CMH
CHAMBERLIN PLC
("Chamberlin" or "the Group")
Half Year Results
For the six months to 30 September 2011
Key Points
· Revenues up 25% to £23.0m (2010: £18.3m)
· Underlying operating profit up 379% to £841,000 (2010: £222,000)
Statutory operating profit up 419% to £796,000 (2010: £190,000)
· Underlying profit before tax up 489% to £797,000 (2010: £163,000)
Statutory profit before tax up 780% to £710,000 (2010: £91,000)
· Positive operating cash flow more than doubled to £947,000 (2010: £383,000)
· Underlying earnings per share up by more than six times to 8.3p (2010: 1.28p)
Basic earnings per share increased to 7.5p (2010: 0.58p)
· Interim dividend of 1.0p per share
· Foundry activities continued to improve
- all three foundries operating above pre-recession levels
· Full year results anticipated to be in line with current market expectations
Chairman, Tom Brown, commented,
"Having returned to profitability in the first half of the last financial year, I am pleased to report that Chamberlin has continued to make good progress in the first six months of the current financial year. Underlying profit before tax has increased almost fivefold to £797,000 on revenues up by 25% to £23.0m and all three of our foundries are operating at or above pre-recession levels.
This pleasing performance has been driven by improving demand in our established customer base, new business initiatives and operational improvements. In addition, having returned to dividend payments at the full year, we are declaring an interim dividend.
Chamberlin's existing operations continue to make good progress and with our sound financial base we are well placed to exploit the organic growth opportunities that we continue to identify. At the same time, we are also considering acquisitions which will expand our activities.
While uncertainties have inevitably increased due to the wider European and global economic picture, at this point in the financial year we believe that Chamberlin remains well positioned to meet current market expectations."
Enquiries
Chamberlin plc
Tim Hair, Chief Executive
T: 020 3178 6378 (today)
Mark Bache, Finance Director
T: 01922 707100
Charles Stanley Securities
(Nominated Adviser)
Russell Cook
T: 020 7149 6000
Biddicks
(Financial PR)
Katie Tzouliadis
T: 020 3178 6378
CHAIRMAN'S STATEMENT
Introduction
Having returned to profitability in the first half of the last financial year, I am pleased to report that Chamberlin has continued to make good progress in the first six months of the current financial year. Underlying profit before tax has increased almost fivefold to £797,000 on revenues up by 25% to £23.0m and all three of our foundries are operating at or above pre-recession levels.
Results
Revenues for the six months to 30 September 2011 increased by 25% to £23.0m (2010: £18.3m) supported by both improving demand from our established customer base and newly won business. Underlying operating profit rose to £841,000 (2010: £222,000) a 379% increase, and underlying profit before tax rose to £797,000 (2010: £163,000) a 489% increase. The Group has benefited from a lower effective tax rate of 20% as a result of the utilisation of prior period losses. Underlying earnings per share improved by over six times to 8.3p (2010: 1.28p). On a statutory basis, profit before tax was £710,000 (2010: £91,000) and earnings per share were 7.5p (2010: 0.58p).
Chamberlin has consistently delivered net cash from operations and the growth in profitability has enhanced cash generation, with operating cash flow more than doubling to £947,000 (2010: £383,000).
In July 2011 we raised £500,000 through the placing of 370,370 new ordinary shares with Diverse Income Trust plc, which is managed by MAM Funds plc, at an 8% premium to the then market price. This, coupled with the continuing improvement in cash generation from operations, resulted in a further reduction in our overdraft and net borrowings which, at 30 September 2011, were lower year on year at £2.04m (31 March 2011: £2.88m and 30 September 2010: £3.27m). The Company's borrowings are financed by a £5.0m facility with HSBC.
Dividend
Following the continued improvement in performance, the Board has decided to pay an interim dividend of 1.0p (2010: nil). The interim dividend will be paid on 19th December 2011 to shareholders on the register at the close of business on Friday 9th December 2011.
Operations
Our foundry operations continued to improve in the first half year and we are continuing to see the benefits of the process improvements we have been putting into place at all three foundries.
In previous Statements, I have highlighted the developing business between our small castings foundry in Walsall, which has built a strong position in automotive turbochargers, and IHI Charging Systems International ("ICSI"), a leading producer of automotive turbochargers. I am delighted to report that a number of parts from the ICSI product family are now in production, generating significant revenues for the Group. The development of the remainder of the family is also on schedule. Our long-standing supply relationship with Borg Warner for turbocharger components continues to be strong and we are currently expanding our work with the company in truck turbochargers. EU legislation is helping to drive the trend to turbocharged petrol engines and since the Walsall foundry is one of only four specialist foundries in Europe capable of producing high quality castings at volume for turbochargers it is well positioned to supply this growing marketplace.
