Interim Results
Chamberlin & Hill PLC
23 November 2006
23 November 2006
CHAMBERLIN & HILL plc (the 'Company' or the 'Group')
Interim Results
HIGHLIGHTS
• Underlying profit before tax and exceptionals £523k (2005: £1,135k)
• Underlying earnings per share 4.9p (2005: 10.8p)
• Net borrowing £1.2m, a gearing of 9.6%
• Dividend maintained at 3.85p
• New executive management appointed
• Transfer to AIM completed
The Chairman, Tom Brown, commented: 'We expect underlying profit in the second
half to exceed that reported in these interim results and that this improving
trend will be sustained into next year. We continue to believe that Chamberlin &
Hill retains strong product and process expertise and is therefore well placed
to compete in its chosen markets, and look forward to improved performance under
its new executive leadership.'
CHAIRMAN'S STATEMENT
At the Extraordinary General Meeting held on 23 October we cautioned that
current year results were expected to fall short of the level achieved in the
last two years. In the event in the six months ended 30 September 2006 sales
were £19.03m (2005: £21.16m), while underlying profit before tax was £0.52m
(2005: £1.14m), with underlying earnings per share of 4.9p (2005: 10.8p).
Reduced operating cash flow coupled with increased capital spending resulted in
net borrowing of £1.19m (2005: net cash of £0.24m). Gearing remains low at 9.6%.
The Board has decided to pay an unchanged interim dividend of 3.85p per share,
payable on 18 December 2006 to all shareholders registered on 8 December 2006.
The Light Castings Division suffered some decline in revenue due to the closure
of the Bloxwich foundry at the end of last financial year, although as planned
around half of this work was successfully transferred to other foundries within
the Group. In our last annual report I commented that this consolidation was
expected to result in increased margins on grey iron castings in this Division
and I am pleased to report that margins have started to improve, while customer
demand for continuing products has remained robust.
The Heavy Castings Division suffered from reduced demand which did not recover
as expected, while increased costs of energy and raw materials continued to put
pressure on margins. This division has also been particularly affected by the
previously announced programme to consolidate the Leicester operation into
Scunthorpe. As a result of all these factors profit declined significantly
compared with last year. Since the period end a new Managing Director has been
appointed to this Division, and the relocation project is being reviewed to
optimise its cost effectiveness. Improved performance is anticipated in the
second half but this Division will remain a focus of management attention.
The results of the Engineering Division were very similar to last year, both in
sales and profits. Duncombe successfully launched a new range of 'Exidor'
emergency exit hardware designed for uPVC windows and doors, which has been well
received in the market. A new Managing Director is now being sought for this
company. At our electrical products company, PFP, a re-structuring has been
announced since the half year end that will remove low-margin commodity products
and concentrate the business on the more attractive segments of lighting and
controls for use in hazardous areas.
Foundry restructuring caused most of the exceptional costs in the first half,
which amounted to £0.42m. Completion of the current activity in the foundries
and further one-off costs including restructuring of PFP Electrical Products are
expected to result in further exceptional costs in the second half of the year.
As shareholders will know, on 20 September we announced our intention to move
the Company from the Main Market of the London Stock Exchange to AIM. I am
pleased to announce that following strong shareholder support this exercise has
been concluded, and trading on AIM commences today.
As planned Nick Kuenssberg will be retiring from the Board at the end of the
year, and the search for his successor is progressing well. Nick has made a
major contribution over more than 7 years service with the Company as director,
Chairman of the Audit Committee and Senior Independent Director and we are
grateful to him for this; I am pleased that he continues as Chairman of the
Pension Trustees. Following Nick's departure, Keith Jackson will become Chairman
of the Audit Committee and Senior Independent Director.
As previously announced Simon Duckworth will be leaving the Group at the end of
December for family reasons, and I would like to wish him well for the future.
Mark Bache has now joined us to succeed him as Finance Director, and will be
working closely with our recently appointed Chief Executive, Tim Hair, who is
already setting his stamp on the Group. I am very confident in the team that we
now have to complete the current consolidation phase and then take the Group
forward.
