TIDMCMH
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 GBP20.7m (2022: GBP16.8m) 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 GBP0.6m (2022:
GBP0.7m loss), with improving gross profit margins across both
divisions being held back by an unexpected bad debt charge of
GBP0.2m in the Foundry division. Excluding the bad debt, the
operating loss would have reduced by 44% to GBP0.4m
-- Underlying loss before taxation amounted to GBP1.1m (2022:
GBP1.0m), 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: GBP0.5m 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 GBP0.1m (2022: GBP0.1m profit) reflects
one-off deferred tax charge of GBP0.3m relating to prior year
enhanced capital allowance claims. Excluding the one-off deferred
tax charge, profit after tax would have been GBP0.2m 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 GBP16.9m (2022:
GBP13.6m) reflecting a recovery in revenue at CHC which increased
by 22% and continued strong growth of 26% at RDC
-- Foundry operating loss reduced to GBP0.2m (2022: (GBP0.5m
loss) driven by a 48% reduction in losses at CHC following a
successful period of new order intake. Excluding a bad debt charge
of GBP0.2m, the operating result improved by 100% to break-even
-- Engineering revenues of GBP3.8m increased by 18% (2022:
GBP3.2m) continuing impressively from the 21% increase in 2022.
This continued growth contributed to another record operating
profit of GBP0.6m (2022: GBP0.5m), 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 GBP2.2m
Underlying figures are stated before non-underlying costs
(restructuring costs, impairment, onerous leases and share based
payment costs) together with the associated tax impact.
Adjusted EBITDA defined as operating profit before interest,
taxation, depreciation, amortisation and non-underlying items
Keith Butler Wheelhouse, Chairman of Chamberlin, commented: "I
am pleased to report significant operational improvements across
the Group for the year ended 31 May 2023. The Group is well
positioned to continue its journey to a full recovery and expects
to return to a more sustainable level of profitability"
Printed copies of the Annual Report and Accounts for the year
ended 31 May 2023 and Notice of Annual General Meeting ("AGM") will
be posted today to those shareholders who requested to receive
them, along with the Form of Proxy in relation to the AGM to all
shareholders. A digital copy of the Annual Report and Accounts and
Notice of Annual General Meeting will shortly be available for
download from the Company's website at
https://www.chamberlin.co.uk/investors/financials/financial-reports
.
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the UK version of the EU Market Abuse Regulation (2014/596) which
is part of UK law by virtue of the European Union (Withdrawal) Act
2018, as amended and supplemented from time to time.
Chamberlin plc 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 GBP650,000 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 GBP2.2m, of which
GBP1.1m 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 GBP0.8m and GBP1.0m 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 GBP20.7m (2022: GBP16.8m) 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 GBP0.6m (2022:
GBP0.7m), 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
GBP0.2m. Excluding the bad debt charge, the operating loss would
have been 44% lower than the previous year at GBP0.4m. 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 GBP0.5m (2022: GBP0.3m),
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 GBP1.1m (2022: GBP1.0m loss). With
non-underlying items amounting to a GBP1.1m credit (2022: GBP0.5m
credit), the statutory result before tax was just above break-even
(2022: GBP0.5m loss), a 107% improvement on the previous year. The
non-underlying credit of GBP1.1m in 2023 is largely the result of
the reversal of GBP1.4m of the GBP3.8m 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 GBP0.2m (2022: GBP0.6m
credit) and reflected a one-off deferred tax charge adjustment of
GBP0.3m 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 GBP0.3m. These
charges were largely offset by research and development tax credits
receivable of GBP0.3m and a deferred tax asset of GBP0.3m
recognised on trading losses in respect of RDC in the light of
their continued improved financial performance. The loss after tax
amounted to GBP0.1m (2022: GBP0.1m profit) but excluding the
one-off prior year deferred tax charge of GBP0.3m would have been
ahead of the prior year at GBP0.2m 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 GBP0.2m (2022: GBP4.0m outflow) was a
considerable improvement on the prior year due to a rigorous focus
on working capital flows, which improved from a GBP2.7m outflow in
2022 to a GBP0.2m 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 GBP0.65m
equity fundraising in January 2023, and then subsequent to the year
end, a further GBP0.33m 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 GBP2.2m, of which GBP1.1m 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 GBP0.6m. 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 GBP1.2m 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 EUR7.3 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 EUR1.1
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 EUR7.1 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 GBP1.0m 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 GBP4m
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
GBP1m 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
Non- Non-
Underlying underlying* Total Underlying underlying* Total
Notes GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------------- ----- ------------ ------------- --------- ------------ ------------- ---------
Revenue 3 20,718 - 20,718 16,836 - 16,836
Cost of sales (17,892) - (17,892) (15,038) - (15,038)
------------------------------- ----- ------------ ------------- --------- ------------ ------------- ---------
Gross profit 2,826 - 2,826 1,798 - 1,798
Other operating expenses 4,10 (3,413) 1,155 (2,258) (2,501) 505 (1,996)
------------------------------- ----- ------------ ------------- --------- ------------ ------------- ---------
Operating (loss)/profit 7 (587) 1,155 568 (703) 505 (198)
Finance income 136 - 136 26 - 26
Finance costs 6 (666) - (666) (337) - (337)
------------------------------- ----- ------------ ------------- --------- ------------ ------------- ---------
(Loss)/profit before tax (1,117) 1,155 38 (1,014) 505 (509)
Tax credit/(charge) 8 180 (343) (163) 581 - 581
------------------------------- ----- ------------ ------------- --------- ------------ ------------- ---------
(Loss)/profit for the year
attributable to equity holders
of the parent company (937) 812 (125) (433) 505 72
------------------------------- ----- ------------ ------------- --------- ------------ ------------- ---------
Total (loss)/earnings per
share:
Basic 9 (0.1)p 0.1p
Diluted 9 (0.1)p 0.1p
------------------------------- ----- ------------ ------------- --------- ------------ ------------- ---------
* Non-underlying items as disclosed in note 10 include
restructuring costs, reversal of impairment of assets, dilapidation
costs and share-based payment costs, together with the associated
tax impact.
