REG - Castings PLC - Final Results
15/06/2022 07:00
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RNS Number : 8751O Castings PLC 15 June 2022
Castings P.L.C.
Annual Financial Report
DTR 6.3.5 Disclosure
Year ended 31 March 2022
Chairman's Statement
The turnover of the group increased to £149 million (£115 million last year)
with a rise in profit before exceptional items and income tax to £12.1
million compared to £4.4 million last year.
Overview
We have seen an improvement in turnover and profit compared with the previous
year's trading with output being in line with the three year average before
COVID.
The year was again affected by problems experienced by our major customers in
the commercial vehicle sector mainly relating to semiconductors. However,
things are improving and it is hoped that this will continue.
We have been subjected to large increases in raw materials and other input
prices in order to maintain production. These increases are being passed on to
our customers, but there is a delay in recovery which affects our ongoing
profits in the short-term.
Foundry businesses
I am pleased to report foundry production has improved during the year despite
recruitment problems which have now mainly been solved.
We continue to invest both at Castings Brownhills and William Lee to improve
productivity, reduce labour costs and improve working conditions.
CNC Speedwell
It is pleasing to report the losses have been reduced from the previous year.
The profitability of the business is significantly impacted at lower output
levels because of the high capital investment in machinery that is
underutilised. We are now moving back towards full production and we expect
the result to improve.
Outlook
It is expected that costs will continue to increase in the current year,
including significant electricity rises when our current fixed contract comes
to an end on 30 September 2022. Our customers have been made aware of the
situation and the fact that, in order to continue to supply, the cost
increases will be passed on.
Our customers are now increasing their demand and, in this respect, they are
more successfully managing the supply of semiconductors and other items in the
supply chain. It is hoped that this will continue so we can enjoy improved
sales in the current financial year.
Underpinning the improved outlook and on top of new customer platforms where
we have greater content, there have been a number of market wins in other
sectors including wind energy, trailer braking and coupling systems and
innovative agricultural products.
Dividend
Once again our conservative financial policy has proved to be a strength
during these difficult times and it is gratifying that, as a result, we have
been able to maintain dividend payments during the COVID-19 pandemic.
The directors are recommending the payment of a final dividend of 12.57 pence
per share to be paid on 19 August 2022 to shareholders on the register on 22
July 2022. This, together with the interim dividend, gives a total dividend
for the year of 16.23 pence per share.
Supplementary dividend
In addition to the final dividend set out above, the board has reviewed the
cash position of the group and considered the balance between increasing
returns to shareholders whilst retaining flexibility for capital and other
investment opportunities. As a result, the directors are declaring a
supplementary dividend of 15.00 pence per share to be paid on 26 July 2022 to
shareholders on the register on 24 June 2022. This dividend, being
discretionary and non-recurring, does not compromise our commitment to invest
in market leading technologies to maintain our competitive advantage.
It has been another difficult year with the ongoing disruption from the
pandemic and, in this respect, I wish to thank the directors, senior
management and all of our employees for their help and commitment during the
year.
B. J. Cooke
Chairman
15 June 2022
Business and Financial Review
General overview
The year has been hampered by the fallout from the COVID-19 pandemic with
supply chain restrictions impacting on the ability of our customers to satisfy
the strong demand in the market.
The first quarter saw commercial vehicle customers, which make up
approximately 70% of group revenue, taking product at a level commensurate
with pre-COVID years. However, from the last two weeks of June 2021 and into
the second quarter, the OEMs had to reduce truck build rates to below their
order intake levels, due to supply chain restrictions (particularly in respect
of semiconductors).
These restrictions continued during the second half of the year; forward
demand schedules from our customers remained high, but the conversion rate to
actual sales was significantly below what we would normally expect.
Higher production levels were maintained and inventory levels increased to
ensure our facilities remained as efficient as possible and that we would be
able to satisfy the high demand when it comes through.
Raw material prices have continued to rise throughout the period which, with
the time lag in the associated sales price increase, has continued to put
pressure on margins. With significant increases coming through at the end of
the year, measures have been put in place to pass on the rises in a more
timely manner.
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
As set out previously, customer demand was strong during the first quarter of
the financial year but fell in the second quarter and in the second half of
the year.
The foundry businesses experienced an increase in output of 24% to 49,800
tonnes and a rise in external sales revenue of 30% to £145.6 million. The
output weight is broadly in line with the three year average before COVID of
49,700 tonnes.
Of the total output weight for the year, 54.0% related to machined castings
compared to 57.5% in the previous year. The reduction being a reflection of
the disrupted customer demand patterns in the year as opposed to any change in
the trend towards more complex, machined parts.
The segmental profit has increased to £13.1 million, from £6.7 million in
the previous year, which represents a profit margin of 8.0% on total segmental
sales (2021 - 5.4%).
