Final Results

RNS Number : 8640I

Castings PLC

22 June 2011

 



Castings plc

ANNUAL FINANCIAL REPORT

DTR 6.3.5 DISCLOSURE

YEAR ENDED 31 MARCH 2011

Chairman's Statement

The financial year under review was a period of recovery from a low level of activity rising to levels not seen since year ending March 2008.

Our turnover increased from £60.6m to a record level of £105.4m.  The turnover has been affected by the rapid rise in raw material costs which accounts for some £5.7m of turnover.

It was reported at the half year that trading was improving; this has continued and we are now operating at pre-recession levels and in the machining business at levels above those in 2008.

During this period we are pleased to report that we have re-employed a considerable number of people we had made redundant.  We have also taken on many new employees.  I wish to thank all our employees for their contribution to the recovery and to welcome new employees.  It is sincerely hoped we can enjoy a period of sustained growth in a somewhat uncertain economic outlook.  Our major customers appear to be optimistic about the future and forecast increased volumes.

Foundry Production

We are now operating at the Castings Brownhills site at previous levels of production and at William Lee we are producing at record levels with the new foundry operating at near capacity levels.  Overall we still have capacity available for future growth.  We had considerable costly logistics problems during the year due to the rapid changes in customer schedules.  This caused excessive transport costs and higher stock levels to satisfy customer's demands, however I am pleased to report that we are now back to on-time delivery and we are getting our stocks under control.

CNC Speedwell - Machining Business

I am pleased to report CNC had a record year which is very satisfying thus justifying the considerable investment made in the company.  This has been achieved by obtaining new customers, machining third party castings and an improvement in traditional business.  The company will continue to invest when opportunities arise.  Again the management and staff have reacted well to the rapid changes in customer demands.

Future Investments

We are at advanced stages of obtaining planning permission to build a warehouse and possible manufacturing area on land we acquired three years ago.  This will improve our logistics, stock control and also improve traffic congestion on the main road at our Brownhills sites.  The estimated cost will be £5m and it is hoped the project will be complete by the end of the year.

Icelandic Banks

As reported in the business and financial review, during the year we have received £0.86m from the administrators of the UK subsidiaries of the Icelandic Banks.  We have now recovered a total of £2.06m and it is hoped further payments will be received.

Dividend

I am pleased to report the directors recommend an increase in the final dividend to 8.04 pence per share after two years of no increases.  It is gratifying that due to careful cash management and the policy of maintaining a good cash position we did not reduce dividends during the recession.  We hope the shareholders support our view on cash management.

Outlook

Despite various adverse reports, our customers are forecasting stable or increased demands and if these forecasts are converted to sales we will enjoy further growth in the company and our investments in both foundry production and machining capacity will improve returns.

In conclusion, I would again like to thank all our employees for their continued support and understanding through a period of considerable change.

                                                                                    BRIAN J. COOKE

                                                                                                            Chairman

22 June 2011

Castings plc                                                                          

Lichfield Road

Brownhills

West Midlands

WS8 6JZ

Business and Financial Review

We have seen further increases in demand during the financial year and we have added further shifts to match the increased order levels.

Revenue has increased by 74% to £105 million of which 60% was exported. The despatch weight of castings to third party customers was 50,600 tonnes, being an increase of 18,800 tonnes from the previous year. Revenue from the machinist operation, CNC Speedwell, increased by 151%.

The speed at which volumes increased did result in some temporary inefficiencies in production which, along with raw material price increases, have impacted on margins when compared to pre-recession levels.

The use of the new foundry at William Lee continues to increase as volumes rise.

During the year we have received £0.86 million from the administrators of the UK subsidiaries of the Icelandic banks. This brings the total sums received to-date to £2.06 million which is £0.2 million in excess of the original estimate of recoverable amounts. Given the uncertainty over the quantum and timing of any possible further receipts, no allowance has been made for future recoverable amounts.

The level of finance income again reflects the prevailing low interest rates during the year. The overall cash position at the balance sheet date has reduced by £1 million as the group has invested £9 million in plant and equipment during the year which has off-set the £13 million net cash generated from operating activities (excluding dividends paid of £4.4 million).