Consolidated Statement of Comprehensive Income
for the YEAR ended 31 May 2023
2023 2022
Notes GBP000 GBP000
----------------------------------------------------- ----- -------- --------
(Loss)/profit for the year (125) 72
Other comprehensive income/(expense)
Movements in fair value of cash flow hedges taken
to other comprehensive income/(expense) 5 (158)
Recycled to the income statement (135) -
Deferred tax on movement in cash flow hedges
(including change in tax rate) 8 32 40
----------------------------------------------------- ----- -------- --------
Net other comprehensive expense that may be recycled
to profit and loss (98) (118)
----------------------------------------------------- ----- -------- --------
Remeasurement (loss)/gain on pension scheme assets
and liabilities 20 (1,073) 332
Deferred tax on remeasurement (loss)/gain on
pension scheme (including change in rate) 8 204 (63)
Gain on revaluation of property, plant and equipment - 1,003
Net other comprehensive (expense)/income that
will not be recycled to profit and loss (869) 1,272
----------------------------------------------------- ----- -------- --------
Other comprehensive (expense)/income for the
year net of tax (967) 1,154
----------------------------------------------------- ----- -------- --------
Total comprehensive (expense)/income for the
year attributable to equity holders of the parent
company (1,092) 1,226
----------------------------------------------------- ----- -------- --------
Consolidated Balance Sheet
at 31 May 2023
2023 2022
Notes GBP000 GBP000
--------------------------------------- ----- --------- --------
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
2023 2022
Note GBP000 GBP000
------------------------------------------------------ ---- -------- --------
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 receivables 10 (1,372) (498)
Dilapidations provision reversal 10 - (84)
Depreciation of property, plant and equipment 11 436 324
Amortisation of intangible assets 12 39 24
Profit on disposal of property, plant and equipment - (66)
Foreign exchange rate movements (140) (1)
Share-based payments 10 99 67
Defined benefit pension contributions paid (362) (935)
Increase in inventories (303) (945)
Increase in receivables (499) (168)
Increase/(decrease) in payables 1,000 (1,557)
Corporation tax received 306 -
------------------------------------------------------ ---- -------- --------
Net cash outflow from operating activities (228) (4,037)
------------------------------------------------------ ---- -------- --------
Investing activities
Purchase of property, plant and equipment 11 (410) (520)
Purchase of software 12 (5) (20)
Development costs 12 (10) (24)
Interest received 128 26
Disposal of plant and equipment - 1,189
------------------------------------------------------ ---- -------- --------
Net cash (outflow)/inflow from investing activities (297) 651
------------------------------------------------------ ---- -------- --------
Financing activities
Interest paid (567) (324)
Net invoice finance inflow 25 1,297 1,585
New share capital issued 17 594 1,624
Principal element of lease payments 25 (642) (537)
------------------------------------------------------ ---- -------- --------
Net cash inflow from financing activities 682 2,348
------------------------------------------------------ ---- -------- --------
Net increase/(decrease) in cash and cash equivalents 157 (1,038)
Cash and cash equivalents at the start of the
year - 1,038
Cash and cash equivalents at the end of the
year 25 157 -
------------------------------------------------------ ---- -------- --------
Cash and cash equivalents comprise:
Cash at bank 25 157 -
157 -
------------------------------------------------------ ---- -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable
to
Revaluation equity
Share Capital reserve holders
Share premium redemption Hedging GBP000 Retained of the
capital account reserve reserve earnings parent
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Balance at 1 June
2021 2,051 4,720 109 218 - (9,664) (2,566)
Profit for the year - - - - - 72 72
Other comprehensive
(expense)/income for
the year net of tax - - - (118) 1,003 269 1,154
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Total comprehensive
(expense)/income - - - (118) 1,003 341 1,226
New share capital
issued 36 1,588 - - - - 1,624
Share-based payment - - - - - 67 67
Deferred tax on share-based
payment - - - - - 57 57
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Total of transactions
with shareholders 36 1,588 - - - 124 1,748
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Balance at 1 June
2022 2,087 6,308 109 100 1,003 (9,199) 408
Loss for the year - - - - - (125) (125)
Other comprehensive
expense for the year
net of tax - - - (98) - (869) (967)
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Total comprehensive
expense - - - (98) - (994) (1,092)
New share capital
issued (net of transaction
costs) 20 574 - - - - 594
Share-based payment - - - - - 99 99
Deferred tax on share-based
payment - - - - - (18) (18)
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Total of transactions
with shareholders 20 574 - - - 81 675
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Balance at 31 May
2023 2,107 6,882 109 2 1,003 (10,112) (9)
---------------------------- -------- -------- ----------- --------- ------------- --------- ------------
Share premium account
The share premium account balance includes the proceeds that
were above the nominal value from issuance of the Company's equity
share capital. Transaction costs directly associated with the share
placing and subscription in January 2023 of GBP0.1m 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 operating
Segmental revenue profit/ (loss)
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
----------------------------------------- -------- --------- ---------- ---------
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 GBP136,000 (2022:GBP26,000)) (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
(GBP639,000) (2022: GBP64,000 asset), net debt of (GBP,5,541,000)
(2022: GBP4,974,000) and a net deferred tax asset of GBP1,133,000
(2022: GBP1,364,000).
