Chamberlin : 2022 Annual Report

CHAMBERLIN PLC

Annual Report and Accounts for the year ended 31 May 2022

PROUD HERITAGE, EXCITING FUTURE

1

Chamberlin Plc - Annual Report - Year ended 31 May 2022

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.

"The difficulties that Chamberlin faced in the previous financial period have been well documented but I am pleased to report that these difficulties are now largely behind us. The Group is well positioned to continue its journey to a full recovery and expects to return to a more sustainable level of profitability"

Chairman, Keith Butler-Wheelhouse

Investment Proposition

• Operating in markets with high barriers to entry protected by process know-how or market regulation
• Operating across diversified markets with sales driven by the global engineering economy
• Huge opportunity to benefit from new E-commerce products in the growing global market-place for fitness 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

Key Points

Financial

• FY 2022 Group operational performance significantly improved compared to the prior period, delivering a 79% increase in adjusted EBITDA and a full year profit after tax for the first time in five years
• Revenue of £16.8m (14 months to 31 May 2021: £26.4m) was 26% lower than prior year on a pro rata basis reflecting the loss of
  BorgWarner Turbo Systems Worldwide ("BorgWarner") contracts in 2021 and headwinds in the automotive sector. Encouragingly, revenues at Russell Ductile Castings ("RDC") and Petrel increased by 20% and 21% respectively on a pro rata basis
• Transformational reduction in underlying operating loss to £0.7m (14 months to 31 May 2021: £2.9m loss) driven by improvements across all divisions, but most significantly, by record profits at RDC and Petrel
• Underlying loss before taxation reduced to £1.0m (14 months to 31 May 2021: £3.2m)
• Statutory loss before tax of £0.5m (14 months to 31 May 2021: £10.4m) significantly reduced from 2021 which included £7.2m of non-underlying costs and impairments
• Profit after tax of £0.1m (14 months to 31 May 2021: £9.6m loss) demonstrates the significant progress made in 2022
• Underlying diluted loss per share of (0.5)p (14 months to 31 May 2021: (13.7)p loss per share)
• Total diluted earnings per share of 0.1p (14 months to 31 May 2021: (55.1)p loss per share)

Operational

• Foundry revenues fell by 32% on a pro rata basis to £13.6m (14 months to 31 May 2021: £23.3m) reflecting the loss of BorgWarner revenue at Chamberlin & Hill Castings (CHC) partially offset by a 20% increase at RDC
• Foundry operating loss reduced to £0.5m (14 months to 31 May 2021: £1.9m) driven by lower losses at CHC from cost reductions and a record level of profitability at RDC
• Engineering revenues of £3.2m increased by 21% on a pro rata basis (14 months to 31 May 2021: £3.1m) as the business made substantial progress in recovering from COVID-19 impacts in 2021. Operating performance continued to go from strength to strength, with the business delivering a record operating profit of £0.5m (14 months to 31 May 2021: £0.2m) by improving margins and tightly controlling costs

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

2

Chamberlin Plc - Annual Report - Year ended 31 May 2022

CHAIRMAN'S STATEMENT

The difficulties that Chamberlin faced in the previous financial period have been well documented but I am pleased to report that these difficulties are now largely behind us. This financial year has seen the Group execute its restructuring plan to significantly reduce its cost base following the loss of the BorgWarner work in 2021 and effectively manage a rapidly changing economic landscape that has seen unprecedented cost and supply chain pressures.

The Group strengthened the balance sheet through a £1.6m fundraise in February 2022 and completed a sale and leaseback of the property owned by RDC in May 2022. These actions have contributed to the Group returning to a positive net asset position of £0.4m at the end of the financial year compared to a £2.6m net liability position in 2021.

In addition, the Group launched two new e-commerce brands in Iron Foundry Weights ("IFW") and Emba cookware and developed and pursued a new, ambitious strategic direction to enhance shareholder value over the medium to long term.