The pension valuation showed a further improvement in the surplus, on an IAS 19 basis, to £6.7 million. This continues to not be recognised on the balance sheet due to the restriction of recognition of assets.

Overall the group returned a profit before taxation of £15.5 million for the year, which includes a £0.4 million credit in respect of the defined benefit pension schemes (as set out in note 6) in accordance with IAS 19.

The directors are recommending a final dividend that will be paid August which, with the interim dividend paid in January, will result in the return of £4.7 million to shareholders.

Consolidated Statement of Comprehensive Income

	Year to 31 March 2011 £'000		Year to 31 March 2010 £'000
Revenue	105,368		60,649
Cost of sales	(77,526)		(45,523)
Gross profit	27,842		15,126
Distribution costs	(1,909)		(769)
Administrative expenses
Excluding exceptional	(10,942)		(4,896)
Exceptional (Note 3)	352		204
Total administrative expenses	(10,590)		(4,692)
Profit from operations	15,343		9,665
Finance income	158		139
Profit before income tax	15,501		9,804
Income tax expense	(3,849)		(2,166)
Profit for the year attributable to equity holders of the parent company	11,652		7,638
Other comprehensive income for the year:
Change in fair value of available-for-sale financial assets	-		68
Net actuarial gain/(loss) and movement in unrecognised surplus on defined benefit pension schemes	(409)		(4,466)
Tax effect of gains and losses recognised directly in equity	-		681
Total other comprehensive income for the year (net of tax)	(409)		(3,717)
Total comprehensive income for the year attributable to the equity holders of the parent company	11,243		3,921
Earnings per share attributable to the equity holders of the parent company
Basic and diluted	26.71p		17.51p

Consolidated Balance Sheet

	31 March 2011 £'000		31 March 2010 £'000
Assets
Non-current assets
Property, plant and equipment	55,889		51,596
Financial assets	467		480
	56,356		52,076
Current assets
Inventories	11,402		7,818
Trade and other receivables	30,956		19,149
Cash and cash equivalents	13,707		14,718
	56,065		41,685
Total assets	112,421		93,761
Liabilities
Current liabilities
Trade and other payables	25,113		14,671
Current tax liabilities	1,546		568
	26,659		15,239
Non-current liabilities
Deferred tax liabilities	5,647		5,287
Total liabilities	32,306		20,526
Net assets	80,115		73,235
Equity attributable to equity holders of the parent company
Share capital	4,363		4,363
Share premium account	874		874
Other reserve	13		13
Retained earnings	74,865		67,985
Total equity	80,115		73,235

Consolidated Cash Flow Statement

	Year to 31 March 2011 £'000		Year to 31 March 2010 £'000
Cash flows from operating activities
Profit before income tax	15,501		9,804
Adjustments for:
Depreciation	5,606		4,533
Profit on disposal of property, plant and equipment	(26)		(51)
Interest received	(120)		(139)
Excess of employer pension contributions over income statement charge	(409)		(4,466)
Increase in inventories	(3,584)		(417)
Increase in receivables	(12,219)		(4,884)
Increase in payables	10,442		2,063
Cash generated from operating activities	15,191		6,443
Tax paid	(2,099)		(652)
Interest received	120		139
Net cash generated from operating activities	13,212		5,930
Cash flows from investing activities
Purchase of property, plant and equipment	(9,907)		(2,721)
Proceeds from disposal of property, plant and equipment	15		51
Proceeds from disposal of financial assets	32		17
Net cash used in investing activities	(9,860)		(2,653)
Cash flow from financing activities
Dividends paid to shareholders	(4,363)		(4,363)
Net cash used in financing activities	(4,363)		(4,363)
Net decrease in cash and cash equivalents	(1,011)		(1,086)
Cash and cash equivalents at beginning of period	14,718		15,804
Cash and cash equivalents at end of period	13,707		14,718

Consolidated Statement of Changes in Equity

	Equity attributable to equity holders of the parent
	Share capital(a) £000		Share premium(b)  £000		Other reserve (c) £000		Retained earnings (d) £000		Total equity £000
At 1st April 2010	4,363		874		13		67,985		73,235
Total comprehensive income for the period ended 31st March 2011	-		-		-		11,243		11,243
Dividends	-		-		-		(4,363)		(4,363)
At 31st March 2011	4,363		874		13		74,865		80,115

