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Castings PLC (CGS)

  Print      Mail a friend       Annual reports

Wednesday 14 June, 2017

Castings PLC

Final Results

RNS Number : 0021I
Castings PLC
14 June 2017
 

Castings P.L.C.

Annual Financial Report

DTR 6.3.5 Disclosure

Year ended 31 March 2017

 

Chairman's Statement

 

The turnover of the group decreased to £119 million (£132 million last year) with a decrease in profits to £15.9 million compared to £19.7 million last year.

Foundry businesses

Despite a reduction in output during the year the foundries maintained a good profit level.  This has been achieved by continued investment in productivity.

In this respect, both at Brownhills and William Lee, investment in robotic handling is taking place which will improve quality standards and reduce costs associated with the processing of raw castings.

The improvements reported last year in relation to William Lee are continuing and the result from this company is expected to improve in the current year.

CNC Speedwell

A significant reduction in sales occurred due to the ending of a major contract at the end of the previous financial year.  Replacement work has been secured and it is hoped that turnover and profitability will increase back to previous levels during the next two years. Investment in new machines has taken place during the year to support the new orders; the utilisation of this investment will increase as the replacement work goes into full production.

Dividend

I am pleased to report that the directors recommend an increase in the final dividend to 10.59 pence per share to be paid on 18 August 2017. This, together with the interim dividend, gives a total for the year of 13.97 pence per share. Subject to approval of the final dividend by shareholders at the AGM on 15 August 2017, the dividend will be paid on 18 August 2017 to shareholders on the register on 14 July 2017.

Outlook

It appears that the customer demands at the present time remain steady.

The situation concerning Brexit is creating a certain amount of concern in the manufacturing sector and the sooner the Government negotiates a deal to remove this uncertainty the better it will be for planning the future.

The company is putting every effort into developing new work with both existing and new customers. Our focus is on core business that can be produced and machined within the group. At the same time we are continuing to invest in technology to improve productivity and profitability.

Directors

David Gawthorpe retired as Chief Executive on the 31 March 2017 after 33 years' service with the company.  I would like to thank him for his contribution to the company and wish him and Linda a happy retirement.

Adam Vicary took over as Chief Executive on 1 April; he has been with the company since 2010 and was Managing Director of the Brownhills foundry.  He was appointed to the Board in April 2012.  He has wide experience of the industry and I am confident he will continue to develop Castings P.L.C.

In conclusion, the strong cash generation of the group has enabled us to invest in the business at the same time as returning £13 million to shareholders during the year as a special dividend. My thanks to all our employees for their continued support and contribution during the year.

B. J. Cooke
Chairman

14 June 2017

 

 

 

Business and Financial Review

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

The foundry businesses have experienced a reduction in output of 9.2% to 47,200 tonnes and a decrease in external sales revenue of 2.5% to £111.8 million.

This year has seen a continuation of the sales mix change of last year with an increase in more complex, machined parts.

The segmental profit has reduced slightly to £14.5 million, from £14.7 million in the previous year, which represents a return of 11.3% on total segmental sales (2016 - 10.9%).

The improvement at William Lee has continued during the year with an even greater focus on aligning production methods across the foundry operations.

With customer requirements forecast to remain steady at the current levels, particularly in the commercial vehicles sector, our focus will be on our continuous efforts to improve productivity through careful investment and further developing production methods. One particular focus has been the role of automation, an area where we have made investment during the year and will continue to do so during 2017/18. The extension to one of the premises at the Brownhills site to provide additional warehousing and machining capacity for the group was completed in December 2016.

Machining

The machining business generated total sales of £23.3 million in the year compared to £33.2 million in the previous year. Of the total revenue, 29.9% was generated from external customers compared to 53.3% in 2016.

The segmental profit has decreased to £1.5 million (2016 - £4.7 million) and the profit on total sales reduced to 6.5% (2016 - 14.2%).

