CASTINGS PLC — Audit Report / Information 2013

Jun 12, 2013

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RNS Number : 8003G

Castings PLC

12 June 2013

Castings plc

ANNUAL FINANCIAL REPORT

DTR 6.3.5 DISCLOSURE

YEAR ENDED 31 MARCH 2013

Chairman's Statement

The turnover of the group reduced to £122.2 million from last year's record of £126.3 million representing the second highest turnover of the group.  Profits of £19.2 million, compared with £23.1 million last year, are considered satisfactory given the economic situation in Europe.

Foundry Production

The year was affected by significant reductions in customer schedules, but the situation improved considerably during the final months of the year, benefitting the profitability during that period.

Limited capital investments of £1.1 million have been made at the foundries during the year to improve productivity and the working environment.

We have some 20% spare capacity and continue to maintain efforts to fill this with more work from new and existing customers.

CNC Speedwell

CNC continued to grow by enhancing contracts within the automotive sector.  With the improvement in the heavy truck market since the year end, the company is now enjoying increased activity across all areas of the business.

Capital investments during the year were £5.75 million, increasing capacity for new products and updating the quality department with new equipment to improve our service to our expanding customer base.

Dividend

I am pleased to report the directors recommend an increase in the final dividend to 9.36 pence per share. This, together with an increased interim dividend, gives a total for the year of 12.34 pence per share.

Outlook

At the present time business has improved and it is expected to remain busy for the foreseeable future.  It is very difficult, if not impossible, to forecast long term demand because of the continuing European, and to a lesser extent world, economic problems. 

Truck demand as reported by the industry is increasing, however there is general market concern that this may be driven by new European emission legislation being introduced at the end of 2013 and there may then be a short term reduction in early 2014.

The company is in a good financial state and continues to be able to make timely investment decisions.

In conclusion, our thanks go to all our employees who contribute to the continued success of the company and also being understanding of the variable demands from our customers which require a considerable amount of flexibility in hours of work.

BRIAN J. COOKE

Chairman

12 June 2013

Castings plc                                                                          

Lichfield Road

Brownhills

West Midlands

WS8 6JZ

Business and Financial Review

Revenue has decreased by 3% to £122.2 million of which 65% (2012 - 66%) was exported.

The despatch weight of castings to third party customers was 52,700 tonnes, being a fall of 4,500 tonnes from the previous year.

Revenue from the machinist operation, CNC Speedwell, increased by 32% during the year.

During the year we have received £0.15 million (2012 - £0.69 million) from the administrators of the UK subsidiaries of the Icelandic banks. This brings the total sums received, of the original balance of £5.7 million, to-date to £2.90 million which is £1.04 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, although the improved return has been achieved by increasing the length of term deposits. 

Operationally the group generated £17.8 million in cash (after tax payments) which, after investment of £6.8 million in property, plant and equipment and £5.2 million in dividend payments, resulted in an increase in cash of £5.8 million in the year.  This results in a total cash and deposits position at the balance sheet date of £23.6 million. The long term deposit of £5 million is disclosed separately under current assets in the balance sheet. Therefore the cash and cash equivalents figure at the year end is £18.7 million, an increase of £0.9 million in the year.

The pension valuation showed a slight reduction in the surplus, on an IAS 19 basis, to £6.7 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 £19.2 million (2012 - £23.0 million) for the year. This includes a £0.1 million credit in respect of the defined benefit pension schemes in accordance with IAS 19 and £0.15 million credit for Icelandic bank receipts.

The directors are recommending a final dividend that will be paid in August which, with the interim dividend paid in January, will result in the return of £5.4 million to shareholders.

Consolidated Statement of Comprehensive Income

	Year to 31 March 2013 £'000		Year to 31 March 2012 £'000
Revenue	122,215		126,271
Cost of sales	(90,479)		(92,658)
Gross profit	31,736		33,613
Distribution costs	(1,553)		(1,665)
Administrative expenses
Excluding exceptional	(11,481)		(9,704)
Exceptional (Note 3)	149		693
Total administrative expenses	(11,332)		(9,011)
Profit from operations	18,851		22,937
Finance income	306		156
Profit before income tax	19,157		23,093
Income tax expense	(4,371)		(5,502)
Profit for the year attributable to equity holders of the parent company	14,786		17,591
Other comprehensive income for the year:
Change in fair value of available-for-sale financial assets	4		28
Net actuarial loss and movement in unrecognised surplus on defined benefit pension schemes	(138)		(345)
Tax effect of gains and losses recognised directly in equity	(1)		(7)
Total other comprehensive losses for the year (net of tax)	(135)		(324)
Total comprehensive income for the year attributable to the equity holders of the parent company	14,651		17,267
Earnings per share attributable to the equity holders of the parent company
Basic and diluted	33.89p		40.32p

Consolidated Balance Sheet

	31 March 2013 £'000		31 March 2012 £'000
Assets
Non-current assets
Property, plant and equipment	61,676		62,226
Financial assets	494		495
	62,170		62,721
Current assets
Inventories	10,642		9,310
Trade and other receivables	33,326		30,191
Other interest bearing deposits	5,000		-
Cash and cash equivalents	18,654		17,805
	67,622		57,306
Total assets	129,792		120,027
Liabilities
Current liabilities
Trade and other payables	19,686		18,863
Current tax liabilities	2,950		2,983
	22,636		21,846
Non-current liabilities
Deferred tax liabilities	5,058		5,577
Total liabilities	27,694		27,423
Net assets	102,098		92,604
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	96,848		87,354
Total equity	102,098		92,604

