Half Yearly Report

RNS Number : 1663D

Chamberlin PLC

27 November 2009

CMH

CHAMBERLIN PLC

("Chamberlin" or "the Group")

Interim Results

For the six months to 30 September 2009

Key Points

	Full impact of recession evident in H1 results - H2 expected to show improvement

	Management action has enabled Chamberlin to weather the storm in better shape than many peers
	-		production capability remains intact but cost base is lower

	Revenues of £14.2m (2008: £23.5m) - reflected aggressive de-stocking in manufacturing sector

	Underlying operating loss* of £635,000 (2008: £905,000 profit) - decrease minimised by prompt management actions
	-		Statutory operating loss of £871,000 (2008: £712,000 profit)

	Underlying loss before tax* of £809,000 (2008: £803,000 profit)
	-		Statutory loss before tax of £713,000 (2008: £1,019,000 profit)

	Positive operating cash flow at £100,000 (2008: outflow of £67,000)

	Underlying loss per share* of 9.35p (2008: 8.6p earnings)
	-		Statutory loss per share 8.42p (2008: 10.7p earnings)

	Major new customer contract for turbocharger castings
	-		expected to generate significant revenues from Q4

	Demand in most areas of business now stabilised and some sectors showing signs of recovery

	Board optimistic about improved prospects

* 2009 figures stated before exceptional costs of £236,000 and unrealised foreign currency income of £332,000. (2008 figures stated before exceptional costs of £193,000 and unrealised foreign currency income of £409,000).

Chairman, Tom Brown, commented,

"While the six months of the current financial year have been very demanding, set against recession and aggressive de-stocking in the manufacturing sector, I believe that we have weathered the storm in better shape than many in our sector. We have maintained our output capability and remain technically very strong and operationally efficient. We are therefore in a position to leverage our competitive advantages as recovery comes through.

Although the trading environment will continue to be challenging, we believe that demand has largely stabilised in most areas of the business and some sectors appear to be showing signs of recovery. We are confident of delivering improved results in the second half of the current financial year although, given the operationally geared nature of the business, the volume of orders actually achieved will greatly influence the exact outcome.

Beyond that, with our production capacity still fully intact, our proven technical ability and a lower cost base, we look forward to a significantly improving trend as the economy recovers."

Enquiries

Chamberlin plc
Tim Hair, Chief Executive		T: 01922 707100
Mark Bache, Finance Director

Charles Stanley Securities		T: 020 7149 6000
(Nominated Adviser)
Russell Cook

Biddicks (Financial PR) Katie Tzouliadis		T: 020 7448 1000

CHAIRMAN'S STATEMENT

Trading conditions over the six months to 30 September 2009 were markedly worse than the same period in 2008, when we were seeing improving profitability as well as the other benefits of our business modernisation and investment programme.

While the six months of the current financial year have been very demanding, set against recession and aggressive de-stocking in the manufacturing sector, I believe that we have weathered the storm in better shape than many in our sector. We have maintained our output capability and remain technically very strong and operationally efficient. We are therefore in a position to leverage our competitive advantages as recovery comes through.

Results

Revenues for the six months to 30 September 2009 reduced by 40% to £14.2m from £23.5m last year. Although some of this reduction was due to the removal of material surcharges, the majority resulted from reduced demand in the sectors we supply, exacerbated by customer de-stocking. I am however pleased to note that, despite this very large drop in sales, the actions taken by management have limited the impact on operating profit, with a first half underlying loss of £635,000 compared with an operating profit of £905,000 in the previous year. A reduction of £9m in sales at average gross margin would typically be expected to result in a profit impact of around £3m and it is a credit to the prompt and decisive actions of the executive team that the impact has been so limited.

Interest cost decreased to £57,000 (2008: £85,000) due to a reduction in the interest rate charged, although this was offset by an increase in non-cash pension charges which caused financial costs to increase to £174,000 (2008: £102,000).

Exceptional costs of £236,000 were incurred as the business was restructured in response to the downturn. In restructuring, we have been able to remove permanently certain overhead costs, which will reduce our break-even point in future years.