Capital expenditure, depreciation, amortisation and
impairment
Foundries Engineering Total
2023 2022 2023 2022 2023 2022
Capital additions GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------ -------------- ------------- --------------- --------------- ------------ ------------
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 2023 2022 2023 2022 2023 2022
and impairment GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------------- -------------- ------------- --------------- --------------- ------------ ------------
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
2023 2022
Revenue by location of customer GBP000 GBP000
-------------------------------- ------- -------
United Kingdom 15,709 13,334
Italy 2,316 1,171
Germany 1,665 1,382
Rest of Europe 274 211
Other countries 754 738
-------------------------------- ------- -------
20,718 16,836
-------------------------------- ------- -------
The Group's assets and costs are all located within the United
Kingdom.
The Group has one individual customer in Italy which represents
10% of Group revenue (2022: 6%).
4 Other operating expenses
2023 2022
GBP000 GBP000
----------------------------------------------- -------- -------
Distribution costs 564 456
Administration and selling expenses 2,849 2,045
----------------------------------------------- -------- -------
Operating expenses before non-underlying items 3,413 2,501
Non-underlying items (Note 10) (1,155) (505)
----------------------------------------------- -------- -------
Operating expenses 2,258 1,996
----------------------------------------------- -------- -------
5 Staff numbers and costs
The average number of people employed by the Group during 2023 2022
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 GBPNil (2022: GBP58,000) of coronavirus job retention
scheme receipts:
2023 2022
GBP000 GBP000
-------------------------------------- ------- -------
Wages and salaries 5,646 5,137
Social security costs 589 535
Other pension costs (Note 20) 201 200
Share-based payment expense (Note 18) 99 67
-------------------------------------- ------- -------
6,535 5,939
-------------------------------------- ------- -------
The average number of people employed by the Company 2023 2022
during the year was: Number Number
------------------------------------------------------- ------- -------
Management and administration 7 8
------------------------------------------------------- ------- -------
The aggregate employment costs, including redundancy, of these
employees were as follows:
2023 2022
GBP000 GBP000
-------------------------------------- -------- -------
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
-------------------------------------- -------- -------
2023 2022
Directors' remuneration summary GBP000 GBP000
----------------------------------------------------------- ------- --------
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
----------------------------------------------------------- ------- --------
2023 2022
Number of Directors accruing benefits under: 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 GBP134,000 (2022: GBP131,000).
Company pension contributions of GBP6,000 (2022: GBP6,000) were
made to a money purchase pension scheme on his behalf.
6 Finance costs
2023 2022
GBP000 GBP000
--------------------------------------------------------- ------- --------
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
2023 2022
This is stated after charging/(crediting): GBP000 GBP000
------------------------------------------------------- ------- --------
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 2022
GBP000 GBP000
-------------------------------------------------------- ------- --------
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 GBP1,116,000 were
utilised in the year (2022: GBP500,000).
