Chamberlin : 2021 Annual Report

DIFFICULT THINGS DONE WELL

Success in UK engineering has not been easy to achieve in recent years, but its requirements can be simply stated; winners must do difficult things and must do them well.

We define "difficult things" as activities with high engineering content delivering technically demanding products or processes. To take profitable advantage of them, it is essential that a business is properly managed and performs well.

This"period in Chamberlin's history has been severely impacted by two significant events. However, Chamberlin have emerged from these difficulties with a renewed focus on diversification away from the automotive sector and a new strategy to develop our own products for markets that have strong growth characteristics"

Chairman, Keith Butler-Wheelhouse

Investment Proposition

• Operating in markets with high barriers to entry protected by process know-how or market regulation
• Operating across diversi�ed markets with sales driven by the global engineering economy
• Huge opportunity to bene�t from new E-commerce products in the growing global market-place for �tness equipment and cookware
• In-housedesign and engineering capabilities to rapidly develop high-quality, bespoke precision products for sale direct to the consumer and businesses
• A focused Board of Directors determined to position the Group for growth and to deliver shareholder value over the medium term
• Authentic UK manufacturer with a reputation for quality products developed over more than 130 years of engineering excellence

Petrel, our hazardous area lighting business, designed a cost and energy efficient solution for one of the UK's largest steel manufacturers.

Key Points

Financial

• Revenue of £26.4m for 14 months to 31 May 2021 (Year to 31 March 2020: £26.1m) was 14% lower than prior year on a pro rata basis reflecting COVID-19 related headwinds in the first half and the impact of the cancellation of contracts in the second half by BorgWarner Turbo Systems Worldwide
• Underlying operating loss of £2.9m (Year to
  31 March 2020: £1.1m loss), reflecting COVID-19 induced shutdowns, a slow recovery in activity levels across the automotive sector and the impact of the cancellation of the BorgWarner contracts
• Underlying loss before taxation of £3.2m (Year to 31 March 2020: £1.4m)
• Non-underlyingcosts of £7.2m include significant non-cash impairments associated with the cancellation of the BorgWarner contracts of £4.7m, restructuring costs of £1.3m, adviser costs of £0.5m and property dilapidation costs of £0.7m
• Statutory loss before tax of £10.4m (Year to 31 March 2020: £2.3m)
• Underlying diluted loss per share of 13.7p (Year to 31 March 2020: 18.7p)
• Total diluted loss per share of 55.1p (Year to 31 March 2020: 30.1p)
• Net debt reduced to £1.8m (31 March 2020: £4.6m) following £3.5m equity raise in March 2021

Operational

• Foundry revenues fell by 13% on a pro rata basis to £23.3m (Year to 31 March 2020: £23.1m) reflecting the difficulties noted above regarding COVID-19 and BorgWarner at Chamberlin & Hill Castings partially offset by an 18% increase at Russell Ductile Castings
• Foundry operating loss of £1.9m (Year to 31 March 2020: £0.1m) driven by the issues at Chamberlin & Hill Castings partially offset by a return to profitability at Russell Ductile Castings
• Engineering revenues of £3.1m decreased by 12% on a pro rata basis (Year to 31 March 2020: £3.0m), primarily due to COVID-19 induced customer shutdowns in the first half. Operating performance was strong, with an operating profit for the 14 months of £0.2m (Year to 31 March 2020: break- even) which was largely generated in the second half

REVENUE

£26.4m

STATUTORYLOSS BEFORE TA

(£10.4m)

2021(10.4)

2020(2.3)

UNDERLYINGLOSS BEFORE TA

(£3.2m)

2021(3.2)

2020

TOTALLOSS

EARNINGS

PERSHARE

(55.1p)

2021(55.1)

2020(30.1)

Contents

OVERVIEW

Underlying figures are stated before non-underlying costs (restructuring costs, hedge ineffectiveness, impairment, GMP equalisation, onerous leases and share based payment costs) together with the associated tax impact.

