Half-year Report

Castings

13/11/2020 07:00

RNS Number : 1900F

Castings PLC

13 November 2020

 

CASTINGS P.L.C.

INTERIM MANAGEMENT REPORT

Six months ended 30 September 2020

Overview

Sales for the six months ended 30 September 2020 were £41.7 million (2019 - £73.1 million) with loss before tax of £0.63 million (2019 - profit of £7.34 million).

The period has been significantly impacted by reduced demand as a result of the COVID-19 pandemic. Output reduced by approximately 80% during the first two months of the period as the commercial vehicle sector, which represents 70% of group revenue, closed production facilities and 80% of our workforce was placed on furlough leave under the Coronavirus Job Retention Scheme. During the following four months, there was a gradual increase in demand from the heavy-truck OEMs such that monthly demand levels were approximately 85% of pre-COVID levels at the end of the period.

The group completed on the sale of the Fradley site for £1.95 million (before disposal costs) on 22 September 2020, resulting in a profit of £0.66 million.

Foundry operations

Output during the period was down 43% at 14,350 tonnes (2019 - 25,200 tonnes) and external sales revenue decreased by 42% to £40.5 million.

The profit from the foundry segment of £0.8 million represents a decrease of 89% from the equivalent period last year ('previous period'). The margin has been negatively impacted by the lower production levels and significant disruption during the period resulting in production inefficiencies. However, assuming demand remains buoyant, productivity gains are due to be realised during the second half of the financial year and into 2021/22.

The strong group cash position has enabled the continued investment in foundry facilities during the period, including £1.6 million to support a production line upgrade and the introduction of a new in-house heat treatment plant.

Machining operation

CNC Speedwell generated external revenue of £1.2 million during the period, a decrease of 60% compared to the previous period, with a reported loss of £2.1 million compared to a profit of £0.1 million in the previous period. The significantly lower levels of demand have a particularly negative impact on such a well-invested business with a depreciation cost of £2.0 million in the period.

The focus on automation and productivity improvements has continued which makes up the majority of the capital investment of £0.8 million during the period.

Outlook

The current heavy-truck schedules suggest output returning to pre-COVID levels, albeit there continues to be uncertainty regarding the pandemic. Assuming these levels are realised, the group is well positioned to see the benefits of the productivity improvements in both the foundry and machining businesses.

The group has been successful in obtaining a number of new projects with our European truck customers that will commence production in 2021/22 and 2022/23. In addition to replacement work, these projects include additional platform volumes and also more value-add product solutions. 

The automation of finishing processes within the foundries is largely complete and the automation investment programme in the machining business will continue in the medium term.

The group maintains a strong balance sheet with cash levels of £35.2 million; an increase of £1.8 million during the period after the dividend payment of £5.0 million.

Dividend

An interim dividend of 3.57 pence per share has been declared and will be paid on 7 January 2021 to shareholders who are on the register at 27 November 2020.

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 8 and 9 of the Annual Report for the year ended 31 March 2020.

The COVID-19 pandemic has caused significant disruption to the group during the period. Our commercial vehicle customers ceased production for a three to five week period during March and April 2020. However, since that time, demand levels have steadily improved, employees have returned from furlough leave and production levels have increased. Whilst we have not seen any further significant impact as a result of the pandemic, it does still have the potential to disrupt supply chains and future demand.

The negotiations on the UK's future trading relationship with the European Union remain ongoing. With over 70% of the group's sales revenue being generated in this market, there remains a potential risk. We maintain regular dialogue with suppliers and customers to ensure that supply risks are mitigated where possible.

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 2020

Castings p.l.c.

Lichfield Road

Brownhills

West Midlands

WS8 6JZ

 

Consolidated Statement of Comprehensive Income

For six months ended 30 September 2020

 