In addition to the amount charged to the consolidated income
statement, tax movements recognised through other comprehensive
income and equity were as follows:
2023 2022
Consolidated statement of comprehensive income GBP000 GBP000
----------------------------------------------------------- ---------------------- --------
Current tax: - -
----------------------------------------------------------- ---------------------- --------
Deferred tax:
Retirement benefit obligation (204) 63
Fair value movements on cash flow hedges (32) (40)
Change in tax rate - -
----------------------------------------------------------- ---------------------- --------
Tax (credit)/charge reported in the consolidated statement
of comprehensive income (236) 23
----------------------------------------------------------- ---------------------- --------
2023 2022
Consolidated statement of changes in equity GBP000 GBP000
------------------------------------------- ------- -------
Current tax: - -
------------------------------------------- ------- -------
2023 2022
Deferred tax: GBP000 GBP000
----------------------------------------------------------- -------- --------
Share-based payment 18 (57)
----------------------------------------------------------- -------- --------
Tax charge/(credit) reported in the consolidated statement
of changes in equity 18 (57)
----------------------------------------------------------- -------- --------
2023 2022
Reconciliation of total tax charge GBP000 GBP000
------------------------------------------------------- -------- --------
Profit/(loss) on ordinary activities before tax 38 (509)
------------------------------------------------------- -------- --------
Corporation tax charge at standard rate of 19% (2022:
19%) on profit/(loss) before tax 7 (97)
Adjusted by the effects of:
Expenses not deductible 10 (34)
Unprovided deferred tax differences 275 394
Deferred tax on losses recognised (286) (314)
Adjustments in respect of prior years 162 (603)
Rate differential on timing differences (5) 73
------------------------------------------------------- -------- --------
Total tax charge/(credit) reported in the consolidated
income statement 163 (581)
------------------------------------------------------- -------- --------
Unprovided deferred tax differences of GBP275,000 (2022:
GBP394,000) 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 2022
GBP000 GBP000
--------------------------------------------- -------- --------
(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
GBP000 GBP000
-------------------------------------------------------------- -------- --------
Group reorganisation 118 -
Reversal of impairment of property, plant & equipment (1,372) -
Reversal of impairment of inventory and receivables - (498)
Additional liability from customer claim relating to disposal
of Exidor Limited - 10
Dilapidations provision release - (84)
Share-based payment charge 99 67
-------------------------------------------------------------- -------- --------
Non-underlying operating items (1,155) (505)
Taxation
- Tax effect of non-underlying items 343 -
-------------------------------------------------------------- -------- --------
(812) (505)
-------------------------------------------------------------- -------- --------
During the year, the Group incurred group reorganisation costs
of GBP118,000 (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 GBP1,372,000 (2022: nil) relates to the partial reversal of
the GBP3,809,000 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 GBP99,000 (2022:
GBP67,000) relates to the fair value cost of share option schemes
for the year and includes an accelerated charge of GBP32,000 (2022:
nil) relating to employees that left employment of the Group during
the year.
11 Property, plant and equipment
Land and Plant and Motor
buildings machinery vehicles Total
Group GBP000 GBP000 GBP000 GBP000
-------------------- ---------- ---------- --------- --------
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 GBP315,000 to plant and machinery in
the year includes GBP131,000 reclassified from software in
intangible assets (see note 12) and GBP184,000 reclassified from
inventory (see note 13).
The net book value of land and buildings of GBP2,413,000
includes property held at valuation amounting to GBP1,600,000. 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
GBP000 GBP000
---------------- ------- -------
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
GBP000 GBP000
------------------------- -------- -------
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
buildings machinery vehicles Total
GBP000 GBP000 GBP000 GBP000
--------------- ---------- ---------- --------- -------
At 31 May 2022 731 187 4 922
--------------- ---------- ---------- --------- -------
At 31 May 2023 633 1,540 - 2,173
--------------- ---------- ---------- --------- -------
Additions of GBP67,000 included in total plant and machinery
additions of GBP463,000 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 GBP1,372,000 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.
Land and Plant and Motor
buildings machinery vehicles Total
Company GBP000 GBP000 GBP000 GBP000
----------------------------------- ---------- ---------- --------- -------
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 GBP4,000
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
GBP000 GBP000
-------------------------------------------------------- ------- -------
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 GBP1.4m in the current
year of the GBP3.8m impairment charge originally recognised in
2021.
12 Intangible assets
Group Company
------------------
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
------------------ ----------- ---------- ------------- ------------
Software 76 222 5 3
Development costs 51 61 - -
------------------ ----------- ---------- ------------- ------------
127 283 5 3
------------------ ----------- ---------- ------------- ------------
Group Company
Software GBP000 GBP000
------------------------- ------- -------
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 GBP38,000 (2022: GBP50,000) 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 GBPNil (2022: GBP3,000) relating to assets held under
leases. The depreciation charge for the period in respect of
right-of-use assets was GBP3,000 (2022: GBP7,000). There were no
additions in the year relating to right-of-use assets.
Group Company
Development costs capitalised GBP000 GBP000
----------------------------- ------- -------
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
GBP000 GBP000 GBP000 GBP000
----------------- ----------- ---------- ------------ -----------
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 GBP9,733,000 (2022: GBP7,147,000). There was an
impairment reversal relating to inventory during the year of
GBP84,000 (2022: GBP498,000) 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 GBP184,000 was
transferred to plant and machinery in the year.
14 Trade and other receivables
Group Company
-------------------------------------------
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
------------------------------------------- ----------- ----------- ----------------- -----------------
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
GBP3,980,000 (2022: GBP3,633,000) against which an invoice finance
liability of GBP3,542,000 (2022: GBP2,243,000) was secured. The
total available invoice finance facility as at 31 May 2023 was
GBP4,500,000 (2022: GBP3,500,000).