The end of a contract, where there was no direct replacement work, towards the end of 2015/16 has had a significant impact on the revenue and result for the year. New orders have been secured to fill a large proportion of the resulting available capacity. However, these parts go into full production over the next two years; in the meantime, there are additional development costs being incurred.

We have invested £5.1 million during the year to accommodate new orders, many of which have not come into full production. This investment also includes expenditure on converting previous warehousing into a machining facility in Brownhills.

Business review and performance

Revenue

Group revenues decreased by 10.3% to £118.8 million compared to £132.4 million reported in 2016, of which 72% was exported (2016 - 67%).

The revenue from the foundry operations to external customers decreased 2.5% to £111.8 million (2016 - £114.7 million) with the dispatch weight of castings to third-party customers decreasing 9.2% to 47,200 tonnes (2016 - 52,000 tonnes).

Revenue from the machining operation to external customers decreased by 60.6% during the year to £7.0 million (2016 - £17.7 million).

Operating profit and segmental result

The group operating profit for the year was £15.7 million compared to £19.5 million reported in 2016, which represents a return on sales of 13.2% (2016 - 14.7%).

The foundry operations returned a segmental profit of £14.5 million compared to £14.7 million in 2016. This represents an increase in segmental profit as a percentage of total segment sales to 11.3% from 10.9% in 2016.

The segmental profit of the machining operation was £1.5 million in the year compared to £4.7 million in 2016, being 6.5% (2016 - 14.2%) of total segment sales.

Icelandic bank receipts

During the year we have received £0.13 million (2016 - £0.32 million) in respect of the failed Icelandic banks. Of the original balance of £5.7 million, the total received to date is £3.73 million which is £1.87 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.

Finance income

The increase in the level of finance income from £0.19 million in 2016 to £0.24 million in the current year reflects the slightly higher average interest rates of 0.67% compared to 0.5% in 2016.

Profit before income tax

Profit before taxation has decreased to £15.9 million from £19.7 million.

Taxation

The current year tax charge of £2.91 million (2016 - £3.49 million) is made up of a current tax charge of £3.25 million (2016 - £3.89 million) and a deferred tax credit of £0.33 million (2016 - £0.40 million).

The effective rate of tax of 18.3% (2016 - 17.7%) is lower than the main rate of corporation tax, reflecting the falling future UK corporation tax rate and therefore the measurement of deferred tax liabilities at the lower substantively enacted future rates of 19% and 17%.

Earnings per share

Basic earnings per share decreased 19.7% to 29.80 pence (2016 - 37.10 pence), reflecting a 19.1% decrease in profits and a higher effective tax rate compared to the previous year. There has been no change in the weighted average number of shares in issue of 43,632,068.

Dividends

The directors are recommending an increase in the final dividend to 10.59 pence per share (2016 - 10.33 pence per share) to be paid on 18 August 2017. This would give a total normal distribution for the year of 13.97 pence per share (2016 - 13.71 pence per share).

Cash flow

The group generated cash from operating activities of £21.5 million compared to £27.8 million in 2016. In addition to the lower operating profit, the increase in payables of £3.1 million was offset by increases in inventory and receivables of £2.1 million and £2.7 million respectively.

Corporation tax payments during the year totalled £3.4 million compared to £3.2 million in 2016, reflecting the timing of quarterly payments.

Capital expenditure during the year amounted to £14.2 million (2016 - £7.2 million) with investment in production processes and warehousing in the foundry businesses and production facilities and machining centres within the machining operation. Included within this figure is £1.1 million relating to deposit payments on equipment not received at the year end, therefore, not included within property, plant and equipment additions in the year. The charge for depreciation was £7.3 million compared to £6.9 million in 2016.

The current interest-bearing deposit of £10 million taken out in the previous year matured in November 2016. Of this, £5 million was rolled over to mature during the next financial year and the remaining £5 million was placed on short-term deposits, therefore, a net inflow of cash and cash equivalents of £5 million.

Repayments of £3.8 million (2016 - £1.1 million) were received from the final salary pension schemes during the year and advances were made to the schemes of £2.0 million (2016 - £2.6 million).