Unaudited
Half year to
30 September
2020
£'000
Unaudited
Half year to
30 September
2019
£'000
Audited
Year to
31 March
2020
£'000
Revenue
41,748
73,135
138,667
Cost of sales
(36,593)
(57,349)
(109,186)
Gross profit
5,155
15,786
29,481
Distribution costs
(769)
(1,444)
(2,510)
Administrative expenses
(5,722)
(7,109)
(14,477)
(Loss)/profit before surplus on sale of property
(1,336)
7,233
12,494
Surplus on sale of property
658
-
-
(Loss)/profit from operations
(678)
7,233
12,494
Finance income
51
111
206
(Loss)/profit before income tax
(627)
7,344
12,700
Income tax credit/(expense)
121
(1,393)
(2,634)
(Loss)/profit for the period attributable to the equity holders
 of the parent company
(506)
5,951
10,066
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
-
-
258
-
-
258
Items that may be reclassified subsequently to profit and loss:
Change in fair value of available for sale financial assets
(15)
30
(22)
Tax effect of items that may be reclassified
3
(5)
4
(12)
25
(18)
Total other comprehensive (losses)/income for the period
 (net of tax)
(12)
25
240
Total comprehensive (loss)/income for the period attributable
 to the equity holders of the parent company
(518)
5,976
10,306
Earnings per share attributable to the equity holders
 of the parent company
Basic and diluted
(1.16)p
13.64p
23.07p

 

 

 

Consolidated Balance Sheet

30 September 2020

 

Unaudited
30 September
2020
£'000
Unaudited
30 September
2019
£'000
Audited
31 March
2020
£'000
ASSETS
Non-current assets
Property, plant and equipment
68,843
70,999
70,693
Financial assets
343
410
358
69,186
71,409
71,051
Current assets
Inventories
17,932
19,077
21,175
Trade and other receivables
30,777
36,954
28,661
Current tax asset
411
524
332
Cash and cash equivalents
35,217
25,835
33,401
84,337
82,390
83,569
Assets classed as held for sale
-
1,060
1,060
84,337
83,450
84,629
Total assets
153,523
154,859
155,680
LIABILITIES
Current liabilities
Trade and other payables
23,550
22,453
20,092
Current tax liabilities
-
-
-
23,550
22,453
20,092
Non-current liabilities
Deferred tax liabilities
3,807
3,560
3,930
Total liabilities
27,357
26,013
24,022
Net assets
126,166
128,846
131,658
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
120,916
123,596
126,408
Total equity
126,166
128,846
131,658

 

 

 

 

Consolidated Cash Flow Statement

For six months ended 30 September 2020

Unaudited
Half year to
30 September
2020
£'000
Unaudited
Half year to
30 September
2019
£'000
Audited
Year to
31 March
2020
£'000
Cash flows from operating activities
(Loss)/profit before income tax
(627)
7,344
12,700
Adjustments for:
Depreciation
4,251
4,163
8,903
Profit on disposal of property, plant and equipment
-
-
(40)
Profit on disposal of held for sale asset
(658)
-
-
Finance income
(51)
(111)
(206)
Pension administrative costs
-
-
258
Decrease/(increase) in inventories
3,243
87
(2,011)
(Increase)/decrease in receivables
(712)
5,185
11,713
Increase/(decrease) in payables
3,458
(1,769)
(4,130)
Cash generated from operating activities
8,904
14,899
27,187
Tax paid
(78)
(3,685)
(4,355)
Interest received
41
101
186
Net cash generated from operating activities
8,867
11,315
23,018
Cash flows from investing activities
Dividends received from listed investments
10
10
20
Purchase of property, plant and equipment
(2,606)
(3,724)
(8,158)
Proceeds from disposal of property, plant and equipment
-
-
40
Proceeds from disposal of held for sale asset
1,923
-
-
Transfer from/(to) other current interest-bearing deposits
-
5,000
5,000
Repayments from pension schemes
-
-
3,525
Advances to pension schemes
(1,404)
(1,018)
(2,778)
Net cash used in investing activities
(2,077)
268
(2,351)
Cash flow from financing activities
Dividends paid to shareholders
(4,974)
(11,519)
(13,037)
Net cash used in financing activities
(4,974)
(11,519)
(13,037)
Net increase/(decrease) in cash and cash equivalents
1,816
64
7,630
Cash and cash equivalents at beginning of period
33,401
25,771
25,771
Cash and cash equivalents at end of period
35,217
25,835
33,401
Cash and cash equivalents:
Short-term deposits
33,394
23,362
28,610
Cash available on demand
1,823
2,473
4,791
35,217
25,835
33,401

 

 

 

 

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 2020
4,363
874
13
126,408
131,658
Loss for the period
-
-
-
(506)
(506)
Other comprehensive income/(losses):
Change in fair value of available for sale assets
-
-
-
(15)
(15)
Tax effect of items taken directly to reserves
-
-
-
3
3
Total comprehensive loss for the period
ended 30 September 2020
-
-
-
(518)
(518)
Dividends
-
-
-
(4,974)
(4,974)
At 30 September 2020
4,363
874
13
120,916
126,166

