buildings comprises:
| | 2023 £000 | 2022 £000 |
| Freehold | 1,744 | 1,831 |
| Short leasehold | 669 | 731 |
| | 2,413 | 2,562 |
The net book value of land and buildings held at valuation on a historical cost basis for the Group and the Company is shown below:
| | 2023 £000 | 2022 £000 |
| Cost | 1,635 | 1,635 |
| Accumulated depreciation | (1,011) | (984) |
| | 624 | 651 |
Right-of-use assets net book value included in the above comprise:
| | Land and buildings £000 | Plant and machinery £000 | Motor vehicles £000 | Total £000 |
| At 31 May 2022 | 731 | 187 | 4 | 922 |
| At 31 May 2023 | 633 | 1,540 | - | 2,173 |
Additions of £67,000 included in total plant and machinery additions of £463,000 relate to right-of-use assets. The depreciation charge for the year for right-of-use assets is disclosed in Note 7. A reversal of impairment of £1,372,000 in relation to right-of-use plant and machinery was made in the year.
The maturity analysis of lease liabilities associated with right-of-use assets is disclosed in Note 23. The interest cost and the cash flows associated with these lease liabilities are disclosed in Note 6 and the consolidated cash flow statement respectively.
| Company | Land and buildings £000 | Plant and machinery £000 | Motor vehicles £000 | Total £000 |
| Cost | | | | |
| At 1 June 2021 | 1,670 | 130 | 120 | 1,920 |
| Revaluation | (35) | - | - | (35) |
| Disposals | - | - | (20) | (20) |
| Transfer to subsidiary undertaking | (35) | - | - | (35) |
| At 31 May 2022 | 1,600 | 130 | 100 | 1,830 |
| Additions | - | 5 | - | 5 |
| Disposals | - | - | (100) | (100) |
| At 31 May 2023 | 1,600 | 135 | - | 1,735 |
| | | | | |
| | | | | |
| Depreciation | | | | |
| At 1 June 2021 | 1,011 | 101 | 106 | 1,218 |
| Charge for year | 27 | 11 | 6 | 44 |
| Disposals | - | - | (16) | (16) |
| Revaluation | (1,038) | - | - | (1,038) |
| At 31 May 2022 | - | 112 | 96 | 208 |
| Charge for year | 27 | 8 | 4 | 39 |
| Disposals | - | - | (100) | (100) |
| At 31 May 2023 | 27 | 120 | - | 147 |
| Net book value | | | | |
| At 31 May 2023 | 1,573 | 15 | - | 1,588 |
| At 31 May 2022 | 1,600 | 18 | 4 | 1,622 |
| At 1 June 2021 | 659 | 29 | 14 | 702 |
The net book value of motor vehicles in the Company of £4,000 in 2022 relates entirely to right-of-use assets under lease, which were fully depreciated during 2023 as the lease came to an end.
| | Group £000 | Company £000 |
| Freehold land included above not subject to depreciation amounted to: | | |
| 2023 | 275 | 275 |
| 2022 | 275 | 275 |
Impairment testing
Following the impairment at one of its cash-generating units (CGUs) within the foundry segment in 2021, management have undertaken a review of the carrying value of the property, plant and equipment and intangible assets relating to that CGU in 2023.
Impairment has been assessed by comparing the book value of assets against their recoverable amounts. The recoverable amount of a CGUs assets is the higher of its fair value less costs to sell and its value in use. Value in use is determined using cashflow projections from the 3 year financial plan approved by the Board. Following the loss in 2021 of revenue from BorgWarner, the sole customer of the CGU subject to the impairment review, its future profitability is entirely dependent upon winning new contracts. The projected cashflows reflect the latest expectations of demand for products in years 1 to 3. The cashflows are extrapolated into the future using a 2% growth rate that management believe could conservatively be achieved as efforts continue to replace lost BorgWarner revenue and have been discounted at an estimated cost of capital of 14.2%. In 2023, a number of new orders and programs were secured with new customers, with projected cashflows indicating that the CGU could return to profitability from year 1 of the financial projections. The key sensitivities around these projections are the level of sales volumes from the new contract wins. In light of current geo-political risks and the uncertainty surrounding the extent and timing of a future economic recovery in the Group's UK and worldwide markets, the Board have applied conservative assumptions in relation to the level of profitability that could be sustainable. Based on the assumptions noted above, including sensitivities regarding sales growth assumptions in the light of uncertainty in global markets, the Board concluded that the recoverable amount of the CGU is higher than the book value of the CGU's assets and have therefore reversed £1.4m in the current year of the £3.8m impairment charge originally recognised in 2021.
12 Intangible assets
| | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Software | 76 | 222 | 5 | 3 |
| Development costs | 51 | 61 | - | - |
| | 127 | 283 | 5 | 3 |
| Software | Group £000 | Company £000 |
| Cost | | |
| At 1 June 2021 | 1,076 | 52 |
| Additions | 20 | - |
| At 31 May 2022 | 1,096 | 52 |
| Additions | 5 | 5 |
| Reclassification | (131) | - |
| At 31 May 2023 | 970 | 57 |
| Amortisation/ impairment | | |
| At 1 June 2021 | 877 | 41 |
| Charge for year | (3) | 8 |
| At 31 May 2022 | 874 | 49 |
| Charge for year | 19 | 3 |
| Reclassification | 1 | - |
| At 31 May 2023 | 894 | 52 |
| Net book value | | |
| At 31 May 2023 | 76 | 5 |
| At 31 May 2022 | 222 | 3 |
| At 1 June 2021 | 199 | 11 |
Software has an estimated useful life of between three and ten years.
In the Group, software includes right-of-use assets with a net book value of £38,000 (2022: £50,000) relating to assets held under leases. The depreciation charge for the period in respect of right-of-use assets is disclosed in Note 7. There were no additions in the year relating to right-of-use assets.
In the Company, software includes right-of-use assets with a net book value of £Nil (2022: £3,000) relating to assets held under leases. The depreciation charge for the period in respect of right-of-use assets was £3,000 (2022: £7,000). There were no additions in the year relating to right-of-use assets.
| Development costs capitalised | Group £000 | Company £000 |
| Cost | | |
| At 1 June 2021 | 395 | - |
| Additions | 24 | - |
| At 31 May 2022 | 419 | - |
| Additions | 10 | - |
| At 31 May 2023 | 429 | - |
| Amortisation/ impairment | | |
| At 1 June 2021 | 331 | - |
| Charge for year | 27 | - |
| At 31 May 2022 | 358 | - |
| Charge for year | 20 | - |
| At 31 May 2023 | 378 | - |
| Net book value | | |
| At 31 May 2023 | 51 | - |
| At 31 May 2022 | 61 | - |
| At 1 June 2021 | 64 | - |
Development costs capitalised relate to specific major projects which result in an asset being created which is then amortised over the primary income-generating period of the associated product. For the above items this has been estimated at five years from the commencement of commercial sales.
13 Inventories
| | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Raw materials | 1,300 | 1,743 | - | - |
| Work in progress | 975 | 735 | - | - |
| Finished goods | 987 | 665 | - | - |
| | 3,262 | 3,143 | - | - |
Inventory recognised in cost of sales during the period as an expense was £9,733,000 (2022: £7,147,000). There was an impairment reversal relating to inventory during the year of £84,000 (2022: £498,000) following a review of slow moving and obsolete items where a provision was no longer required. Inventory relating to fixed tooling with a cost value of £184,000 was transferred to plant and machinery in the year.
14 Trade and other receivables
| | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Trade receivables | 3,980 | 3,633 | 3 | 5 |
| Amounts due from subsidiary undertakings | - | - | 697 | 17 |
| Other receivables | 21 | 18 | 9 | 9 |
| Fair value of derivative forward contracts | 3 | - | - | - |
| Prepayments | 502 | 346 | 202 | 54 |
| | 4,506 | 3,997 | 911 | 85 |
Invoice finance liabilities are directly secured against the trade receivables of the Group. The Group retains the risk and rewards, such as default, associated with the holding of trade receivables. The Group has trade receivables as at 31 May 2023 of £3,980,000 (2022: £3,633,000) against which an invoice finance liability of £3,542,000 (2022: £2,243,000) was secured. The total available invoice finance facility as at 31 May 2023 was £4,500,000 (2022: £3,500,000).
