Final Results

RNS Number : 8751O

Castings PLC

15 June 2022

 

Castings P.L.C.

Annual Financial Report

DTR 6.3.5 Disclosure

Year ended 31 March 2022

Chairman's Statement

The turnover of the group increased to £149 million (£115 million last year) with a rise in profit before exceptional items and income tax to £12.1 million compared to £4.4 million last year.

Overview

We have seen an improvement in turnover and profit compared with the previous year's trading with output being in line with the three year average before COVID.

The year was again affected by problems experienced by our major customers in the commercial vehicle sector mainly relating to semiconductors. However, things are improving and it is hoped that this will continue.

We have been subjected to large increases in raw materials and other input prices in order to maintain production. These increases are being passed on to our customers, but there is a delay in recovery which affects our ongoing profits in the short-term.

Foundry businesses

I am pleased to report foundry production has improved during the year despite recruitment problems which have now mainly been solved.

We continue to invest both at Castings Brownhills and William Lee to improve productivity, reduce labour costs and improve working conditions.

CNC Speedwell

It is pleasing to report the losses have been reduced from the previous year. The profitability of the business is significantly impacted at lower output levels because of the high capital investment in machinery that is underutilised. We are now moving back towards full production and we expect the result to improve.

Outlook

It is expected that costs will continue to increase in the current year, including significant electricity rises when our current fixed contract comes to an end on 30 September 2022. Our customers have been made aware of the situation and the fact that, in order to continue to supply, the cost increases will be passed on. 

Our customers are now increasing their demand and, in this respect, they are more successfully managing the supply of semiconductors and other items in the supply chain. It is hoped that this will continue so we can enjoy improved sales in the current financial year.

Underpinning the improved outlook and on top of new customer platforms where we have greater content, there have been a number of market wins in other sectors including wind energy, trailer braking and coupling systems and innovative agricultural products.

Dividend

Once again our conservative financial policy has proved to be a strength during these difficult times and it is gratifying that, as a result, we have been able to maintain dividend payments during the COVID-19 pandemic.

The directors are recommending the payment of a final dividend of 12.57 pence per share to be paid on 19 August 2022 to shareholders on the register on 22 July 2022. This, together with the interim dividend, gives a total dividend for the year of 16.23 pence per share.

Supplementary dividend

In addition to the final dividend set out above, the board has reviewed the cash position of the group and considered the balance between increasing returns to shareholders whilst retaining flexibility for capital and other investment opportunities. As a result, the directors are declaring a supplementary dividend of 15.00 pence per share to be paid on 26 July 2022 to shareholders on the register on 24 June 2022. This dividend, being discretionary and non-recurring, does not compromise our commitment to invest in market leading technologies to maintain our competitive advantage.

It has been another difficult year with the ongoing disruption from the pandemic and, in this respect, I wish to thank the directors, senior management and all of our employees for their help and commitment during the year.

B. J. Cooke

Chairman

15 June 2022

Business and Financial Review

General overview

The year has been hampered by the fallout from the COVID-19 pandemic with supply chain restrictions impacting on the ability of our customers to satisfy the strong demand in the market.

The first quarter saw commercial vehicle customers, which make up approximately 70% of group revenue, taking product at a level commensurate with pre-COVID years. However, from the last two weeks of June 2021 and into the second quarter, the OEMs had to reduce truck build rates to below their order intake levels, due to supply chain restrictions (particularly in respect of semiconductors).

These restrictions continued during the second half of the year; forward demand schedules from our customers remained high, but the conversion rate to actual sales was significantly below what we would normally expect.

Higher production levels were maintained and inventory levels increased to ensure our facilities remained as efficient as possible and that we would be able to satisfy the high demand when it comes through.

Raw material prices have continued to rise throughout the period which, with the time lag in the associated sales price increase, has continued to put pressure on margins. With significant increases coming through at the end of the year, measures have been put in place to pass on the rises in a more timely manner.

Overview of business segment performance

The segmental revenue and results for the current and previous years are set out in note 2. An overview of the performance, position and future prospects of each segment, and the relevant KPIs, are set out below.

Key Performance Indicators

The key performance indicators considered by the group are:

• Segmental revenue

• Segmental profit

• EPS

• Net cash

• Dividends per share

Foundry operations

As set out previously, customer demand was strong during the first quarter of the financial year but fell in the second quarter and in the second half of the year.

