REG - Castings PLC - Half-year Report

CastingsAnnouncement

13/11/2018 07:05

RNS Number : 1121H
Castings PLC
13 November 2018
 


CASTINGS P.L.C.
INTERIM MANAGEMENT REPORT
Six months ended 30 September 2018
 
Sales for the six months ended 30 September 2018 were £68.3 million (2017 - £61.7 million) with profit before tax of £5.77 million (2017 - £5.91 million).
Foundry operations
As previously reported, customer demand during the period remained steady with output of 23,900 tonnes (2017 - 23,500 tonnes) and external sales revenue up 11.2% to £65.0 million. The revenue figure is enhanced by the continued shift to more machined parts resulting in higher average selling prices and, to a lesser extent, the impact of rising steel scrap prices during the period which have been passed on to customers.
The profit from the foundry segment of £6.5 million represents a decrease of 5.7% from the previous period. The result has been negatively impacted by the time lag in passing on raw material and other price increases and a degree of inefficiencies relating to the introduction of new production processes.
Investment of £2.3 million has been made during the period to support automation and other productivity initiatives within the foundry businesses.
Machining operation
CNC Speedwell generated external revenue of £3.3 million during the period, an increase of 0.7% compared to the equivalent period last year ("previous period"), with a reported loss of £0.8 million compared to £1.0 million in the previous period.
Following the finalisation of the new management team structure in March 2018, the initial focus was to increase output to ensure customer schedules were satisfied without the need for excessive transport costs. This was achieved during the period along with returning finished foundry stocks to satisfactory operational levels, resulting in an increase to inventories of £2.2 million. 
A number of new parts have commenced production during the period, many of which require considerable engineering focus to maximise productivity against a back-drop of competitive prices. Whilst this is under way, it will take some time before all the necessary processes have been reviewed and production efficiencies realised. Where gains have been made this has increased available capacity and allowed management to bring back work that had previously been subcontracted, without the need for capital investment.
Whilst the operating loss is disappointing, it reflects the current status of the machining businesses in what is a period of considerable change. The capital investment during the period has reduced from £2.7 million in the previous period to £1.3 million. The investment made has been to support increased demand from core business customers and for specific productivity projects; this remains the strategy for future capital investment appraisal.
Management is now applying a greater focus on maintaining existing equipment to ensure the asset returns are maximised thus removing the need for further investment in capacity. Consequently the management of CNC has reviewed the useful economic lives of the recently acquired items of plant and machinery and has determined that a life of 15 years is more appropriate than the 10 years previously used. This life is within the range recorded in the group accounting policies and the change has resulted in a reduction of the depreciation charge for the period of £0.5 million.
The closure of the Fradley site and consolidation of the machining business at the Brownhills facility is now complete.
Outlook
Demand from our commercial vehicle customer base remains steady and every effort is being made to ensure further productivity gains are achieved within the foundry businesses to enhance the return.
The ongoing changes at the machining operation are undoubtedly going to take time before they generate any significant return. The intention is to begin a programme of automation investment during 2019/20 which will enable the business to achieve additional productivity gains over a number of years. The business continues to provide vital support to the foundries in satisfying the product requirements of the group's core customer base.
Dividend
An interim dividend of 3.38 pence per share has been declared and will be paid on 2 January 2019 to shareholders who are on the register at 23 November 2018.
Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results.
The directors consider that the principal risks and uncertainties remain substantially the same as those stated on pages 7 and 8 of the Annual Report for the year ended 31 March 2018.
The ongoing Brexit negotiations continue to cause uncertainty regarding the near-term outlook and prospects for the UK economy. It is still too early to quantify or determine with certainty the impact on the group. The Board will continue to monitor developments, consider the impact on the group's businesses and take appropriate action to help mitigate any risks associated with the UK leaving the EU.
Director change
Andrew Eastgate was appointed non-executive director on 1 September 2018.
Cautionary statement
This Interim Management Report ('IMR') has been prepared solely to provide additional information to shareholders to enable them to assess the group's strategies and the potential for those strategies to succeed. The IMR should not be relied on by any other party or for any other purpose. This IMR contains certain forward-looking statements. These are made by the directors in good faith based on the information available to them up to the time of their approval of this report but such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.
The group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.
The IMR has been prepared for the group as a whole and therefore gives greater emphasis to those matters which are significant to Castings P.L.C. and its subsidiary undertakings when viewed as a whole.
By order of the board
BRIAN J. COOKE
Chairman
13 November 2018
 