Trade receivables are denominated in the following currencies:
| | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Sterling | 3,179 | 3,056 | 3 | 4 |
| Euro | 801 | 577 | - | - |
| | 3,980 | 3,633 | 3 | 4 |
Out of the carrying amount of trade receivables of £3,980,000 (2022: £3,633,000), £1,629,000 (2022: £1,314,000) is against five major customers.
Trade receivables are non-interest bearing and are generally on terms of 30 to 60 days and are shown net of a provision for impairment. As at 31 May 2023, trade receivables with a nominal value of £202,000 (2022: £34,000) were impaired and fully provided for. Movements in the provision for impairment of receivables were as follows:
| | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| At 1 June | 34 | 255 | - | - |
| Charge for year | 202 | 3 | - | - |
| Amounts written off | (34) | (224) | - | - |
| At 31 May | 202 | 34 | - | - |
The analysis of trade receivables that were past due but not impaired is as follows:
| 31 May 2023 | Total £000 | Neither past due nor impaired £000 | Past due | ||||
| <30 days £000 | 30-60 days £000 | 60-90 days £000 | 90-120 days £000 | >120 days £000 | |||
| Gross trade receivables | 4,182 | 2,930 | 699 | 182 | 43 | 126 | 202 |
| Expected credit losses | (202) | - | - | - | - | - | (202) |
| Net trade receivables | 3,980 | 2,930 | 699 | 182 | 43 | 126 | - |
|
|
|
|
|
|
|
|
|
| 31 May 2022 | Total £000 | Neither past due nor impaired £000 | Past due | ||||
| <30 days £000 | 30-60 days £000 | 60-90 days £000 | 90-120 days £000 | >120 days £000 | |||
| Gross trade receivables | 3,667 | 2,929 | 663 | 32 | - | 43 | - |
| Expected credit losses | (34) | - | - | - | - | (34) | - |
| Net trade receivables | 3,633 | 2,929 | 663 | 32 | - | 9 | - |
The Group ensures that the provision of credit to customers is adequately managed by each individual business in order that the risk of non-payment or delayed payment is minimised. The Group's exposure to risk is influenced mainly by the individual characteristics of each customer, the industry and country in which customers operate. The Group has a diversified base of customers and has written credit control policies which cover procedures for accepting new customers, setting credit limits, dealing with overdue amounts and delinquent payers. An impairment loss provision against trade receivables is created where it is anticipated that the value of trade receivables is not fully recoverable.
In the Company, amounts due from subsidiary companies are interest free and repayable on demand. An impairment charge of £Nil (2022: £Nil) was recognised in the period in relation to these receivables.
| Income taxes receivable | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| UK corporation tax | 286 | 306 | 41 | 35 |
15 Current liabilities
| Financial liabilities | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Bank overdraft | - | - | 1,515 | - |
| Invoice finance facility | 3,542 | 2,243 | - | - |
| Lease liabilities | 554 | 634 | 4 | 15 |
| | 4,096 | 2,877 | 1,519 | 15 |
The Group has no net overdraft facility. However, under the terms of the Group's banking arrangements, individual companies within the Group are permitted to have an overdraft position, provided the Group's net position is cash positive at the end of each banking day.
Lease liabilities are secured against the specific item to which they relate. These leases are repayable by monthly instalments for a maximum period of nine years to May 2032. Interest is payable at fixed amounts that range between 3.1% and 9.4%.
Invoice finance balances are secured by a fixed and floating charge over the assets of the Group and are repayable on demand. Interest is payable at 2.75% over base rate. The maximum facility as at 31st May 2023 was £4,500,000 (2022: £3,500,000). Management has assessed the treatment of the financing arrangements and has determined it is appropriate to recognise trade receivables and invoice finance liabilities separately.
| Trade and other payables | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Trade payables | 4,147 | 3,308 | 471 | 115 |
| Amounts owed to subsidiary undertakings | - | - | 336 | 477 |
| Other taxation and social security | 2,188 | 1,907 | - | - |
| Other payables | 474 | 555 | 285 | 395 |
| Accruals | 763 | 703 | 116 | 182 |
| Fair value of derivative forward contracts | - | 2 | - | - |
| | 7,572 | 6,475 | 1,208 | 1,169 |
Trade payables are non-interest bearing and are normally on terms of 30 to 60 days.
16 Non-current liabilities
| Financial liabilities | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| | | |
| |
| Lease liabilities | 1,602 | 2,097 | 6 | 11 |
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 9 (2022: 10) years to May 2032. £532,000 is repayable in one to two years (2022: £533,000), £550,000 within two to five years (2022: £926,000) and £520,000 in more than five years (2022: £638,000).
Interest is payable at a fixed amount that ranges between 3.1% and 9.4%.
| Provisions for liabilities | Dilapidations £000 |
| As at 1 June 2021 | 890 |
| Released in 2022 | (84) |
| As at 31 May 2022 and 2023 | 806 |
The dilapidation provision relates to expected future lease dilapidations and £616,000 is expected to be utilised within 1-2 years and £190,000 within 3-4 years.
| Deferred tax liabilities | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Deferred taxation | 40 | 70 | 39 | 37 |
Group Company
| | 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 |
| Group liabilities | | | | |
| Temporary differences relating to share options | 39 | 21 | 39 | 21 |
| Fair value hedges | 1 | 33 | - | - |
| Defined benefit pension scheme | - | 16 | - | 16 |
| | 40 | 70 | 39 | 37 |
|
Deferred tax assets | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Temporary differences relating to capital allowances | 503 | 1,129 | 15 | 15 |
| Temporary differences relating to pension scheme deficit | 160 | - | 160 | - |
| Temporary differences relating to tax losses | 435 | 156 | - | - |
| Other temporary differences | 75 | 149 | 1 | 78 |
| | 1,173 | 1,434 | 176 | 93 |
The tax value of Group trading losses carried forward for which a deferred tax asset has not been recognised total £4,659,000 (2022: £3,919,000).
Deferred tax assets are recognised only to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. The Group has assessed that it is probable that future profits will fully utilise current tax losses and other deductible temporary differences. Deferred tax assets relating to the pension scheme deficit are expected to be recovered over the period that contributions are made into the scheme, including the agreed contributions to September 2027. The deferred tax assets have been assessed as recoverable against forecasts of future taxable profits.
All deferred tax assets are recoverable, and deferred tax liabilities will be settled, in greater than one year.
Of the total deferred tax charge of £231,000 (2022: £309,000), a charge of £449,000 (2022: £275,000 credit) was recognised within the Consolidated Income Statement, a credit of £236,000 (2022: £23,000 charge) was recognised within other comprehensive income and a charge of £18,000 (2022: £57,000 credit) recognised within the Consolidated Statement of Changes in Equity.
17 Share capital
| Allotted, called up and fully paid | 2023 £000 | 2022 £000 |
| 125,853,677 (2022: 105,624,792) Ordinary shares of 0.1p | 125 | 105 |
| 7,958,126 (2022: 7.958,126) Deferred shares of 24.9p | 1,982 | 1,982 |
| | 2,107 | 2,087 |
The ordinary shares of 0.1p entitle the holders to participate in the assets of the Company, including dividends proposed and payable, together with the right to one vote per share held at a general meeting of the Company. Holders of deferred shares of 24.9p are only entitled to the amount paid up on those shares and have no other rights to participate in the assets of the Company.
On 31 January 2023 the Company issued 19,696,970 ordinary shares of 0.1p each at a subscription price of 3.3p each following a Share Placing and Subscription that raised gross proceeds (before transaction costs of £81,000) of £650,000. In addition, 531,915 shares were issued to Trevor Brown on 28 July 2022 at a price of 4.7p per share in lieu of his salary as an Executive Director of the company.
During the year no shares (2022: none) were issued to Directors to satisfy share options at nil (2022: nil) cost.
18 Share-based payments
Details of the equity settled scheme used to incentivise the Directors of the Group are set out in the Remuneration Committee Report in the 2023 Annual Report and Accounts.