Trade receivables are denominated in the following
currencies:
Group Company
---------
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
--------- ----------- ---------- ------------- ------------
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 GBP3,980,000
(2022: GBP3,633,000), GBP1,629,000 (2022: GBP1,314,000) 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 GBP202,000 (2022: GBP34,000) were impaired and fully
provided for. Movements in the provision for impairment of
receivables were as follows:
Group Company
--------------------
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
-------------------- ----------- ----------- ------- -------
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:
Past due
---------------------- ------- ---------
Neither
past
due nor 90-120
Total impaired <30 days 30-60 days 60-90 days days >120 days
31 May 2023 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ------- --------- -------- ---------- ---------- ------- ---------
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 -
---------------------- ------- --------- -------- ---------- ---------- ------- ---------
Past due
---------------------- ------- ---------
Neither
past
due nor 90-120
Total impaired <30 days 30-60 days 60-90 days days >120 days
31 May 2022 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ------- --------- -------- ---------- ---------- ------- ---------
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
GBPNil (2022: GBPNil) was recognised in the period in relation to
these receivables.
Group Company
------------------------
2023 2022 2023 2022
Income taxes receivable GBP000 GBP000 GBP000 GBP000
------------------------ ------------ ----------- ------- -------
UK corporation tax 286 306 41 35
------------------------ ------------ ----------- ------- -------
15 Current liabilities
Group Company
-------------------------
2023 2022 2023 2022
Financial liabilities GBP000 GBP000 GBP000 GBP000
------------------------- ------------ ----------- -------------- -------------
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 GBP4,500,000 (2022: GBP3,500,000).
Management has assessed the treatment of the financing arrangements
and has determined it is appropriate to recognise trade receivables
and invoice finance liabilities separately.
Group Company
-------------------------------------------
2023 2022 2023 2022
Trade and other payables GBP000 GBP000 GBP000 GBP000
------------------------------------------- ---------- --------- ------------ ------------
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
Group Company
----------------------
2023 2022 2023 2022
Financial liabilities GBP000 GBP000 GBP000 GBP000
---------------------- ---------- ---------- ------------ ------------
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. GBP532,000 is
repayable in one to two years (2022: GBP533,000), GBP550,000 within
two to five years (2022: GBP926,000) and GBP520,000 in more than
five years (2022: GBP638,000).
Interest is payable at a fixed amount that ranges between 3.1%
and 9.4%.
Dilapidations
Provisions for liabilities GBP000
--------------------------- -------------
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 GBP616,000 is expected to be utilised within 1-2
years and GBP190,000 within 3-4 years.
Group Company
-------------------------
2023 2022 2023 2022
Deferred tax liabilities GBP000 GBP000 GBP000 GBP000
------------------------- ----------- ---------- ------------- ------------
Deferred taxation 40 70 39 37
------------------------- ----------- ---------- ------------- ------------
Group Company
2023 2022 2023 2022
GBP000 GBP000 GBP000 GBP000
------------------------------------------------ ------- ------- ------- -------
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
------------------------------------------
2023 2022 2023 2022
Deferred tax assets GBP000 GBP000 GBP000 GBP000
------------------------------------------ ---------- ---------- ------------- ------------
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 GBP4,659,000
(2022: GBP3,919,000).
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 GBP231,000 (2022:
GBP309,000), a charge of GBP449,000 (2022: GBP275,000 credit) was
recognised within the Consolidated Income Statement, a credit of
GBP236,000 (2022: GBP23,000 charge) was recognised within other
comprehensive income and a charge of GBP18,000 (2022: GBP57,000
credit) recognised within the Consolidated Statement of Changes in
Equity.
17 Share capital
2023 2022
Allotted, called up and fully paid GBP000 GBP000
-------------------------------------------------------- ------- -------
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 GBP81,000) of GBP650,000. 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
Exercise Remaining
No. of price contractual
options (p) life (years)
--------------- ------------ -------- -------------
At 1 June 2021 3,797,930 11.2 9.9
Lapsed (216,616) 97.5 8.3
--------------- ------------ -------- -------------
At 1 June 2022 3,581,314 6.0 9.0
Lapsed (1,692,982) 6.0 8.4
--------------- ------------ -------- -------------
At 31 May 2023 1,888,332 6.0 8.0
--------------- ------------ -------- -------------
Options over 3,581,314 ordinary shares of 0.1p were granted to
Directors and senior management on 13 May 2021 under the Chamberlin
Performance Share Plan. The fair value of options granted in 2021
was 5.6p per share calculated using a Black-Scholes model and the
following assumptions:
Share price at date of grant 10.1p
Volatility 58%
Risk free rate 0.88%
Dividend yield 0%
----------------------------- -----
No share options were exercised during the current or prior
period and there were no share options that are exercisable at the
end of either financial period.
