Information  X 
Enter a valid email address

Castings PLC (CGS)

  Print      Mail a friend       Annual reports

Wednesday 15 June, 2016

Castings PLC

Final Results

RNS Number : 2012B
Castings PLC
15 June 2016
 

Castings P.L.C.

Annual Financial Report

DTR 6.3.5 Disclosure

Year ended 31 March 2016

 

Chairman's Statement

The turnover of the group increased to £132 million (£131 million last year) with an increase in profits to £19.7 million compared to £17.5 million last year.

Foundry businesses

The foundries have enjoyed stable trading conditions throughout the year and increased profits compared with the previous year.

I am pleased to report that we are making good progress at William Lee; a full reorganisation has taken place during the year to ensure standards are raised in line with the Brownhills foundry. We continue to review foundry production techniques and technologies across the group and invest in areas that will enhance the returns in this segment.

The Brownhills warehouse is being extended so that part of the existing building can be used for expansion of our machining business; this will be complete by the end of the calendar year.

CNC Speedwell

CNC enjoyed a good year with improved profits, however a major contract ended in the last quarter of the year.  Replacement work will not come on stream immediately so it is expected profits will reduce during the current financial year.  It is anticipated an improvement will be seen in financial year 17/18 and onwards. Our investment in additional machining facilities reflects our commitment to this area and the potential opportunities for growth in the short to medium term.

Dividend

I am pleased to report that the directors recommend an increase in the final dividend to 10.33 pence per share to be paid on 19 August 2016. This, together with an increased interim dividend, gives a total for the year of 13.71 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 30 pence per share to be paid on 22 July 2016 to shareholders on the register on 24 June 2016. This dividend, being discretionary and non-recurring, in no way compromises our commitment to invest in market leading technologies to maintain our competitive advantage.

Outlook

It appears that customer demands remain steady at the present time and unless there is a substantial change we will only see a temporary reduction in profits due to the changing situation at CNC Speedwell.

It is also important that, whatever the result of the EU referendum, the Government return to the priority of focussing on the economy and recognising the important role of manufacturing in achieving higher levels of employment to the benefit of the country as a whole.

Directors

Paul King retired as non-executive director on 18 August 2015. I wish to thank him for his contribution over many years to Castings P.L.C.

In conclusion I wish to thank all our employees for their contribution during the year and hope we will now enjoy a period of stability.

B. J. Cooke
Chairman

15 June 2016

 



 

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.

Foundry operations

The foundry businesses have experienced a slight reduction in output of 1.3% to 52,000 tonnes but an increase in external sales revenue of 1.3% to £114.7 million.

Sales revenue has been affected by the general reduction in raw material prices during the year. The increase in revenue on a lower tonnage output is a result of a slight change in mix of parts being sold; this year seeing an increase in more complex, machined parts compared to last year.

The segmental profit has increased to £14.7 million, from £13.1 million in the previous year, which represents a return of 10.9% on total segmental sales (2015 - 9.8%).

The management team at William Lee continue to make good progress following the increase in complexity in the work mix which impacted profitability in the previous year and progress will continue during the current year.

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. Just before the year end, work commenced on an extension to one of the premises at the Brownhills site which will provide additional warehousing and machining capacity for the group. It is anticipated that this project will be completed by the end of the calendar year.

Machining

The machining business generated total sales of £33.2 million in the year compared to £31.4 million in the previous year. Of the total revenue, 53.3% was generated from external customers compared to 57.3% in 2015.

The segmental profit has increased to £4.7 million (2015 - £4.5 million) and the profit on total sales reduced to 14.2% (2015 - 14.4%).

The end of a contract in the last quarter of the financial year, where there was no direct replacement work, impacted the result for the year. Whilst new orders have been secured to fill some of the available capacity created, it is expected to take up to three years to be in full production on parts to fully utilise this capacity.

We have invested £4.7 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 increased by 0.9% to £132.4 million compared to £131.3 million reported in 2015, of which 67% was exported (2015 - 67%).

The revenue from the foundry operations to external customers increased 1.3% to £114.7 million (2015 - £113.3 million) with the dispatch weight of castings to third-party customers decreasing 1.3% to 52,000 tonnes (2015 - 52,700 tonnes).

Revenue from the machining operation to external customers decreased by 1.7% during the year to £17.7 million (2015 - £18.0 million).

Operating profit and segmental result

The group operating profit for the year was £19.5 million compared to £17.4 million reported in 2015, which represents a return on sales of 14.7% (2015 - 13.3%).

The foundry operations returned a segmental profit of £14.7 million compared to £13.1 million in 2015. This represents a rise in segmental profit as a percentage of total segment sales to 10.9% from 9.8% in 2015.