	Equity attributable to equity holders of the parent
	Share capital(a) £000		Share premium(b)  £000		Other reserve (c) £000		Retained earnings (d) £000		Total equity £000
At 1st April 2009	4,363		874		13		68,427		73,677
Total comprehensive income for the period ended 31st March 2010	-		-		-		3,921		3,921
Dividends	-		-		-		(4,363)		(4,363)
At 31st March 2010	4,363		874		13		67,985		73,235

a)   Share capital - The nominal value of allotted and fully paid up ordinary share capital in issue.

b)   Share premium - Amount subscribed for share capital in excess of nominal value.

c)   Other reserve - Amounts transferred from share capital on redemption of issued shares.

d)   Retained earnings - Cumulative net gains and losses recognised in the statement of comprehensive income.

Castings plc

Notes to the financial report

1.   Basis of preparation and accounting policies

While the financial information included in the annual financial report announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as endorsed for use in the European Union (IFRSs), this announcement does not contain sufficient information to comply with IFRSs.

The same accounting policies that were used in the group financial statements for the year ended 31 March 2010 are followed except for the following new standards which were adopted in the year ended 31 March 2011:

·    Amendments to IFRS 7 'Improving disclosures about Financial Instruments'

·    Improvements to IFRSs.

The annual report and accounts will be posted to shareholders on 30 June 2011 and will be available on the company's website, www.castings.plc.uk from 12 July 2011.

2.   Business segments

For internal decision making purposes, the group is organised into three operating companies which are considered to be the operating segments of the group: Castings plc and William Lee are aggregated into Foundry Operations and CNC Speedwell is the Machining Operation.

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2011:

	Foundry Operations £000		Machining £000		Elimination £000		Total £000
Revenue from external customers	97,163		8,205		-		105,368
Inter-segmental revenue	14,429		11,701		-		26,130
Segmental result	11,593		3,410		(421)		14,582
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits previously written off							196
Release of provision for Industrial Tribunal Costs							156
Excess of employer pension contributions over statement of comprehensive income charge							409
Finance income							158
Profit before income tax							15,501
Total assets	104,311		20,781		(12,671)		112,421
Non-current asset additions	3,419		6,488		-		9,907
Depreciation	2,882		2,724		-		5,606
All non-current assets are based in the United Kingdom

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2010:

	Foundry Operations £000		Machining £000		Elimination £000		Total £000
Revenue from external customers	58,077		2,572		-		60,649
Inter-segmental revenue	939		5,359		-		6,298
Segmental result	5,438		(443)		-		4,995
Unallocated costs:
Exceptional write-down of Icelandic bank deposits							404
Exceptional costs relating to redundancy payments							(200)
Excess of employer pension contributions over statement of comprehensive income charge							4,466
Finance income							139
Profit before income tax							9,804
Total assets	91,381		17,363		(14,983)		93,761
Non-current asset additions	1,050		1,671		-		2,721
Depreciation	2,248		2,285		-		4,533
All non-current assets are based in the United Kingdom

3.   Exceptional expenses

	2011 £'000		2010 £'000
Redundancy costs (see (a) below)	-		(404)
Provision for losses on deposits with Icelandic banks (see (b) below)	(196)		-
Provision for Industrial Tribunal costs (see (c) below)	(156)		200
	(352)		(204)

a)   The exceptional credit of £404,000 in the prior year relates to accruals for redundancy payments made as at 31 March 2009 that were not used due to the subsequent increase in production volumes and were therefore released.

b)   The company reported in the year ended 31 March 2009 that £1.86 million was included in other receivables as recoverable from various Icelandic banks.  So far £2,056,000 has been received with the excess being shown as an exceptional credit.

c)   The exceptional credit of £156,000 relates to a provision for Industrial Tribunal Costs made at 31 March 2010 that was released due to the costs incurred being lower than the estimate made of £200,000.

4.   Dividends

The Board are proposing a final dividend amounting to 8.04 pence per share (2010: 7.29p).  An interim dividend of 2.71p per share (2010: 2.71p) has already been paid, making the total dividend for the year 10.75 pence per share (2010: 10.00p). 