Our Leicester foundry, which produces mid-size iron castings with complex metallurgy, has seen significant recovery in the latter part of the first half and is running at pre-recession volumes. We have made extensive operational improvements at Leicester to improve its cost position and as a result we believe that the foundry can now compete in areas that were previous closed to it. We have also recently strengthened the foundry sales team and this should help to stimulate an increased contribution from the site.
Our foundry at Scunthorpe, which specialises in heavyweight castings, continues to win new contracts and is performing better. Increased focus on new markets has created several opportunities and we believe that there is scope for further growth in the heavy casting sector.
In our Engineering Division I am particularly pleased to report good progress at Exidor, which is the UK market leader in specialist emergency exit hardware. In February, we announced the purchase of certain assets of a manufacturer of door closers, a product which is an ideal fit with Exidor. Since then we have made significant progress in integrating the new products into Exidor's sales channel and transferred production of the door closers to Exidor's site at Cannock. We anticipate that the integration will be completed on schedule before the end of this calendar year. Petrel has continued to develop its offering in the hazardous environments sector and is performing in line with expectations.
The Board
As previously announced, since I am now in my ninth year as a director of Chamberlin, I intend to step down from my position as Chairman and retire from the company in the near future. The Nominations Committee is making good progress, with the support of our advisors, in identifying my successor and an announcement will be made in due course.
Outlook
While uncertainties have inevitably increased due to the wider European and global economic picture, at this point in the financial year we believe that Chamberlin remains well positioned to meet current market expectations.
Tom Brown
Chairman
Summarised Consolidated Income Statement
for the six months ended 30 September 2011
Note
Unaudited six months ended
30 September 2011
30 September 2010
Year ended 31 March 2011
Underlying
Non-underlying#
Total
£000
Revenue
22,960
-
18,317
39,801
Cost of sales
(18,640)
(15,053)
(32,368)
Gross profit
4,320
3,264
7,433
Other operating expenses
(3,479)
(3,042)
(6,529)
Trading profit
841
222
904
Business reorganisation costs
7
(121)
Goodwill impairment
(202)
Share Based Payment charge
(45)
(32)
(73)
Operating profit/(loss)
796
190
(396)
508
Finance costs
3
(44)
(42)
(86)
(59)
(40)
(99)
(100)
(75)
(175)
Profit/(loss)before tax
797
(87)
710
163
(72)
91
804
(471)
333
Tax (expense)/credit
4
(165)
23
(142)
(68)
20
(48)
(305)
70
(235)
Profit/(loss) for the period from continuing operations attributable to equity holders of the parent Company
632
(64)
568
95
(52)
43
499
(401)
98
Attributable to equity holders of the parent Company
Earnings per share:
Basic
5
7.5p
0.58p
1.3p
8.3p
1.28p
6.7p
Diluted
6.6p
0.54p
1.2p
Diluted underlying
7.4p
1.18p
6.1p
# Non- underlying items represent business reorganisation costs, goodwill impairment, net financing costs on pension obligations, share based payment
costs and associated tax impact.
Consolidated Statement of Comprehensive Income
Unaudited
Six months
ended
30 September
2011
Six months ended
2010
Year
31 March
Profit for the period
Other comprehensive income
Gains on cash flow hedges taken to equity
155
31
(108)
Reclassification adjustments for cash flow hedge gains /losses included in profit or loss - (cost of sales)
129
(20)
Deferred tax on movements in fair value hedges
(70)
65
Actuarial losses on pension assets and liabilities
(870)
(670)
Deferred tax credit on actuarial losses
226
159
16
Movement on deferred tax on actuarial losses relating to tax rate change
(29)
Other comprehensive income for the period net of tax
(459)
(500)
(228)
Total comprehensive income for the period attributable to equity holders of the parent Company.