Under all schemes, options lapse if the employee leaves the Group, subject to certain exceptions set out in the scheme rules.
Due to the small number of individual grants made, each individual option is priced using the Black-Scholes pricing model, rather than applying the model to weighted average figures for options granted in each year.
Relevant options outstanding during the period were as follows:
| | | Weighted average | |
| | No. of options | Exercise price (p) | Remaining contractual life (years) |
| At 1 June 2021 | 3,797,930 | 11.2 | 9.9 |
| Lapsed | (216,616) | 97.5 | 8.3 |
| At 1 June 2022 | 3,581,314 | 6.0 | 9.0 |
| Lapsed | (1,692,982) | 6.0 | 8.4 |
| At 31 May 2023 | 1,888,332 | 6.0 | 8.0 |
Options over 3,581,314 ordinary shares of 0.1p were granted to Directors and senior management on 13 May 2021 under the Chamberlin Performance Share Plan. The fair value of options granted in 2021 was 5.6p per share calculated using a Black-Scholes model and the following assumptions:
| Share price at date of grant | 10.1p |
| Volatility | 58% |
| Risk free rate | 0.88% |
| Dividend yield | 0% |
No share options were exercised during the current or prior period and there were no share options that are exercisable at the end of either financial period.
19 Fixed asset investments
| | £000 |
| Shares in subsidiary undertakings | |
| Cost as at 1 June 2021, 31 May 2022 and 31 May 2023 | 6,155 |
| Impairment | |
| At 1 June 2021 | 4,696 |
| Impairment charge reversal | (1,505) |
| At 31 May 2022 | 3,191 |
| Impairment charge reversal | - |
| At 31 May 2023 | 3,191 |
| Net book value | |
| At 31 May 2023 | 2,964 |
| At 31 May 2022 | 2,964 |
| At 1 June 2021 | 1,459 |
Following an improvement in performance of Russell Ductile Castings Limited, £1,505,000 of the impairment charge previously recognised was reversed in 2022 as the value in use of the investment in Russell Ductile Castings Limited was higher than its carrying value.
| Wholly owned operating subsidiaries | Principal activity |
| Chamberlin & Hill Castings Ltd | Manufacture and sale of engineering castings |
| Russell Ductile Castings Ltd | Manufacture and sale of engineering castings |
| Petrel Ltd | Manufacture and sale of lighting, and electrical installation products |
| Chamberlin Foundry Ltd | Intermediary holding company |
| | |
| Wholly owned dormant subsidiaries | |
| Chamberlin Group Ltd | |
| Chamberlin & Hill Ltd | |
| Ductile Castings Ltd | |
| Fred Duncombe Ltd | |
| Fitter & Poulton Ltd | |
| Webb Lloyd Ltd | |
The Company owns 100% of the issued ordinary share capital of the above companies, all of whom have their registered office as Chuckery Road, Walsall, WS1 2DU and operate principally in England and Wales.
20 Pension arrangements
During the year, the Group operated funded defined benefit and defined contribution pension schemes for the majority of its employees in the UK, these being established under trusts with the assets held separately from those of the Group. The pension operating cost for the Group defined benefit scheme for 2023 was £225,000 (2022: £151,000), with the increase being due to costs associated with the triennial valuation, together with financing income of £8,000 (2022: £13,000 cost).
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 £201,000 (2022: £200,000). 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):
| | At 31 May 2023 | At 31 May 2022 | At 31 May 2021 |
| Rate of increase in salaries | n/a | n/a | n/a |
| Rate of increase of pensions in payment - post 1997 accrual only | 3.0% | 3.4% | 3.1% |
| Discount rate | 5.4% | 3.4% | 1.85% |
| Inflation assumption - RPI | 3.1% | 3.5% | 3.2% |
| Inflation assumption - CPI | 2.5% | 2.8% | 2.5% |
Demographic assumptions are all based on the S3PA (2022: S3PA) 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 2038.
| | | 2023 Years | 2022 Years |
| Current pensioners at 65 | - Male | 20.6 | 20.6 |
| | - Female | 22.9 | 23.0 |
| Future pensioners at 65 | - Male | 21.4 | 21.4 |
| | - Female | 23.9 | 24.1 |
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 contributions expected to be paid during the year to 31 May 2024 are £409,000 and include estimated scheme administration costs to be paid out of scheme assets of £180,000. Apart from this amount there are no other minimum funding requirements.
The latest triennial valuation was completed as at 31 March 2022 in June 2023 and concluded that company contributions would increase to £317,700 for the year ended 31 March 2024 and £468,000 for the year ended 31 March 2025, with the deficit reduction period reducing to September 2027 (31 March 2019 valuation: August 2032). Company contributions now include £180,000 for scheme administration costs that will be paid out of scheme assets. The Company has given security over a property to the pension scheme. Subsequent to the year end, in June 2023, the charge over the property was released following the payment of an additional contribution to the pension scheme of £1,100,000, paid out of the proceeds of a sale and leaseback transaction. The next triennial review is due at 31 March 2025.
The scheme assets are stated at the market values at the respective balance sheet dates. The assets and liabilities of the scheme were:
| | 2023 £000 | 2022 £000 |
| Equities/diversified growth fund | 1,094 | 1,937 |
| Liability Driven Investments | 2,191 | 2,370 |
| Buy and Maintain Credit | 4,103 | 1,853 |
| Multi-Sector Credit | 1,750 | 4,273 |
| Insured pensioner assets | 7 | 13 |
| Cash | 1,855 | 3,578 |
| Market value of assets | 11,000 | 14,024 |
| Actuarial value of liability | (11,639) | (13,960) |
| Scheme (deficit)/surplus | (639) | 64 |
| Related deferred tax asset/(liability) | 160 | (16) |
| Net pension (liability)/surplus | (479) | 48 |
Due to the nature of the investments held, the scheme is subject to normal market risks that affect the world's stock markets, and in particular the UK market.
|
Net benefit income/(expense) recognised in profit and loss | 2023 £000 | 2022 £000 |
| Net interest income/(expense) | 8 | (13) |
| Net interest income/(expense) | 8 | (13) |
|
Remeasurement loss/ (gain) in other comprehensive income | 2023 £000 | 2022 £000 |
| Actuarial gain arising from changes in financial assumptions | (2,820) | (2,466) |
| Actuarial loss arising from changes in demographic assumptions | 72 | 60 |
| Experience adjustments | 894 | 98 |
| Loss on assets (excluding interest income) | 2,927 | 1,976 |
| Total remeasurement loss/(gain) shown in other comprehensive income | 1,073 | (332) |
| | 2023 £000 | 2022 £000 |
| Actual loss on plan assets | (2,466) | (1,686) |
| Movement in surplus/(deficit) | 2023 £000 | 2022 £000 |
| Deficit in scheme at beginning of year | 64 | (1,190) |
| Movement in year: | | |
| Employer contributions | 362 | 935 |
| Net interest income/(expense) | 8 | (13) |
| Actuarial (loss)/gain | (1,073) | 332 |
| (Deficit)/surplus in scheme at end of year | (639) | 64 |
| Movement in scheme assets | 2023 £000 | 2022 £000 |
| Fair value at beginning of year | 14,024 | 15,601 |
| Interest income on scheme assets | 461 | 290 |
| Return on assets (excluding interest income) | (2,927) | (1,976) |
| Employer contributions | 362 | 935 |
| Benefits paid | (920) | (826) |
| Fair value at end of year | 11,000 | 14,024 |
| Movement in scheme liabilities | 2023 £000 | 2022 £000 |
| Benefit obligation at start of year | 13,960 | 16,791 |
| Interest cost | 453 | 303 |
| Actuarial gain arising from changes in financial assumptions | (2,820) | (2,466) |
| Actuarial loss arising from changes in demographic assumptions | 72 | 60 |
| Experience adjustments | 894 | 98 |
| Benefits paid | (920) | (826) |
| Benefit obligation at end of year | 11,639 | 13,960 |
The weighted average duration of the pension scheme liabilities is 10 years (2022: 12 years).