 

Unaudited
£'000
£'000
£'000
£'000
£'000
At 1 April 2019
4,363
874
13
129,139
134,389
Profit for the period
-
-
-
5,951
5,951
Other comprehensive income/(losses):
Change in fair value of available for sale assets
-
-
-
30
30
Tax effect of items taken directly to reserves
-
-
-
(5)
(5)
Total comprehensive income for the period
 ended 30 September 2019
-
-
-
5,976
5,976
Dividends
-
-
-
(11,519)
(11,519)
At 30 September 2019
4,363
874
13
123,596
128,846

 

Audited
£'000
£'000
£'000
£'000
£'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 loss
-
-
-
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
-
-
-
(13,037)
(13,037)
At 31 March 2020
4,363
874
13
126,408
131,658

 

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 2020 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 2020 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 31 March 2020 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2019 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.

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 2020.

Foundry operations
£'000
Machining
£'000
Elimination
£'000
Total
£'000
Revenue from external customers
40,523
1,225
-
41,748
Inter-segmental revenue
4,099
4,767
-
8,866
Segmental result
776
(2,112)
-
(1,336)
Unallocated income:
Exceptional profit on disposal of held for sale asset
Finance income
658
51
Loss before income tax
(627)
Total assets
136,837
29,966
(13,280)
153,523
Non-current asset additions
1,784
822
-
2,606
Depreciation
2,246
2,005
-
4,251
Total liabilities
(26,214)
(9,299)
8,156
(27,357)

 

The following shows the revenues, results and total assets by reportable segment for the half year to 30 September 2019.

Foundry operations
£'000
Machining
£'000
Elimination
£'000
Total
£'000
Revenue from external customers
70,106
3,029
-
73,135
Inter-segmental revenue
9,609
10,325
-
19,934
Segmental result
7,094
139
-
7,233
Unallocated income:
Finance income
111
Profit before income tax
7,344
Total assets
137,691
31,430
(14,262)
154,859
Non-current asset additions
3,077
647
-
3,724
Depreciation
2,048
2,115
-
4,163
Total liabilities
(25,890)
(7,776)
7,653
(26,013)

 

The following shows the revenues, results and total assets by reportable segment for the year ended 31 March 2020.

Foundry operations
£'000
Machining
£'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 income/(costs):
Exceptional credit for recovery of Icelandic bank deposits previously written off
10
Defined benefit pension costs
(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)

 

5.   Surplus on sale of property

During the period the group completed on the sale of a property that was previously classified as an asset held for sale. The surplus on the sale of the property was £658,000.

 

6.   Dividends

Amounts recognised as distributions to shareholders in the period:

Half year to
30 September
2020
£'000
Half year to
30 September
2019
£'000
Final dividend of 11.40p per share for the year ended 31 March 2020
(2019 - 11.40p per share)
4,974
4,974
Supplementary dividend of 15.00p per share for the year ended 31 March 2019
-
6,545
4,974
11,519

 

The directors have declared an interim dividend in respect of the financial year ending 31 March 2021 of 3.57p per share (2020 - 3.48p), which will be paid on 7 January 2021.

7.   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. The diluted earnings per share includes the outstanding share options within the weighted average number of shares figure.

Unaudited
Half year to
30 September
2020
Unaudited
Half year to
30 September
2019
Audited
Year to
31 March
2020
(Loss)/profit after tax (£'000)
(506)
5,951
10,066
Weighted average number of shares - basic earnings per share calculation
43,632,068
43,632,068
43,632,068
Weighted average number of shares - diluted earnings per share calculation
43,667,360
43,632,068
43,632,068
Earnings per share - basic and diluted
(1.16)p
13.64p
23.07p

 

8.   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 £1,404,000 (2019 - £1,018,000) was paid by the group on behalf of the schemes in respect of pension payments and administration costs. At 30 September 2020, the outstanding balance of £4,182,000 (2019 - £4,543,000) is repayable within one year.

Payments made by the company on behalf of the schemes in the current period are repayable by 30 November 2021.

9.   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.

The directors of Castings P.L.C. are listed on the back cover of this report.

By order of the board

S. J. Mant FCA

Group Finance Director

13 November 2020

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