19 Fixed asset investments
GBP000
---------------------------------------------------- -------
Shares in subsidiary undertakings
---------------------------------------------------- -------
Cost as at 1 June 2021, 31 May 2022 and 31 May 2023 6,155
---------------------------------------------------- -------
I mpairment
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, GBP1,505,000 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
Manufacture and sale of lighting, and
Petrel Ltd 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
GBP225,000 (2022: GBP151,000), with the increase being due to costs
associated with the triennial valuation, together with financing
income of GBP8,000 (2022: GBP13,000 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 GBP201,000
(2022: GBP200,000). 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 GBP409,000 and include estimated scheme administration
costs to be paid out of scheme assets of GBP180,000. 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 GBP317,700 for the year ended 31 March 2024 and
GBP468,000 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
GBP180,000 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 GBP1,100,000, 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
GBP000 GBP000
--------------------------------------- --------- ---------
Equities/diversified growth fund 1,094 1,937
Liability Driven Investments 2,191 2,370
Buy and Maintain Credit 4,103 1,853
Multi-Sector Credit 1,750 4,273
Insured pensioner assets 7 13
Cash 1,855 3,578
--------------------------------------- --------- ---------
Market value of assets 11,000 14,024
Actuarial value of liability (11,639) (13,960)
--------------------------------------- --------- ---------
Scheme (deficit)/surplus (639) 64
Related deferred tax asset/(liability) 160 (16)
--------------------------------------- --------- ---------
Net pension (liability)/surplus (479) 48
--------------------------------------- --------- ---------
Due to the nature of the investments held, the scheme is subject
to normal market risks that affect the world's stock markets, and
in particular the UK market.
Net benefit income/(expense) recognised in profit and 2023 2022
loss GBP000 GBP000
-------------------------------------------------------- ------- -------
Net interest income/(expense) 8 (13)
-------------------------------------------------------- ------- -------
Net interest income/(expense) 8 (13)
-------------------------------------------------------- ------- -------
2023 2022
Remeasurement loss/ (gain) in other comprehensive income GBP000 GBP000
--------------------------------------------------------------- ------- -------
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
GBP000 GBP000
--------------------------- -------- --------
Actual loss on plan assets (2,466) (1,686)
--------------------------- -------- --------
2023 2022
Movement in surplus/(deficit) GBP000 GBP000
------------------------------------------- ------- -------
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
------------------------------------------- ------- -------
2023 2022
Movement in scheme assets GBP000 GBP000
--------------------------------------------- -------- --------
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
--------------------------------------------- -------- --------
2023 2022
Movement in scheme liabilities GBP000 GBP000
--------------------------------------------------------------- -------- --------
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 2023 2022
assumptions: GBP000 GBP000
---------------------------------------------------------------- ------- -------
Discount rate increased by 1% p.a. 10,644 12,543
RPI and CPI increased by 1% p.a. 12,036 14,584
Mortality - members assumed to be their actual age as opposed
to one year older 12,131 14,627
---------------------------------------------------------------- ------- -------
The sensitivity analysis above has been determined based on a
method that extrapolates the impact on defined benefit obligations
as a result of reasonable changes in key assumptions occurring at
the end of the year.
21 Contingent liabilities
Cross guarantees exist between the Company and its subsidiary
undertakings in respect of the Group's bank overdrafts, asset
finance loans and invoice finance facilities. The total borrowings
of the subsidiaries at 31 May 2023 amounted to GBP8,377,000 (2022:
GBP7,879,000).
22 Financial commitments
Group Company
--------------------------------------
2023 2022 2023 2022
Capital expenditure GBP000 GBP000 GBP000 GBP000
-------------------------------------- ----------- ---------- ------------ -----------
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
GBP000 GBP000 GBP000 GBP000
----------------------------- ------------- ------------ ------------- -------------
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 EUR1.15 (year ended 31 May 2022: EUR1.18).
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 GBP393,000 (2022: GBP227,000). 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 GBP6,000
(2022: GBP20,000).
Contracted
amount
Weighted at
Contracted average Contracted year end Unrealised
amount contract amount rate gain/(loss)
( EUR000) rate GBP000 GBP000 GBP000
--------------------- ---------- --------- ---------- ---------- ------------
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 quoted (unadjusted) prices in active markets for identical
1: assets or liabilities;
Level other techniques for which all inputs which have a significant
2: 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 GBP18,000 reduction in profit before tax
(2022: GBP11,000). An equivalent decrease in rates would increase
profit before tax by GBP18,000 (2022: GBP11,000).
An analysis of interest-bearing financial assets and liabilities
is given below.
Group Company
-----------------------------------------
2023 2022 2023 2022
Financial liabilities GBP000 GBP000 GBP000 GBP000
----------------------------------------- ----------- ---------- ------------- -----------
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 GBP202,000 (2022:
GBP3,000).
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 GBP3.5m 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.
Less than One to Two to More than
one two five five years
On demand year years years Total
----------------------------- --------- --------- ------ ------ ----------- ------
At 31 May 2023
Financial assets
Trade receivables 3,980 - - - - 3,980
----------------------------- --------- --------- ------ ------ ----------- ------
Non-derivative financial
liabilities
Invoice finance 3,542 - - - - 3,542
Lease liabilities, including
interest - 717 680 721 589 2,707
Trade payables - 4,147 - - - 4,147
----------------------------- --------- --------- ------ ------ ----------- ------
3,542 4,864 680 721 589 10,396
----------------------------- --------- --------- ------ ------ ----------- ------
At 31 May 2022
Financial assets
Trade receivables 3,633 - - - - 3,633
----------------------------- --------- --------- ------ ------ ----------- ------
Non-derivative financial
liabilities
Invoice finance 2,243 - - - - 2,243
Lease liabilities, including
interest - 820 698 1,192 755 3,465
Trade payables - 3,308 - - - 3,308
----------------------------- --------- --------- ------ ------ ----------- ------
2,243 4,128 698 1,192 755 9,016
----------------------------- --------- --------- ------ ------ ----------- ------
The gross undiscounted future cashflows are analysed as
follows:
One to Two to
Less than two five
On demand one year years years Total
----------------------------------- ---------- --------- ------ ------ -----
At 31 May 2023
Foreign exchange forward contracts - 132 - - 132
----------------------------------- ---------- --------- ------ ------ -----
- 132 - - 132
---------------------------------------------- --------- ------ ------ -----
The outflows above relate to the settlement of the derivative
contracts which are a fair value asset at the year end as disclosed
in Note 14.