We anticipate that the Light Division will continue to enjoy a strong market for
grey iron castings, and that the recent changes in the Heavy Division will in
due course result in a significant improvement. We continue to believe that the
Engineering businesses are capable of profits growth, organically and
potentially by acquisition. We expect underlying profit in the second half to
exceed that reported in these interim results and that this improving trend will
be sustained into next year. We continue to believe that Chamberlin & Hill
retains strong product and process expertise and is therefore well placed to
compete in its chosen markets, and look forward to improved performance under
its new executive leadership.
TOM BROWN
Chairman
Contacts
Chamberlin & Hill plc: Tim Hair 01922 721411
07986 555868
Teather & Greenwood: Tom Hulme 0207 426 9593
Summarised Consolidated Income Statement
for the six months ended 30 September 2006
Note Unaudited six months ended Unaudited Year ended 31 March 2006
30 September 2006 six months
ended
Before Operating Total 30 Before Operating Total
operating exceptionals September operating exceptionals
exceptionals (note 10) 2005 exceptionals
£000 £000 £000 £000 £000 £000 £000
Revenue from
continuing
operations 19,028 - 19,028 21,157 41,435 - 41,435
Operating profit
from continuing
operations 521 (421) 100 1,205 2,398 104 2,502
Finance costs 3 2 - 2 (70) (134) - (134)
Profit before tax 523 (421) 102 1,135 2,264 104 2,368
Income tax 4 (159) 126 (33) (341) (679) (31) (710)
expense
Profit for the
period from
continuing 364 (295) 69 794 1,585 73 1,658
operations
Attributable to
equity holders of
the parent
company 69 794 1,658
Earnings per
share: 6 0.9p 10.8p 22.5p
basic
underlying 6 4.9p 10.8p 21.5p
diluted 6 0.9p 10.7p 22.4p
diluted 6 4.9p 10.7p 21.5p
underlying
An interim dividend of 3.85p per share has been declared by the directors,
payable on 18 December 2006 (note 5).
Summarised Consolidated Statement of Recognised Income and Expense
for the six months ended 30 September 2006
Note Unaudited six Unaudited six
months ended months ended Year ended
30 September 30 September 31 March
2006 2005 2006
£000 £000 £000
Actuarial gains /
(losses) on pension
assets and 7 (929) 334 1,141
liabilities
Deferred tax on
actuarial gains /
(losses) 279 (100) (342)
Net (expense) /
income recognised
directly in equity (650) 234 799
Profit for the
period (before
dividend) 69 794 1,658
Total recognised
income and expense
for the period (581) 1,028 2,457
Summarised Consolidated Balance Sheet
At 30 September 2006
Unaudited Unaudited
30 September 30 September 31 March
2006 2005 2006
£000 £000 £000
Non-current assets
Property, plant and equipment 8,518 8,795 8,206
Intangible assets - goodwill 201 201 201
Intangible assets - software 61 43 53
Intangible assets - development costs 219 - 229
Deferred tax assets 782 930 497
9,781 9,969 9,186
Current assets
Inventories 5,192 5,094 5,308
Trade and other receivables 8,227 8,714 7,942
Cash and cash equivalents - 238 593
13,419 14,046 13,843
Total assets 23,200 24,015 23,029
Capital and reserves
Share capital 1,854 1,840 1,840
Share premium 829 743 743
Capital redemption reserve 109 109 109
Retained earnings 9,666 9,694 10,850
Total equity 12,458 12,386 13,542
Current liabilities
Financial liabilities 1,192 - -
Trade and other payables 7,004 6,612 7,501
Income taxes payable 55 943 237
8,251 7,555 7,738
Non-current liabilities
Defined benefit pension scheme deficit 1,218 2,923 487
Deferred tax liabilities 1,273 1,151 1,262
2,491 4,074 1,749
Total equity and liabilities 23,200 24,015 23,029
Summarised Consolidated Cash Flow Statement
for the six months ended 30 September 2006
Unaudited six Unaudited six Year ended
months ended months ended 31 March
30 September 30 September 2006
2006 2005
Operating activities £000 £000 £000
Operating Profit 100 1,205 2,502
Adjustments for:
Depreciation of property, 574 742 1,526
plant and equipment
Amortisation of software 14 12 27
Amortisation of capitalised 10 - -
development costs
Loss / (profit) on disposal of 32 - (1,040)
plant and equipment
Share based payments (11) 8 19
Special pension contribution - - (1,500)
Other pension payments in (148) (100) (263)
excess of Income Statement
charge
Operating cash flow before movements
in working capital 571 1,867 1,271
Decrease / (increase) in 116 (39) (253)
inventories
(Increase) / decrease in (285) 611 1,383
receivables
(Decrease)/Increase in payables (496) (938) (49)
Cash flow generated from operations (94) 1,501 2,352
UK Corporation Tax paid (210) (50) (823)
Net cash flow from operating (304) 1,451 1,529
activites
Investing activities
Interest received - - 1
Purchase of property, plant
and equipment (916) (558) (1,415)
Purchase of software (25) (3) (28)
Development expenditure - - (229)
capitalised
Disposal of plant and - 11 1,713
equipment
Net cash flow from investing (941) (550) 42
activities
Financing activities
Interest paid (48) (33) (64)
Equity dividends paid (592) (588) (872)
Issue of shares (including 100 - -
premium)
Net cash used in financing activities (540) (621) (936)
Net (decrease) / increase in cash and
cash equivalents (1,785) 280 635
Cash and cash equivalents at the
start of the period 593 (42) (42)
Cash and cash equivalents at the end
of the period (1,192) 238 593
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 240 of the Companies Act 1985. The
auditors made a report under Section 235 of the Companies Act 1985 on the
financial statements for the year ended 31 March 2006, 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 2006 was unqualified
and there was no statement under either section 237(2) or section 237(3).