Dividends paid to shareholders were £19.1 million in the year compared to £5.9 million in 2016, the increase mainly being due to the supplementary dividend of £13.1 million paid during the year. The resulting net cash and cash equivalents represented a decrease of £8.2 million (2016 - increase of £10.4 million).

At 31 March 2017, the total cash and deposits position at the balance sheet date is £27.2 million (2016 - £40.4 million).

Pensions

The pension valuation showed an increase in the surplus, on an IAS 19 (Revised) basis, to £16.8 million compared to £14.7 million in the previous year. The 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 2017 were £124.1 million (2016 - £129.9 million).  Other than the total comprehensive income for the year of £13.3 million, the only movement relates to the dividend charge of £19.1 million. 

Non-current assets have increased to £75.4 million (2016 - £70.7 million) primarily as a result of the investment in property, plant and equipment during the year along with the change in the debtor due from the pension scheme of £2.3 million (2016 - £3.4 million).

Current assets have decreased to £74.5 million (2016 - £82.4 million) mainly as a result of a reduction in net cash generated during the year and working capital movements. Total liabilities have increased to £25.8 million (2016 - £23.2 million), largely as a result of an increase in trade payables.

 

 

 

 

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2017

 

 

2017

£000

2016

£000

Revenue

 

118,822

132,448

Cost of sales

 

(88,634)

(98,431)

Gross profit

 

30,188

34,017

Distribution costs

 

(1,939)

(2,251)

Administrative expenses

 

 

 

Excluding exceptional items

 

(12,701)

(12,591)

Exceptional items

 

130

315

Total administrative expenses

 

(12,571)

(12,276)

Profit from operations

 

15,678

19,490

 

 

 

 

Finance income

 

237

186

Profit before income tax

 

15,915

19,676

 

 

 

 

Income tax expense

 

(2,911)

(3,489)

Profit for the year attributable to equity holders of the parent company

 

13,004

16,187

 

 

 

 

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

 

235

228

 

 

235

228

Items that may be reclassified subsequently to profit and loss:

 

 

 

Change in fair value of available-for-sale financial assets

 

54

(28)

Reclassification adjustments for gains/(losses) on available for sale assets included in profit

 

-

85

Tax effect of items that may be reclassified

 

(10)

5

 

 

44

62

Other comprehensive income for the year (net of tax)

 

279

290

Total comprehensive income for the year attributable to the
equity holders of the parent company

 

13,283

16,477

Earnings per share attributable to the equity holders of the parent company

 

 

 

Basic and diluted

 

29.80p

37.10p

 

 

 

Consolidated Balance Sheet

as at 31 March 2017

 

 

2017

£000

2016

£000

ASSETS

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

 

72,762

66,948

Financial assets

 

408

354

Other receivables

 

2,269

3,383

 

 

75,439

70,685

Current assets

 

 

 

Inventories

 

14,063

11,992

Trade and other receivables

 

33,189

30,047

Other current interest-bearing deposits

 

5,000

10,000

Cash and cash equivalents

 

22,228

30,385

 

 

74,480

82,424

Total assets

 

149,919

153,109

LIABILITIES

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

19,866

16,769

Current tax liabilities

 

1,855

2,029

 

 

21,721

18,798

Non-current liabilities

 

 

 

Deferred tax liabilities

 

4,054

4,378

Total liabilities

 

25,775

23,176

Net assets

 

124,144

129,933

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

 

118,894

124,683

Total equity

 

124,144

129,933

 

 

 

Consolidated Cash Flow Statement

for the year ended 31 March 2017

 

 

2017

£000

2016

£000

Cash flows from operating activities

 

 

 

Profit before income tax

 

15,915

19,676

Adjustments for:

 

 

 

Depreciation

 

7,276

6,853

Profit on disposal of property, plant and equipment

 

(24)

(62)

Loss on disposal of financial assets

 

-

48

 

