Final Results

RNS Number : 4549P

Castings PLC

10 June 2020

 

Castings P.L.C.

Annual Financial Report

DTR 6.3.5 Disclosure

Year ended 31 March 2020

 

Chairman's Statement

The turnover of the group decreased to £139 million (£150 million last year) with a reduction in profit before exceptional items and income tax to £12.7 million compared to £15.3 million last year.

Overview

Despite the problems associated with COVID-19, I am pleased to report a reasonably satisfactory profit for the year.

It has been a year of three parts each of varying lengths. In the first half of the year we saw strong demand from our customers, generating a good level of profitability. The second half of the year saw reduced levels of demand from the commercial vehicle sector and output reduced to approximately 70% of our capacity; we expected reduced profit levels in this period as previously reported. The final part started in the third week of March 2020 as the impact of COVID-19 started to come through. As a result of plant closures at the OEMs, our demand reduced by approximately 80% and the year end result was negatively affected by approximately £0.75 million.

Foundry businesses

The foundries have seen a decrease in output and profitability compared to the previous year. We saw reasonable levels of profitability in the first half of the year with strong demand during that period.  As noted above, output and profitability in the second half was impacted by declining demand, culminating in the customer plant closures in the last month of the year in response to the COVID-19 pandemic.

We have been working to realise the full productivity improvements from the automation investment at the William Lee site. Whilst some advances were made during the year, we will only start to see the financial benefits of the wider restructuring of the process department when volumes increase.

We commenced work on upgrading and extending one of the moulding lines at the Brownhills foundry. Once this is complete, during the second half of the current financial year, it will provide greater reliability, efficiency, production flexibility and increased output capacity.

CNC Speedwell

I was pleased to have been able to report a return to profitability of CNC Speedwell in the first half of the year, largely as a result of management's continued improvements in the operational efficiency of the business.

The machining business continues to become more aligned with the customer base of the foundries and was therefore equally impacted by the fall in demand set out previously. With the level of investment that has been made in the business over recent years, the depreciation charge has an even greater impact when operating at lower volumes. It is not surprising then that the second half of the year produced a loss for CNC Speedwell.

We continue our programme of investment in automation in this area of the group to ensure that further operational efficiencies are achieved.

Outlook

With demand having reduced so dramatically in March 2020 and further in April 2020, a significant proportion of our workforce was placed on furlough leave under the Coronavirus Job Retention Scheme. Despite this support from the Government, the magnitude and sudden nature of the fall in output has inevitably had a significant negative impact on the results of the group at the start of the current financial year.

It is pleasing to report that output has increased from the lows of April 2020 and a number of employees have returned from furlough leave as we plan for the higher demand set out in our customer forward schedules. However, production remains significantly below pre-COVID-19 levels and the continued uncertainty regarding the economic recovery post-lockdown means that it remains incredibly difficult to predict future demand and therefore whether this initial recovery in demand will be maintained through the year.

Dividend

The group has always maintained a conservatively financed balance sheet, with prudent cash balances, so that we can weather the financial storms that arise from time to time. Our dividend policy has also been cautious with a view to the longer term. I am pleased that, despite the current uncertainties the directors are able to recommend the payment of a final dividend of 11.40 pence per share to be paid on 17 August 2020 to shareholders on the register on 17 July 2020. This, together with the interim dividend, gives a total dividend for the year of 14.88 pence per share.

With the current issues surrounding the COVID-19 pandemic, the AGM will unfortunately be a closed meeting this year and shareholders will not therefore be able to attend in person. Shareholders are strongly encouraged to vote by proxy and email questions relating to the company as set out in the Notice of Meeting.

I would like to thank our directors, local directors and all our employees for their understanding and continued commitment to the company during these very difficult times. We are confident that we will get through this period soon and continue to prosper as a company.

B. J. Cooke

Chairman

10 June 2020

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

Customer demand was strong during the first quarter of the financial year but started to soften during the second quarter and remained at lower levels through the second half of the year. Output was significantly impacted towards the end of March 2020 as commercial vehicle OEMs closed production facilities in the wake of COVID-19. 