Basis of preparation
The accounts have been prepared under International Financial Reporting
Standards ('IFRS') in the form of a condensed interim financial report under IAS
34.
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 2006.
2 Segmental analysis
For management purpose, the Group is organised into two operating divisions:
Foundries and Engineering, which are the primary segments for reporting
purposes. The secondary segmental format is geographical.
Foundries Engineering Total
Unaudited Unaudited Unaudited Unaudited 6 Unaudited Unaudited
6 months 6 months Year 6 months months Year 6 months 6 months Year
ended ended ended ended ended ended ended ended ended
30 Sep 30 Sep 31 March 30 Sep 30 Sep 31 March 30 Sep 30 Sep 31 March
2006 2005 2006 2006 2005 2006 2006 2005 2006
£000 £000 £000 £000 £000 £000 £000 £000 £000
Revenue 15,029 17,175 33,635 3,999 3,982 7,800 19,028 21,157 41,435
Trading profit 712 1,302 2,328 270 282 552 982 1,584 2,880
Shared costs (461) (379) (482)
Exceptionals (421) - 104
Operating
profit 100 1,205 2,502
Net assets
Assets 16,391 16,953 16,091 5,745 5,653 5,682 22,136 22,606 21,773
Liabilities
(5,687) (6,303) (6,428) (1,317) (1,216) (1,149) (7,004) (7,519) (7,577)
Segmental net
assets 10,704 10,650 9,663 4,428 4,437 4,533 15,132 15,087 14,196
Unallocated
net (2,674) (2,701) (654)
liabilities
Total net 12,458 12,386 13,542
assets
Stock
writedowns 35 50 162 - - 17 35 50 179
Capital
additions
PPE * 728 436 1,134 188 122 281 916 558 1,415
Software 25 - 24 - 3 4 25 3 28
Development - - 130 - - 99 - - 229
Capital
commitments 326 - 298 - - 16 326 - 314
Depreciation /
amortisation
PPE * (432) (576) (1,231) (142) (166) (295) (574) (742) (1,526)
Software (12) (8) (17) (2) (4) (10) (14) (12) (27)
Development (6) - - (4) - - (10) - -
• Property, plant and equipment
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 to such customers. 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.
Transactions between business segments are minimal and transfer prices are set
on an arm's length basis in a manner similar to transactions with third parties.
The Group's geographical segments are determined by the location of the Group's
customers. The group's assets and costs incurred are all located within the
United Kingdom.
Unaudited six Unaudited six
months ended 30 months ended 30 Year ended 31
September September March
Turnover by geographical location 2006 2005 2006
£000 £000 £000
United Kingdom 15,120 16,659 32,730
Rest of Europe 3,210 3,560 6,818
Other countries 698 938 1,887
19,028 21,157 41,435
3 Finance costs
Unaudited six Unaudited six
months ended 30 months ended 30 Year ended 31
September September March
2006 2005 2006
£000 £000 £000
Net interest on bank accounts (48) (33) (63)
Finance income / (costs) of pension scheme (note 7) 50 (37) (71)
2 (70) (134)
4 Income tax expense
An effective rate of tax for the six months to 30 September 2006 of 30% has been
used in respect of all income tax and deferred tax calculations in these interim
statements.