 

 

 

Finance income

 

(237)

(186)

 

 

 

 

Pension administrative costs

 

235

228

(Increase)/decrease in inventories

 

(2,071)

123

(Increase)/decrease in receivables

 

(2,661)

2,925

Increase/(decrease) in payables

 

3,098

(1,832)

Cash generated from operating activities

 

21,531

27,773

Tax paid

 

(3,419)

(3,202)

Interest received

 

213

165

Net cash generated from operating activities

 

18,325

24,736

 

 

 

 

Cash flows from investing activities

 

 

 

Dividends received from listed investments

 

24

21

Purchase of property, plant and equipment

 

(14,214)

(7,236)

Proceeds from disposal of property, plant and equipment

 

23

69

Transfer from other current interest-bearing deposits

 

5,000

-

Proceeds from disposal of financial assets

 

-

122

Repayments from pension schemes

 

3,761

1,135

Advances to the pension schemes

 

(2,004)

(2,610)

Net cash used in investing activities

 

(7,410)

(8,499)

 

 

 

 

Cash flow from financing activities

 

 

 

Dividends paid to shareholders

 

(19,072)

(5,873)

Net cash used in financing activities

 

(19,072)

(5,873)

 

 

 

 

Net (decrease)/increase in cash and cash equivalents

 

(8,157)

10,364

Cash and cash equivalents at beginning of year

 

30,385

20,021

Cash and cash equivalents at end of year

 

22,228

30,385

Cash and cash equivalents:

 

 

 

Short-term deposits

 

21,362

27,786

Cash available on demand

 

866

2,599

 

 

22,228

30,385

 

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 March 2017

 

Equity attributable to equity holders of the parent

 

Share

capitala)

£000

Share

premiumb)

£000

Other

reservec)

£000

Retained

earningsd)

£000

Total

equity

£000

At 1 April 2016

4,363

874

13

124,683

129,933

Profit for the year

-

-

-

13,004

13,004

Other comprehensive income/(losses):

 

 

 

 

 

Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses

-

-

-

235

235

Change in fair value of available for sale assets

-

-

-

54

54

Tax effect of items taken directly to reserves

-

-

-

(10)

(10)

Total comprehensive income for the year ended 31 March 2017

-

-

-

13,283

13,283

Dividends (see note 5)

-

-

-

(19,072)

(19,072)

At 31 March 2017

4,363

874

13

118,894

124,144

 

 

Equity attributable to equity holders of the parent

 

Share

capitala)

£000

Share

premiumb)

£000

Other

reservec)

£000

Retained

earningsd)

£000

Total

equity

£000

At 1 April 2015

4,363

874

13

114,079

119,329

Profit for the year

-

-

-

16,187

16,187

Other comprehensive income/(losses):

 

 

 

 

 

Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses

-

-

-

228

228

Change in fair value of available for sale assets

-

-

-

(28)

(28)

Reclassification adjustment for gains on available for sale assets included in profit

-

-

-

85

85

Tax effect of items taken directly to reserves

-

-

-

5

5

Total comprehensive income for the year ended 31 March 2016

-

-

-

16,477

16,477

Dividends (see note 5)

-

-

-

(5,873)

(5,873)

At 31 March 2016

4,363

874

13

124,683

129,933

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.

 

 

 

Notes to the Financial Report

 

1 Basis of preparation

The group financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards ('IAS') and Interpretations (collectively 'IFRS'), as endorsed for use in the EU.