The segmental profit of the machining operation was £4.7 million in the year compared to £4.5 million in 2015, being 14.2% (2015 - 14.4%) of total segment sales.

Icelandic bank receipts

During the year we have received £0.32 million (2015 - £0.02 million) in respect of the failed Icelandic banks. Of the original balance of £5.7 million, the total received to date is £3.60 million which is £1.74 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 £0.14 million in 2015 to £0.19 million in the current year reflects the higher average deposit balances compared to the previous year; the average interest rates being consistent at 0.5%.

Profit before income tax

Profit before taxation has increased to £19.7 million from £17.5 million.

Taxation

The current year tax charge of £3.49 million (2015 - £3.67 million) is made up of a current tax charge of £3.89 million (2015 - £3.14 million) and a deferred tax credit of £0.40 million (2015 - charge of £0.53 million).

The effective rate of tax of 17.7% (2015 - 20.9%) reflects the falling UK corporation tax rate and therefore the remeasurement of deferred tax liabilities at the lower substantively enacted future rates of 19% and 18%.

Earnings per share

Underlying basic earnings per share increased 16.7% to 37.10 pence (2015 - 31.80 pence) reflecting a 12.1% increase in profits and a lower 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 10.33 pence per share (2015 - 10.08 pence per share) to be paid on 19 August 2016. This would give a total normal distribution for the year of 13.71 pence per share (2015 - 13.30 pence per share).

In addition, recognising the strong cash position at the balance sheet date and the cash generative nature of the group, the directors are declaring a supplementary dividend of 30 pence per share to be paid on 24 July 2016. This discretionary, non-recurring distribution is considered appropriate to provide a balance between increasing returns to shareholders whilst maintaining the flexibility for capital and other investment opportunities.

Cash flow

The group generated cash from operating activities of £27.8 million compared to £20.4 million in 2015 with working capital levels remaining broadly consistent with the previous year.

Corporation tax payments during the year totalled £3.2 million compared to £4.4 million in 2015, reflecting the timing of quarterly payments and a lower tax rate compared to 2015.

Capital expenditure during the year amounted to £7.2 million (2015 - £8.2 million) with investment in production processes and warehousing in the foundry businesses and production facilities and machining centres within the machining operation. The charge for depreciation was consistent at £6.9 million.

The current interest-bearing deposit of £10 million taken out in the previous year was rolled-over and matures during the next financial year.

Repayments of £1.1 million were received from the final salary pension schemes during the year and advances were made to the schemes of £2.6 million.

Dividends paid to shareholders were £5.9 million in the year compared to £5.7 million in 2015. The resulting net cash and cash equivalents represented an increase of £10.4 million (2015 - decrease of £7.8 million) including the impact of the current interest-bearing deposit of £10 million in the previous year.

At 31 March 2016, the total cash and deposits position at the balance sheet date is £40.4 million (2015 - £30.0 million).

Pensions

The pension valuation showed a broadly consistent surplus, on an IAS 19 (Revised) basis, of £14.7 million compared to 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 2016 were £129.9 million (2015- £119.3 million).  Other than the total comprehensive income for the year of £16.5 million, the only movement relates to the dividend charge of £5.9 million.  Non-current assets have decreased to £70.7 million (2015 - £71.6 million) primarily as a result of the change in the debtor due from the pension scheme of £3.4 million (2015 - £4.5 million). 

Current assets have increased to £82.4 million (2015 - £72.5 million) mainly as a result of net cash generated during the year and working capital movements.  Total liabilities have reduced to £23.2 million (2015 - £24.7 million), largely as a result of a reduction in trade payables, off-set slightly by an increase in the corporation tax creditor.

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2016

 



2016

£000

2015

£000

Revenue


132,448

131,268

Cost of sales

 

(98,431)

(99,150)

Gross profit

 

34,017

32,118

Distribution costs

 

(2,251)

(2,162)

Administrative expenses

 

 

 

Excluding exceptional

 

(12,591)

(12,570)

Exceptional


315

24

Total administrative expenses

 

(12,276)

(12,546)

Profit from operations


19,490

17,410

 

 

 

 

Finance income


186

137

Profit before income tax


19,676

17,547

 

 

 

 

Income tax expense


(3,489)

(3,672)

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

 

16,187

13,875

 

 

 

 

Other comprehensive income 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


228

283

Tax effect of items that will not be reclassified


-

-

 


228

283

Items that may be reclassified subsequently to profit and loss:

 

 

 

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

 

(28)

(55)

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

 