Net borrowings at 30 September 2009 increased to £3.5m, up from £3.3m at 31 March 2009. We achieved modest positive net cash flow from operations, helped by cost reductions and an intense focus on working capital. We restricted capital expenditure to less than half the level of depreciation but the exceptional costs incurred led to a growth in borrowings which was modest given the overall trading environment. The Group continues to operate within its banking facilities and we maintain an excellent working relationship with HSBC, the Group's bankers.

Since the year end on 31 March 2009, the pension deficit has increased by £1.0m to £2.8m, with strong investment returns offset by increased liabilities as a result of a reduction in the discount rate.

Operations

Chamberlin serves a wide range of market sectors, with much of our production exported either directly or indirectly. As a result the impact of the downturn has been spread across the past 12 months and has varied greatly between sectors in both extent and timing. Our engineering companies, which account for 15% of the Group's activity, have seen only a modest decline in sales over the last 12 months. Demand from the passenger car sector (which typically comprises13% of Group sales) dropped dramatically in the second half of last year and this was followed by a reduction in demand for mid-range castings as construction and commercial vehicle volumes declined. These latter markets remained weak through the first half of the current financial year but we experienced a steady recovery in passenger car demand during the second quarter. This coincided with a downturn in demand for heavy castings which had been unaffected until that point. At present, our shipments to the car industry are stable at around 70% of peak volume and are profitable at that level. Other sectors now appear to be either stable or showing some early signs of recovery.

Throughout the downturn Chamberlin sites have maintained their standards of high customer service levels and improved quality, delivery reliability and flexibility to customers. We have also continued our improvement programmes, upgrading the Group's Enterprise Resource Planning systems at our Walsall and Leicester sites and making significant progress in operational performance.

Our Walsall foundry is well established as a leading supplier to the European turbocharger industry and in the past year has been engaged in joint technical development and prototype supply to a major new customer in this sector. Recently the foundry has received approval to supply production volumes of the first castings and will begin a gradual supply increase during the fourth quarter of the financial year. These parts, together with others currently in development, are expected to account for over £3m of sales in the 2011/12 financial year. These volumes will be incremental to the recovering demand from existing customers.

I have previously commented on the turnaround of Russell Ductile Castings, our heavyweight foundry with operations in Leicester and Scunthorpe. With the turnaround complete, we have now restructured the management of the Group's foundry businesses, and in July the Leicester site came under the control of the Chamberlin & Hill Castings management team based at Walsall, leaving the Russell Ductile team free to focus on the development of the Scunthorpe business. This change has already generated significant synergies and will allow us to take full advantage of opportunities across the casting market as the economy recovers.

In the current climate, I feel that it is especially important to acknowledge the contributions of our employees, all of whom have been subject to a pay freeze in the past year. We greatly appreciate the support and commitment our staff, at all levels, have shown.

Strategy

During the past year, management has focused on the immediate challenges presented by the downturn. Coupled with a shortage of suitable targets, this has led to the deferral of the Board's broader strategy to expand the Group through acquisition. Calmer conditions in recent weeks have allowed management to return to more strategic matters and, as expected, a number of interesting opportunities have already been identified. We believe that over the next twelve months there will be good opportunities to acquire businesses that fit our criteria, summarised as "difficult things done well," and look forward to taking the first steps towards an expanded Group.

Outlook

The recent downturn has tested both Chamberlin and its management and has demonstrated the fundamental strength of both.

Beyond that, with our production capacity still fully intact, our proven technical ability and a lower cost base, we look forward to a significantly improving trend as the economy recovers.