The journey to a full recovery in the operational performance and financial standing of the Group has begun extremely well and the financial results for 2022 are evidence of the progress made. All of the operating divisions have made substantial improvements to their performance compared to the prior financial period, although progress at CHC has been slower than anticipated. These operational improvements have enabled the Group to deliver a profit after tax of £0.1m, a significant turnaround from the £9.6m loss made in 2021.This is the first time in over five years that Chamberlin has reported a profit after tax to shareholders and is the first step towards our future growth ambitions.

The Board and Staff

The Board have worked tirelessly through these challenging times to return the Group to a stable financial position and I have been pleased with the seamless transition made by Kevin Price, Alan Tomlinson and Trevor Brown to their new roles on the Board.

The success of Chamberlin in the future will not only be determined by the leadership and strategic vision provided by the Board but as importantly, will be shaped by the outstanding professionalism, dedication and expertise provided by our loyal workforce. Our employees have a passion for innovation and a keen focus on delivering excellence to all our customers, which enhance Chamberlin's reputation and contribute to making the Group a leader in many of its markets. I would like to place on record the Board's thanks to all our employees for their considerable efforts during the past year.

Outlook

The Group is well positioned to continue its recovery and expects to return to a more sustainable level of profitability, having taken the appropriate steps to reduce its cost base and improve performance at CHC, and to develop and invest in new growth strategies for each business.

The overall economic outlook for global markets remains uncertain, but the Board is pleased to report that all three operating divisions have made a positive start to the new financial year. At the present time, demand across all of the Group's businesses remains buoyant , driven in particular at CHC and RDC by an increasing trend towards UK on-shore supply. This has contributed to higher than expected levels of orders for Q1 FY 2023 and strong ongoing order books.

The Board continues to focus on opportunities to provide the Group with adequate resources to meet the requirements of the Group's growth strategy and insulate the Group from potential adverse macro-economic risks.

KEITH BUTLER-WHEELHOUSE

CHAIRMAN

4 November 2022

3

Chamberlin Plc - Annual Report - Year ended 31 May 2022

GROUP AT A GLANCE

GROUP OVERVIEW

Product Areas

Chamberlin operates across four locations in the UK.

The Foundry Division specialises in technically demanding castings in complex shapes and in specialist metallurgies. Work is allocated across its two foundry sites and one machining facility based on size and metallurgy as follows:

• Light Castings based in Walsall produce castings up to 20kg in grey iron.
• Heavy Castings based in Scunthorpe make up to 6 ton castings, in a wide variety of iron grades.
• The machining centre, opened in 2017, supports the light castings made in Walsall.

The Engineering Division manufactures and supplies hazardous area lighting to regulated markets operating from a site in Birmingham.

Principal markets

The Group manufactures products that are used across a highly diversified number of industries, including: Passenger automotive vehicles

Commercial vehicles

Heavy plant and machinery

Renewable energy

Oil and gas

Ports and shipping

Infrastructure projects

Direct exports are an important part of the Group's activities and accounted for 21% of revenue in 2022 to our customers in Europe, America, the Middle East and Asia. Global demand for UK engineered products is strong and our customers are typically leaders in their sectors.

4

Chamberlin Plc - Annual Report - Year ended 31 May 2022

CHIEF EXECUTIVE'S REVIEW

I am delighted to report that Chamberlin has returned to profitability for the first time in over five years. This performance is even more pleasing given the challenges faced by the Group over the last 12 months. During this period, the Board and the senior management team have worked together to:

• Substantially reduce the cost base at Chamberlin and Hill Castings in the wake of the loss of the BorgWarner contracts at the end of the last financial period
• Mitigate the unprecedented level of raw material price increases to maintain margins at the required level
• Raise £1.6m from shareholders to strengthen the balance sheet and to implement the new growth strategy and investment plans
• Generate £1.25m from the sale and leaseback of the property owned by RDC, providing further funds for investment in its capacity expansion plans and to reduce the pension deficit by £0.6m
• Launch new products at Chamberlin and Hill Castings through its IFW fitness and Emba cookware brands
• Navigate an uneven level of demand from our automotive customers
• Refinance historic debts relating to machine shop plant and equipment

The Group has been able to successfully navigate its way through these issues to deliver a significant improvement in financial performance and to place the Group on a solid financial base from which our strategic plans for growth can be delivered.