85

-

Tax effect of items that may be reclassified


5

11

 


62

(44)

Total other comprehensive income/(losses) for the year (net of tax)

 

290

239

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

 

16,477

14,114

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

 

 

 

Basic and diluted


37.10p

31.80p

 



 

Consolidated Balance Sheet

31 March 2016

 



2016

£000

2015

£000

ASSETS

 

 

 

Non-current assets

 

 

 

Property, plant and equipment


66,948

66,572

Financial assets


354

467

Other receivables


3,383

4,538

 

 

70,685

71,577

Current assets

 

 

 

Inventories


11,992

12,115

Trade and other receivables


30,047

30,342

Other current interest-bearing deposits


10,000

10,000

Cash and cash equivalents

 

30,385

20,021

 

 

82,424

72,478

Total assets

 

153,109

144,055

LIABILITIES

 

 

 

Current liabilities

 

 

 

Trade and other payables


16,769

18,602

Current tax liabilities

 

2,029

1,336

 

 

18,798

19,938

Non-current liabilities

 

 

 

Deferred tax liabilities


4,378

4,788

Total liabilities

 

23,176

24,726

Net assets

 

129,933

119,329

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

 

124,683

114,079

Total equity

 

129,933

119,329

 



 

Consolidated Cash Flow Statement

for the year ended 31 March 2016

 



2016

£000

2015

£000

Cash flows from operating activities

 

 

 

Profit before income tax

 

19,676

17,547

Adjustments for:

 

 

 

Depreciation

 

6,853

6,760

(Profit)/loss on disposal of property, plant and equipment

 

(62)

1

Loss on disposal of financial assets

 

48

-

 

 

 

 

Finance income

 

(186)

(137)

 

 

 

 

Excess of employer pension contributions over income statement charge

 

228

283

Decrease in inventories

 

123

506

Decrease/(increase) in receivables

 

2,925

(2,127)

Decrease in payables

 

(1,832)

(2,474)

Cash generated from operating activities

 

27,773

20,359

Tax paid

 

(3,202)

(4,423)

Interest received

 

165

115

Net cash generated from operating activities

 

24,736

16,051

 

 

 

 

Cash flows from investing activities

 

 

 

Dividends received from listed investments

 

21

22

Purchase of property, plant and equipment

 

(7,236)

(8,210)

Proceeds from disposal of property, plant and equipment

 

69

72

Transfer other current interest-bearing deposits

 

-

(10,000)

Proceeds from disposal of financial assets

 

122

-

Repayments from pension schemes

 

1,135

-

Advances to the pension schemes

 

(2,610)

-

Net cash used in investing activities

 

(8,499)

(18,116)

 

 

 

 

Cash flow from financing activities

 

 

 

Dividends paid to shareholders

 

(5,873)

(5,694)

Net cash used in financing activities

 

(5,873)

(5,694)

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

 

10,364

(7,759)

Cash and cash equivalents at beginning of year

 

20,021

27,780

Cash and cash equivalents at end of year


30,385

20,021

Cash and cash equivalents:

 

 

 

Short-term deposits

 

27,786

19,253

Cash available on demand

 

2,599

768

 

 

30,385

20,021

 



 

Consolidated Statement of Changes in Equity

for the year ended 31 March 2016

 

 

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 loss

-

-

-

228

228

Change in fair value of available for sale assets

-

-

-

(28)

(28)

Reclassification adjustment for gains/(losses) 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 period 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

 

 

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 2014

4,363

874

13

105,659

110,909

Profit for the year

-

-

-

13,875

13,875

Other comprehensive income/(losses):

 

 

 

 

 

Movement in unrecognised surplus on defined benefit pension schemes net of actuarial loss

-

-

-

283

283

Change in fair value of available for sale assets

-

-

-

(55)

(55)

Tax effect of items taken directly to reserves

-

-

-

11

11

Total comprehensive income for the period ended 31 March 2015

-

-

-

14,114

14,114

Dividends (see note 5)

-

-

-

(5,694)

(5,694)

At 31 March 2015

4,363

874

13

114,079

119,329

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 2016 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 accounts 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 2015 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.