Castings p.l.c.        
Lichfield Road          
Brownhills                 
West Midlands          
WS8 6JZ                    
 
Consolidated Statement of Comprehensive Income
For six months ended 30 September 2018




 


Unaudited
Half year to
30 September
2018
£'000


Unaudited
Half year to
30 September
2017
£'000


Audited
Year to
31 March
2018
£'000




Revenue


68,284


61,728


133,276




Cost of sales


(54,710)


(47,720)


(103,674)




Gross profit


13,574


14,008


29,602




Distribution costs


(1,429)


(1,289)


(3,818)




Administrative expenses


 


 


 




Excluding exceptional


(6,444)


(6,851)


(13,949)




Exceptional


-


-


109




Total administrative expenses


(6,444)


(6,851)


(13,840)




Profit from operations


5,701


5,868


11,944




Finance income


70


43


133




Profit before income tax


5,771


5,911


12,077




Income tax expense


(1,094)


(1,121)


(2,279)




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


4,677


4,790


9,798




Other comprehensive income/(expense) for the period:


 


 


 




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


-


-


352




 


-


-


352




Items that may be reclassified subsequently to profit and loss:


 


 


 




Change in fair value of available for sale financial assets


32


(42)


(72)




Tax effect of items that may be reclassified


(5)


8


15




 


27


(34)


(57)




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


27


(34)


295




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


4,704


4,756


10,093




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


 


 


 




Basic and diluted


10.72p


10.98p


22.46p




 
 
Consolidated Balance Sheet
30 September 2018




 


Unaudited
30 September
2018
£'000


Unaudited
30 September
2017
£'000


Audited
31 March
2018
£'000




ASSETS


 


 


 




Non-current assets


 


 


 




Property, plant and equipment


75,253


75,070


75,448




Financial assets


369


366


336




Other receivables


1,135


2,269


1,135




 


76,757


77,705


76,919




Current assets


 


 


 




Inventories


18,503


14,574


16,284




Trade and other receivables


40,670


35,685


38,090




Other current interest-bearing deposits


4,900


5,000


4,900




Cash and cash equivalents


14,692


19,514


19,174




 


78,765


74,773


78,448




Total assets


155,522


152,478


155,367




LIABILITIES


 


 


 




Current liabilities


 


 


 




Trade and other payables


22,787


23,001


22,242




Current tax liabilities


1,075


1,090


1,380




 


23,862


24,091


23,622




Non-current liabilities


 


 


 




Deferred tax liabilities


3,666


4,105


3,603




Total liabilities


27,528


28,196


27,225




Net assets


127,994


124,282


128,142




Equity attributable to equity holders of the parent company


 


 


 




Share capital


4,363


4,363


4,363




Share premium account


874


874


874




Other reserve


13


13


13




Retained earnings


122,744


119,032


122,892




Total equity


127,994


124,282


128,142




 
Consolidated Cash Flow Statement
For six months ended 30 September 2018




 


Unaudited
Half year to
30 September
2018
£'000


Unaudited
Half year to
30 September
2017
£'000


Audited
Year to
31 March
2018
£'000




Cash flows from operating activities


 


 


 




Profit before income tax


5,771


5,911


12,077




Adjustments for:


 


 


 




Depreciation


3,870


3,677


8,525




Profit on disposal of property, plant and equipment


-


-


9




Finance income


(70)


(43)


(133)




Pension administrative costs


-


-


352




Increase in inventories


(2,219)


(511)


(2,221)




Increase in receivables


(1,841)


(535)


(3,568)




Increase in payables


545


3,134


2,376




Cash generated from operating activities


6,056


11,633


17,417




Tax paid


(1,341)


(1,826)


(3,190)




Interest received


57


30


111




Net cash generated from operating activities


4,772


9,837


14,338




Cash flows from investing activities


 


 


 




Dividends received from listed investments


13


13


22




Purchase of property, plant and equipment


(3,187)


(6,719)


(11,223)




Proceeds from disposal of property, plant and equipment


-


-


3




Transfer from other current interest-bearing deposits


-


-


100




Repayments from pension schemes


-


-


3,122




Advances to pension schemes


(1,228)


(1,227)


(3,321)




Net cash used in investing activities


(4,402)