The foundry businesses experienced an increase in output of 24% to 49,800 tonnes and a rise in external sales revenue of 30% to £145.6 million. The output weight is broadly in line with the three year average before COVID  of 49,700 tonnes.

Of the total output weight for the year, 54.0% related to machined castings compared to 57.5% in the previous year. The reduction being a reflection of the disrupted customer demand patterns in the year as opposed to any change in the trend towards more complex, machined parts.

The segmental profit has increased to £13.1 million, from £6.7 million in the previous year, which represents a profit margin of 8.0% on total segmental sales (2021 - 5.4%).

Whilst staff recruitment has been an issue during the year, this does now seem to be largely behind us following a significant recruitment drive. As a result, greater production efficiencies have been seen towards the end of the year.

Investment of £3.4 million has been made in the foundry businesses during the year. This included £0.6 million as part of a project to partially automate the pouring on one of the William Lee production lines.

Machining

The machining business generated total sales of £22.5 million in the year compared to £18.3 million in the previous year. Of the total revenue, 13.3% was generated from external customers compared to 14.8% in 2021.

The segmental result for the year was a loss of £0.9 million (2021 - loss of £2.3 million).

With the higher volumes in the first quarter, the benefits of the engineering and productivity improvements that have been made started to be realised and the machining business generated a positive result.

However, the lower volumes in subsequent periods have a particularly negative impact on such a well-invested business; resulting in a breakeven first half and a loss for the full year.

We have invested £0.9 million during the year, which is slightly lower than expected due to the increased lead times on new equipment. This investment included £0.6 million in the roll-out of automation which will continue during the current year.

Business review and performance

Revenue

Group revenues increased by 29.5% to £148.6 million compared to £114.7 million reported in 2021, of which 79% was exported (2021 - 76%).

The revenue from the foundry operations to external customers increased by 30% to £145.6 million (2021 - £112.0 million) with the dispatch weight of castings to third-party customers increasing by 24% to 49,800 tonnes (2021 - 40,100 tonnes).

Revenue from the machining operation to external customers increased by 9.8% during the year to £3.0 million (2021 - £2.7 million).

Operating profit and segmental result

The group operating profit for the year was £12.0 million compared to £4.9 million reported in 2021, which represents a return on sales of 8.1% (2021 - 4.3%).

Finance income

The level of finance income decreased to £0.05 million compared to £0.08 million in 2021, reflecting the lower interest rates available on deposits for the majority of the year as compared to the prior year.

Profit before tax and exceptional items

Profit before tax and exceptional items has increased to £12.1 million from £4.4 million.

Taxation

The current year tax charge of £3.52 million (2021 - £0.84 million) is made up of a current tax charge of £1.89 million (2021 - £1.18 million) and a deferred tax charge of £1.63 million (2021 - credit of £0.35 million).

The effective rate of tax of 29.2% (2021 - 16.8%) is higher than the main rate of corporation tax of 19%. The primary reason for this is an adjustment to the deferred tax rate applied to 25% to reflect the higher rate of taxation from April 2023. This has resulted in a £1.10 million uplift on opening deferred tax balances to the new rate.

In addition, the company has benefited from the super-deduction on plant investment during the year which results in a deferred tax liability.

Earnings per share

Basic earnings per share increased 106% to 19.60 pence (2021 - 9.51 pence), reflecting the 145% increase in profit before tax and a higher effective tax rate compared to the previous year.

Options over 32,149 shares were granted during the year (2021 - options over 35,292 shares). The company purchased 26,100 shares during the year as part of a buyback programme to cover the outstanding share options. As a result, the weighted average number of shares has increased to 43,698,986 resulting in a diluted earnings per share of 19.57 pence per share (2021 - 9.50 pence per share).

Dividends

The directors are recommending a final dividend of 12.57 pence per share (2021 - 11.69 pence per share) to be paid on 19 August 2022 to shareholders on the register on 22 July 2022. This would give a total ordinary distribution for the year of 16.23 pence per share (2021 - 15.26 pence per share).

In addition, a supplementary dividend of 15.00 pence per share has been declared which will be payable on 26 July 2022 to shareholders on the register on 24 June 2022.

Cash flow

The group generated cash from operating activities of £12.9 million compared to £13.0 million in 2021. When compared to 2021, the variance is mainly due to a significant increase in operating profit of £7.1 million, offset by a working capital outflow swing of £7.7 million.

