Final Results

RNS Number : 7010F

Castings PLC

20 June 2012

 



Castings plc

ANNUAL FINANCIAL REPORT

DTR 6.3.5 DISCLOSURE

YEAR ENDED 31 MARCH 2012

Chairman's Statement

It is pleasing to report that turnover increased from £105.4m to a record £126.3m.  Profits increased from £15.5m to £23.1m.

It must be noted that the profits include £1.0m credit following settlement of a historic creditor, £0.7m credit for Icelandic bank receipts and £0.3m credit in respect of the defined benefit pension schemes.

The profits are a record for the company and are as a result of our continued investment in up-to-date plant and machining equipment.

Foundry Production

The new warehouse at Brownhills opened in January and it is proving beneficial in improving our logistics and stock control.  The total cost of the warehouse project was £5.5m which included extra car parking and an improved site entrance.  The building can in future be extended for machining capacity. The foundries are all now well equipped.

Foundry production at Castings Brownhills and William Lee has been satisfactory throughout the year.  We still have some 20% spare capacity and we are maintaining efforts to fill this with more work from new and existing customers.  In this respect it is hoped that the European truck industry will return to pre 2008 levels.

CNC Speedwell - Machining Business

CNC once again has enjoyed an improved year and a further £5.4m has been invested in new machines for existing and new projects.

It is pleasing to report we have obtained several contracts to machine and assemble products for the automobile industry.  These contracts will hopefully come into production during June and July this year and will add to the turnover and profits of the company.

The logistics to supply castings to CNC have been improved which has released space at CNC to be used for more future production.  It is expected, as orders increase, further investment will be required at CNC, but as yet the figures are unknown.

Directors

Tony Smith retired as a non-executive director from 30^th March 2012.  I wish to thank him for his many years service at Castings plc.  He joined the company in 1962 as a trainee and progressed to Joint Managing Director before retiring in 2004.  He then became a non-executive director where his foundry knowledge and industrial relations experience was a great benefit to the company. We wish him and his wife Margaret a happy retirement.

Alec Jones was appointed to the Board on 3^rd April 2012 as a non-executive director.  Alec is a chartered accountant and was a partner in PricewaterhouseCoopers for 27 years until his retirement in 2010.  During that time he was a lead partner on many major clients and a member of the global management team responsible for clients and markets from 2003 to 2008.  He was the leader of the emerging market practices from 2008 to 2010.

Adam Vicary, who joined the company in September 2010 was appointed to the board on 3^rd April 2012.  His experience in lean manufacturing and production will add strength to the board.

Dividend

I am pleased to report the directors recommend an increase in the final dividend to 8.84 pence per share. This, together with an increased interim dividend, gives a total for the year of 11.75 pence per share.

Outlook

It is difficult to forecast the future because of the well reported economic problems in Europe.  The company continues to be in a strong position to take advantage of any upturn and has the ability to manage a downturn in demand.  The financial strength of the company is important to be able to make quick investment decisions and at the same time secure dividend payments for our shareholders.

In conclusion, I would again like to thank all our employees for their contribution to the success of the company and it is hoped any economic problems will not affect us as they did in 2008/9.

BRIAN J. COOKE

Chairman

20 June 2012

Castings plc                                                                          

Lichfield Road

Brownhills

West Midlands

WS8 6JZ

Business and Financial Review

Revenue has increased by 20% to £126.3 million of which 66% was exported.

The despatch weight of castings to third party customers was 57,200 tonnes, being an increase of 6,600 tonnes from the previous year.

Revenue from the machinist operation, CNC Speedwell, increased by 3% during the year.

During the year we have received £0.69 million from the administrators of the UK subsidiaries of the Icelandic banks. This brings the total sums received to-date to £2.75 million which is £0.89 million in excess of the original estimate of recoverable amounts. Given the uncertainty over the quantum and timing of any possible further receipts, no allowance has been made for future recoverable amounts.

The level of finance income again reflects the prevailing low interest rates during the year.

Operationally the group generated £21.5 million in cash (after tax payments) which, after investment of £12.6 million in property, plant and equipment and £4.8m in dividend payments, resulted in an increase in cash of £4.1 million to £17.8 million at the balance sheet date.

The pension valuation showed a slight improvement in the surplus, on an IAS 19 basis, to £6.8 million. This continues not to be recognised on the balance sheet due to the restriction of recognition of assets.

Overall the group returned a profit before taxation of £23.1 million for the year. This includes a £0.3 million credit in respect of the defined benefit pension schemes in accordance with IAS 19; £0.7 million credit for Icelandic bank receipts and £1 million credit following the settlement of an historic creditor position.

The directors are recommending a final dividend that will be paid August which, with the interim dividend paid in January, will result in the return of £5.1 million to shareholders.