Consolidated Cash Flow Statement

	Year to 31 March 2013 £'000		Year to 31 March 2012 £'000
Cash flows from operating activities
Profit before income tax	19,157		23,093
Adjustments for:
Depreciation	7,416		6,188
(Profit)/loss on disposal of property, plant & equipment	(19)		66
Finance income	(306)		(156)
Excess of employer pension contributions over income statement charge	(138)		(345)
(Increase)/decrease in inventories	(1,332)		2,092
(Increase)/decrease in receivables	(3,135)		765
Increase/(decrease) in payables	823		(6,250)
Cash generated from operating activities	22,466		25,453
Tax paid	(4,925)		(4,142)
Interest received	285		137
Net cash generated from operating activities	17,826		21,488
Cash flows from investing activities
Dividends received from listed investments	21		19
Purchase of property, plant and equipment	(6,865)		(12,591)
Proceeds from disposal of property, plant and equipment	19		-
Transfer to other interest-bearing deposits	(5,000)		-
Proceeds from disposal of financial assets	5		-
Net cash used in investing activities	(11,820)		(12,572)
Cash flow from financing activities
Dividends paid to shareholders	(5,157)		(4,778)
Net cash used in financing activities	(5,157)		(4,778)
Net increase in cash and cash equivalents	849		4,098
Cash and cash equivalents at beginning of period	17,805		13,707
Cash and cash equivalents at end of period	18,654		17,805

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 2012	4,363		874		13		87,354		92,604
Total comprehensive income for the period ended 31st March 2013	-		-		-		14,651		14,651
Dividends	-		-		-		(5,157)		(5,157)
At 31st March 2013	4,363		874		13		96,848		102,098

	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

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 2012 are followed

The annual report and accounts will be posted to shareholders on 20 June 2013 and will be available on the company's website, www.castings.plc.uk from 2 July 2013.

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 2013:

	Foundry Operations £000		Machining £000		Elimination £000		Total £000
Revenue from external customers	106,674		15,541		-		122,215
Inter-segmental revenue	19,166		11,615		-		30,781
Segmental result	14,656		3,803		105		18,564
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits previously written off							149
Excess of employer pension contributions over statement of comprehensive income charge							138
Finance income							306
Profit before income tax							19,157
Total assets	114,690		27,575		(12,473)		129,792
Non-current asset additions	1,141		5,724		-		6,865
Depreciation	4,169		3,247		-		7,416
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 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							23,093
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

3.   Exceptional item

	2013 £'000		2012 £'000
Recovery of past provision for losses on deposits with Icelandic banks	(149)		(693)

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 £2.90 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.   Dividends

The Board are proposing a final dividend amounting to 9.36 pence per share (2012: 8.84p).  An interim dividend of 2.98 pence per share (2012: 2.91p) has already been paid, making the total dividend for the year 12.34 pence per share (2012: 11.75p). 

The Annual General Meeting will be held on Tuesday 13 August 2013 and if the proposed final dividend is approved by the members the dividend will be paid on 16 August 2013 to shareholders registered on 12 July 2013.

5.  The basic and diluted earnings per share is calculated on the profit on ordinary activities after taxation of £14,786,000 (2012:  £17,591,000) and on the weighted average number of shares in issue of 43,632,068 in 2013 and in 2012.

6.   Property, plant and equipment

	Land and buildings £000		Plant and other equipment £000		Total £000
Cost
At 1 April 2012	29,337		97,482		126,819
Additions during year	746		6,145		6,891
Disposals	-		(502)		(502)
Adjustment to opening position	-		(25)		(25)
At 31 March 2013	30,083		103,100		133,183
Depreciation and amounts written off
At 1 April 2012	3,988		60,605		64,593
Charge for year	637		6,779		7,416
Disposals	-		(502)		(502)
At 31 March 2013	4,625		66,882		71,507
Net book values
At 31 March 2013	25,458		36,218		61,676
At 31 March 2012	25,349		36,877		62,226
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

The net book value of group land and buildings includes £2,527,000 (2012: £2,527,000) for land which is not depreciated.  The cost of land and buildings includes £359,000 for property held on long leases (2012:  £359,000).

7.   Commitments

	2013 £000		2012 £000
Capital commitments contracted for by the group but not provided for in the accounts	2,571		348

8.   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 2013 was a surplus of £6,655,000 (2012: £6,768,000). 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.

9.   The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2013 or 2012, but is derived from those accounts.  Statutory accounts for 2012 have been delivered to the Registrar of Companies and those for 2013 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.

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 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 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.

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 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. 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.

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.  

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 counter-party is restricted. However, institutions can be downgraded before maturity therefore possibly placing these deposits at risk.

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 2013 the schemes were in surplus on an IAS19 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.

Appendix B

The statements below have been prepared in connection with the group's full annual report for the year ended 31 March 2013. 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, 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

12 June 2013

This information is provided by RNS

The company news service from the London Stock Exchange

END

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