 

The IFRSs applied in the group financial statements are subject to ongoing amendment by the IASB and subsequent endorsement by the European Commission 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 2017 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 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. The accounting policies used are consistent with those disclosed in the 31 March 2016 financial statements. 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 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 2017:

 

Foundry

operations

£000

Machining

operation

£000

Elimination

£000

Total

£000

Revenue from external customers

111,838

6,984

-

118,822

Inter-segmental revenue

16,826

16,347

-

33,173

 

 

 

 

 

Segmental result

14,506

1,519

(242)

15,783

Unallocated costs:

 

 

 

 

Exceptional credit for recovery of Icelandic bank deposits previously written off

 

 

 

130

Defined benefit pension cost

 

 

 

(235)

Finance income

 

 

 

237

Profit before income tax

 

 

 

15,915

Total assets

126,095

33,464

(9,640)

149,919

Non-current asset additions

7,945

5,145

-

13,090

Depreciation

3,543

3,733

-

7,276

Total liabilities

(24,620)

(5,529)

4,374

25,775

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 2016:

 

Foundry

operations

£000

Machining

operation

£000

Elimination

£000

Total

£000

Revenue from external customers

114,738

17,710

-

132,448

Inter-segmental revenue

20,393

15,496

-

35,889

 

 

 

 

 

Segmental result

14,682

4,699

22

19,403

Unallocated costs:

 

 

 

 

Exceptional credit for recovery of Icelandic bank deposits previously written off

 

 

 

315

Defined benefit pension cost

 

 

 

(228)

Finance income

 

 

 

186

Profit before income tax

 

 

 

19,676

Total assets

129,704

33,089

(9,684)

153,109

Non-current asset additions

2,511

4,725

-

7,236

Depreciation

3,331

3,522

-

6,853

Total liabilities

(23,456)

(4,337)

4,617

23,176

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

 

3 Exceptional items

 

2017

£000

2016

£000

Recovery of past provision for losses on deposits with Icelandic banks

(130)

(315)

 

(130)

(315)

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 £3.7 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.

4 Income tax expense

 

2017

£000

2016

£000

Corporation tax based on a rate of 20% (2016 - 20%)

 

 

UK corporation tax

 

 

Current tax on profits for the year

3,389

4,015

Adjustments to tax charge in respect of prior periods

(144)

(121)

 

3,245

3,894

 

 

 

Deferred tax

 

 

Current year origination and reversal of temporary differences

(20)

20

Adjustment to deferred tax charge in respect of prior periods

(314)

63

Change in rate of corporation tax

-

(488)

 

(334)

(405)

Taxation on profit

2,911

3,489

 

 

 

Profit before income tax

15,915

19,676

 

 

 

Tax on profit at the standard rate of corporation tax in the UK of 20% (2016 - 20%)

3,183

3,935

Effect of:

 

 

Expenses not deductible for tax purposes

139

54

Adjustment to tax charge in respect of prior periods

(144)

(121)

Adjustment to deferred tax charge in respect of prior periods

(314)

63

Change in rate of future tax

-

(488)

Pension adjustments

47

46

Total tax charge for the year

2,911

3,489

Effective rate of tax (%)

18.3

17.7

Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill (No. 2) Act 2015 on 18 November 2015 and the Finance Act 2016 on 7 September 2016. These include reductions in the main tax rate to 19% from 1 April 2017 and 17% from 1 April 2020.

5 Dividends

 

2017

£000

2016

£000

Final paid of 10.33p per share for the year ended 31 March 2016 (2015 - 10.08p)

4,507

4,398

Interim paid of 3.38p per share (2016 - 3.38p)

1,475

1,475

Supplementary dividend of 30.00p per share for the year ended 31 March 2016

13,090

-

 

19,072

5,873

The directors are proposing a final dividend of 10.59 pence (2016 - 10.33 pence) per share totalling £4,620,636 (2016 - £4,507,193). This dividend has not been accrued at the balance sheet date.

6 Earnings per share

Earnings per share is calculated on the profit on ordinary activities after taxation of £13,004,000 (2016 - £16,187,000) and on the weighted average number of shares in issue at the end of the year of 43,632,068 (2016 - 43,632,068). There are no potentially dilutive shares, hence the diluted earnings per share is the same as above.