Consolidated Statement of Comprehensive Income

	Year to 31 March 2012 £'000		Year to 31 March 2011 £'000
Revenue	126,271		105,368
Cost of sales	(92,658)		(77,526)
Gross profit	33,613		27,842
Distribution costs	(1,665)		(1,909)
Administrative expenses
Excluding exceptional	(9,704)		(10,942)
Exceptional (Note 3)	693		352
Total administrative expenses	(9,011)		(10,590)
Profit from operations	22,937		15,343
Finance income	156		158
Profit before income tax	23,093		15,501
Income tax expense	(5,502)		(3,849)
Profit for the year attributable to equity holders of the parent company	17,591		11,652
Other comprehensive income for the year:
Change in fair value of available-for-sale financial assets	28		-
Net actuarial gain/(loss) and movement in unrecognised surplus on defined benefit pension schemes	(345)		(409)
Tax effect of gains and losses recognised directly in equity	(7)		-
Total other comprehensive income for the year (net of tax)	(324)		(409)
Total comprehensive income for the year attributable to the equity holders of the parent company	17,267		11,243
Earnings per share attributable to the equity holders of the parent company
Basic and diluted	40.32p		26.71p

Consolidated Balance Sheet

	31 March 2012 £'000		31 March 2011 £'000
Assets
Non-current assets
Property, plant and equipment	62,226		55,889
Financial assets	495		467
	62,721		56,356
Current assets
Inventories	9,310		11,402
Trade and other receivables	30,191		30,956
Cash and cash equivalents	17,805		13,707
	57,306		56,065
Total assets	120,027		112,421
Liabilities
Current liabilities
Trade and other payables	18,863		25,113
Current tax liabilities	2,983		1,546
	21,846		26,659
Non-current liabilities
Deferred tax liabilities	5,577		5,647
Total liabilities	27,423		32,306
Net assets	92,604		80,115
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	87,354		74,865
Total equity	92,604		80,115

Consolidated Cash Flow Statement

	Year to 31 March 2012 £'000		Year to 31 March 2011 £'000
Cash flows from operating activities
Profit before income tax	23,093		15,501
Adjustments for:
Depreciation	6,188		5,606
Loss/(profit) on disposal of property, plant & equipment	66		(26)
Interest received	(137)		(120)
Excess of employer pension contributions over income statement charge	(345)		(409)
Decrease/(increase) in inventories	2,092		(3,584)
Decrease/(increase) in receivables	765		(12,219)
(Decrease)/increase in payables	(6,250)		10,442
Cash generated from operating activities	25,472		15,191
Tax paid	(4,142)		(2,099)
Interest received	137		120
Net cash generated from operating activities	21,467		13,212
Cash flows from investing activities
Purchase of property, plant and equipment (net of adjustment - see note 6)	(12,591)		(9,907)
Proceeds from disposal of property, plant and equipment	-		15
Proceeds from disposal of financial assets	-		32
Net cash used in investing activities	(12,591)		(9,860)
Cash flow from financing activities
Dividends paid to shareholders	(4,778)		(4,363)
Net cash used in financing activities	(4,778)		(4,363)
Net increase/(decrease) in cash and cash equivalents	4,098		(1,011)
Cash and cash equivalents at beginning of period	13,707		14,718
Cash and cash equivalents at end of period	17,805		13,707

Consolidated Statement of Changes in Equity

	Equity attributable to equity holders of the parent
	Share capital(a) £000		Share premium(b)  £000		Other reserve (c) £000		Retained earnings (d) £000		Total equity £000
At 1st April 2011	4,363		874		13		74,865		80,115
Total comprehensive income for the period ended 31st March 2012	-		-		-		17,267		17,267
Dividends	-		-		-		(4,778)		(4,778)
At 31st March 2012	4,363		874		13		87,354		92,604

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

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

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

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

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

Castings plc

Notes to the financial report

1.   Basis of preparation and accounting policies

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

The same accounting policies that were used in the group financial statements for the year ended 31 March 2011 are followed except for the following new standards which were adopted in the year ended 31 March 2012:

·    IAS 24 "Related Party Disclosures (Revised)" (effective date: 1 January 2011); and

·    Improvements to IFRS (1 January 2011).

The annual report and accounts will be posted to shareholders on 28 June 2012 and will be available on the company's website, www.castings.plc.uk from 10 July 2012.