Tom Brown

Chairman

27 November 2009

CHAMBERLIN plc

Summarised Consolidated Income Statement

for the six months ended 30 September 2009

		Unaudited six months ended 30 September 2009			Unaudited six months ended 30 September 2008 (Restated *)			Year ended 31 March 2009
	Note	Before exceptional Items	Exceptional items (note 8)	Total	Before exceptional items	Exceptional items (note 8)	Total	Before exceptional items	Exceptional items (note 8)	Total
		£000	£000	£000	£000	£000	£000	£000	£000	£000

Revenue		14,215	-	14,215	23,539	-	23,539	39,940	-	39,940

Cost of sales		(12,119)	-	(12,119)	(19,429)	-	(19,429)	(33,783)	-	(33,783)

Gross profit		2,096	-	2,096	4,110	-	4,110	6,157	-	6,157

Other operating expenses		(2,731)	(236)	(2,967)	(3,205)	(193)	(3,398)	(5,697)	(446)	(6,143)

Operating (loss)/ profit from continuing operations		(635)	(236)	(871)	905	(193)	712	460	(446)	14

Finance costs	3	(174)	-	(174)	(102)	-	(102)	(201)	-	(201)

(Loss)/profit from continuing operations before tax and unrealised foreign currency gain/(loss)		(809)	(236)	(1,045)	803	(193)	610	259	(446)	(187)

Unrealised foreign currency gain/(loss)		332	-	332	409	-	409	(311)	-	(311)

(Loss)/profit from continuing operations before tax		(477)	(236)	(713)	1,212	(193)	1,019	(52)	(446)	(498)

Tax credit/(expense)	4	21	66	87	(1,342)	586	(756)	(5)	(346)	(351)

(Loss)/profit for the period from continuing operations		(456)	(170)	(626)	(130)	393	263	(57)	(792)	(849)

Attributable to equity holders of the parent company				(626)			263			(849)

Earnings per share:

Basic	6			(8.42)p			10.7p			(11.4)p
Underlying	6	(9.35)p			8.6p			2.2p
Diluted	6			(8.42)p			10.5p			(11.4)p
Diluted underlying	6	(9.35)p			8.5p			2.1p

* Restated for deferred tax, see note 1.

Consolidated Statement of Comprehensive Income

for the six months ended 30 September 2009

Note	Unaudited six months ended 30 September 2009	Unaudited six months ended 30 September 2008 (Restated *)	Year ended 31 March 2009
	£000	£000	£000

(Loss)/profit for the period	(626)	263	(849)
Other comprehensive income
Actuarial (losses)/ gains on pension assets and liabilities	(1,024)	170	(982)
Deferred tax credit/ (charge) on actuarial (losses)/gains	287	(48)	275
Other comprehensive income for the period net of tax	(737)	122	(707)

Total comprehensive income for the period attributable to equity holders of the parent company.	(1,363)	385	(1,556)

* Restated for deferred tax, see note 1.

Summarised Consolidated Balance Sheet

At 30 September 2009

	Unaudited 30 September 2009	Unaudited 30 September (Restated*) 2008	31 March 2009
	£000	£000	£000
Non-current assets
Property, plant and equipment	8,644	8,648	8,968
Intangible assets	681	433	690
Deferred tax assets	935	300	809
	10,260	9,381	10,467
Current assets
Inventories	3,905	4,848	5,078
Trade and other receivables	5,679	9,679	6,004
	9,584	14,527	11,082
Total assets	19,844	23,908	21,549



Current liabilities
Financial liabilities	3,530	2,728	3,258
Trade and other payables	5,244	8,308	6,614
Provisions	40	-	48
Income taxes payable	-	98	-
	8,814	11,134	9,920
Non-current liabilities
Defined benefit pension scheme deficit	2,840	796	1,828
Deferred tax liabilities	92	462	340
	2,932	1,258	2,168


Total liabilities	11,746	12,392	12,088



Capital and reserves
Share capital	1,859	1,859	1,859
Share premium	862	862	862
Capital redemption reserve	109	109	109
Retained earnings	5,268	8,686	6,631
Total equity	8,098	11,516	9,461

Total equity and liabilities	19,844	23,908	21,549

* Restated for deferred tax, see note 1.