In the year to 31 March 2022, the main working capital movement related to the build-up of inventory at higher valuations than the prior year, resulting in an outflow of £7.2 million. The higher levels of activity at the end of the year resulted in increases in receivables and payables, with a net outflow of £0.8 million.

Corporation tax payments during the year totalled £2.6 million compared to £0.7 million in 2021.

Capital expenditure during the year amounted to £4.4 million (2021 - £5.2 million). This included investment of £0.6 million as part of a foundry moulding line automation project as well as other automation and productivity enhancements. The charge for depreciation was £8.6 million compared to £8.8 million in 2021.

In the prior year, proceeds from the disposal of an asset held for sale of £1.7 million represents the sale of the Fradley site previously occupied by the machining business. The proceeds were shown net of disposal costs and a payment to secure the freehold of the site.

The company pays pensions on behalf of the two final salary pension schemes and then reclaims these advances from the schemes.  During the year repayments of £2.5 million (2021 - £2.8 million) were received from the schemes and advances were made to the schemes of £2.1 million (2021 - £2.5 million). These advances will be repaid to the company during the current financial year.

Dividends paid to shareholders were £6.7 million in the year (2021 - £6.5 million).

The company purchased 26,100 shares to be held in treasury at a total cost of £0.08 million.

The net cash and cash equivalents movement for the year was a slight decrease of £0.3 million (2021 - increase of £2.7 million).

At 31 March 2022, the total cash and deposits position was £35.7 million (2021 - £36.1 million).

Pensions

The pension valuation showed a decrease in the surplus, on an IAS 19 (Revised) basis, to £9.93 million compared to £9.98 million in the previous year.

The majority of the liabilities of the schemes are covered by an insurance asset that fully matches, subject to final adjustment of the bulk annuity pricing, the remaining pension liabilities of the schemes. However, there remains the uninsured element relating to the GMP equalisation liability. This liability has increased during the year as a result of the change in valuation assumptions.

The pension surplus continues not to be shown on the balance sheet due to the IAS 19 (Revised) restriction of recognition of assets where the company does not have an unconditional right to receive returns of contributions or refunds.

Balance sheet

Net assets at 31 March 2022 were £131.5 million (2021 - £129.5 million). Other than the total comprehensive income for the year of £8.7 million, the only movement relates to the dividend payment of £6.7 million and the shares purchased in the year for £0.08 million.

Non-current assets have decreased to £63.2 million (2021 - £67.4 million) primarily as a result of investment in property, plant and equipment during the year being at a level below the depreciation charge.

Current assets have increased to £102.0 million (2021 - £90.2 million). The increase to level of inventories and receivables make up this movement.

Total liabilities have increased to £33.7 million (2021 - £28.1 million), largely as a result of an increase in trade payables.

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2022

		2022			2021
		Before exceptional items £000	Exceptional items (note 3) £000	Total £000	Before exceptional items £000	Exceptional items (note 3) £000	Total £000
Revenue		148,583	-	148,583	114,702	-	114,702
Cost of sales		(118,105)	-	(118,105)	(94,870)	-	(94,870)
Gross profit		30,478	-	30,478	19,832	-	19,832
Distribution costs		(3,411)	-	(3,411)	(2,237)	-	(2,237)
Administrative expenses		(15,046)	6	(15,040)	(13,320)	633	(12,687)
Profit from operations		12,021	6	12,027	4,275	633	4,908
Finance income		47	-	47	79	-	79
Profit before income tax		12,068	6	12,074	4,354	633	4,987
Income tax expense		(3,522)	-	(3,522)	(838)	-	(838)
Profit for the year attributable to equity holders of the parent company		8,546	6	8,552	3,516	633	4,149
Profit for the year attributable to equity holders of the parent company				8,552			4,149
Other comprehensive income/(losses) for the year:
Items that will not be reclassified to profit and loss:
Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses				119			142
Defined benefit pension schemes GMP equalisation charge				-			66
				119			208
Items that may be reclassified subsequently to profit and loss:
Change in fair value of financial assets				88			(50)
Tax effect of items that may be reclassified				(22)			10
				66			(40)
Other comprehensive income for the year (net of tax)				185			168
Total comprehensive income for the year attributable to the equity holders of the parent company				8,737			4,317
Earnings per share attributable to the equity holders of the parent company
Basic				19.60p			9.51p
Diluted				19.57p			9.50p
Basic (before exceptional items)		19.59p			8.06p