The foundry businesses experienced a decrease in output of 8.6% to 47,700 tonnes and a fall in external sales revenue of 6.8% to £133.6 million.

The trend of an increase in more complex, machined parts has continued in the year. Of the total output weight for the year, 55.8% related to machined castings compared to 55.6% in the previous year.

The segmental profit has decreased to £13.4 million, from £16.8 million in the previous year, which represents a profit margin of 8.9% on total segmental sales (2019 - 10.2%).

The alignment of automation in the finishing processes between the two foundry sites continued during the year the cost of which negatively impacted margins. However, with significant progress being made towards the end of the period, the businesses will be well positioned to achieve productivity gains when demand recovers post COVID-19. 

Investment of £5.7 million has been made in the foundry businesses to support productivity improvements, approximately £1.9 million of which has been on automation projects.

Machining

The machining business generated total sales of £24.4 million in the year compared to £27.8 million in the previous year. Of the total revenue, 20.6% was generated from external customers compared to 25.8% in 2019.

The segmental result for the year was a loss of £0.67 million (2019 - loss of £1.34 million).

The focus on engineering and productivity improvements started to be realised and resulted in a return to profit in the first half of the year. However, the lower levels of demand in the foundry fed through to the machining business, resulting in a loss in the second half of the period.

We have invested £2.5 million during the year, which remains in line with the lower levels of the previous year, continuing management's focus on enhancing the return on the capital already invested in the machining business. This investment included £1.5 million in the roll-out of automation which will continue during the current year.

Business review and performance

Revenue

Group revenues decreased by 7.7% to £138.7 million compared to £150.2 million reported in 2019, of which 74% was exported (2019 - 76%).

The revenue from the foundry operations to external customers decreased by 6.6% to £133.6 million (2019 - £143.1 million) with the dispatch weight of castings to third-party customers decreasing by 8.6% to 47,700 tonnes (2019 - 52,200 tonnes).

Revenue from the machining operation to external customers decreased by 29.8% during the year to £5.0 million (2019 - £7.2 million).

Operating profit and segmental result

The group operating profit for the year was £12.5 million compared to £13.9 million reported in 2019, which represents a return on sales of 9.0% (2019 - 9.3%). The prior year result includes exceptional costs of £1.28 million, primarily relating to a defined benefit pension charge connected with the equalisation of guaranteed minimum pensions between men and women (as set out in note 3); an adjusted return on sales figure for 2019 would be 10.1%.

The foundry operations returned a segmental profit of £13.4 million compared to £16.8 million in 2019. This represents a decrease in segmental profit as a percentage of total segment sales to 8.9% from 10.2% in 2019.

The segmental result of the machining operation was a loss of £0.67 million in the year compared to £1.34 million in 2019.

Finance income

The level of finance income increased to £0.21 million compared to £0.13 million in 2019, reflecting higher sums on deposit and slightly higher interest rates.

Profit before income tax and exceptional items

Profit before income tax and exceptional items has decreased to £12.7 million from £15.3 million.

Taxation

The current year tax charge of £2.63 million (2019 - £3.04 million) is made up of a current tax charge of £2.18 million (2019 - £3.17 million) and a deferred tax charge of £0.45 million (2019 - credit of £0.13 million).

The effective rate of tax of 20.7% (2019 - 21.6%) is higher than the main rate of corporation tax of 19%. The main reason for this is the change in deferred tax rate applied to balances from 17% to 19%. This is a direct result of the decision to maintain the main rate of corporation tax at the higher rate.

Earnings per share

Basic earnings per share decreased 8.6% to 23.07 pence (2019 - 25.23 pence), reflecting the 9.6% decrease in profits and a lower effective tax rate compared to the previous year.

Due to the nature and magnitude of the exceptional items in the prior year, an alternative earnings per share excluding exceptional items was presented. This year's figure is broadly in line with the basic calculation at 23.05 pence per share (2019 - 28.16 pence).

There has been no change in the weighted average number of shares in issue of 43,632,068.

Dividends

The directors are recommending a final dividend of 11.40 pence per share (2019 - 11.40 pence per share) to be paid on 17 August 2020 to shareholders on the register on 17 July 2020. This would give a total ordinary distribution for the year of 14.88 pence per share (2019 - 14.78 pence per share).