A quantitative sensitivity analysis for significant assumptions as at 31 May 2023 is as shown below:
| Present value of scheme liabilities when changing the following assumptions: | 2023 £000 | 2022 £000 |
| Discount rate increased by 1% p.a. | 10,644 | 12,543 |
| RPI and CPI increased by 1% p.a. | 12,036 | 14,584 |
| Mortality - members assumed to be their actual age as opposed to one year older | 12,131 | 14,627 |
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.
21 Contingent liabilities
Cross guarantees exist between the Company and its subsidiary undertakings in respect of the Group's bank overdrafts, asset finance loans and invoice finance facilities. The total borrowings of the subsidiaries at 31 May 2023 amounted to £8,377,000 (2022: £7,879,000).
22 Financial commitments
| Capital expenditure | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Contracted for but not provided in the accounts | - | - | - | - |
Lease commitments
The Group had total outstanding commitments under operating leases as follows:
| | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Future minimum payments due: | | | | |
| Not later than one year | - | 11 | - | 11 |
| | - | 11 | - | 11 |
Lease commitments disclosed above relate to short-term property leases and low value leases excluded from IFRS 16 'Right-of-use assets'.
23 Derivatives and financial risk management
The Group considers the use of derivatives to reduce financial risk in a number of areas noted below.
The only area where the use of derivatives is considered appropriate at present is that of currency risk.
The carrying amount of financial assets and financial liabilities are not materially different to their fair value.
Currency risk
The Group's functional currency is sterling. The Group has euro denominated revenue that represents between 15% and 20% of Group revenue. The average exchange rate used to translate into GBP Sterling was ?1.15 (year ended 31 May 2022: ?1.18).
During the year, the Group had forward currency hedging contracts in place representing approximately 50% of highly probable revenue forecasts. At 31 May 2023 there were net monetary assets (trade receivables, trade payables and cash at bank) denominated in euros of £393,000 (2022: £227,000). A proportion of the Group's financial liabilities are denominated in euros, reducing the currency risk of the Group. With approximately 50% of euro debtors hedged, the impact on net monetary assets of a 5% exchange rate change in the euro/sterling exchange rate would not be material to the profit and loss.
The terms of the forward currency hedging contracts have been aligned with the terms of the commitments and the cash flow hedges of expected future sales were assessed to be highly effective.
Forward currency contracts for the sale of euros outstanding at the year end have been recorded at fair value with the movement being recognised directly in other comprehensive income through the Consolidated Statement of Comprehensive Income. If these contracts were not in place and the euro/sterling exchange rate moved by plus or minus 5% the corresponding gain/loss to equity would be £6,000 (2022: £20,000).
| | Contracted amount ( ?000) | Weighted average contract rate | Contracted amount £000 | Contracted amount at year end rate £000 | Unrealised gain/(loss) £000 |
| At 31 May 2023 | | | | | |
| - Net sell contracts | 150 | 1.135 | 132 | 129 | 3 |
| At 31 May 2022 | 500 | 1.178 | 424 | 426 | (2) |
Fair value hierarchy
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:
| Level 1: | quoted (unadjusted) prices in active markets for identical assets or liabilities; |
| Level 2: | other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. |
All derivative financial assets and liabilities are valued by Level 2 techniques. The fair values of short term receivables, short-term payables, and the invoice finance facility and overdraft (both of which are repayable on demand) are not disclosed, as permitted by IFRS 7, where the carrying amount is a reasonable approximation to fair value.
The Group's finance team performs valuations of financial items for financial reporting purposes. Valuation techniques are selected based on the characteristics of each instrument, with the overall objective of maximising the use of market-based information. The finance team reports directly to the Group Finance Director and the Audit Committee. Valuation processes and fair value changes are discussed among the Audit Committee and the valuation team at least every year, in line with the Group's reporting dates. The following valuation techniques are used for instruments categorised in Level 2.
Foreign currency forward contracts (Level 2) - the Group's foreign currency forward contracts are not traded in active markets. These contracts have been fair valued using observable forward exchange rates and interest rates corresponding to the maturity of the contract. The effects of non-observable inputs are not significant for foreign currency forward contracts.
Interest rate risk
The Group has asset finance loans and an invoice finance facility. Exposure to interest rate risk is considered to be low and no derivatives are used to modify the Group's interest rate risk profile. The impact of a 50 basis point increase in UK interest rates would be a £18,000 reduction in profit before tax (2022: £11,000). An equivalent decrease in rates would increase profit before tax by £18,000 (2022: £11,000).
An analysis of interest-bearing financial assets and liabilities is given below.
| Financial liabilities | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Bank overdraft (sterling denominated) | - | - | (1,515) | - |
| Invoice finance (sterling denominated) | (2,782) | (2,026) | - | - |
| Invoice finance (euro denominated) | (760) | (216) | - | - |
| Lease liabilities (sterling denominated) | (2,156) | (2,731) | (10) | (25) |
| | (5,698) | (4,973) | (1,525) | (25) |
Balances relating to the bank overdraft and invoice finance liabilities are subject to floating rates of interest whilst the balances relating to lease liabilities are subject to fixed rates of interest.
Credit risk
The Group trades only with recognised, creditworthy third parties. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in Note 14.
There are no significant concentrations of credit risk within the Group.
With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents, the Group's exposure to credit risk arises from default of the counterparty, with the maximum exposure equal to the carrying amount of the instrument.
The bad debt charge for the period was £202,000 (2022: £3,000).
Liquidity risk
The Group aims to mitigate liquidity risk by managing the cash generation of its operating units, and applying cash generation targets across the Group. Investment is carefully controlled, with authorisation limits operating up to Group Board level and cash payback periods applied as part of the investment appraisal process. In this way the Group aims to maintain a good credit rating and operate within its existing facilities. There are no material differences between the fair values and carrying values of the financial assets and liabilities.
The Group's funding strategy is to maintain flexibility in managing its day-to-day working capital needs through the use of an invoice finance facility, and to fund acquisitions and significant capital projects through the use of longer-term funding, including bank loans, hire purchase and equity. The Group's £3.5m invoice finance facility is ongoing, as discussed in the commentary on the Consolidated Cash Flow Statement. The availability of adequate liquidity to fund operations is a significant risk to the ongoing viability of the Group. The Group reviews its ongoing headroom weekly and projects forward on a daily basis for 13 weeks and produces longer term projections that give monthly headroom for a 2 year period as part of its budgeting and quarterly reforecasting process. In addition to the invoice finance facility, the Group has the ability to raise capital from shareholders if required.
The carrying value of the Group's financial assets and liabilities is considered to be the same as the fair value.
The table below summarises the maturity profile of the Group's financial assets and liabilities, which are all classified as Level 2, at 31 May 2023 and 31 May 2022.
| | On demand | Less than one year | One to two years | Two to five years | More than five years | Total |
| At 31 May 2023 | | | | | | |
| Financial assets | | | | | | |
| Trade receivables | 3,980 | - | - | - | - | 3,980 |
| Non-derivative financial liabilities | | | | | | |
| Invoice finance | 3,542 | - | - | - | - | 3,542 |
| Lease liabilities, including interest | - | 717 | 680 | 721 | 589 | 2,707 |
| Trade payables | - | 4,147 | - | - | - | 4,147 |
| | 3,542 | 4,864 | 680 | 721 | 589 | 10,396 |
| At 31 May 2022 | | | | | | |
| Financial assets | | | | | | |
| Trade receivables | 3,633 | - | - | - | - | 3,633 |
| Non-derivative financial liabilities | | | | | | |
| Invoice finance | 2,243 | - | - | - | - | 2,243 |
| Lease liabilities, including interest | - | 820 | 698 | 1,192 | 755 | 3,465 |
| Trade payables | - | 3,308 | - | - | - | 3,308 |
| | 2,243 | 4,128 | 698 | 1,192 | 755 | 9,016 |
The gross undiscounted future cashflows are analysed as follows:
| | On demand | Less than one year | One to two years | Two to five years | Total |
| At 31 May 2023 | | | | | |
| Foreign exchange forward contracts | - | 132 | - | - | 132 |
| | - | 132 | - | - | 132 |
The outflows above relate to the settlement of the derivative contracts which are a fair value asset at the year end as disclosed in Note 14.
| At 31 May 2022 | | | | | |
| Foreign exchange forward contracts | - | 424 | - | - | 424 |
| | - | 424 | - | - | 424 |
The Company's financial liabilities comprise a bank overdraft of £1,515,000 (2022: £Nil) and is payable on demand, and lease liabilities of £10,000 (2022: £25,000)
Capital management
The Group defines capital as the total equity of the Group, which at the year end is £9,000 negative (2022: £408,000 positive) The Group objective for managing capital is to deliver competitive, secure and sustainable returns to maximise long-term shareholder value. There are no financial covenant restrictions on the Group's overdraft facility or invoice finance facility. Certain asset finance loans with HSBC include EBITDA and cash headroom covenants that are reported monthly to the bank for the duration of the lease term of 42 months from April 2022.