Consolidated Balance Sheet

as at 31 March 2022

		2022 £000	2021 £000
ASSETS
Non-current assets
Property, plant and equipment		62,801	67,112
Financial assets		396	308
		63,197	67,420
Current assets
Inventories		25,889	18,719
Trade and other receivables		39,874	35,358
Current tax asset		489	-
Cash and cash equivalents		35,745	36,092
		101,997	90,169
Total assets		165,194	157,589
LIABILITIES
Current liabilities
Trade and other payables		28,477	24,371
Current tax liabilities		-	184
		28,477	24,555
Non-current liabilities
Deferred tax liabilities		5,219	3,570
Total liabilities		33,696	28,125
Net assets		131,498	129,464
Equity attributable to equity holders of the parent company
Share capital		4,363	4,363
Share premium account		874	874
Treasury shares		(79)	-
Other reserve		13	13
Retained earnings		126,327	124,214
Total equity		131,498	129,464

Consolidated Cash Flow Statement

for the year ended 31 March 2022

		2022 £000	2021 £000
Cash flows from operating activities
Profit before income tax		12,074	4,987
Adjustments for:
Depreciation		8,601	8,802
Loss on disposal of property, plant and equipment		62	3
Profit on disposal of asset held for sale		-	(658)
Finance income		(47)	(79)
Equity settled share-based payment expense		74	21
Pension administrative costs		119	142
Pension GMP equalisation charge		-	66
(Increase)/decrease in inventories		(7,170)	2,456
Increase in receivables		(4,898)	(6,979)
Increase in payables		4,106	4,279
Cash generated from operating activities		12,921	13,040
Tax paid		(2,568)	(672)
Interest received		28	60
Net cash generated from operating activities		10,381	12,428
Cash flows from investing activities
Dividends received from listed investments		19	19
Purchase of property, plant and equipment		(4,379)	(5,244)
Proceeds from disposal of property, plant and equipment		27	20
Proceeds from disposal of asset held for sale		-	1,718
Repayments from pension schemes		2,496	2,778
Advances to the pension schemes		(2,114)	(2,496)
Net cash used in investing activities		(3,951)	(3,205)
Cash flow from financing activities
Dividends paid to shareholders		(6,698)	(6,532)
Purchase of own shares		(79)	-
Net cash used in financing activities		(6,777)	(6,532)
Net (decrease)/increase in cash and cash equivalents		(347)	2,691
Cash and cash equivalents at beginning of year		36,092	33,401
Cash and cash equivalents at end of year		35,745	36,092
Cash and cash equivalents:
Short-term deposits		17,065	13,062
Cash available on demand		18,680	23,030
		35,745	36,092

Consolidated Statement of Changes in Equity

for the year ended 31 March 2022

	Equity attributable to equity holders of the parent
	Share capital a) £000	Share premium b) £000	Treasury shares c) £000	Other reserve d) £000	Retained earnings e) £000	Total equity £000
At 1 April 2021	4,363	874	-	13	124,214	129,464
Profit for the year	-	-	-	-	8,552	8,552
Other comprehensive income/(losses):
Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses	-	-	-	-	119	119
Change in fair value of financial assets	-	-	-	-	88	88
Tax effect of items taken directly to reserves	-	-	-	-	(22)	(22)
Total comprehensive income for the year	-	-	-	-	8,737	8,737
Shares acquired in the year	-	-	(79)	-	-	(79)
Equity settled share-based payments	-	-	-	-	74	74
Dividends (see note 5)	-	-	-	-	(6,698)	(6,698)
At 31 March 2022	4,363	874	(79)	13	126,327	131,498

	Equity attributable to equity holders of the parent
	Share capitala) £000	Share premiumb) £000	Treasury sharesc) £000	Other reserved) £000	Retained earningse) £000	Total equity £000
At 1 April 2020	4,363	874	-	13	126,408	131,658
Profit for the year	-	-	-	-	4,149	4,149
Other comprehensive income/(losses):			-
Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses	-	-	-	-	142	142
Defined benefit pension schemes GMP equalisation charge`	-	-	-	-	66	66
Change in fair value of financial assets	-	-	-	-	(50)	(50)
Tax effect of items taken directly to reserves	-	-	-	-	10	10
Total comprehensive income for the year	-	-	-	-	4,317	4,317
Equity settled share-based payments	-	-	-	-	21	21
Dividends (see note 5)	-	-	-	-	(6,532)	(6,532)
At 31 March 2021	4,363	874	-	13	124,214	129,464

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)  Treasury shares - Value of shares acquired by the company.