109
(457)
(130)
Summarised Consolidated Balance Sheet
At 30 September 2011
Non-current assets
Property, plant and
equipment
8,046
7,855
8,170
Intangible assets
421
619
494
Deferred tax assets
984
1,029
763
9,451
9,503
9,427
Current assets
Inventories
3,393
3,458
2,969
Trade and other receivables
9,213
7,940
9,588
12,606
11,398
12,557
Total assets
22,057
20,901
21,984
Current liabilities
Financial liabilities
2,039
3,272
2,881
Trade and other payables
8,559
7,157
8,952
Provisions
19
11
85
10,617
10,440
11,918
Non-current liabilities
Defined benefit pension scheme deficit
2,903
2,947
2,202
Deferred tax liabilities
87
88
2,990
3,035
2,287
Total liabilities
13,607
13,475
14,205
Capital and reserves
Share capital
1,952
1,859
Share premium
1,269
862
Capital redemption reserve
Hedging reserve
29
(185)
Retained earnings
5,091
4,585
5,134
Total equity
8,450
7,426
7,779
Total equity and liabilities
Consolidated Cash Flow Statement
Operating activities
Adjustments for:
Taxation
142
48
235
Net finance costs
86
99
175
Depreciation of property, plant and equipment
631
566
1,101
Amortisation of software
52
41
63
Amortisation of development costs
33
83
202
(Profit)/loss on disposal of property plant and equipment
Share based payments
45
32
73
Pension element of finance cost
Difference between pension contributions paid and amounts recognised in the Income Statement
(89)
(223)
(Increase) / decrease in inventories
(424)
(164)
325
Decrease/ (increase) in receivables
375
(1,582)
(3,215)
(Decrease) / increase in payables
(313)
1,418
2,932
Movement in provisions
(66)
(37)
37
Net cash flow from operating activities
947
383
1,791
Investing activities
Purchase of property, plant
and equipment
(517)
(168)
(1,026)
Purchase of software
(12)
(51)
(191)
Disposal of property, plant and
42
72
94
Net cash flow from investing activities
(487)
(147)
(1,123)
Financing activities
Interest paid
Proceeds from issue of share capital
500
Dividends paid
(74)
Net cash used in financing activities
382
Net increase in cash and cash equivalents
842
177
Cash and cash equivalents at the start of the period
(2,881)
(3,449)
Cash and cash equivalents at the end of the period
(2,039)
(3,272)
Cash and cash equivalents compromise:
Consolidated Statement of Changes in Equity
Hedging Reserve
Attributable to equity holders of the parent
At 1 April 2010
5,028
7,858
(511)
Total comprehensive income
(468)
25
At 30 September 2010
55
(196)
468
272
523
327
26
At 1 April 2011
214
(673)
(105)
Share placement
93
407
24
Tax on employee share options
112
Independent review report to Chamberlin plc
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2011 which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and the related notes 1 to 8. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the AIM Rules issued by the London Stock Exchange which require that it is presented and prepared in a form consistent with that which will be adopted in the Company's annual financial statements having regard to the accounting standards applicable to such annual financial statements.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the AIM Rules issued by the London Stock Exchange.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2011 is not prepared, in all material respects, in accordance with the accounting policies outlined in Note 1, which comply with IFRS's as adopted by the European Union and in accordance with the AIM Rules issued by the London Stock Exchange.
Ernst & Young LLP,
Birmingham
28 November 2011
Notes to the interim financial statements
1 General information and accounting policies
This Interim Financial Report is unaudited, but has been reviewed by the Company's auditor having regard to the International Standard on Review Engagements (UK & Ireland) 2410 "Review of Financial Information Performed by the Independent Auditor of the Entity", issued by the Auditing Practices Board for use in the UK. A copy of their unqualified review opinion is attached.
The interim condensed consolidated financial statements do not comprise the Group's statutory accounts as defined by section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 March 2011 were approved by the board of directors on 23 May 2011 and were filed at Companies House. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.
Basis of preparation
The annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with the AIM Rules issued by the London Stock Exchange.
Accounting policies
The principal accounting policies, based on IFRS, applied in preparing the Interim Financial Statements are consistent with the policies set out in the Annual Report and Accounts for the year ended 31 March 2011. No new standards or interpretations issued since 31 March 2011 have had a material impact on the accounting of the Group
Hedge activities
At 30 September 2011 the Group held 12 foreign currency forward contracts designated as hedges of expected future sales to customers in Europe for which the Group has highly probable forecasted transactions.
Going concern
After making appropriate enquiries, the directors consider that the Group has adequate resources to continue in operation for the foreseeable future. In forming this view the directors have reviewed budgets and other financial information. For this reason, they continue to adopt the going concern basis in preparing the accounts.
2. Segmental analysis
For management purposes, the Group is organised into two operating divisions: Foundries and Engineering. The operating segments reporting format reflects the Group's management and internal reporting structures.
Segmental revenue
Segmental operating profit
6 months
30 Sep
Foundries
18,922
15,175
33,082
1,148
516
1,335
Engineering
4,038
3,142
6,719
204
122
315
Segmental results
1,352
638
1,650
Reconciliation of reported segmental operating profit to profit before tax
Shared costs
(556)
(448)
(819)
Reorganisation and impairment costs
(323)
Profit before tax
The Foundries segment is a supplier of iron castings, in raw or machined form, to a variety of industrial customers who incorporate the castings into their own products or carry out further machining or assembly operations on the castings before selling them on. The Engineering segment provides manufactured and imported products to distributors and end-users. The products fall into the categories of door hardware, hazardous area lighting and control gear, cable management and general ironmongery.
There are no transactions between operating segments.
Financing and income tax are managed on a Group basis and are not allocated to operating segments.