Cash flow

The group generated cash from operating activities of £27.2 million compared to £18.2 million in 2019. When compared to 2019, the decrease in operating profit was offset by the greater reduction in working capital. The increase in inventories of £2.0 million and decrease in payables of £4.1 million was offset by a decrease in receivables of £11.7 million. The movement in receivables is a result of the lower demand in the final quarter of the year when compared to the rising Brexit impacted demand in the same quarter of the prior year.

Corporation tax payments during the year totalled £4.4 million compared to £2.7 million in 2019. The increase reflects a change in the timing of quarterly payments such that all are now paid in the financial year to which they relate. As a result, the current year had an outflow of two payments relating to the prior year as well as all four quarterly payments relating to the current year.

Capital expenditure during the year amounted to £8.2 million (2019 - £5.3 million). This included investment of £3.4 million in automation as well as other productivity enhancements. The charge for depreciation was £8.9 million compared to £8.3 million in 2019.

The other current interest-bearing deposit (a deposit with a maturity of more than three months at inception) of £5.0 million taken out in the previous year matured and was placed on a shorter term deposit and is therefore treated as a cash and cash equivalent inflow.

Repayments of £3.5 million (2019 - £4.5 million) were received from the final salary pension schemes during the year and advances were made to the schemes of £2.8 million (2019 - £2.4 million). The higher level of advances reflects an increase in value of deferred members transferring out of the schemes.

Dividends paid to shareholders were £13.0 million in the year (2019 - £6.3 million)which includes £6.5 million in respect of a supplementary dividend declared in respect of the year ended 31 March 2019.

The net cash and cash equivalents movement for the year was an increase of £7.6 million (2019 - £6.6 million).

At 31 March 2020, the total cash and deposits position was £33.4 million (2019 - £30.8 million).

Pensions

The pension valuation showed a decrease in the surplus, on an IAS 19 (Revised) basis, to £11.2 million compared to £24.4 million in the previous year. The main reason for the reduction being the change in asset allocation during the year.

On 24 March 2020, the Trustees of the schemes completed a bulk annuity buy-in which secured an insurance asset that fully matches, subject to final 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 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 2020 were £131.7 million (2019 - £134.4 million). Other than the total comprehensive income for the year of £10.3 million, the only movement relates to the dividend payment of £13.0 million. 

Non-current assets have decreased to £71.1 million (2019 - £71.8 million) primarily as a result of investment in property, plant and equipment during the year being at a level slightly below the depreciation charge.

Current assets have decreased to £84.6 million (2019 - £92.1 million). The level of inventories and total cash balances have increased compared to 2019 but this has been offset by the reduction in receivables. The current tax balance is an asset since the payments made during the year, based on estimated profits, were in excess of the year end calculated tax cost.

Total liabilities have decreased to £24.0 million (2019 - £29.5 million), largely as a result of a decrease in trade payables along with the current tax balance moving to be an asset this year.

 

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2020

		2020			2019
		Before exceptional items £000	Exceptional items (note 3) £000	Total £000	Before exceptional items £000	Exceptional items (note 3) £000	Total £000
Revenue		138,667	-	138,667	150,236	-	150,236
Cost of sales		(109,186)	-	(109,186)	(118,129)	-	(118,129)
Gross profit		29,481	-	29,481	32,107	-	32,107
Distribution costs		(2,510)	-	(2,510)	(2,794)	-	(2,794)
Administrative expenses		(14,487)	10	(14,477)	(14,116)	(1,275)	(15,391)
Profit from operations		12,484	10	12,494	15,197	(1,275)	13,922
Finance income		206	-	206	128	-	128
Profit before income tax		12,690	10	12,700	15,325	(1,275)	14,050
Income tax expense		(2,634)	-	(2,634)	(3,040)	-	(3,040)
Profit for the year attributable to equity holders of the parent company		10,056	10	10,066	12,285	(1,275)	11,010
Profit for the year attributable to equity holders of the parent company				10,066			11,010
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				258			237
Defined benefit pension schemes GMP equalisation charge				-			1,290
				258			1,527
Items that may be reclassified subsequently to profit and loss:
Change in fair value of available-for-sale financial assets				(22)			44
Tax effect of items that may be reclassified				4			(7)
				(18)			37
Other comprehensive income for the year (net of tax)				240			1,564
Total comprehensive income for the year attributable to the equity holders of the parent company				10,306			12,574
Earnings per share attributable to the equity holders of the parent company
Basic and diluted				23.07p			25.23p
Basic and diluted before exceptional items		23.05p			28.16p