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

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

Notes to the Financial Statements

1  Basis of preparation

The group financial statements have been prepared in accordance with UK-adopted international accounting standard in conformity with the requirements of the Companies Act 2006.

The IFRSs applied in the group financial statements are subject to ongoing amendment by the IASB and therefore subject to possible change in the future. Further standards and interpretations may be issued that will be applicable for financial years beginning on or after 1 April 2022 or later accounting periods but may be adopted early.

The preparation of financial statements in accordance with IFRS requires the use of certain accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies.

The primary statements within the financial information contained in this document have been presented in accordance with IAS 1 Presentation of Financial Statements.

The financial statements are prepared on a going concern basis and under the historical cost convention, except where adjusted for revaluations of certain assets, and in accordance with applicable Accounting Standards and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. A summary of the principal group IFRS accounting policies is set out below. The presentation currency used is sterling and the amounts have been presented in round thousands ("£000").

2   Operating 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 P.L.C. and William Lee Limited are aggregated into Foundry operations, due to the similar nature of the businesses, and CNC Speedwell Limited is the Machining operation.

Inter-segment transactions are entered into under the normal commercial terms and conditions that would be available to third parties.

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2022:

	Foundry operations £000	Machining operations £000	Elimination £000	Total £000
Revenue from external customers	145,601	2,982	-	148,583
Inter-segmental revenue	17,037	19,488	-	36,525
Segmental result	13,084	(894)	(50)	12,140
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits previously written off				6
Defined benefit pension cost				(119)
Finance income				47
Profit before income tax				12,074
Total assets	148,554	26,741	(10,101)	165,194
Non-current asset additions	3,388	991	-	4,379
Depreciation	4,790	3,811	-	8,601
Total liabilities	(31,561)	(6,977)	4,842	(33,696)

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 2021:

	Foundry operations £000	Machining operations £000	Elimination £000	Total £000
Revenue from external customers	111,987	2,715	-	114,702
Inter-segmental revenue	11,089	15,594	-	26,683
Segmental result	6,659	(2,255)	13	4,417
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits previously written off				41
Profit on disposal of held for sale asset				658
Defined benefit pension cost				(142)
Defined benefit pension GMP equalisation charge				(66)
Finance income				79
Profit before income tax				4,987
Total assets	140,141	28,795	(11,347)	157,589
Non-current asset additions	3,744	1,500	-	5,244
Depreciation	4,582	4,220	-	8,802
Total liabilities	(26,525)	(7,725)	6,125	(28,125)

All non-current assets are based in the United Kingdom.

	2022 £000	2021 £000
The geographical analysis of revenues by destination for the year is as follows:
United Kingdom	31,319	26,805
Sweden	38,809	32,237
Germany	20,506	12,618
Netherlands	19,907	14,754
Rest of Europe	26,050	21,435
North and South America	11,294	6,208
Other	698	645
	148,583	114,702

All revenue arises in the United Kingdom from the group's continuing activities.

3  Exceptional items

	2022 £000	2021 £000
Recovery of past provision for losses on deposits with Icelandic banks	(6)	(41)
Profit on the disposal of asset classified as held for sale	-	(658)
Defined benefit pension scheme GMP equalisation charge	-	66
	(6)	(633)

The company reported in the year ended 31 March 2009 that £1.86 million was included in other receivables as the net recoverable after provision from various Icelandic banks. So far £3.9 million has been received of the original balance of £5.7 million with the excess over the £1.86 million being shown as an exceptional credit.

In the prior year, the group completed on the sale of the Fradley site, an asset classified as held for sale, resulting in a profit of £0.66 million.

An additional GMP equalisation charge to that applied in the year ended 31 March 2019 was recognised in the prior year following the High Court ruling on 20 November 2020. The ruling clarified that pension equalisation should be applied to past transfer values from the defined benefit pension schemes. The best estimate, working with the schemes' actuaries, is an increase of £66,000 to the pension liabilities.