Consolidated Cash Flow Statement

for the six months ended 30 September 2009

	Unaudited six months ended 30 September 2009		Unaudited six months ended 30 September 2008 (Restated*)		Year ended 31 March 2009
Operating activities		£000	£000		£000

(Loss)/profit for the year		(626)	263		(849)
Adjustments for:
Taxation		(87)	756		351
Net finance costs		174	102		201
Depreciation of property, plant and equipment		571	563		1,058
Amortisation of software		26	21		45
Amortisation of development costs		50	23		52
Profit on disposal of property plant and equipment		-	(10)		(11)
Share based payments		-	37		12
Pension element of finance cost		(117)	(17)		(39)
Difference between pension contributions paid and amounts recognized in the Income Statement		(11)	(112)		(231)
Decrease / (increase) in inventories		1,173	(231)		(462)
Decrease/ (increase in receivables		325	(959)		2,715
Decrease in payables		(1,370)	(503)		(1,537)
Decrease in provisions		(8)	-		(612)
Net cash flow from operating activities		100	(67)		693

Investing activities
Purchase of property, plant and equipment		(247)	(878)		(1,725)
Purchase of software		(68)	(94)		(224)
Development costs		-	-		(184)
Disposal of property, plant and Equipment		-	22		59
Net cash flow from investing activities		(315)	(950)		(2,074)

Financing activities
Interest paid		(57)	(85)		(162)
Equity dividends paid		-	(595)		(684)
Net cash used in financing activities		(57)	(680)		(846)

Net decrease in cash and cash equivalents		(272)	(1,697)		(2,227)

Cash and cash equivalents at the start of the period		(3,258)	(1,031)		(1,031)
Cash and cash equivalents at the end of the period		(3,530)	(2,728)		(3,258)

Cash and cash equivalents compromise:		(3,530)		(2,728)	(3,258)
Financial liabilities		(3,530)		(2,728)	(3,258)

* Restated for deferred tax, see note 1.

Consolidated Statement of Changes in Equity

for the six months ended 30 September 2009

	Share capital	Capital redemption reserve	Share premium	Retained earnings	Attributable to equity holders of the parent
				(Restated *)
	£000	£000	£000	£000	£000

At 1 April 2008	1,859	109	862	8,859	11,689
Total comprehensive income	-	-	-	385	385
Dividends paid	-	-	-	(595)	(595)
Share based payments	-	-	-	37	37
At 30 September 2008	1,859	109	862	8,686	11,516

Total comprehensive income	-	-	-	(1,941)	(1,941)
Dividends paid	-	-	-	(89)	(89)
Share based payments	-	-	-	(25)	(25)
At 1 April 2009	1,859	109	862	6,631	9,461

Total comprehensive income	-	-	-	(1,363)	(1,363)
At 30 September 2009	1,859	109	862	5,268	8,098

* Restated for deferred tax, see note 1.

Notes to the interim financial statements

1 General information and accounting policies

The abridged financial information set out above does not constitute the Group's statutory accounts as defined under Section 434 of the Companies Act 2006. The auditors made a report under Section 235 of the Companies Act 1985 on the financial statements for the year ended 31 March 2009, as filed at Companies House, from which part of the financial information is extracted. The report of the auditors on the accounts for the year ended 31 March 2009 was unqualified and there was no statement under either section 237(2) or section 237(3) of the Companies Act 1985.

Basis of preparation

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

Accounting policies

The principal accounting policies, based on IFRS, applied in preparing the Interim Financial Statements are consistent with the policies set out in the Annual Report and Accounts for the year ended 31 March 2009, except for the adoption of new standards and interpretations as of 1 April 2009, noted below:

IAS 34 (Interim reporting) has not been adopted as it does not apply to companies listed on AIM.

IFRS 2 Share-based payments - vesting conditions and cancellations

The standard has been amended to clarify the definition of vesting conditions and to prescribe the accounting treatment of an award that is effectively cancelled because a non-vesting condition is not satisfied. The adoption of this treatment did not have any impact on the financial position or performance of the Group.