24 Related party transactions
Group
All transactions between the parent company and subsidiary companies have been eliminated on preparation of the consolidated accounts. The Group has not entered into any other related party transactions.
Company
The Company provides certain management services to subsidiary companies.
Certain payments in relation to items settled or provided on a central basis, principally corporation tax and insurance payments, are made by the Company and are then recharged to subsidiaries at cost.
Compensation of key management personnel (including Directors)
| | Group | Company | ||
| 2023 £000 | 2022 £000 | 2023 £000 | 2022 £000 | |
| Short-term employee benefits (including employer's NI) | 499 | 542 | 384 | 384 |
| Termination costs (including employer's NI) | - | - | - | - |
| Share-based payments | 99 | 67 | 99 | 67 |
| Pension contributions | 16 | 15 | 11 | 11 |
| | 614 | 624 | 494 | 462 |
Key management, other than Directors of the Company, comprise the Managing Directors and Finance Directors of the main operating subsidiaries and are included in the Group figures above.
Details of key management share options are disclosed in Note 18.
25 Net debt
| | Net overdraft/ (cash at bank) £000 | Invoice finance £000 | Lease liabilities £000 | Total £000 |
| At 1 June 2021 | 1,038 | (665) | (2,208) | (1,835) |
| Cashflow | (1,038) | (1,585) | 537 | (2,086) |
| New finance leases in the period | - | - | (1,060) | (1,060) |
| Impact of foreign exchange rates | - | 7 | - | 7 |
| At 31 May 2022 | - | (2,243) | (2,731) | (4,974) |
| Cashflow | 157 | (1,297) | 642 | (498) |
| New finance leases in the year | - | - | (67) | (67) |
| Impact of foreign exchange rates | - | (2) | - | (2) |
| At 31 May 2023 | 157 | (3,542) | (2,156) | (5,541) |
| Balances comprise: | | | | |
| Current assets | 157 | - | - | 157 |
| Current liabilities | - | (3,542) | (554) | (4,096) |
| Non-current liabilities | - | - | (1,602) | (1,602) |
| | 157 | (3,542) | (2,156) | (5,541) |
26 Summary of significant accounting policies
Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis and in accordance with UK - adopted international accounting standards. They 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 May each year. The financial statements of subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All inter-company balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group.
Subsidiaries are entities which are controlled by the Group. Control is achieved when the Group has power over the investee, has the right to variable returns from the investee and has the power to affect its returns. The Group obtains and exercises control through voting rights and control is reassessed if there are indications that the status of any of the three elements have changed.
Going concern
The Group's activities together with the factors likely to affect its future development, performance and financial position, including its cash flows, liquidity position and borrowing facilities, are described in the Strategic Report in the 2023 Annual Report and Accounts. In addition, Note 23 to the Group financial statements includes the Group's objectives and policies for managing capital and financial risks in relation to currency, interest rates, credit and liquidity.
The Director's assessment of going concern is based on the Group's detailed forecast for the three years ending 31 May 2024, 31 May 2025 and 31 May 2026, 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 forecast includes 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 Russell Ductile Castings, 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 Russell Ductile Castings 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 2024 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. The Directors have considered how they will respond to any working capital challenges bearing in mind the points raised above. Firstly the business constantly looks at cost minimisation and that process could be accelerated if required. Secondly, if access to alternative debt funders were not successful in the short term, the business will consider other funding options, including equity, to support working capital requirements.
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.
Presentation of the Consolidated Income Statement
The Consolidated Income Statement is allocated between underlying items that relate to the trading activities of the business, and non-underlying items that are either non-trading, non-recurring or are valued using market-derived data, which is outside of management's control.
Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. The choice of measurement of non-controlling interest, either at fair value or at the proportionate share of the acquiree's identifiable net assets, is determined on a transaction by transaction basis. Acquisition costs incurred are expensed and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IFRS 9, either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the acquisition date fair value of the consideration transferred and the amount recognised for the non-controlling interest (and where the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree) over the net identifiable amounts of the assets acquired and the liabilities assumed in exchange for the business combination. Assets acquired and liabilities assumed in transactions separate to the business combinations, such as the settlement of pre-existing relationships or post-acquisition remuneration arrangements, are accounted for separately from the business combination in accordance with their nature and applicable IFRSs.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Each unit or group of units to which goodwill is allocated shall represent the lowest level within the entity at which goodwill is monitored for internal management purposes and will not be larger than an operating segment before aggregation. The carrying value of goodwill is reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying value exceeds the estimated recoverable amount, goodwill is written down to its recoverable amount.
Where goodwill forms part of an operation that is disposed of, the goodwill associated with that operation is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.
Property, plant and equipment
Property, plant and equipment, with the exception of the Group's remaining freehold land and buildings, is stated at cost less accumulated depreciation and any impairment in value. Freehold land and buildings are stated at market valuation provided by an independent chartered surveyor on a vacant possession basis and is reviewed every two years or when market events suggests there could be a material change in market value. The initial cost of an asset comprises its purchase price or construction cost, and any costs directly attributable to bringing the asset into operation. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. For freehold land and buildings, where appropriate, the deemed cost as at the date of transition to IFRS is the fair value at the date of the last valuation of these assets.
With the exception of freehold land, depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Freehold buildings and long leasehold property - over expected useful life (not exceeding 50 years)
Short leasehold property - over the term of the lease
Plant and other equipment - two to ten years
Motor vehicles - four years
The estimated useful lives of property, plant and equipment are reviewed on an annual basis and, if necessary, changes in useful lives are accounted for prospectively.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount.
The recoverable amount of property, plant and equipment is the greater of net selling price (fair value less costs to sell) and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognised in the Consolidated Income Statement in the cost of sales line item or in the other operating expenses line item depending on the asset concerned.
An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the Consolidated Income Statement in the year the item is derecognised.
Intangible assets
Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses. Computer software, intellectual property rights and other intangible assets are initially recorded at cost. Where these assets have been acquired through a business combination, this will be the fair value allocated in the acquisition accounting. Where these have been acquired other than through a business combination, the initial cost is the aggregate amount paid and the fair value of any other consideration given to acquire the asset. Computer software and other intangible assets, such as capitalised development expenditure under IAS 38, are amortised over their useful lives on a straight-line basis with the amortisation charge included within other operating expenses.
Estimated useful life is the shorter of legal duration and economic useful life, which represents the Directors' best estimate of the period over which the asset may be used to generate significant economic benefits to the Group. Software has an estimated useful life of between three years for normal software and ten years for ERP systems. Intangible assets in the course of development are tested for impairment annually or more frequently whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Impairment losses are measured on a similar basis to property, plant and equipment. Useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis.
Research and development costs
Research costs are expensed as incurred.
Clearly defined and identifiable development projects in which the technical degree of exploitation, adequacy of resources and potential market or development possibility in the undertaking can be clearly demonstrated, and where it is the intention to produce, market or execute the project, are capitalised when a correlation exists between the costs incurred and future benefits. Costs not meeting such criteria are expensed as incurred. Amortisation is applied as set out for intangible assets above, the useful life being determined for individual development projects. For projects capitalised to date, a useful life of five years was considered appropriate.