4   Income tax expense

	2022 £000	2021 £000
Corporation tax based on a rate of 19% (2021 - 19%)
UK corporation tax
Current tax on profits for the year	2,050	1,220
Adjustments to tax charge in respect of prior years	(155)	(32)
	1,895	1,188
Deferred tax
Current year origination and reversal of temporary differences	624	(196)
Adjustment to deferred tax charge in respect of prior years	(107)	(154)
Adjustment to deferred tax charge in respect of change in tax rate	1,100	-
	1,627	(350)
Taxation on profit	3,522	838
Profit before income tax	12,074	4,987
Tax on profit at the standard rate of corporation tax in the UK of 19% (2021 - 19%)	2,294	948
Effect of:
Expenses not deductible for tax purposes	357	36
Adjustment to tax charge in respect of prior years	(155)	(32)
Adjustment to deferred tax charge in respect of prior years	(107)	(154)
Adjustment to deferred tax charge in respect of change in tax rate	1,110	-
Pension adjustments	23	40
Total tax charge for the year	3,522	838
Effective rate of tax (%)	29.2	16.8

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2021 on 24 May 2021, the applicable main rate increasing from the current level of 19% to 25% from 1 April 2023. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.

5   Dividends

	2022 £000	2021 £000
Final paid of 11.69p per share for the year ended 31 March 2021 (2020 - 11.40p)	5,101	4,974
Interim paid of 3.66p per share (2021 - 3.57p)	1,597	1,558
	6,698	6,532

The directors are proposing a final dividend of 12.57 pence (2021 - 11.69 pence) per share totalling £5,484,551 (2021 - £5,100,589). In addition, the directors have declared a supplementary dividend of 15.00 pence per share, totalling £6,544,810. These dividends have not been accrued at the balance sheet date.

6   Earnings per share and diluted earnings per share

The calculation of the basic and diluted earnings per share is based on the following data:

	2022	2021
Profit after taxation (£000)	8,552	4,149
Weighted average number of shares - basic calculation	43,631,545	43,632,068
Earnings per share - basic calculation (pence per share)	19.60p	9.51p
Number of dilutive share options in issue	67,441	35,292
Weighted average number of shares - diluted calculation	43,698,986	43,667,360
Earnings per share - diluted calculation (pence per share)	19.57p	9.50p

Earnings per share (basic) excluding exceptional items of 19.59 pence per share (2021 - 8.06 pence per share) is calculated on the profit on ordinary activities before exceptional items after taxation of £8,546,000 (2021 - £3,516,000), using the basic weighted average number of shares of 43,631,545. The corresponding diluted earnings per share excluding exceptional items, using the weighted average number of shares of 43,698,986 is 19.57 pence per share (2021 - 8.05 pence per share).

7  Property, plant and equipment

	Freehold and leasehold land and buildings £000	Plant and equipment £000	Total £000
Cost
At 1 April 2021	40,357	151,831	192,188
Additions during the year	163	4,216	4,379
Disposals	(410)	(451)	(861)
At 31 March 2022	40,110	155,596	195,706
Accumulated depreciation
At 1 April 2021	11,632	113,444	125,076
Charge for year	1,073	7,528	8,601
Disposals	(410)	(362)	(772)
At 31 March 2022	12,295	120,610	132,905
Net book values
At 31 March 2022	27,815	34,986	62,801
At 31 March 2021	28,725	38,387	67,112
Cost
At 1 April 2020	40,183	147,449	187,632
Additions during the year	584	4,660	5,244
Disposals	(410)	(278)	(688)
At 31 March 2021	40,357	151,831	192,188
Accumulated depreciation
At 1 April 2020	10,941	105,998	116,939
Charge for year	1,101	7,701	8,802
Disposals	(410)	(255)	(665)
At 31 March 2021	11,632	113,444	125,076
Net book values
At 31 March 2021	28,725	38,387	67,112
At 31 March 2020	29,242	41,451	70,693

The net book value of land and buildings includes £2,169,000 (2021 - £2,169,000) for land which is not depreciated.

Included within plant and equipment are assets in the course of construction with a net book value of £1,043,000 (2021 - £464,000) which are not depreciated.

8   Commitments and contingencies

	2022 £000	2021 £000
Capital commitments contracted for by the group but not provided for in the financial statements	1,637	1,784

The group does not insure against the potential cost of product warranty or recall. Accordingly, there is always the possibility of claims against the group for quality related issues on parts supplied to customers. As at 31 March 2022, the directors do not consider any significant liability will arise in respect of any such claims (2021 - £nil).

9 Pensions

The company operates two defined benefit pension schemes which were closed to future accruals at 6 April 2009. The funded status of these schemes at 31 March 2022 was a surplus of £9,932,000 (2021 - £9.980,000). On 24 March 2020, the Trustees of the schemes completed a bulk annuity insurance buy-in with Aviva Life & Pensions UK Limited thus providing certainty and security for all members of the schemes. The buy-in secures an insurance asset from Aviva that fully matches, subject to final price adjustment of the bulk annuity pricing, the remaining pension liabilities of the schemes. The buy-in covers the investment, longevity, interest rate and inflation risks in respect of the schemes and therefore substantially reduces the pension risk to the company.