At 31 May 2022
Foreign exchange forward contracts - 424 - - 424
----------------------------------- --- ---- ----
- 424 - - 424
--------------------------------------- ---- ----
The Company's financial liabilities comprise a bank overdraft of
GBP1,515,000 (2022: GBPNil) and is payable on demand, and lease
liabilities of GBP10,000 (2022: GBP25,000)
Capital management
The Group defines capital as the total equity of the Group,
which at the year end is GBP9,000 negative (2022: GBP408,000
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
GBP000 GBP000 GBP000 GBP000
---------------------------------------- ---------- ---------- ------------- ------------
Short-term employee benefits (including
employer's NI) 499 542 384 384
Termination costs (including employer's
NI) - - - -
Share-based payments 99 67 99 67
Pension contributions 16 15 11 11
---------------------------------------- ---------- ---------- ------------- ------------
614 624 494 462
---------------------------------------- ---------- ---------- ------------- ------------
Key management, other than Directors of the Company, comprise
the Managing Directors and Finance Directors of the main operating
subsidiaries and are included in the Group figures above.
Details of key management share options are disclosed in Note
18.
25 Net debt
Net overdraft/
(cash at Invoice Lease
bank) finance liabilities Total
GBP000 GBP000 GBP000 GBP000
--------------------------------- -------------- -------- ------------ --------
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 (GBP000)
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 GBP1.5m 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 (GBP). 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 Schem e (CJRS) and in accordance with IAS 20
Accounting for Government Grant s, 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 GBP311k GBP165k 1.5% of revenue (2022: 1%)
Parent Company GBP109K GBP70k 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
matter description from the supply of manufactured goods and
materials. Revenue and costs associated with
generating that revenue must be recognised
in the correct period and in line with fulfilling
the performance obligation.
Our risk associated in respect of this is
revenue cut off as there maybe income recognised
during the year when risk and reward has not
been passed onto the customer.
We note that a proportion of sales are exports
and therefore there is greater risk that cut
off issues may arise surrounding goods despatched
around the year end.
-------------------- --------------------------------------------------
How the scope of We performed a walkthrough of each of the
our audit responded key revenue streams and considered the design,
to the key audit implementation and adequacy of the Groups
matter 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 We concluded that revenue had been recorded
communicated to appropriately. We did not identify any material
the Group's Audit errors in relation to cut-off.
Committee
-------------------- --------------------------------------------------
Defined benefit pension
-------------------------------------------------------------------
Key audit Under IAS 19 management is required to uses
matter description 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 We have used an independent external auditor
audit responded to the expert actuary to review the assumptions
key audit matter 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 We concluded that the defined benefit pension
to the Group's Audit liability is compliant with IAS 19. We concluded
Committee that the assumptions used in the report
are reasonable.
-------------------------------- ---------------------------------------------------
Reversal of fixed asset impairment
-------------------------------------------------------------------------------------
Key audit During the year, management processed an impairment
matter description reversal in relation to Plant and Machinery
(specifically the machine tool shop). This
was originally impaired due to losing a significant
customer and the entire site being 'moth balled'.
During the year, new orders have been received
and manufacturing has recommenced which indicates
the full impairment is no longer required.
Management have considered current and future
orders and related operating costs to make
this judgement. As a result management processed
an impairment reversal amounting to GBP1,372k.
-------------------------- ---------------------------------------------------------
How the scope of We have reviewed management's methodology used
our audit responded to justify the amount of reversal.
to the key audit
matter 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 We have concluded that the reversal of the
communicated to fixed asset impairment, whilst highly judgemental,
the Group's Audit is justified and identified no material misstatements.
Committee
-------------------------- ---------------------------------------------------------
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 GBP311k, which
was determined on the basis of 1.5% of the Group's revenue.
Materiality in respect of the Parent Company was set at GBP109k,
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 GBP218k and at
GBP77k 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 GBP16k and GBP5k in respect of the Group and Parent
Company respectively to the Audit Committee as well as differences
below this threshold that in our view warranted reporting on
qualitative grounds.
Overview of the scope of the Group and Parent Company audits
Our assessment of audit risk, evaluation of materiality and our
determination of performance materiality sets our audit scope for
each Company within the Group. Taken together, this enables us to
form an opinion on the consolidated financial statements. This
assessment takes into account the size, risk profile, organisation
/ distribution and effectiveness of Group-wide controls, changes in
the business environment and other factors such as recent internal
audit results when assessing the level of work to be performed at
each component.