 

Consolidated Balance Sheet

as at 31 March 2020

		2020 £000	2019 £000
ASSETS
Non-current assets
Property, plant and equipment		70,693	71,438
Financial assets		358	380
		71,051	71,818
Current assets
Inventories		21,175	19,164
Trade and other receivables		28,661	41,121
Current tax asset		332	-
Other current interest-bearing deposits		-	5,000
Cash and cash equivalents		33,401	25,771
		83,569	91,056
Assets classified as held for sale		1,060	1,060
		84,629	92,116
Total assets		155,680	163,934
LIABILITIES
Current liabilities
Trade and other payables		20,092	24,222
Current tax liabilities		-	1,842
		20,092	26,064
Non-current liabilities
Deferred tax liabilities		3,930	3,481
Total liabilities		24,022	29,545
Net assets		131,658	134,389
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		126,408	129,139
Total equity		131,658	134,389

 

 

Consolidated Cash Flow Statement

for the year ended 31 March 2020

		2020 £000	2019 £000
Cash flows from operating activities
Profit before income tax		12,700	14,050
Adjustments for:
Depreciation		8,903	8,296
Profit on disposal of property, plant and equipment		(40)	(160)
Finance income		(206)	(128)
Pension administrative costs		258	237
Pension GMP equalisation charge		-	1,290
Increase in inventories		(2,011)	(2,880)
Decrease/(increase) in receivables		11,713	(4,449)
(Decrease)/increase in payables		(4,130)	1,980
Cash generated from operating activities		27,187	18,236
Tax paid		(4,355)	(2,707)
Interest received		186	108
Net cash generated from operating activities		23,018	15,637
Cash flows from investing activities
Dividends received from listed investments		20	20
Purchase of property, plant and equipment		(8,158)	(4,858)
Proceeds from disposal of property, plant and equipment		40	160
Transfer from/(to) other current interest-bearing deposits		5,000	(100)
Repayments from pension schemes		3,525	4,455
Advances to the pension schemes		(2,778)	(2,390)
Net cash used in investing activities		(2,351)	(2,713)
Cash flow from financing activities
Dividends paid to shareholders		(13,037)	(6,327)
Net cash used in financing activities		(13,037)	(6,327)
Net increase in cash and cash equivalents		7,630	6,597
Cash and cash equivalents at beginning of year		25,771	19,174
Cash and cash equivalents at end of year		33,401	25,771
Cash and cash equivalents:
Short-term deposits		28,610	19,828
Cash available on demand		4,791	5,943
		33,401	25,771

 

 

Consolidated Statement of Changes in Equity

for the year ended 31 March 2020

	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 2019	4,363	874	13	129,139	134,389
Profit for the year	-	-	-	10,066	10,066
Other comprehensive income/(losses):
Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses	-	-	-	258	258
Change in fair value of available for sale assets	-	-	-	(22)	(22)
Tax effect of items taken directly to reserves	-	-	-	4	4
Total comprehensive income for the year ended 31 March 2020	-	-	-	10,306	10,306
Dividends (see note 5)	-	-	-	(13,037)	(13,037)
At 31 March 2020	4,363	874	13	126,408	131,658

	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 2018	4,363	874	13	122,892	128,142
Profit for the year	-	-	-	11,010	11,010
Other comprehensive income/(losses):
Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses	-	-	-	237	237
Defined benefit pension schemes GMP equalisation charge	-	-	-	1,290	1,290
Change in fair value of available for sale assets	-	-	-	44	44
Tax effect of items taken directly to reserves	-	-	-	(7)	(7)
Total comprehensive income for the year ended	-	-	-	12,574	12,574
31 March 2019	-	-	-	12,574	12,574
Dividends (see note 5)	-	-	-	(6,327)	(6,327)
At 31 March 2019	4,363	874	13	129,139	134,389