CHAIRMAN'S STATEMENT

CHAIRMAN

"This period in Chamberlin's history has been severely impacted by two signi�cant events, �rstly by an unprecedented global COVID-19 pandemic, and secondly the early cancellation of all contracts with our principal automotive customer (BorgWarner Turbo Systems Worldwide). However, Chamberlin have emerged from these di culties with a renewed focus on diversi�cation away from the automotive sector and a new strategy to develop our own products for markets that have strong growth characteristics. "

This period in Chamberlin's history has been severely impacted by two significant events, firstly by an unprecedented global phenomenon in COVID-19, and secondly the early cancellation of all our contracts with our principal automotive customer, BorgWarner Turbo Systems Worldwide (BorgWarner). As a result of these damaging events, the financial performance and strength of the Group suffered considerably, with the Group loss before tax for the 14 month period to 31 May 2021 amounting to £10.4m, of which £6.5m related to charges arising from the loss of the BorgWarner contracts.

In order to stabilise the Group's financial position, we completed a share placing and subscription in March 2021 raising £3.5m. The equity raised enabled the Group to facilitate the necessary reduction in headcount to realign the cost base to the lower level of revenue post the decision by BorgWarner and to provide sufficient working capital to stabilise the business. We trust these events are now behind us.

The Board and Staff

In March 2021, the Board was strengthened by the appointment of Trevor Brown, initially as a Non-Executive Director, and in June 2021 as an Executive Director with responsibility for strategy. Trevor brings a wealth of entrepreneurial experience to the Board, which will be invaluable as we embark upon our new strategy for growth. On 31 May 2021, both Neil Davies and David Flowerday stepped down as Directors of the Company. On behalf of the Board, I would like to again thank Neil and David for their

contribution during our recent difficult times and to wish them well for the future. As part of the restructuring of the Group, on 31 May 2021 Kevin Nolan stepped down from his role as Chief Executive but remains a Non-Executive Director, retaining responsibility for key projects and client accounts and providing continuity, experience and support to the Board. Subsequent to the period end on 1 June 2021, Kevin Price and Alan Tomlinson were appointed to the Board as Chief Executive and Finance Director respectively. Both Kevin and Alan have

a strong working knowledge and experience of the Group's operations from their roles in the Chamberlin Group prior to their appointment to the Board. On behalf of the Board, I would like to welcome Kevin and Alan to their new roles.

The period under review has been a challenging one for the Group and the Board are acutely aware of the impact this has had on our staff. The disruption from COVID-19 led to shutdowns and the need to place large numbers of our employees on furlough, in some cases for extended periods of time, while the economies and markets in which we operate recovered. We were also severely impacted by the BorgWarner decision, which caused further uncertainty for all our employees as we embarked upon the necessary fund raise and subsequent restructure. I would like to place on record the Board's thanks for the dedication, professionalism and loyalty that our employees have continued to demonstrate during these unprecedented times.

Outlook

It is with considerable regret that the Board has to announce the huge losses that it has suffered for the period to 31 May 2021, albeit these were largely caused by events outside of Chamberlin's control. The combined impact of COVID-19 and the decision by BorgWarner inflicted near fatal damage to the very existence of the Company. However, the confidence that new and existing shareholders have shown by supporting the Group through the equity raise in March 2021 has enabled the Board to refocus the Group's strategy and future direction. Encouragingly, revenues in the first-half of the new financial year have been in line with management's expectations, despite lower revenues from the automotive sector due

to the semi-conductor shortage impacting that market globally. However, financial performance continues to be impacted by the global headwinds facing most companies, namely rising raw material and energy prices and supply chain and transportation disruption. Management have taken appropriate action to address these issues and believe that financial performance will improve, with management expecting the Group to return to a modest level of profitability in the second-half of the financial year.

As previously announced, the Board is focused on enhancing shareholder value over the medium to long term through diversification away from the declining, high-volume automotive sector and into markets with strong growth characteristics, where we can use our technical and design expertise to develop new products and provide new services. The Board has confidence that this change in strategic focus and mindset will provide the Group with greater opportunities to maintain sustainable, profitable growth in the medium-term for the benefit of all our shareholders and stakeholders.

CHAIRMAN

30 November 2021