In assessing the risk of material misstatement to the
consolidated financial statements, and to ensure we had adequate
quantitative and qualitative coverage of significant accounts in
the consolidated financial statements, of the 5 reporting
components of the Group, we identified 4 components in the UK and
mainland Europe which represent the principal business units within
the Group.
The Group comprises of a Parent Company which does not trade, a
holding company, and 3 main trading subsidiaries. The Group
engagement team have audited the complete financial information of
all group entities ensuring full scope audits of entities which
make up 100% of group revenue, loss for the year and total
assets.
-- The Parent Company, Chamberlin PLC
-- Chamberlin Foundry Ltd
-- Petrel Limited
-- Russel Ductile Castings Limited
-- Chamberlin & Hill Castings Limited
The control environment
We evaluated the design and implementation of those internal
controls of the Group, including the Parent Company, which are
relevant to our audit, such as those relating to the financial
reporting cycle. We also tested operating effectiveness but did not
place reliance on the controls.
Reporting on other information
The other information comprises the information included in the
annual report other than the financial statements and our auditor's
report thereon. The directors are responsible for the other
information contained within the annual report. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
Strategic report and directors report
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the strategic report and the
directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the strategic report and the directors' report have been
prepared in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and
the Parent Company and their environment obtained in the course of
the audit, we have not identified material misstatements in the
strategic report or the directors' report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
by branches not visited by us; or
-- the Parent Company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Group's and the Parent Company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
Group or Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of these financial statements.
A further description of our responsibilities for the financial
statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
Extent to which the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud.
These audit procedures were designed to provide reasonable
assurance that the financial statements were free from fraud or
error. The risk of not detecting a material misstatement due to
fraud is higher than the risk of not detecting one resulting from
error and detecting irregularities that result from fraud is
inherently more difficult than detecting those that result from
error, as fraud may involve collusion, deliberate concealment,
forgery or intentional misrepresentations. Also, the further
removed non-compliance with laws and regulations is from events and
transactions reflected in the financial statements, the less likely
we would become aware of it.
Identifying and assessing potential risks arising from
irregularities, including fraud
The extent of the procedures undertaken to identify and assess
the risks of material misstatement in respect of irregularities,
including fraud, included the following:
-- We considered the nature of the industry and sector the
control environment, business performance including remuneration
policies and the Group's, including the Parent Company's, own risk
assessment that irregularities might occur as a result of fraud or
error. From our sector experience and through discussion with the
directors, we obtained an understanding of the legal and regulatory
frameworks applicable to the Group focusing on laws and regulations
that could reasonably be expected to have a direct material effect
on the financial statements, such as provisions of the Companies
Act 2006, UK tax legislation or those that had a fundamental effect
on the operations of the Group
-- We enquired of the directors and management concerning the
Group's and the Parent Company's policies and procedures relating
to:
- identifying, evaluating and complying with the laws and
regulations and whether they were aware of any instances of
non-compliance;
- detecting and responding to the risks of fraud and whether
they had any knowledge of actual or suspected fraud; and
- the internal controls established to mitigate risks related to
fraud or non-compliance with laws and regulations.
-- We assessed the susceptibility of the financial statements to
material misstatement, including how fraud might occur by
evaluating management's incentives and opportunities for
manipulation of the financial statements. This included utilising
the spectrum of inherent risk and an evaluation of the risk of
management override of controls. We determined that the principal
risks were related to posting inappropriate journal entries to
increase revenue and management bias in accounting estimates
particularly in determining expected credit losses.
Audit response to risks identified
In respect of the above procedures:
-- we corroborated the results of our enquiries through our
review of the minutes of the Group's and the Parent Company's audit
committee meetings.
-- audit procedures performed by the engagement team in
connection with the risks identified included:
- reviewing financial statement disclosures and testing to
supporting documentation to assess compliance with applicable laws
and regulations expected to have a direct impact on the financial
statements.
- testing journal entries, including those processed late for
financial statements preparation, those posted by infrequent or
unexpected users, those posted to unusual account combinations;
- evaluating the business rationale of significant transactions
outside the normal course of business, and reviewing accounting
estimates for bias;
- enquiry of management around actual and potential litigation and claims.
- challenging the assumptions and judgements made by management
in its significant accounting estimates.
- obtaining confirmations from third parties to confirm existence of a sample of balances.
-- we communicated relevant laws and regulations and potential
fraud risks to all engagement team members, including experts, and
remained alert to any indications of fraud or non-compliance with
laws and regulations throughout the audit.
Use of our report
This report is made solely to the Parent Company's members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to
the Parent Company's members those matters we are required to state
to them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Martin Ramsey BSc (Hons) FCCA
(Senior Statutory Auditor)
for and on behalf of MHA, Statutory Auditor
Birmingham, United Kingdom
30 November 2023
MHA is the trading name of MacIntyre Hudson LLP, a limited
liability partnership in England and Wales (registered number
OC312313)
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END
FR FZMFMFGDGFZM
(END) Dow Jones Newswires
November 30, 2023 08:40 ET (13:40 GMT)
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