REG - Chamberlin PLC - Final Results
30/11/2023 13:45
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RNS Number : 2616V Chamberlin PLC 30 November 2023
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
(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 T: 01922 707100
Kevin Price, Chief Executive
Alan Tomlinson, Finance Director
Cavendish Capital Markets Limited T: 020 7220 0500
(Nominated Adviser and Joint Broker)
Katy Birkin
Stephen Keys
George Lawson
Peterhouse Capital Limited T: 020 7469 0930
(Joint Broker)
Lucy Williams
Duncan Vasey
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 Non- Total Non- Total
Underlying underlying* £000 Underlying underlying* £000
£000 £000 £000 £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 (937) 812 (125) (433) 505 72
company
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 5 (158)
income/(expense)
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 8 204 (63)
in rate)
Gain on revaluation of property, plant and equipment - 1,003
Net other comprehensive (expense)/income that will not be recycled to profit (869) 1,272
and loss
Other comprehensive (expense)/income for the year net of tax (967) 1,154
Total comprehensive (expense)/income for the year attributable to equity (1,092) 1,226
holders of the parent company
Consolidated Balance Sheet
at 31 May 2023
Notes 2023 2022
£000 £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
from operating activities:
Finance income (136) (26)
Finance costs 6 666 337
Impairment reversal on property, plant and equipment, inventory and 10 (1,372) (498)
receivables
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 Share Capital Retained Attributable to
capital premium redemption Hedging earnings equity holders
£000 account reserve reserve Revaluation £000 of the parent
£000 £000 £000 reserve £000
£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) 269 1,154
1,003
Total comprehensive (expense)/income - - - (118) 341 1,226
1,003
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 2023
£000 2022 £000 2022
£000 £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 2022 2023 2022 2023 2022
£000 £000 £000 £000 £000 £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 2022 2023 2022 2023 2022
£000 £000 £000 £000 £000 £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 2022
£000 £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
2022
2023 £000
£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
2023 2022
The average number of people employed by the Group during the year was: Number 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 2022
£000 £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
2023 2022
The average number of people employed by the Company during the year was: Number Number
Management and administration 7 8
The aggregate employment costs, including redundancy, of these employees were
as follows:
2022
2023 £000
£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 2022
£000 £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 2022
Number 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 2022
£000 £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 (236) 23
income
Consolidated statement of changes in equity 2023 2022
£000 £000
Current tax: - -
Deferred tax:
2023 2022
£000 £000
Share-based payment 18 (57)
Tax charge/(credit) reported in the consolidated statement of changes in 18 (57)
equity
Reconciliation of total tax charge
2023 2022
£000 £000
Profit/(loss) on ordinary activities before tax 38 (509)
Corporation tax charge at standard rate of 19% (2022: 19%) on profit/(loss) 7 (97)
before tax
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 Number
'000 '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 2022
£000 £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 - 10
Limited
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 Plant and Motor Total
buildings machinery vehicles £000
£000 £000 £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 2022
£000 £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 2022
£000 £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 Plant and Motor Total
buildings machinery vehicles £000
£000 £000 £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 Plant and Motor Total
buildings machinery vehicles £000
£000 £000 £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 Company
£000 £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 2022 2023 2022
£000 £000 £000 £000
Software 76 222 5 3
Development costs 51 61 - -
127 283 5 3
Software Group Company
£000 £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 Company
£000 £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 2022 2023 2022
£000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £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 Neither past Past due
£000 due nor
impaired
£000
<30 days 30-60 days 60-90 days 90-120 days >120 days
£000 £000 £000 £000 £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 Neither past Past due
£000 due nor
impaired
£000
<30 days 30-60 days 60-90 days 90-120 days >120 days
£000 £000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £000
UK corporation tax 286 306 41 35
15 Current liabilities
Financial liabilities Group Company
2023 2022 2023 2022
£000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £000
Deferred taxation 40 70 39 37
Group
Company
2023 2022 2023 2022
£000 £000 £000 £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
Group Company
Deferred tax assets
2023 2022 2023 2022
£000 £000 £000 £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 2022
£000 £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 Exercise Remaining contractual life (years)
options price
(p)
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 At 31 May At 31 May
2023 2022 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 2022
Years 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 2022
£000 £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.
2023 2022
Net benefit income/(expense) recognised in profit and loss £000 £000
Net interest income/(expense) 8 (13)
Net interest income/(expense) 8 (13)
2023 2022
Remeasurement loss/ (gain) in other comprehensive income £000 £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 2022
£000 £000
Actual loss on plan assets (2,466) (1,686)
Movement in surplus/(deficit) 2023 2022
£000 £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 2022
£000 £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 2022
£000 £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 2022
£000 £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 12,131 14,627
older
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 2022 2023 2022
£000 £000 £000 £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 2022 2023 2022
£000 £000 £000 £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 Weighted Contracted Contracted Unrealised
amount average amount amount at gain/(loss)
( €000) contract £000 year end rate £000
rate £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 2022 2023 2022
£000 £000 £000 £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 One to two Two to five More than Total
year years years five years
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 Two to five Total
years years
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 2022 2023 2022
£000 £000 £000 £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/ Invoice Lease Total
(cash at bank) finance liabilities £000
£000 £000 £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.
Materiality 2023 2022
Group £311k £165k 1.5% of revenue (2022: 1%)
Parent Company £109K £70k 2% of gross assets (2022: 2%)
Key audit matters
· Revenue recognition - Cut-off (Group and parent)
· Defined benefit pension (Group and parent)
· Reversal of fixed asset impairment (Group)
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.
Risk of fraud in revenue recognition - cut-off
Key audit The Group's only material revenue stream comes from the supply of manufactured
goods and materials. Revenue and costs associated with generating that revenue
matter description 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.
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.
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.
Defined benefit pension
Key audit 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
matter description 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.
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.
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.
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.
Reversal of fixed asset impairment
Key audit During the year, management processed an impairment reversal in relation to
Plant and Machinery (specifically the machine tool shop). This was originally
matter description 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.
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.
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
(http://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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