(7,933)


(11,297)




Cash flow from financing activities


 


 


 




Dividends paid to shareholders


(4,852)


(4,618)


(6,095)




Net cash used in financing activities


(4,852)


(4,618)


(6,095)




Net decrease in cash and cash equivalents


(4,482)


(2,714)


(3,054)




Cash and cash equivalents at beginning of period


19,174


22,228


22,228




Cash and cash equivalents at end of period


14,692


19,514


19,174




Cash and cash equivalents:


 


 


 




Short-term deposits


11,931


16,608


16,846




Cash available on demand


2,761


2,906


2,328




 


14,692


19,514


19,174




 
 
Consolidated Statement of Changes in Equity




 


Equity attributable to equity holders of the parent




Unaudited


Share
capital
£'000


Share
premium
£'000


Other reserve
£'000


Retained
earnings
£'000


Total
equity
£'000




At 1 April 2018


4,363


874


13


122,892


128,142




Profit for the period


-


-


-


4,677


4,677




Other comprehensive income/(losses):


 


 


 


 


 




Change in fair value of available for sale assets


-


-


-


32


32




Tax effect of items taken directly to reserves


-


-


-


(5)


(5)




Total comprehensive income for the period ended 30 September 2018


-


-


-


4,704


4,704




Dividends


-


-


-


(4,852)


(4,852)




At 30 September 2018


4,363


874


13


122,744


127,994




 




Unaudited


£'000


£'000


£'000


£'000


£'000




At 1 April 2017


4,363


874


13


118,894


124,144




Profit for the period


-


-


-


4,790


4,790




Other comprehensive income/(losses):


 


 


 


 


 




Change in fair value of available for sale assets


-


-


-


(42)


(42)




Tax effect of items taken directly to reserves


-


-


-


8


8




Total comprehensive income for the period ended 30 September 2017


-


-


-


4,756


4,756




Dividends


-


-


-


(4,618)


(4,618)




At 30 September 2017


4,363


874


13


119,032


124,282




 




Audited


£'000


£'000


£'000


£'000


£'000




At 1 April 2017


4,363


874


13


118,894


124,144




Profit for the year


-


-


-


9,798


9,798




Other comprehensive income/(losses):


 


 


 


 


 




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


-


-


-


352


352




Change in fair value of available for sale assets


-


-


-


(72)


(72)




Tax effect of items taken directly to reserves


-


-


-


15


15




Total comprehensive income for the year ended 31 March 2018


-


-


-


10,093


10,093




Dividends


-


-


-


(6,095)


6,095)




At 31 March 2018


4,363


874


13


122,892


128,142




 
 
Notes
1. General information
Castings P.L.C. (the 'company') is a company domiciled in England. The condensed consolidated interim financial statements of the company for the six months ended 30 September 2018 comprise the company and its subsidiaries (together referred to as the 'group').
The principal activities of the group are the manufacture of iron castings and machining operations.
The financial information for the year ended 31 March 2018 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 31 March 2018 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2018 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498 (2) or (3) of the Companies Act 2006.
This report has not been audited and has not been reviewed by independent auditors pursuant to the Auditing Practices Board guidance on Review of Interim Financial Information.
2. Accounting policies
The annual financial statements of Castings P.L.C. are prepared using the recognition and measurement principles of IFRSs as endorsed by the European Union. The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.
Basis of preparation
After making enquiries, the directors have a reasonable expectation that the company and the group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly condensed consolidated interim financial statements.
The same accounting policies, presentation and methods of computation are followed in the condensed consolidated interim financial statements as applied in the group's latest annual audited financial statements. Following a review of the useful economic lives of the recently acquired items of plant and machinery within the machining business, the directors have determined that a life of 15 years is more appropriate than the 10 years previously used. This revision is within the range set out in the group accounting policies and the change has resulted in a reduction of the depreciation charge for the period of £0.5 million.
3. Seasonality of operations
The directors do not consider there to be any significant seasonality or cyclicality to the results of the group.
4. Segment information
For internal decision making purposes, the group is organised into three operating companies which are considered to represent two operating segments of the group. Castings P.L.C. and William Lee Limited are aggregated into Foundry Operations and CNC Speedwell Limited is the Machining Operation.
Inter-segment transactions are entered into under the normal commercial terms and conditions that would be available to third parties.
The following shows the revenues, results and total assets by reportable segment for the half year to 30 September 2018.