The Company's investments in subsidiaries
Investments in subsidiaries are stated at cost less impairment and dividends from subsidiaries are taken to profit or loss when the right to receive payment is established.
Inventories
Inventories are valued at the lower of cost and net realisable value, which is arrived at as follows:
? Raw materials - purchase cost on a first-in, first-out basis or weighted average cost basis;
? Finished goods and work in progress - where detailed individual product costing information is available, actual cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs.
Previously, the engineering division included inventory valued at selling price less the calculated margin on certain finished goods in the absence of more detailed individual product costing information. During the year, a change in estimate was made to value all finished goods using the method described above to be consistent with the rest of the Group. Management has evaluated the effect of this change in estimate and does not believe it to be material.
Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.
Maintenance items are held in inventory and expensed on use unless they exceed a minimum level, where they are capitalised under plant and equipment and depreciated over the remaining useful economic life of the item of plant or equipment to which they relate.
Trade and other receivables
Trade receivables, which generally have 30-60 day terms, are recognised and carried at original invoice amount less any provision for bad debts. The Group makes use of a simplified approach in accounting for trade and other receivables, recording the loss allowance as lifetime expected credit losses. These are the expected shortfalls in contractual cash flows, considering the potential for default at any point during the life of the financial instrument. In calculating the lifetime credit losses, the Group uses its historical experience, external indicators and forward looking information to calculate the expected losses. Refer to note 14 for further details.
Cash and cash equivalents
Cash and cash equivalents in the balance sheet comprise cash in hand and current balances with banks and similar institutions and short-term deposits with an original maturity of three months or less from inception, which are subject to insignificant risks of changes in value.
For the purpose of the Consolidated Cash Flow Statement, cash and cash equivalents are defined as above, net of outstanding bank overdrafts.
Leases
In applying IFRS 16 'Leases', the Group:
a. Recognises right-of-use assets and lease liabilities in the consolidated balance sheet, initially measured at present value of future lease payments;
b. Recognises depreciation of right-of-use assets and interest on lease liabilities in the Consolidated Income Statement; and
c. Separates the amount of cash paid into principal portion (presented within financing activities) and interest (presented within operating activities) in the consolidated cash flow statement. Under IFRS 16, right-of-use assets are tested for impairment in accordance with IAS 36 Impairment of Assets. This replaces the previous requirement to recognise a provision for onerous lease contracts.
For short-term leases (lease terms of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the Group has opted to recognise a lease expense on a straight-line basis as permitted by IFRS 16. This expense is presented within other expenses in the Consolidated Income Statement.
Foreign currency translation, derivative financial instruments and hedging
The functional and presentation currency of Chamberlin Plc and its subsidiary undertakings is Sterling (£). Transactions in foreign currencies are recorded in the functional currency at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the balance sheet date. Any resulting exchange differences are taken to the Consolidated Income Statement.
The Group is exposed to foreign exchange risk on income streams denominated in foreign currencies. In order to reduce the Group's exposure to currency fluctuations, the Group sells a proportion of expected Euro revenues on forward contracts.
With effect from 1 April 2010 the Group adopted hedge accounting in respect of certain sales denominated in foreign currencies. Foreign currency forward contracts are being used to hedge the foreign currency risks on highly-probable forecast sales transactions. The fair value of forward currency contracts is calculated by reference to current market prices for contracts with similar maturity profiles. The proportion of the gain or loss on the hedging instrument that is determined as an effective hedge is recognised in other comprehensive income and the gain or loss on any ineffective component of a hedging instrument is recognised in profit and loss. Amounts initially recognised in equity are transferred to the Consolidated Income Statement within sales when the forecast hedged transaction occurs.
Hedges are valued by reference to an external marked to market valuation. Group management performs an assessment to confirm the reasonableness of this valuation.
Employee benefits
Wages, salaries, bonuses, social security contributions, paid annual leave and sick leave are accrued in the year in which the associated services are rendered by employees of the Group.
Pensions and other post-employment benefits
The Group operates a defined contribution scheme, which requires contributions to be made to administered funds separate from the Group.
For defined contribution plans, contributions payable for the year are charged to the Consolidated Income Statement as an operating expense.
The Group also has a defined benefit pension scheme, which is closed to future accrual. The scheme assets are measured at fair value and plan liabilities are measured on an actuarial basis, using the projected unit credit method. As the scheme is closed to future accrual, no service cost of providing pension to employees is charged to the Consolidated Income Statement. The cost of making improvements to past pension and other post-retirement benefits is recognised in the Consolidated Income Statement immediately as an expense.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognises the following changes in the net defined benefit obligation under non-underlying operating costs in the Consolidated Income Statement: Defined benefit pension scheme administration costs.
Remeasurement gains and losses may result from: changes in financial assumptions, changes in demographic assumptions, experience adjustments and differences between the expected return and the actual return on plan assets. Remeasurements are recognised in full in the period in which they occur, in other comprehensive income.
Income taxes
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates and laws that are enacted or substantively enacted by the balance sheet date.
Deferred tax is recognised on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, with the following exceptions:
? where the temporary difference arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss;
? in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future; and
? deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised within the foreseeable future.
Deferred tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the related asset is realised or liability is settled, based on tax rates and laws enacted or substantively enacted at the balance sheet date.
Income tax is charged or credited directly to other comprehensive income or equity if it relates to items that are credited or charged to other comprehensive income or to equity respectively. Otherwise income tax is recognised in the Consolidated Income Statement.
Revenue
Revenue is recognised when the Group satisfies a performance obligation by transferring control of manufactured product to the customer, using the five step approach:
Step 1: Identify the contracts with customers
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue
Revenue recognition has been considered in accordance with steps above included within IFRS 15 and the performance obligation identified relates to the sale of goods to customers. Transfer of control can occur over time or at a point in time but for the vast majority of sales across the Group, control passes to the customer at a point in time, when the goods are collected on an ex-works basis from the Group's premises. Revenue from the manufacture and sale of tooling to customers is recognised when the customer has provided final approval and acceptance that the tooling is fit for purpose and can be used for production of the customer's goods.
Revenue is measured at the transaction price the Group expects to be entitled to in a contract with a customer and excludes amounts collected on behalf of third parties, namely discounts, value-added taxes (VAT) and other sales-related taxes.
Dividends
Dividend payments are recognised in the period in which they become a binding obligation on the Company, which, for interim dividends, is when they are paid and for final dividends is when they are approved at the AGM.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset, that necessarily takes a substantial period of time to get ready for its intended use or sale, are capitalised as part of the cost of the respective asset. All other borrowing costs are expensed as interest payable in the Consolidated Income Statement in the period in which they are incurred. Borrowing costs consist of interest and other costs incurred in connection with the borrowing of funds.
Share-based payments
The Group grants equity-settled and cash-settled share-based payments to certain Directors and employees in the form of share options. Equity-settled share-based payments are measured at fair value at the date of grant using a Black-Scholes model. Cash-settled share-based payments are measured at fair value at the balance sheet date using a Black-Scholes model. The fair value is then charged to the Consolidated Income Statement over the vesting period of the options. In valuing equity-settled payments, no account is taken of any service and performance conditions (vesting conditions) other than performance conditions linked to the price of the shares of the Company (market conditions). Any other conditions which are required to be met in order for an employee to become fully entitled to an award are considered to be non-vesting conditions. Like market performance conditions, non-vesting conditions are taken into account in determining the grant date fair value.
No expense is recognised for awards that do not ultimately vest except for awards where vesting is conditional upon a market vesting condition or a non-vesting condition, which are treated as vesting irrespective of whether or not the market vesting condition or non-vesting condition is satisfied, provided all non-market vesting conditions are satisfied.
At each balance sheet date before vesting the cumulative expense is calculated taking into account the extent to which the vesting period has expired and management's best estimate of the achievement or otherwise of non-market vesting conditions and of the number of equity instruments that will ultimately vest or, in the case of an instrument subject to a market condition or a non-vesting condition, be treated as vesting above. The movement since the previous balance sheet date is recognised in the Consolidated Income Statement, with a corresponding entry in equity.