Group revenue of £16.8m for the year ended 31 May 2022 (14 months to 31 May 2021: £26.4m) was 26% lower than the prior period on a pro rata basis, largely reflecting the loss of revenue at Chamberlin and Hill Castings from the cancellation of contracts by BorgWarner in 2021. However, revenue at RDC and Petrel continued the strong upward trajectory from 2021, leading to increases of 20% and 21% respectively on a pro rata basis. The 20% increase in revenue at RDC was in addition to an 18% pro rata increase in 2021 and continues to be driven by reduced competition in the UK foundry industry and the trend to re-shoring to the UK from overseas. Petrel's revenue growth in 2022 has been primarily driven by a recovery in export markets following a reduction in the immediate aftermath of Brexit, with export revenues now representing 31% of Petrel's total revenue (2021: 10%).

The underlying operating loss reduced by 76% to £0.7m (2021: £2.9m), with the underlying loss before interest, tax, depreciation and

amortisation reducing to £0.4m (2021: £2.1m loss). This improvement in financial operating performance compared to 2021 came from all three sites, although the pace of the improvement in results at Chamberlin and Hill Castings was slower than anticipated due to the uneven recovery in automotive volumes. RDC improved its operating profit significantly through increased revenues and gross margin improvement whilst Petrel's performance benefitted from higher revenues and gross margin together with the full year benefit of overhead cost reductions implemented in 2021.

After net interest costs of £0.3m (2021: £0.3m), the Group made an underlying loss before tax of £1.0m (2021: £3.2m loss). With non- underlying items amounting to a £0.5m credit in 2022 compared to the £7.2m charge taken in 2021, the statutory loss before tax of £0.5m was 95% lower than the £10.4m loss incurred in 2021. The tax credit in 2022 amounted to £0.6m (2021: £0.8m) and reflected research and development tax credits receivable from the prior period of £0.3m and deferred tax of £0.3m recognised on trading losses in respect of RDC in the light of their continued improved financial performance. On an after tax basis, the Group delivered a modest but pleasing £0.1m profit (2021: £9.6m loss), a significant turnaround compared to the prior period and giving the Group a basis for delivering future sustainable profitable growth.

In conjunction with returning the Group to profitability, there has been substantial progress made in the key objective of strengthening the balance sheet after the significant loss incurred in 2021.With this in mind, the Group successfully raised £1.6m net of expenses from shareholders in February 2022 to provide funds for investment in new growth strategies and provide working capital during the implementation. In addition, as part of the Group's initiative to improve financial stability, a sale and leaseback transaction was completed in May 2022 on the property owned by RDC generating gross proceeds of £1.25m. The proceeds were used to reduce the pension scheme deficit by £0.6m and to provide the funds for further investment in the business. These actions have contributed to the improvement in the Group's financial position, with the balance sheet returning to a positive net asset position of £0.4m compared to a £2.6m net liabilities position in 2021. Although net debt increased at 31 May 2022 to £5.0m (31 May 2021: £1.8m), this was largely due to the payment of redundancy costs provided for in 2021 of £1.3m, the unwind of working capital associated with the loss of the BorgWarner contracts in 2021 and an increase in lease liabilities of £1.0m arising from the sale and leaseback of the property at RDC.

During this financial year, the Group embarked upon its strategy to deliver sustainable profitable growth over the medium to long term by diversifying away from reliance on the automotive sector, investing in plant and machinery to increase capacity and investing in new products in markets with strong growth characteristics and opportunities. The progress made in each of our three businesses in the context of the above strategy is discussed below:

Chamberlin & Hill Castings Ltd - Casting Facility and Machining Facility ("CHC")

The Board has continued to implement the strategy to reduce sole reliance on the automotive industry, diversify the Group's customer base and pursue more attractive markets.

In relation to the Group's automotive products, well publicised global economic conditions such as inflation, escalating raw material costs, supply chain shortages and a slowdown in the automotive industry remain challenges to trading conditions. As a result,

5

Chamberlin Plc - Annual Report - Year ended 31 May 2022