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 Statements

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 2020 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 2019 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, 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 2020:

	Foundry operations £000	Machining operations £000	Elimination £000	Total £000
Revenue from external customers	133,626	5,041	-	138,667
Inter-segmental revenue	17,701	19,471	-	37,172
Segmental result	13,400	(667)	9	12,742
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits previously written off				10
Defined benefit pension cost				(258)
Finance income				206
Profit before income tax				12,700
Total assets	137,247	29,523	(11,090)	155,680
Non-current asset additions	5,651	2,507	-	8,158
Depreciation	4,406	4,497	-	8,903
Total liabilities	(23,135)	(6,744)	5,857	(24,022)

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 2019:

	Foundry operations £000	Machining operations £000	Elimination £000	Total £000
Revenue from external customers	143,060	7,176	-	150,236
Inter-segmental revenue	21,499	20,605	-	42,104
Segmental result	16,832	(1,342)	(56)	15,434
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits previously written off				15
Defined benefit pension cost				(237)
Defined benefit pension GMP equalisation charge				(1,290)
Finance income				128
Profit before income tax				14,050
Total assets	145,747	33,393	(15,206)	163,934
Non-current asset additions	3,496	1,850	-	5,346
Depreciation	4,183	4,113	-	8,296
Total liabilities	(29,632)	(9,879)	9,966	(29,545)

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

	2020 £000	2019 £000
The geographical analysis of revenues by destination for the year is as follows:
United Kingdom	36,499	35,763
Sweden	37,161	42,758
Netherlands	18,826	21,830
Rest of Europe	37,894	42,290
North and South America	7,691	6,849
Other	596	746
	138,667	150,236

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

3 Exceptional items

	2020 £000	2019 £000
Recovery of past provision for losses on deposits with Icelandic banks	(10)	(15)
Defined benefit pension scheme GMP equalisation charge	-	1,290
	(10)	1,275

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 £3.8 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

	2020 £000	2019 £000
Corporation tax based on a rate of 19% (2019 - 19%)
UK corporation tax
Current tax on profits for the year	2,480	3,250
Adjustments to tax charge in respect of prior years	(299)	(81)
	2,181	3,169
Deferred tax
Current year origination and reversal of temporary differences	(110)	(129)
Adjustment to deferred tax charge in respect of prior years	135	-
Adjustment to deferred tax charge in respect of change in tax rate	428	-
	453	(129)
Taxation on profit	2,634	3,040
Profit before income tax	12,700	14,050
Tax on profit at the standard rate of corporation tax in the UK of 19% (2019 - 19%)	2,413	2,670
Effect of:
Expenses not deductible for tax purposes	(88)	161
Adjustment to tax charge in respect of prior years	(299)	(81)
Adjustment to deferred tax charge in respect of prior years	135	-
Adjustment to deferred tax charge in respect of change in tax rate	428	-
Pension adjustments	45	290
Total tax charge for the year	2,634	3,040
Effective rate of tax (%)	20.7	21.6

Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2020 on 17 March 2020. The rate applicable from 1 April 2020 now remains at 19%, rather than the previously enacted reduction to 17%. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements which has resulted in a deferred tax charge of £428,000 in the current year.

5 Dividends

	2020 £000	2019 £000
Final paid of 11.40p per share for the year ended 31 March 2019 (2018 - 11.12p)	4,974	4,852
Interim paid of 3.48p per share (2019 - 3.38p)	1,518	1,475
Supplementary dividend of 15.00p per share for the year ended 31 March 2019	6,545	-
	13,037	6,327

The directors are proposing a final dividend of 11.40 pence (2019 - 11.40 pence) per share totalling £4,974,056 (2019 - £4,974,056). This dividend has not been accrued at the balance sheet date.