The pension surplus has not been recognised as the group does not have an unconditional right to receive returns of contributions or refunds under the scheme rules.

10 Preliminary statement

The financial information set out above does not constitute the company's statutory financial statements for the years ended 31 March 2022 or 2021 but is derived from those financial statements. Statutory financial statements for 2022 have been delivered to the Registrar of Companies and those for 2022 will be delivered following the company's Annual General Meeting. The auditors have reported on those financial statements; 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.

The annual report and financial statements will be posted to shareholders on 24 June 2022 and will be available on the company's website, www.castings.plc.uk, from 27 June 2022.

Appendix 1 - Principal Risks and Uncertainties

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

The directors regularly assess the principal risks facing the entity. Whilst it is difficult to completely 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. Information is also provided as to how the risks are, where possible, being managed or mitigated.

The group does not operate a formal internal audit function; however, risk management is overseen by senior management and group risk registers are maintained and regularly reviewed, alongside factors which may result in changes to risk assessments or require additional mitigation measures to be implemented.

External consultants are used to assess design and effectiveness of controls relating to IT security to provide specialist support to management in this area.

Key risks arising or increasing in impact are reviewed at both group and subsidiary board meetings.

The impact of each risk set out below has been described as increased, stable or decreased dependent upon whether the business environment and group activity has resulted in a change to the potential impact of that risk.

Several principal risks have been removed which have been key themes in the last few years. As the conditions of the United Kingdom's exit from the European Union seems to be largely concluded and the resulting changes embedded, it is no longer considered a principal risk to the business as a standalone issue. Similarly, with vaccination programmes largely successful in major markets, COVID-19 has also been removed as a principal risk. Both issues remain subject to review as part of the group's internal risk review process.