 

 

7 Property, plant and equipment

 

Freehold and leasehold land and

buildings

£000

Plant and equipment

£000

Total

£000

Cost

 

 

 

At 1 April 2016

34,579

120,978

155,557

Adjustment to opening balance

(5)

84

79

Additions during year

5,661

7,429

13,090

Disposals

-

(2,628)

(2,628)

At 31 March 2017

40,235

125,863

166,098

Accumulated depreciation

 

 

 

At 1 April 2016

6,986

81,623

88,609

Adjustment to opening balance

-

79

79

Charge for year

1,028

6,248

7,276

Disposals

-

(2,628)

(2,628)

At 31 March 2017

8,014

85,322

93,336

Net book values

 

 

 

At 31 March 2017

32,221

40,541

72,762

At 31 March 2016

27,593

39,355

66,948

 

 

 

 

 

 

 

 

Cost

 

 

 

At 1 April 2015

32,256

116,781

149,037

Additions during year

2,323

4,913

7,236

Disposals

-

(716)

(716)

At 31 March 2016

34,579

120,978

155,557

Accumulated depreciation

 

 

 

At 1 April 2015

6,175

76,290

82,465

Charge for year

811

6,042

6,853

Disposals

-

(709)

(709)

At 31 March 2016

6,986

81,623

88,609

Net book values

 

 

 

At 31 March 2016

27,593

39,355

66,948

At 31 March 2015

26,081

40,491

66,572

The net book value of land and buildings includes £2,527,000 (2016 - £2,527,000) for land which is not depreciated and assets in the course of construction with a net book value of £1,004,000 (2016 - £1,971,000 and 2015 - £1,015,000) which are not depreciated.

The cost of land and buildings includes £359,000 for property held on long leases (2016 - £359,000).

Included within plant and equipment are assets in the course of construction with a net book value of £995,000 (2016 and 2015 - £nil) and assets not fully in production with a net book value of £4,492,000 (2016 - £3,004,000 and 2015 - £5,600,000) which are not being depreciated. 

8 Commitments and contingencies

 

2017

£000

2016

£000

Capital commitments contracted for by the group but not provided for in the financial statements

4,406

6,087

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 2017, the directors do not consider any significant liability will arise in respect of any such claims (2016 - £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 2017 was a surplus of £16,844,000 (2016 - £14,694,000). 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 2017 or 2016, but is derived from those financial statements. Statutory financial statements for 2016 have been delivered to the Registrar of Companies and those for 2017 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 23 June 2017 and will be available on the company's website, www.castings.plc.uk, from 30 June 2017.

 

 

 

 

Appendix A - Principal Risks and Uncertainties

 

Risk

In common with all trading businesses, 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, damage to stocks, public and product liability and employers' liability.

The directors have carried out a robust assessment of the principal risks facing the entity. Whilst it is difficult either to 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. Information is also provided as to how the risks are, where possible, being managed or mitigated.

Operational and commercial

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 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. 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.

Foreign exchange

The group is exposed to foreign exchange risk on both sales and purchases that are denominated in currencies other than sterling, being primarily euro and US dollar. 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. 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. The machining business also operates from two separate locations, enabling the transfer of some production if required.

Suppliers and trade credit

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 ability of our suppliers to maintain credit insurance on the group and its principal operating businesses 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.

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 ferro-silicon, copper, 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.

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 price adjustment clauses. At 31 March 2017, the group has electricity contracts in place until 30 September 2018. Consumption levels at the balance sheet date are well within the agreed tolerance levels and this situation is not expected to change.

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

A review of credit ratings is undertaken prior to making new deposits and the maximum exposure to any one counterparty is restricted. However, institutions can be downgraded before maturity, thereby possibly placing these deposits at risk.

Environmental

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 2017 the schemes were in surplus on an IAS 19 (Revised) basis. The potential risks and uncertainties resulting from factors such as investment return, interest rates and mortality rates 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 only leaves past service liabilities to be funded.

 

 

Appendix B

The statements below have been prepared in connection with the group's full annual report for the year ended 31 March 2017. Certain parts thereof are not included within this announcement.

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, Strategic Report 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

14 June 2017


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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