3 Finance income and costs
Interest on bank overdraft
Finance cost of pension scheme
4 Income tax expense
An effective rate of tax for the six months to 30 September 2011 of 20% (30 September 2010: 53%) has been used in these interim statements.
The effective rate of tax is lower than the standard rate because of the utilization of prior period losses. The 2010 effective rate of tax was higher than the standard because of the impact of disallowable expenses.
On the 22 June 2010 the UK Chancellor of the Exchequer announced a number of tax reforms. The key change to Corporation tax that will apply to the Group is the reduction in the main Corporation tax rate, from 28% to 23% over a period of 4 years.
The reduction to 27% was substantively enacted on 21 July 2010. On 22 March 2011 a further announcement was made reducing the rate to 26% from 1 April 2011 and ultimately to 23% by 2014. The reduction to 26% was substantively enacted on 29 March 2011 and the reduction to 25% substantively enacted on 5 July 2011. Accordingly a tax rate of 26% has been used when calculating tax for the period and a rate of 25% used in determining deferred tax. It is not anticipated that these reductions nor subsequent reductions to 23% once substantively enacted, will have a material effect on the company's future current or deferred tax charges.
5 Earnings per share
The calculation of earnings per share is based on the profit attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted earnings per share, adjustment has been made for the dilutive effect of outstanding share options. Underlying earnings per share, which excludes business reorganisation costs, net financing cost of pension obligation and share based compensation, less related tax thereon, as analysed below, has been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group.
Reorganisation and exceptional items are detailed in note 7.
Earnings for basic earnings per share
Business re-organisation costs
323
Taxation effect of business reorganisation costs
(31)
Net financing cost on pension obligation
40
75
Taxation effect of pension obligation
(11)
Share based payments charge
Taxation effect of share based payments
(9)
(19)
Earnings for underlying earnings per share
000
Weighted average number of ordinary shares
7,611
7,438
Adjustment to reflect shares under option
980
569
762
Diluted weighted average number of ordinary shares
8,591
8,007
8,200
6 Pensions
The Group operates a defined benefit pension scheme and a number of defined contribution pension schemes on behalf of its employees. For defined contribution schemes, contributions paid in the period are charged to the income statement. For the defined benefit scheme, actuarial calculations are performed in accordance with IAS 19 in order to arrive at the amounts to be charged in the income statement and recognised in the statement of comprehensive income. The defined benefit scheme is closed to new entrants and future accrual.
Under IAS 19, the Company recognises all movements in the actuarial funding position of the scheme in each period. This is likely to lead to volatility in shareholders' equity from period to period.
The IAS 19 figures are based on a number of actuarial assumptions as set out below, which the actuaries have confirmed they consider appropriate. The projected unit credit actuarial cost method has been used in the actuarial calculations.
Salary increases
n/a
Pension increases (post 1997)
2.9%
3.4%
Discount rate
5.1%
5.0%
5.5%
Inflation assumption
2.0%
3.0%
As a consequence of statutory changes introduced by the government during the year ended 31 March 2011, the inflation assumption has been changed from RPI to CPI in respect of deferred pension revaluation on the non-GMP element of scheme benefits.
The demographic assumptions used for 30 September 2011, were the same as used in 31 March 2011, 30 September 2010 and the last full actuarial valuation performed as at 1 April 2007, other than for life expectancy where the S1NA (YoB) MC table with a 1% underpin has been used (PA92 (YoB) MC table used for last full actuarial valuation as at 1 April 2007).
The defined benefit scheme funding has changed under IAS 19 as follows:
Funding status
Unaudited 6 months to
Year to
Scheme assets at end of period
11,844
12,408
12,432
Benefit obligations at end of period
(14,747)
(15,355)
(14,634)
Deficit in scheme
(2,903)
(2,947)
(2,202)
Related deferred tax asset
726
572
Net pension liability
(2,177)
(2,151)
(1,630)
The increase in the net pension liability is mainly due to negative investment returns combined with an increase in the value of liabilities as a consequence of a reduction in the discount rate. In addition the reduction in assumed future inflation in respect of deferred benefits noted above has partially offset the increase in scheme liabilities.
7 Reorganisation and exceptional costs
Operating exceptional items in the six months to 30 September 2011 and which, in the opinion of the directors, do not form part of the underlying operating costs of the businesses, comprise:
Year ended
- tax effect of operating exceptionals
34
Business reorganisation costs relate to bringing the assets acquired from the administrator of Jebron Ltd back into production and integrating into equipment into Exidor.
Goodwill impairment relates to a withdrawal from door handle production at Exidor.
8 Interim report
Copies of this interim results statement will be available on the Group's website, www.chamberlin.co.uk, and from the Group's headquarters at Chuckery Road, Walsall, West Midlands, WS1 2DU.