The Annual General Meeting will be held on Tuesday 16 August 2011 and if the proposed final dividend is approved by the members the dividend will be paid on 19 August 2011 to shareholders registered on 22 July 2011.

5.   The basic and diluted earnings per share is calculated on the profit on ordinary activities after taxation of £11,652,000 (2010:  £7,638,000) and on the weighted average number of shares in issue of 43,632,068 in 2011 and in 2010.

6.   Property, plant and equipment

	Land and buildings £000		Plant and other equipment £000		Total £000
Cost
At 1 April 2010	22,320		84,385		106,705
Additions during year	1,016		8,891		9,907
Disposals	-		(1,081)		(1,081)
At 31 March 2011	23,336		92,195		115,531

Depreciation and amounts written off
At 1 April 2010	2,822		52,287		55,109
Charge for year	481		5,125		5,606
Disposals	-		(1,073)		(1,073)
Reclassification	22		(22)		-
At 31 March 2011	3,325		56,317		59,642
Net book values
At 31 March 2011	20,011		35,878		55,889
At 31 March 2010	19,498		32,098		51,596
Cost
At 1 April 2009	21,849		83,459		105,308
Additions during year	471		2,250		2,721
Disposals	-		(1,324)		(1,324)
At 31 March 2010	22,320		84,385		106,705
Depreciation and amounts written off
At 1 April 2009	2,541		49,359		51,900
Charge for year	281		4,252		4,533
Disposals	-		(1,324)		(1,324)
At 31 March 2010	2,822		52,287		55,109
Net book values
At 31 March 2010	19,498		32,098		51,596
At 31 March 2009	19,308		34,100		53,408

      The net book value of group land and buildings includes £2,527,000 (2010: £2,525,000) for land which is not depreciated.  The cost of land and buildings includes £359,000 for property held on long leases (2010:  £359,000).

7.   Inventories

Inventories are net of impairment provisions of £272,000 (2010: £599,000).

8.   Commitments

	2011 £000		2010 £000
Capital commitments contracted for by the group but not provided for in the accounts	1,609		909

9.   The company operates two defined benefit pension schemes. The funded status of these schemes at 31 March 2011 was a surplus of £6,683,000 (2010: £4,881,000). In accordance with IAS 19 paragraph 58b the asset has not been disclosed in this financial information.  These schemes were closed to future accruals at 6 April 2009.

10. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2011 or 2010, but is derived from those accounts.  Statutory accounts for 2010 have been delivered to the Registrar of Companies and those for 2011 will be delivered following the company's annual general meeting.  The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under Section 498 of the Companies Act 2006.

Appendix A

Review of Principal Risks and Uncertainties

Risk

In common with all trading business, the group is exposed to a variety of risks in the conduct of its normal business operations. 

The group maintains a range of insurance policies against major identified insurable risks, including (but not limited to) those related to business interruption, damage to   property and equipment, products and employment.

Whilst it is not possible to either completely record or to quantify every material risk that the group faces, below is a summary of those risks that the directors believe are most significant to the group's business and could have a material impact on future performance, causing it to differ materially from expected or historic achieved results.

Foreign exchange risk

Foreign exchange rate risk is sometimes partially hedged using forward foreign exchange contracts.  Translational risk arises as a consequence of applying different exchange rates to net assets denominated in currencies other than sterling and, not being an exposure that results in an actual cash flow, is not hedged.

Operational and commercial risks

The group's revenues are principally derived from commercial vehicle and automotive markets.  Both markets, and therefore group revenues, can be subject to variations in patterns of demand.  Commercial vehicle sales are linked to technological factors (e.g. emission legislations) and economic growth.  Passenger vehicle sales are influenced, inter alia, by consumer preferences, incentives and the availability of consumer credit.

Market competition

Automotive and commercial vehicle markets are, by their nature, highly competitive, which has historically led to deflationary pressure on selling prices.  This pressure is most pronounced in cycles of lower demand.  A number of the group's customers are also adopting global sourcing models with the aim to reduce bought out costs. Whilst there can be no guarantee that business will not be lost on price, we are confident that we can remain competitive.

Customer concentration, programme dependencies and relationships

The loss of, or deterioration in any single customer relationship could have a material impact on the group's results.