 

 

6 Earnings per share

Earnings per share of 23.07 pence per share (2019 - 25.23 pence per share) is calculated on the profit on ordinary activities after taxation of £10,066,000 (2019 - £11,010,000). Earnings per share excluding exceptional items of 23.05 pence per share (2019 - 28.16 pence per share) is calculated on the profit on ordinary activities before exceptional items after taxation of £10,056,000 (2019 - £12,285,000).

The weighted average number of shares in issue at the end of the year of 43,632,068 (2019 - 43,632,068). There are no potentially dilutive shares, hence the diluted earnings per share are 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 2019	39,826	139,967	179,793
Additions during the year	357	7,801	8,158
Disposals	-	(319)	(319)
At 31 March 2020	40,183	147,449	187,632
Accumulated depreciation
At 1 April 2019	9,780	98,575	108,355
Charge for year	1,161	7,742	8,903
Disposals	-	(319)	(319)
At 31 March 2020	10,941	105,998	116,939
Net book values
At 31 March 2020	29,242	41,451	70,693
At 31 March 2019	30,046	41,392	71,438
Cost
At 1 April 2018	41,081	135,549	176,630
Additions during the year	369	4,977	5,346
Disposals	-	(559)	(559)
Assets classified as held for sale	(1,624)	-	(1,624)
At 31 March 2019	39,826	139,967	179,793
Accumulated depreciation
At 1 April 2018	9,178	92,004	101,182
Charge for year	1,166	7,130	8,296
Disposals	-	(559)	(559)
Assets classified as held for sale	(564)	-	(564)
At 31 March 2019	9,780	98,575	108,355
Net book values
At 31 March 2019	30,046	41,392	71,438
At 31 March 2018	31,903	43,545	75,448

The net book value of land and buildings includes £2,169,000 (2019 - £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 £1,993,000 (2019 - £240,000).

In June 2018 the directors decided to sell the long leasehold land and property at Fradley which is an asset within the foundry segment in note 2. There remain interested parties and the sale is expected to complete before the end of March 2021 and therefore the asset continues to be shown under assets classified as held for sale.

8 Commitments and contingencies

	2020 £000	2019 £000
Capital commitments contracted for by the group but not provided for in the financial statements	3,323	1,631

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 2020, the directors do not consider any significant liability will arise in respect of any such claims (2019 - £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 2020 was a surplus of £11,227,000 (2019 - £24,418,000). 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 2020 or 2019 but is derived from those financial statements. Statutory financial statements for 2019 have been delivered to the Registrar of Companies and those for 2020 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 19 June 2020 and will be available on the company's website, www.castings.plc.uk, from 22 June 2020.

 

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 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.

COVID-19

As a result of the COVID-19 pandemic, the group has seen significant disruption in its operations. Our commercial vehicle customers, which comprise 69% of our revenue base, reported plant closures for three to five weeks covering March and April 2020. However, all OEMs have been operating since mid-April 2020, albeit at lower levels of demand compared to the period before the pandemic.

Operationally, the group maintained production at all locations commensurate with the level of demand. A significant proportion of the workforce was placed on furlough leave under the Coronavirus Job Retention Scheme with others working remotely or remaining onsite and operating under strict social distancing guidelines.

Other than lower demand, which remains an on-going risk, the group has continued to operate in the usual manner and the normal controls have been maintained.

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.

European market exposure

The negotiations on the UK's exit and future relationship with the European Union remain ongoing and so, as a group with over 70% of sales exported to Europe, this represents a potential risk. The risk cannot be addressed until the final position is known but, during this period of uncertainty, we maintain a regular dialogue with our key suppliers and customers to ensure the risk in disruption to supply is mitigated.

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 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 a high standard and inventories of strategic equipment spares maintained. The facilities at Brownhills and Dronfield have similar equipment and work can be transferred from one location to another very quickly.

Suppliers

Although the group takes care to ensure alternative sources of supply remain available for materials or services on which the group's businesses are critically 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.

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 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 2020, the group has electricity contracts in place until 30 September 2022.

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 backup 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 2020 the schemes were in surplus on an IAS 19 (Revised) basis. The potential risks and uncertainties resulting from the scheme have been mitigated by the purchase of an annuity buy-in asset. The schemes were closed to future accruals from 6 April 2009, which only leaves past service liabilities to be funded.

 

END

 

 

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