IFRS 7 Financial Instruments: Disclosures

The amended standard requires additional disclosure about fair value measurement and liquidity risk. The fair value measurement disclosures and liquidity risk disclosures are not significantly impacted by the amendments.

IFRS 8 Operating Segments

This standard requires disclosure of information about the Group's operating segments and replaces the requirement to determine primary (business) and secondary (geographical) reporting segments of the Group. Adoption of this standard did not have any effect on the financial position or performance of the Group. The Group determined that the operating segments were the same as the business segments previously identified under IAS 14 Segment Reporting. Additional disclosures about each of these segments are shown in Note 2, including revised comparative information.

IAS 1 Revised Presentation of Financial Statements

The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes details of transactions with owners, with non-owner changes in equity presented as a single line. In addition, the standard introduces the statement of comprehensive income: it presents all items of recognised income and expense, either in one single statement, or in two linked statements. The Group has elected to present two statements.

Going concern

After making appropriate enquiries, the directors consider that the Group has adequate resources to continue in operation for the foreseeable future. In forming this view the directors have reviewed budgets and other financial information. For this reason, they continue to adopt the going concern basis in preparing the accounts.

Restatement of deferred tax

As set out in the 2009 Annual Report, after a detailed review of the Group's historic deferred tax provisions it has been concluded that liabilities in respect of capital gains rolled over into goodwill on the acquisition of Fred Duncombe Ltd in 1989 and Heyes Lighting Ltd (now part of Petrel Ltd) in 1987 have been incorrectly included within the financial statements in previous years. This gives rise to a restatement of the deferred tax liability, reducing it by £443,000 and increasing retained earnings by a corresponding amount. In addition the deferred tax charge in respect of the phasing out of Industrial Buildings Allowances (IBAs) introduced in the Finance Act 2008 was incorrectly stated in the Interim Report for the six months ended 30 September 2008. The restatement as it affects the balance sheet is as follows:


	Restated	As previously reported
		£000

Deferred tax asset	300	559
Deferred tax liability	462	632
Retained earnings at 30 September 2008	8,686	8,775
Tax expense for 6 months to 30 September 2008	756	224

2 Segmental analysis

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

	Segmental revenue			Segmental operating (loss)/ profit
	Unaudited 6 months ended 30 Sep 2009 £000	Unaudited 6 months ended 30 Sep 2008 £000	Year ended 31 March 2009 £000	Unaudited 6 months ended 30 Sep 2009 £000	Unaudited 6 months ended 30 Sep 2008 £000	Year ended 31 March 2009 £000

Foundries	11,109	19,902	33,217	(367)	1,051	723
Engineering	3,106	3,637	6,723	71	186	260
Segmental results	14,215	23,539	39,940	(296)	1,237	983

Reconciliation of reported segmental revenue and operating (loss)/ profit
Segmental results				(296)	1,237	983
Shared costs				(339)	(332)	(523)
Exceptionals				(236)	(193)	(446)
Total revenue/operating (loss)/profit reported				(871)	712	14
Financing costs				(174)	(102)	(201)
Unrealised foreign exchange gain/(loss)				332	409	(311)
(Loss)/profit before tax				(713)	1,019	(498)

The Foundries segment is a supplier of iron castings, in raw or machined form, to a variety of industrial customers who incorporate the castings into their own products or carry out further machining or assembly operations on the castings before selling them on. The Engineering segment provides manufactured and imported products to distributors and end-users. The products fall into the categories of door hardware, hazardous area lighting and control gear, cable management and general ironmongery.

There are no transactions between business segments.

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

3 Finance income and costs

	Unaudited six months ended 30 September 2009	Unaudited six months ended 30 September 2008	Year ended 31 March 2009
	£000	£000	£000
Net interest on bank overdraft	(53)	(75)	(162)
Finance cost of pension scheme	(117)	(17)	(39)
Other interest	(4)	(10)	-
	(174)	(102)	(201)

4 Income tax expense

An effective rate of tax for the six months to 30 September 2009 of 12% has been used in these interim statements.