2.   Business segments

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

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2012:

	Foundry Operations £000		Machining £000		Elimination £000		Total £000
Revenue from external customers	117,036		9,235		-		126,271
Inter-segmental revenue	18,888		11,283		-		30,171
Segmental result	17,761		4,017		121		21,899
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits previously written off							693
Excess of employer pension contributions over statement of comprehensive income charge							345
Finance income							156
Profit before income tax							15,501
Total assets	110,377		22,755		(13,105)		120,027
Non-current asset additions	7,508		5,356		-		12,864
Depreciation	3,046		3,142		-		6,188
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 2011:

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

3.   Exceptional expenses

	2012 £'000		2011 £'000
Provision for losses on deposits with Icelandic banks (see (a) below)	(693)		(196)
Provision for Industrial Tribunal costs (see (b) below)	-		(156)
	(693)		(352)

a)   The company reported in the year ended 31 March 2009 that £1.86 million was included in other receivables as recoverable from various Icelandic banks.  So far £2,749,000 has been received with the excess being shown as an exceptional credit.

b)   The exceptional credit of £156,000 in 2011 relates to a provision for Industrial Tribunal Costs made at 31 March 2010 that was released due to the costs incurred being lower than the estimate made of £200,000.

4.   Dividends

The Board are proposing a final dividend amounting to 8.84 pence per share (2011: 8.04p).  An interim dividend of 2.91p per share (2011: 2.71p) has already been paid, making the total dividend for the year 11.75 pence per share (2011: 10.75p). 

The Annual General Meeting will be held on Tuesday 14 August 2012 and if the proposed final dividend is approved by the members the dividend will be paid on 17 August 2012 to shareholders registered on 20 July 2012.

5.   The basic and diluted earnings per share is calculated on the profit on ordinary activities after taxation of £17,591,000 (2011:  £11,652,000) and on the weighted average number of shares in issue of 43,632,068 in 2012 and in 2011.

6.   Property, plant and equipment

	Land and buildings £000		Plant and other equipment £000		Total £000
Cost
At 1 April 2011	23,336		92,195		115,531
Additions during year	6,001		6,863		12,864
Disposals	-		(1,303)		(1,303)
Adjustment to opening position	-		(273)		(273)
At 31 March 2012	29,337		97,482		126,819

Depreciation and amounts written off
At 1 April 2011	3,325		56,317		59,642
Charge for year	663		5,525		6,188
Disposals	-		(1,237)		(1,237)
At 31 March 2012	3,988		60,605		64,593
Net book values
At 31 March 2012	25,349		36,877		62,226
At 31 March 2011	20,011		35,878		55,889
Cost
At 1 April 2010	22,320		84,385		106,705
Additions during year	1,016		8,891		9,907
Disposals	-		(1,081)		(1,081)
At 31 March 2011	23,336		92,195		115,531
Depreciation and amounts written off
At 1 April 2010	2,822		52,287		55,109
Charge for year	481		5,125		5,606
Disposals	-		(1,073)		(1,073)
Reclassification	22		(22)		-
At 31 March 2011	2,822		56,317		59,642
Net book values
At 31 March 2011	20,011		35,878		55,889
At 31 March 2010	19,498		32,098		51,596

      The net book value of group land and buildings includes £2,527,000 (2011: £2,525,000) for land which is not depreciated.  The cost of land and buildings includes £359,000 for property held on long leases (2011:  £359,000).

      The adjustment to the plant and other equipment opening position of £273,000 relates to an amendment to the cost of an asset acquired in a previous period. The figure for purchases of property, plant and equipment in the cash flow statement of £12,591,000 is shown net of this adjustment.

7.   Inventories

Inventories are net of impairment provisions of £742,000 (2011: £272,000).

8.   Commitments

	2012 £000		2011 £000
Capital commitments contracted for by the group but not provided for in the accounts	348		1,609

9.   The company operates two defined benefit pension schemes. The funded status of these schemes at 31 March 2012 was a surplus of £6,768,000 (2011: £6,683,000). In accordance with IAS 19 paragraph 58b the asset has not been disclosed in this financial information.  These schemes were closed to future accruals at 6 April 2009.

10. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2012 or 2011, but is derived from those accounts.  Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered following the company's annual general meeting.  The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under Section 498 of the Companies Act 2006.

Appendix A

Review of Principal Risks and Uncertainties

Risk

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

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

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

Foreign exchange risk

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

Operational and commercial risks

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

Market competition

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

Customer concentration, programme dependencies and relationships

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

Equipment

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

Suppliers

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

Commodity and energy pricing

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

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

Information technology and systems reliability

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

Short-term deposits

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

Product quality and liability

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

Environmental risk

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

Pension scheme funding

The fair value of the assets and liabilities of the group's defined benefit pension schemes is substantial.  As at 31 March 2012 the schemes were in surplus on an

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

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

Trade Credit

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

Appendix B

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

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

(b)    the Chairman's Statement, Business and Financial Review and Directors' Report 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

20 June 2012

 

END

 

 

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