The values for the expected life of the options and the expected volatility of the share price used in the calculation model are based on the Directors' best estimates, taking into account conditions for exercise, historic data and behavioral considerations. Management has assessed the impact of market conditions on the valuation and has determined them not be material.
Non-underlying items
The Group presents as non-underlying items on the face of the Consolidated Income Statement, those items of income and expenditure which, because they are either non-trading related, non-recurring or are valued using market-derived data which is outside management's control, merit separate presentation to allow Shareholders to better understand the elements of financial performance in the year, so as to facilitate comparison with prior periods and to allow assessment of trends in financial performance. Non-underlying items include items such as share-based payment costs, reorganisation costs, impairment of assets, foreign currency hedge ineffectiveness, dilapidation costs and adviser costs and the associated tax impact on these items.
Government grants and subsidies
The Group received government grants under the Coronavirus 19 Job Retention Scheme (CJRS) and in accordance with IAS 20 Accounting for Government Grants, has accounted for this income using the Income Approach. Under this method the income is recognised on a systematic basis in the profit and loss account over the same period that the Group recognised the related payroll costs that the grant is intended to compensate. This specific grant income has been deducted in reporting the related payroll expenses.
Use of judgements and accounting estimates
The preparation of financial statements in conformity with generally accepted accounting practice requires management to make estimates and judgements that affect the reported amount of assets and liabilities as well as the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from those estimates and judgements. Where appropriate, details of estimates and assumptions used are set out in the relevant notes to the accounts.
The key figures in the accounts that are most sensitive to such judgements and estimates are:
? Impairment of property, plant and equipment (judgement and estimate) - In 2021 following the cancellation of all contracts by BorgWarner, the Directors undertook a detailed impairment review of the foundry division cash generating unit (CGU) that was impacted by this decision. This review was updated in 2023 in the light of the CGUs financial performance in the year and future prospects included in the three year forecast. Note 11 provides details of the impairment review undertaken during the period.
? Provision for obsolete inventory (judgement and estimate) - the Group performs a review of inventory for slow-moving and obsolete items each year. The Directors reviewed the judgements made in 2021 in relation to slow moving and obsolete stock provisions associated with the BorgWarner contracts in the light of new contract wins in the year and forecast increases in revenue in the three year forecast. The review concluded that net realisable value was below cost and that an obsolete and slow-moving inventory provision was required, albeit at a reduced level compared to 2021. Note 13 provides further details of the provision made.
? Property dilapidations (judgement and estimate) - the Group occupies two rental properties from which it conducts its activities. The Directors in the year reassessed the judgements made in 2021 concerning the future cost of returning the leased properties to the landlords in the condition specified in the lease. This reassessment was based on negotiations concluded with the landlord in the year and a third party estimate of the remaining expected cost. Note 16 provides further details of the provision made.
? Going concern (judgement and estimate) - a two year forecast has been prepared to assess the Group's ability to continue to operate as a going concern. The forecast includes assumptions on the future level of trading activity, profitability and cash flow expected during this period and downside sensitivities to reflect scenarios where revenue and margin growth targets are not met. The Directors' Report in the 2023 Annual Report and Accounts provide further details on the going concern assumption.
? Expected credit losses (judgement and estimate) - the Group performs an assessment of expected credit losses in relation to the risk of default associated with trade receivables. The review involves the assessment of the probability of non-payment, using publicly available financial information, such as credit ratings, and internal and non-financial information such as previous payment history and the length of customer relationship. Note 14 provides further details on expected credit losses.
? Defined benefit scheme pension liabilities (estimate): the cost of the closed defined benefit pension plan is determined using actuarial valuations. The actuarial valuation, which is undertaken by external experts, involves making assumptions about discount rates, future salary increases, mortality rates, future pension increases and the ability of the Group to recognise a surplus on its balance sheet. Note 20 provides details of the defined pension scheme liabilities and valuation assumptions.
? Recoverability of deferred tax assets (judgement and estimate): deferred tax assets are recognised only to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, carried forward tax credits or tax losses can be utilised. The Group has assessed that it is probable that future profits will fully utilise current tax losses and other deductible temporary differences. The deferred tax assets have been assessed as recoverable against forecasts of future taxable profits. Note 16 provides further details.
? Non-underlying items (judgement) - Non-underlying items are items of financial performance which the Group believes should be presented separately on the face of the income statement to assist in understanding the underlying financial performance achieved by the Group. Determining whether an item is part of underlying items or non-underlying items requires judgement. Note 10 provides further details on non-underlying items.
Independent auditor's report to the members of Chamberlin PLC
For the purpose of this report, the terms "we" and "our" denote MHA in relation to UK legal, professional and regulatory responsibilities and reporting obligations to the members of Chamberlin plc. For the purposes of the table below that sets out the key audit matters and how our audit addressed the key audit matters, the terms "we" and "our" refer to MHA. The Group financial statements, as defined below, consolidate the accounts of Chamberlin PLC and its subsidiaries (the "Group"). The "Parent Company" is defined as Chamberlin PLC, as an individual entity. The relevant legislation governing the Company is the United Kingdom Companies Act 2006 ("Companies Act 2006").
Opinion
We have audited the financial statements of Chamberlin plc for the year ended 31 May 2023.
The financial statements that we have audited comprise:
· the consolidated income statement
· the consolidated statement of comprehensive income
· the consolidated balance sheet
· the consolidated cash flow statement
· the consolidated statement of changes in equity
· Notes 1 to 26 to the consolidated financial statements, including significant accounting policies
· the parent company balance sheet
· the parent company cash flow statement
· the parent company statement of changes in equity and
· Notes 1 to 26 to the Company financial statements, including significant accounting policies.
The financial reporting framework that has been applied in the preparation of the Group and Parent Company's financial statements is applicable law and United Kingdom adopted International Accounting Standards, "UK adopted IAS".
In our opinion the financial statements:
· give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 May 2023 and of the Group's loss for the year then ended;
· have been properly prepared in accordance with UK adopted IAS; and
· have been prepared in accordance with the requirements of the Companies Act 2006.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed entities, and we have fulfilled our ethical responsibilities in accordance with those requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
We draw attention to note 26 which explains that the group and company will require additional finance to fund working capital and, whilst management are pursuing various funding options, there is no certainty as at the date of this report that the necessary funding will be secured. For this reason a material uncertainty has been identified that may cast significant doubt on the ability of the group and company to continue as a going concern. Our opinion is not modified in respect of this matter.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Overview of our audit approach
| Scope | Our audit was scoped by obtaining an understanding of the Group, including the Parent Company, and its environment, including the Group's system of internal control, and assessing the risks of material misstatement in the financial statements. We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement.
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| Materiality | 2023 | 2022 |
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| Group | £311k | £165k | 1.5% of revenue (2022: 1%) | |
| Parent Company | £109K | £70k | 2% of gross assets (2022: 2%) | |
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Key audit matters | ||||
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| · Revenue recognition - Cut-off (Group and parent) · Defined benefit pension (Group and parent) · Reversal of fixed asset impairment (Group) | |||
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Key Audit Matters
Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those matters which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
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| Risk of fraud in revenue recognition - cut-off | |
| Key audit matter description | The Group's only material revenue stream comes from the supply of manufactured goods and materials. Revenue and costs associated with generating that revenue must be recognised in the correct period and in line with fulfilling the performance obligation.
Our risk associated in respect of this is revenue cut off as there maybe income recognised during the year when risk and reward has not been passed onto the customer.
We note that a proportion of sales are exports and therefore there is greater risk that cut off issues may arise surrounding goods despatched around the year end.
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| How the scope of our audit responded to the key audit matter | We performed a walkthrough of each of the key revenue streams and considered the design, implementation and adequacy of the Groups controls.
We performed cut-off testing by selecting a sample of sales transactions either side of the year end to ensure the revenue has been accounted for in the correct period. This was completed for each of the trading entities.
In addition , we have carried out substantive testing across each trading entity by picking samples from the nominal and tracing to the appropriate supporting documentation.