The effective rate of tax is lower than the standard rate because losses arising in the year could not be utilised and the deferred tax asset has not been recognised.

5 Dividends

Dividends comprise:	Pence per share	Unaudited six months ended 30 September 2009	Unaudited six months ended 30 September 2008	Year ended 31 March 2009
		£000	£000	£000
2007/08 final dividend paid July 2008	8.00	-	595	595
2008/09 interim dividend paid December 2008	1.20	-	-	89
		-	595	684

6 Earnings per share

The calculation of earnings per share is based on the profit attributable to shareholders and the weighted average number of ordinary shares in issue. In calculating the diluted earnings per share, adjustment has been made for the dilutive effect of outstanding share options. Underlying earnings per share, which excludes exceptional items and unrealised foreign exchange movements, as analysed below, has been disclosed as the Directors believe this allows a better assessment of the underlying trading performance of the Group.

Operating exceptionals are detailed in note 8.

	Unaudited six months ended 30 September 2009	Unaudited six months ended 30 September 2008 (Restated *)	Year ended 31 March 2009
	£000	£000	£000
Earnings for basic earnings per share	(626)	263	(849)
Exceptional items	236	193	446
Taxation effect of exceptional items	(66)	(54)	(125)
Unrealised foreign currency (gain)/loss	(332)	(409)	311
Taxation effect of unrealised foreign currency (gain)/loss	93	115	(87)
Deferred tax effect of the abolition of IBAs included in exceptional items	-	532	471
Earnings for underlying earnings per share	(695)	640	167

	Unaudited six months ended 30 September 2009	Unaudited six months ended 30 September 2008	Year ended 31 March 2009
	000	000	000
Weighted average number of ordinary shares	7,438	7,438	7,438
Adjustment to reflect shares under option	508	122	508
Diluted weighted average number of ordinary shares	7,946	7,560	7,946

* Restated for deferred tax, see note 1.

7 Pensions

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

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

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

	30 September 2009	30 September 2008	31 March 2009

Salary increases	n/a	n/a	n/a
Pension increases (post 1997)	3.2%	3.7%	3.1%
Discount rate	5.5%	6.9%	7.0%
Inflation (RPI)	3.2%	3.7%	3.1%

The demographic assumptions used for 30 September 2009, 31 March 2009 and 30 September 2008 are the same as used in the last full actuarial valuation performed as at 1 April 2007.

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

Funding status	Unaudited 6 months to 30 September 2009 £000	Unaudited 6 months to 30 September 2008 £000	Year to 31 March 2009 £000

Scheme assets at end of period	11,833	11,412	9,817
Benefit obligations at end of period	14,673	12,208	11,645

Deficit in scheme	(2,840)	(796)	(1,828)
Related deferred tax asset	795	223	512
Net pension liability	(2,045)	(573)	(1,316)

The increase in the net pension liability is mainly due to positive investment returns offset by a reduction in the discount rate used to value liabilities.

8 Exceptional items

Operating exceptional items in the six months to 30 September 2009 and which, in the opinion of the directors, do not form part of the underlying operating costs/(income) of the businesses, comprise:

	Unaudited six months ended 30 September 2009	Unaudited six months ended 30 September 2008 (Restated*)	Year ended 31 March 2009
	£000	£000	£000
Reorganisation and severance costs	(236)	-	(253)
Legal costs	-	(193)	(193)

	(236)	(193)	(446)

Taxation
- tax effect of operating exceptionals	66	54	125
- abolition of IBAs	-	532	(471)

	66	586	(346)

Reorganisation costs in six months ended 30 Sepetember 2009 related to redundancy and severance costs incurred as a consequence of transferring the management of the Leicester foundry to Chamberlin and Hill Castings Ltd.

Severance costs in the year ended 31 March 2009 relate to redundancies incurred following a downturn in demand.

Legal costs relates to the final costs of settling the claim for alleged nuisance which has been noted in the last two years accounts. This together with an amount provided at 31 March 2008, comprises the Group's own legal expenses plus the cost of settlement with the claimants and their lawyers.