5 Dividends
Dividends comprise: Unaudited six Unaudited six
months ended 30 months ended 30 Year ended 31
September September March
2006 2005 2006
Pence per share
£000 £000 £000
2004/05 final dividend paid July 2005 8.00 588 588
2005/06 interim dividend paid December 2005 3.85 284
2005/06 final dividend paid July 2006 8.00 592
592 588 872
2006/07 interim dividend proposed 3.85 286
The interim dividend of 3.85 pence per share (2005: 3.85p) will be paid on 18
December 2006 to all shareholders on the register as at close of business on 8
December 2006.
6 Earnings per share
The calculation of basic earnings per share is based on the profit after tax of
£69,000 (Interim 2005: £794,000; Full year 2005/06: £1,658,000) and the weighted
average number of shares in issue of 7,388,204 (Interim 2005: 7,359,658; Full
year 2005/06: 7,359,658).
The calculation of underlying earnings per share is based on profit before the
effects of operating exceptionals, and is disclosed in addition to basic
earnings per share as the directors believe that it allows a better comparison
between the results of different periods, and therefore a better assessment of
the comparative trading performance of the Group. Operating exceptionals
comprise severance payments and related costs associated with significant
operational restructuring.
The profit used in calculating underlying earnings per share was £364,000
(Interim 2005: £794,000; Full year 2005/06: £1,585,000) and the weighted average
number of shares as for basic earnings per share above.
Diluted earnings per share and diluted underlying earnings per share use the
same profit figures as for basic or underlying earnings per share as
appropriate, but use a figure for number of shares that takes account of the
dilutive effect of outstanding share options. The figure used for number of
shares was 7,402,435 (Interim 2005: 7,392,589; Full year 2005/06: 7,388,525).
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 recognised income and
expenses. The defined benefit scheme is closed to new entrants.
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 30 September 31 March
2006 2005 2006
Discount rate 5.0% 5.1% 5.1%
Salary increases 2.9% 2.7% 2.7%
Pension increases (pre '97) 2.5% 2.5% 2.5%
Pension increases (post '97) 2.9% 2.7% 2.7%
Inflation (RPI) 2.9% 2.7% 2.7%
The demographic assumptions used are generally the same for each period, as used
in the last full actuarial valuation performed as at 1 April 2004.
The defined benefit scheme funding has changed under IAS 19 as follows:
6 months to 6 months to Year to
30 September 30 September 31 March
Funding status 2006 2005 2006
£000 £000 £000
Change in scheme assets
Fair value at start of period 13,690 10,334 10,334
Expected return on scheme assets 398 333 659
Actuarial (losses) / gains (342) 698 1,285
Employer's contributions 194 165 1,858
Members' contributions 45 65 94
Estimated benefits paid (628) (320) (540)
Fair value at end of period 13,357 11,275 13,690
6 months to 6 months to Year to
30 September 30 September 31 March
Funding status 2006 2005 2006
£000 £000 £000
Change in defined benefit obligations
Defined benefit obligations at start of period 14,177 13,654 13,654
Current service cost 46 65 95
Interest cost 348 370 730
Members' contributions 45 65 94
Actuarial loss 587 364 144
Estimated benefits paid (628) (320) (540)
Defined benefit obligations at end of period 14,575 14,198 14,177
Deficit in the defined benefit scheme at the period (1,218) (2,923) (487)
end
Less associated deferred tax asset 365 877 146
Net balance sheet liability (853) (2,046) (341)
Components of pension cost
Current service cost 46 65 95
Past service cost - - -
Charge to operating profit 46 65 95
Interest cost on defined benefit obligations 348 370 730
Expected return on scheme assets (398) (333) (659)
Income / (charge) to finance costs (50) 37 71
Total income / (charge) to income statement (4) 102 166
Actuarial gains/(losses)
Actual return less expected return on assets (342) 698 1,285
Experience loss on liabilities (587) (364) (144)
Total (charge) / credit recognised in the SORIE (929) 334 1,141
8 Share based payments
The Company has a HM Revenue & Customs Approved and an Unapproved share option
scheme used to incentivise directors and senior managers of the Group. Options
are exercisable at a price equal to the average quoted market price of the
Company's shares over the 5 days prior to the date of grant. The vesting period
is 3 years and the options expire after 10 years from date of grant (for
Approved Options) or 7 years (for Unapproved Options). Options lapse if the
employee leaves the Group subject to certain exceptions set out in the scheme
rules. Under the transitional arrangements in IFRS 1, only options granted
after 7 November 2002 are included in the share based payment calculations. The
Black-Scholes valuation method has been used.