 


Foundry operations
£'000


Machining
£'000


Elimination
£'000


Total
£'000




Revenue from external customers


64,988


3,296


-


68,284




Inter-segmental revenue


9,433


9,646


-


19,079




Segmental result


6,476


(775)


-


5,701




Unallocated income:
Finance income


 


 


 


 




 


 


 


70




Profit before income tax


 


 


 


5,771




Total assets


138,487


35,261


(18,226)


155,522




Non-current asset additions


2,336


1,339


-


3,675




Depreciation


1,972


1,898


-


3,870




Total liabilities


(28,132)


(11,359)


11,963


(27,528)




 
The following shows the revenues, results and total assets by reportable segment for the half year to 30 September 2017.




 


Foundry operations
£'000


 
Machining
£'000


 
Elimination
£'000


 
Total
£'000




Revenue from external customers


58,454


3,274


-


61,728




Inter-segmental revenue


8,893


8,600


-


17,493




Segmental result


6,867


(999)


-


5,868




Unallocated income:
Finance income


 


 


 


 




 


 


 


43




Profit before income tax


 


 


 


5,911




Total assets


130,718


37,497


(15,737)


152,478




Non-current asset additions


3,258


2,727


-


5,985




Depreciation


1,751


1,926


-


3,677




Total liabilities


(26,951)


(10,560)


9,315


(28,196)




 
The following shows the revenues, results and total assets by reportable segment for the year ended 31 March 2018.




 


Foundry operations
£'000


Machining
£'000


Elimination
£'000


Total
£'000




Revenue from external customers


127,007


6,269


-


133,276




Inter-segmental revenue


19,024


18,571


-


37,595




Segmental result


16,051


(3,950)


86


12,187




Unallocated income/(costs):


 


 


 


 




Exceptional credit for recovery of Icelandic bank deposits previously written off


 


 


 


109




Defined benefit pension costs


 


 


 


(352)




Finance income


 


 


 


133




Profit before income tax


 


 


 


12,077




Total assets


135,669


36,258


(16,560)


155,367




Non-current asset additions


4,134


7,089


-


11,223




Depreciation


3,921


4,604


-


8,525




Total liabilities


(27,008)


(11,581)


11,364


(27,225)




 
 
5. Dividends
Amounts recognised as distributions to shareholders in the period:




 


Half year to
30 September
2018
£'000


Half year to
30 September
2017
£'000




Final dividend of 11.12p per share for the year ended 31 March 2018 (2017 - 10.59p per share)


4,852


4,618




 


4,852


4,618




The directors have declared an interim dividend in respect of the financial year ending 31 March 2019 of 3.38p per share (2018 - 3.38p), which will be paid on 2 January 2019.
 
6. Earnings per share and diluted earnings per share
Earnings per share is calculated by dividing the profit attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. There are no share options or other potentially issuable shares; hence the diluted earnings per share is the same calculation.




 


Unaudited
Half year to
30 September
2018


Unaudited
Half year to
30 September
2017


Audited
 Year to
 31 March
2017




Profit after tax (£'000)


4,677


4,790


9,798




Weighted average number of shares


43,632,068


43,632,068


43,632,068




Earnings per share - basic and diluted


10.72p


10.98p


22.46p




 
 
7. Pension schemes
The group operates two defined benefit pension schemes which are closed to new entrants and closed to future accruals on 6 April 2009. The assets of the schemes are independent of the finances of the group and are administered by trustees.
The pension schemes are related parties of the group and during the period £1,228,000 (2017 - £1,227,000) was paid by the group on behalf of the schemes in respect of pension payments and administration costs. At 30 September 2018, of the outstanding balance of £6,818,000 (2017 - £6,618,000), £1,135,000 (2017 - £2,269,000) is classified as a non-current other receivable and is repayable on 30 November 2019. Payments made by the company on behalf of the schemes in the current period are repayable on 30 November 2020.
 
8. Interim report
Copies of this interim management report will be available on the company's website, www.castings.plc.uk, and from the registered office.
 
Statement of Directors' Responsibilities
The directors confirm that the condensed consolidated interim financial statements have been prepared in accordance with IAS 34 as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7R and DTR 4.2.8R.
By order of the board
S. J. Mant FCA

Group Finance Director

13 November 2018
 




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