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| Key observations communicated to the Group's Audit Committee
| We concluded that revenue had been recorded appropriately. We did not identify any material errors in relation to cut-off. |
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| Key audit matter description | Under IAS 19 management is required to uses an actuarial technique (the projected unit credit method) to estimate the ultimate cost to the entity of the benefits that employees have earned in return for their service in the current and prior periods; discounts that benefit in order to determine the present value of the defined benefit obligation and the current service cost; deducts the fair value of any plan assets from the present value of the defined benefit obligation; determines the amount of the deficit or surplus; and determines the amount to be recognised in profit and loss and other comprehensive income in the current period.
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| How the scope of our audit responded to the key audit matter | We have used an independent external auditor expert actuary to review the assumptions and benchmark to external market data. We have considered the independence and competency of the expert.
We have considered the independence and competency of the actuary preparing the report.
We have agreed the valuation of the pension scheme assets to third party valuation statements.
We have agreed payments made to the pension provider to bank statements.
We have ensured disclosures made in the financial statements are compliant with IAS 19.
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| Key observations communicated to the Group's Audit Committee
| We concluded that the defined benefit pension liability is compliant with IAS 19. We concluded that the assumptions used in the report are reasonable.
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Reversal of fixed asset impairment | ||
| Key audit matter description | During the year, management processed an impairment reversal in relation to Plant and Machinery (specifically the machine tool shop). This was originally impaired due to losing a significant customer and the entire site being 'moth balled'. During the year, new orders have been received and manufacturing has recommenced which indicates the full impairment is no longer required. Management have considered current and future orders and related operating costs to make this judgement. As a result management processed an impairment reversal amounting to £1,372k.
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| How the scope of our audit responded to the key audit matter | We have reviewed management's methodology used to justify the amount of reversal.
We have reviewed the discounted cashflow workings used for reasonability and tested the relevant inputs where necessary. This includes the discount rate, which we compared to other listed manufacturing firms, order flow, business unit cashflows and growth rates.
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| Key observations communicated to the Group's Audit Committee
| We have concluded that the reversal of the fixed asset impairment, whilst highly judgemental, is justified and identified no material misstatements. | |
Application of materiality
Our definition of materiality considers the value of error or omission on the financial statements that, individually or in aggregate, would change or influence the economic decision of a reasonably knowledgeable user of those financial statements. Misstatements below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified misstatements, and the circumstances of their occurrence, when evaluating their effect on the financial statements as a whole. Materiality is used in planning the scope of our work, executing that work and evaluating the results.
Materiality in respect of the Group was set at £311k, which was determined on the basis of 1.5% of the Group's revenue. Materiality in respect of the Parent Company was set at £109k, determined on the basis of 2% of the parent's gross assets. Revenue was deemed to be the appropriate benchmark for the calculation of Group materiality as this is a key area of importance to external and internal stakeholders. As a result, revenue is deemed the most appropriate basis. In our opinion this is therefore the benchmark with which the users of the financial statements are principally concerned.
Performance materiality is the application of materiality at the individual account or balance level, set at an amount to reduce, to an appropriately low level, the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.
Performance materiality for the Group was set at £218k and at £77k for the Parent Company which represents 70% of the above materiality levels.
The determination of performance materiality reflects our assessment of the risk of undetected errors existing, the nature of the systems and controls and the level of misstatements arising in previous audits.
We agreed to report any corrected or uncorrected adjustments exceeding £16k and £5k in respect of the Group and Parent Company respectively to the Audit Committee as well as differences below this threshold that in our view warranted reporting on qualitative grounds.
Overview of the scope of the Group and Parent Company audits
Our assessment of audit risk, evaluation of materiality and our determination of performance materiality sets our audit scope for each Company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. This assessment takes into account the size, risk profile, organisation / distribution and effectiveness of Group-wide controls, changes in the business environment and other factors such as recent internal audit results when assessing the level of work to be performed at each component.
In assessing the risk of material misstatement to the consolidated financial statements, and to ensure we had adequate quantitative and qualitative coverage of significant accounts in the consolidated financial statements, of the 5 reporting components of the Group, we identified 4 components in the UK and mainland Europe which represent the principal business units within the Group.
The Group comprises of a Parent Company which does not trade, a holding company, and 3 main trading subsidiaries. The Group engagement team have audited the complete financial information of all group entities ensuring full scope audits of entities which make up 100% of group revenue, loss for the year and total assets.
· The Parent Company, Chamberlin PLC
· Chamberlin Foundry Ltd
· Petrel Limited
· Russel Ductile Castings Limited
· Chamberlin & Hill Castings Limited
The control environment
We evaluated the design and implementation of those internal controls of the Group, including the Parent Company, which are relevant to our audit, such as those relating to the financial reporting cycle. We also tested operating effectiveness but did not place reliance on the controls.
Reporting on other information
The other information comprises the information included in the annual report other than the financial statements and our auditor's report thereon. The directors are responsible for the other information contained within the annual report. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report in this regard.
Strategic report and directors report
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and
· the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and the Parent Company and their environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the directors' report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received by branches not visited by us; or
· the Parent Company financial statements are not in agreement with the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law are not made; or
· we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group's and the Parent Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or Parent Company or to cease operations, or have no realistic alternative but to do so.
Auditor responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities . This description forms part of our auditor's report.
Extent to which the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
These audit procedures were designed to provide reasonable assurance that the financial statements were free from fraud or error. The risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error and detecting irregularities that result from fraud is inherently more difficult than detecting those that result from error, as fraud may involve collusion, deliberate concealment, forgery or intentional misrepresentations. Also, the further removed non-compliance with laws and regulations is from events and transactions reflected in the financial statements, the less likely we would become aware of it.
Identifying and assessing potential risks arising from irregularities, including fraud
The extent of the procedures undertaken to identify and assess the risks of material misstatement in respect of irregularities, including fraud, included the following:
· We considered the nature of the industry and sector the control environment, business performance including remuneration policies and the Group's, including the Parent Company's, own risk assessment that irregularities might occur as a result of fraud or error. From our sector experience and through discussion with the directors, we obtained an understanding of the legal and regulatory frameworks applicable to the Group focusing on laws and regulations that could reasonably be expected to have a direct material effect on the financial statements, such as provisions of the Companies Act 2006, UK tax legislation or those that had a fundamental effect on the operations of the Group
· We enquired of the directors and management concerning the Group's and the Parent Company's policies and procedures relating to:
- identifying, evaluating and complying with the laws and regulations and whether they were aware of any instances of non-compliance;
- detecting and responding to the risks of fraud and whether they had any knowledge of actual or suspected fraud; and
- the internal controls established to mitigate risks related to fraud or non-compliance with laws and regulations.
· We assessed the susceptibility of the financial statements to material misstatement, including how fraud might occur by evaluating management's incentives and opportunities for manipulation of the financial statements. This included utilising the spectrum of inherent risk and an evaluation of the risk of management override of controls. We determined that the principal risks were related to posting inappropriate journal entries to increase revenue and management bias in accounting estimates particularly in determining expected credit losses.
Audit response to risks identified
In respect of the above procedures:
· we corroborated the results of our enquiries through our review of the minutes of the Group's and the Parent Company's audit committee meetings.
· audit procedures performed by the engagement team in connection with the risks identified included:
- reviewing financial statement disclosures and testing to supporting documentation to assess compliance with applicable laws and regulations expected to have a direct impact on the financial statements.
- testing journal entries, including those processed late for financial statements preparation, those posted by infrequent or unexpected users, those posted to unusual account combinations;
- evaluating the business rationale of significant transactions outside the normal course of business, and reviewing accounting estimates for bias;
- enquiry of management around actual and potential litigation and claims.
- challenging the assumptions and judgements made by management in its significant accounting estimates.
- obtaining confirmations from third parties to confirm existence of a sample of balances.
· we communicated relevant laws and regulations and potential fraud risks to all engagement team members, including experts, and remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit.
Use of our report
This report is made solely to the Parent Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Parent Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent Company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Martin Ramsey BSc (Hons) FCCA
(Senior Statutory Auditor)
for and on behalf of MHA, Statutory Auditor
Birmingham, United Kingdom
30 November 2023
MHA is the trading name of MacIntyre Hudson LLP, a limited liability partnership in England and Wales (registered number OC312313)
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