The fair value of options expected to ultimately vest, calculated by this
method, is charged to the income statement over the vesting period of the
options (the three years after which they can be exercised under the scheme
rules). The charge is recognised in operating profit.
Relevant options outstanding during the period were as follows:-
Date of grant No. of shares Exercise Price Exercisable between
3 June 2004 10,000 155.5p 03.06.2007 - 02.06.2011
14 July 2005 25,000 231.5p 14.07.2008 - 13.07.2012
21 June 2006 13,900 215.5p 21.06.2009 - 20.06.2016
21 June 2006 56,100 215.5p 21.06.2009 - 20.06.2013
Options outstanding in respect of Simon Duckworth have not been classed as
relevant options as they will lapse on his leaving the employment of the Group
on 31 December 2006 and are not therefore expected to vest.
Based on the following assumptions, the total fair value of relevant options was
£47,000, of which £11,000 was recognised as a credit in the period based on the
cumulative charge calculated at the end of the period less the amounts charged
in previous periods (Interim 2005: charge of £8,000; Full year 2005/06: charge
of £19,000). The credit results from the reversal of previous charges in
respect of the options held by Simon Duckworth.
30 Sep 2006 30 Sep 2005 31 Mar 2006
Share Price 218.0p 256.5p 211.5p
Weighted average option price 213.6p 212.8p 212.8p
Expected volatility 40% 30.0% 40%
Expected life 3.8 years 3.8 years 3.8 years
Risk free rate 3.0% 3.0% 3.0%
Expected dividend yield 5.4% 5.1% 5.6%
Expected volatility is based on movements in the share price during the periods
concerned and the directors' expectations of future volatility. The expected
life has been arrived at based on the directors' best estimate taking into
account exercise conditions and behavioural considerations.
9 Consolidated statement of changes in equity
Unaudited six months Unaudited six months Year ended 31
ended 30 September ended 30 September March
2006 2005 2006
£000 £000 £000
Equity at start of period 13,542 11,938 11,938
Profit for the period 69 794 1,658
Dividends paid (see note 5) (592) (588) (872)
Actuarial movements on pension funding (see (929) 334 1,141
note 6)
Deferred tax on actuarial pension movements 279 (100) (342)
Share based payments (see note 8) (11) 8 19
Shares issued and allotted 100 - -
Equity at end of period 12,458 12,386 13,542
Shares issued and allotted relate to shares issued to satisfy the exercise of
share options during the period.
10 Exceptional operating costs
Operating exceptionals, which relate to restructuring costs incurred in the six
months to 30 September 2006 and in the opinion of the directors do not form part
of the underlying operating costs of the businesses, comprise:
£000
Costs relating to the closure of the Bloxwich foundry of Chamberlin 164
& Hill Castings Limited
Costs relating to the restructuring of Russell Ductile Castings Limited 207
Costs relating to central management restructuring 50
421
Expenditure includes redundancy costs, plant relocation, asset provisions and
group management overlap costs.
11 Post balance sheet events
On 23 October 2006, a proposal made by the directors to transfer the Company's
share listing from the Main Market of the London Stock Exchange to AIM received
the approval of shareholders and the transfer will be completed on 23 November
2006. The costs of the transfer will be recognised in the second half of the
current financial year.
In October 2006 the directors approved plans for a restructuring of PFP
Electrical Products Limited which will involve the closure of the switch and
socket box manufacturing operation. Restructuring costs will be incurred in the
second half of the current financial year, along with the ongoing restructuring
activity in relation to the foundry businesses.
12 Availability of Interim Report
The Interim Report will be sent to shareholders shortly and will be available on
the Company's website www.chamberlin.co.uk and by application to the Company
Secretary at Chamberlin & Hill plc, Chuckery Foundry, Walsall WS1 2DU.
A presentation to be made to institutional investors following announcement of
the interim results will also be available shortly on the Company's website.
This information is provided by RNS
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