Equipment

The group operates a number of specialist pieces of equipment,  including foundry
furnaces, moulding lines and CNC milling machines which, due to manufacturing
lead times, would be difficult to replace sufficiently quickly to prevent major interruption and possible loss of business in the event of unforeseen failure.  Whilst
this risk cannot be entirely mitigated without uneconomic duplication of all key
equipment, all key equipment is maintained to the highest possible standards and
inventories of strategic equipment spares maintained.  The facilities at Brownhills
and Dronfield have similar equipment and work can be transferred from one location
to another very quickly.

Suppliers

Although the group takes care to ensure alternative sources of supply remain available for materials or services on which the group's businesses are critically dependant, this is not always possible to guarantee without risk of short-term business disruption, additional costs and potential, damage to relationships with key customers.

Commodity and energy pricing

The principal metal raw materials used by the group's businesses are steel scrap
and various alloys.  The most important alloy raw material inputs are premium
graphite, magnesium ferrosilicon, nickel and molybdenum.  Wherever possible, prices and quantities (except steel) are secured through long-term agreements
with suppliers.  In general, the risk of price inflation of these materials resides with the group's customers through price adjustment clauses.  The group is exposed to price level changes in copper and molybdenum, which have seen dramatic increases in recent years.  Where possible, the group seeks to mitigate the financial impact through the application of surcharges, although the success of this approach varies by customer. 

Energy contracts are locked in for at least twelve months, although renegotiation risks remain at contract maturity dates but again this is mitigated through the application of surcharges.   However, energy contracts relate to specified usage and if not obtained can result in penalties.

Information technology and systems reliability

The group is dependent on its information technology ("IT") systems to operate its business efficiently, without failure or interruption.  Whilst data within key systems is regularly backed up and systems subject to virus protection, any failure of back-up systems or other major IT interruption could have a disruptive effect on the group's business.

Short-term deposits

Advice is taken as to where to deposit funds, usually banks and building societies.  Only highly rated institutions are used.  However, institutions can be downgraded before maturity therefore possibly placing these deposits at risk.

Product quality and liability

The group's businesses expose it to certain product liability risks which, in the event of failure, could give rise to material financial liabilities. Whilst it is a policy of the group to limit its financial liability by contract in all long-term agreements ("LTAs"), it is not always possible to secure such limitations in the absence of LTAs.  The group's customers do require the maintenance of demanding quality systems to safeguard against quality-related risks and the group maintains appropriate external quality accreditations.  The group maintains insurance for public liability-related claims but does not insure against the risk of product warranty or recall.

Environmental risk

The group's businesses are subject to compliance with many different laws and requirements in the UK, Europe, North America and elsewhere.  Great care is made to act responsibly towards the environment to achieve compliance with all relevant laws and to establish a standard above the minimum level required.  Whilst the group's manufacturing processes are not generally considered to provide a high risk of harm to the environment, a major control failure leading to environmental harm could give rise to a material financial liability as well as significant harm to the reputation of our business.

Pension scheme funding

The fair value of the assets and liabilities of the group's defined benefit pension schemes is substantial.  As at 31 March 2010 the schemes were in surplus on an

IAS 19 basis.  The potential risks and uncertainties are mitigated by careful management and continual monitoring of the schemes and by appropriate and timely action to ensure as far as possible that the defined benefit pension liabilities do not increase disproportionately. The company works closely with the scheme trustees and specialist advisers in managing the inherent risks of such schemes.

The schemes were closed to future accruals from 6 April 2009 which will only leave past service liabilities to be funded.

Trade Credit

The ability of our suppliers to maintain credit insurance on the group and its principal operating business is an important issue.  We have excellent relationships with our suppliers and we continue to work closely with them on a normal commercial basis.  A reduction in the level of cover available to suppliers may impact on our trading relationship with them and may have a significant effect on cash flows.

Appendix B

Each of the persons who is a director at the date of approval of this report confirms that to the best of his knowledge:

(a)    each of the Group and Parent financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU and UK Accounting Standards respectively, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and

(b)    the Chairman's Statement, Business and Financial Review and Directors' Report included in the consolidation taken as a whole; and

(c)    the Chairman's Statement, Business and Financial Review and Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

B J Cooke

Chairman

22 June 2011

 

END

 

 

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