Risk description	Impact	Mitigation and control
Technological change
Customers continue to invest in the development of electric and hydrogen powered vehicles to move away from internal combustion engines ('ICE'). The initial phase of this is focussed on passenger cars and smaller, short-range trucks which are not key markets for the group. However, the continued development of new technology does present a medium-term risk to the group as c. 30% of group revenue arises from the supply of cast iron powertrain components. It is important to note that such a change also presents an opportunity for the group to evolve its product offering, as has always been the case over the years.	Stable The group continues to work with key customers producing the next generation of ICE commercial vehicles, whilst monitoring opportunities for the future.	The strategic focus of the group is evaluated regularly through group board meetings. Consideration is given to what opportunities might be available within alternative light-weight metals, such as aluminium, or through value-added opportunities. The group continues to monitor the potential market impacts from hydrogen fuel cell deployment (considered to be the most likely replacement technology for heavy-duty trucks).
Operational and commercial
The group's revenues are principally derived from the commercial vehicle markets which can be subject to variations in patterns of demand. Commercial vehicle sales are linked to technological factors (for example emissions legislation) and economic growth.	Stable The operational and commercial activity of the business is driven by customer demand. At present demand has the potential to change rapidly dependent upon the significant variable factors in the macroeconomic environment such as conflict in Ukraine, semi-conductor shortages, COVID-19 or changing regulatory positions.	The group's operations are set up in such a way as to ensure that variation in demand can be accommodated and rapidly responded to. Demand is closely reviewed by senior management on a constant basis.
Market competition
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.	Stable Erosion of market share could result in loss of revenue and profit.	Whilst there can be no guarantee that business will not be lost on price, we are confident that we can remain competitive. The group continues to mitigate this risk through investment in productivity, with a strong focus on cost and customer value.
Customer concentration, programme dependencies and relationships
The group has strong relationships with key customers in the commercial vehicle market which form the majority of the customer base.	Stable The loss of, or deterioration in, any major customer relationship could have a material impact on the group's results.	We build strong relationships with our customers to develop products to meet their specific needs.
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.	Stable Fines or penalties could result in a loss of revenue, additional costs and reduced profits.	Whilst it is a policy of the group to endeavour 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.
Foreign exchange
The group is exposed to foreign exchange risk on both sales and purchases denominated in currencies other than sterling, being primarily euro and US dollar.	Stable The group is exposed to gains or losses that could be material to the group's financial results and can increase or decrease how competitive the group's pricing is to overseas markets.	The group's foreign exchange risk is well-mitigated through commercial arrangements with key customers. Foreign exchange rate risk is sometimes partially mitigated by using forward foreign exchange contracts. Such contracts are short term in nature, matched to contractual cash flows and non-speculative.
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.	Stable A large incident could disrupt business at the site affected and result in significant rectification costs or material asset impairments.	Whilst this risk cannot be entirely mitigated without uneconomic duplication of all key equipment, all key equipment is maintained to a high standard and inventories of strategic equipment spares maintained. The foundry facilities at Brownhills and Dronfield have similar equipment and work can be transferred from one location to another very quickly.
Suppliers
The group holds long-standing relationships with key suppliers and there is a risk that a business which the group is critically dependent upon could be subject to significant disruption and that this could materially impact the operations of the group. There are specifically high risks of semi-conductor shortages in the supply chain, COVID-19 outbreaks, disruption because of the conflict in Ukraine or logistical delays.	Increased The risk of a supplier's business interruption remains very high due to the current global business environment.	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 dependent, this is not always possible to guarantee without risk of short-term business disruption, additional costs and potential damage to relationships with key customers. The group continues to maintain productive dialogue with key suppliers, working together to adjust to changes to the business environment.
Commodity and energy pricing
The group is exposed to the risk of price inflation on raw materials and energy contracts. 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 ferro-silicon, copper, nickel and molybdenum.	Increased Changes to the pricing of the group's commodity and energy purchases could materially impact the financial performance of the group if no mitigating actions were taken. Power and raw material markets have become very volatile because of the current conflict in Ukraine and other associated supply issues.	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. Energy contracts are typically for a period of at least 12 months, although renegotiation risks remain at contract maturity dates but again this is mitigated through the application of price adjustment clauses. At 31 March 2022, the group had electricity and gas contracts in place until 30 September 2022 and 2023 respectively.
Information technology and systems reliability
The group is dependent on its information technology ('IT') systems to operate its business efficiently, without failure or interruption. The group continues to invest in IT systems to aid in the operational performance of the group and its reporting capabilities. There are increasing global threats faced by these systems as a result of sophisticated cyberattacks.	Stable Significant failures to the IT systems of the group as a result of external factors could result in operational disruption and a negative impact on customer delivery and reporting capabilities.	Whilst data within key systems is regularly backed up and systems subject to virus protection, any failure of backup systems or other major IT interruption could have a disruptive effect on the group's business. IT projects are reviewed and approved at board level and the group continues to invest in IT security to improve our resilience and response towards such threats. The group engages with external specialists to regularly assess the security of the IT network and systems.
Regulatory and legislative compliance
The group must comply with a wide range of legislative and regulatory requirements including modern slavery, anti-bribery and anti-competition legislation, taxation legislation, employment law and import and export controls.	Stable Failure to comply with legislation could lead to substantial financial penalties, business disruption, diversion of management time, personal and corporate liability and loss of reputation.	The group maintains a comprehensive range of policies, procedures and training programmes in order to ensure that both management and relevant employees are informed of legislative changes and it is clear how the group's business is expected to be carried out. Whistleblowing procedures and an open-door management style are in place to enable concerns to be raised and addressed. Specialist advice is made available to management when required to ensure that the group is up to date with changes in regulation and legislation.
Climate change
The group's operations are energy-intensive and whilst the group considers that its businesses provide fundamental components and services which will prove resilient in a transition towards a net zero economy, the board recognises the group is likely to receive increased scrutiny in the future in relation to emissions and climate change.	Stable It is expected that green taxes on energy and the compliance cost of meeting developing reporting obligations for our stakeholders will result in increased energy prices and administrative expenses.	A working group has been formed to continue to monitor and report on developments with regards to climate risk. As part of the renewal of energy contracts the group reviews whether investment in renewable energy sources would meet the group's investment criteria and such proposals will continue to be considered on their commercial merits. The group will continue to engage with and understand the needs of its stakeholders with regard to climate risk.
People risk
The group's operations depend upon the availability of both skilled and unskilled labour to operate manual equipment and fulfil our strategic goals. Inability to attract and retain talent could result in either a shortage of staff or a reduction in operating margins.	Increased The labour market has been extremely competitive during the year.	The group looks to provide safe, stable and long-term employment at competitive rates of pay. We invest in people development and utilise technology and productivity gains to ensure that our products remain competitively priced.

 

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