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2016:

 

Foundry

operations

£000

Machining

£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

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 2015:

 

Foundry

operations

£000

Machining

£000

Elimination

£000

Total

£000

Revenue from external customers

113,300

17,968

-

131,268

Inter-segmental revenue

20,532

13,398

-

33,930

 

 

 

 

 

Segmental result

13,064

4,521

84

17,669

Unallocated costs:

 

 

 

 

Exceptional credit for recovery of Icelandic bank deposits previously written off

 

 

 

24

Defined benefit pension cost

 

 

 

(283)

Finance income

 

 

 

137

Profit before income tax

 

 

 

17,547

Total assets

122,650

31,919

(10,514)

144,055

Non-current asset additions

4,303

3,907

-

8,210

Depreciation

3,507

3,253

-

6,760

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

3    Exceptional items


2016

£000

2015

£000

Recovery of past provision for losses on deposits with Icelandic banks

(315)

(24)

 

(315)

(24)

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 £3.6 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


2016

£000

2015

£000

Corporation tax based on a rate of 20% (2015 - 21%)

 

 

UK corporation tax

 

 

Current tax on profits for the year

4,015

3,730

Adjustments to tax charge in respect of prior periods

(121)

(586)

 

3,894

3,144

 

 

 

Deferred tax

 

 

Current year origination and reversal of temporary differences

20

80

Prior year deferred tax movement

63

448

Change in rate of corporation tax

(488)

-

 

(405)

528

Taxation on profit on ordinary activities

3,489

3,672

 

 

 

Profit on ordinary activities before tax

19,676

17,547

 

 

 

Tax on profit on ordinary activities at the standard rate of corporation tax

in the UK of 20% (2015 - 21%)

3,935

3,685

Effect of:

 

 

Expenses not deductible for tax purposes

54

66

Adjustment to tax charge in respect of prior periods

(121)

(586)

Adjustment to deferred tax charge in respect of prior periods

63

448

Change in rate of future tax

(488)

-

Pension adjustments

46

59

Total tax charge for period

3,489

3,672

Effective rate of tax (%)

17.7

20.9

The reduction in the UK corporation tax rate to 19% from 1 April 2017 and 18% from 1 April 2020 were substantively enacted in October 2015. Accordingly, these rates have been applied in the measurement of the group's deferred tax assets and liabilities at 31 March 2016.

5    Dividends


2016

£000

2015

£000

Final paid of 10.08p per share for the year ended 31 March 2015 (2014 - 9.83p)

4,398

4,289

Interim paid of 3.38p per share (2015 - 3.22p)

1,475

1,405

 

5,873

5,694

The directors are proposing a final dividend of 10.33 pence (2015 - 10.08 pence) per share totalling £4,507,193 (2015 - £4,398,112). In addition, the directors have declared a supplementary dividend of 30 pence per share, totalling £13,089,620. These dividends have 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 £16,187,000 (2015 - £13,875,000) and on the weighted average number of shares in issue at the end of the year of 43,632,068 (2015 - 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


Land and

buildings

£000

Plant and other

equipment

£000

Total

£000

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

Depreciation and amounts written off

 

 

 

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

 

 

 

 

Cost

 

 

 

At 1 April 2014

30,950

110,370

141,320

Adjustment to opening position

24

(24)

-

Additions during year

1,282

6,928

8,210

Disposals

-

(493)

(493)

At 31 March 2015

32,256

116,781

149,037

Depreciation and amounts written off

 

 

 

At 1 April 2014

5,400

70,725

76,125

Charge for year

775

5,985

6,760

Disposals

-

(420)

(420)

At 31 March 2015

6,175

76,290

82,465

Net book values

 

 

 

At 31 March 2015

26,081

40,491

66,572

At 31 March 2014

25,550

39,645

65,195

The net book value of group land and buildings includes £2,527,000 (2015 - £2,527,000) for land which is not depreciated. Included within the land and buildings are assets in the course of construction with a net book value of £1,971,000 (2015 - £1,015,000 and 2014 - £nil) which are not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2015 - £359,000).

8    Commitments and contingencies


2016

£000

2015

£000

Capital commitments contracted for by the group but not provided for in the accounts

6,087

1,174

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 2016, the directors do not consider any significant liability will arise in respect of any such claims (2015 - £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 2016 was a surplus of £14,694,000 (2015 - £14,564,000). 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 accounts for the years ended 31 March 2016 or 2015, but is derived from those accounts.  Statutory accounts for 2015 have been delivered to the Registrar of Companies and those for 2016 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.

The annual report and accounts will be posted to shareholders on 24 June 2016 and will be available on the company's website, www.castings.plc.uk, from 1 July 2016.

 



 

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 to either completely record or to quantify every material risk that the group faces, below is a summary of those risks and, where possible, how they are being managed or mitigated, 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.

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.

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.

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 2016, 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. Further information is set out on page 9.

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 2016 the schemes were in surplus on an IAS 19 (Revised) basis. Further details are set out in note 6 to the accounts. 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 2016. 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

15 June 2016

 


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

a d v e r t i s e m e n t