Whilst staff recruitment has been an issue during the year, this does now seem
to be largely behind us following a significant recruitment drive. As a
result, greater production efficiencies have been seen towards the end of the
year.
Investment of £3.4 million has been made in the foundry businesses during the
year. This included £0.6 million as part of a project to partially automate
the pouring on one of the William Lee production lines.
Machining
The machining business generated total sales of £22.5 million in the year
compared to £18.3 million in the previous year. Of the total revenue, 13.3%
was generated from external customers compared to 14.8% in 2021.
The segmental result for the year was a loss of £0.9 million (2021 - loss of
£2.3 million).
With the higher volumes in the first quarter, the benefits of the engineering
and productivity improvements that have been made started to be realised and
the machining business generated a positive result.
However, the lower volumes in subsequent periods have a particularly negative
impact on such a well-invested business; resulting in a breakeven first half
and a loss for the full year.
We have invested £0.9 million during the year, which is slightly lower than
expected due to the increased lead times on new equipment. This investment
included £0.6 million in the roll-out of automation which will continue
during the current year.
Business review and performance
Revenue
Group revenues increased by 29.5% to £148.6 million compared to £114.7
million reported in 2021, of which 79% was exported (2021 - 76%).
The revenue from the foundry operations to external customers increased by 30%
to £145.6 million (2021 - £112.0 million) with the dispatch weight of
castings to third-party customers increasing by 24% to 49,800 tonnes (2021 -
40,100 tonnes).
Revenue from the machining operation to external customers increased by 9.8%
during the year to £3.0 million (2021 - £2.7 million).
Operating profit and segmental result
The group operating profit for the year was £12.0 million compared to £4.9
million reported in 2021, which represents a return on sales of 8.1% (2021 -
4.3%).
Finance income
The level of finance income decreased to £0.05 million compared to £0.08
million in 2021, reflecting the lower interest rates available on deposits for
the majority of the year as compared to the prior year.
Profit before tax and exceptional items
Profit before tax and exceptional items has increased to £12.1 million from
£4.4 million.
Taxation
The current year tax charge of £3.52 million (2021 - £0.84 million) is made
up of a current tax charge of £1.89 million (2021 - £1.18 million) and a
deferred tax charge of £1.63 million (2021 - credit of £0.35 million).
The effective rate of tax of 29.2% (2021 - 16.8%) is higher than the main rate
of corporation tax of 19%. The primary reason for this is an adjustment to the
deferred tax rate applied to 25% to reflect the higher rate of taxation from
April 2023. This has resulted in a £1.10 million uplift on opening deferred
tax balances to the new rate.
In addition, the company has benefited from the super-deduction on plant
investment during the year which results in a deferred tax liability.
Earnings per share
Basic earnings per share increased 106% to 19.60 pence (2021 - 9.51 pence),
reflecting the 145% increase in profit before tax and a higher effective tax
rate compared to the previous year.
Options over 32,149 shares were granted during the year (2021 - options over
35,292 shares). The company purchased 26,100 shares during the year as part of
a buyback programme to cover the outstanding share options. As a result, the
weighted average number of shares has increased to 43,698,986 resulting in a
diluted earnings per share of 19.57 pence per share (2021 - 9.50 pence per
share).
Dividends
The directors are recommending a final dividend of 12.57 pence per share (2021
- 11.69 pence per share) to be paid on 19 August 2022 to shareholders on the
register on 22 July 2022. This would give a total ordinary distribution for
the year of 16.23 pence per share (2021 - 15.26 pence per share).
In addition, a supplementary dividend of 15.00 pence per share has been
declared which will be payable on 26 July 2022 to shareholders on the register
on 24 June 2022.
Cash flow
The group generated cash from operating activities of £12.9 million compared
to £13.0 million in 2021. When compared to 2021, the variance is mainly due
to a significant increase in operating profit of £7.1 million, offset by a
working capital outflow swing of £7.7 million.
In the year to 31 March 2022, the main working capital movement related to the
build-up of inventory at higher valuations than the prior year, resulting in
an outflow of £7.2 million. The higher levels of activity at the end of the
year resulted in increases in receivables and payables, with a net outflow of
£0.8 million.
Corporation tax payments during the year totalled £2.6 million compared to
£0.7 million in 2021.
Capital expenditure during the year amounted to £4.4 million (2021 - £5.2
million). This included investment of £0.6 million as part of a foundry
moulding line automation project as well as other automation and productivity
enhancements. The charge for depreciation was £8.6 million compared to £8.8
million in 2021.
In the prior year, proceeds from the disposal of an asset held for sale of
£1.7 million represents the sale of the Fradley site previously occupied by
the machining business. The proceeds were shown net of disposal costs and a
payment to secure the freehold of the site.
The company pays pensions on behalf of the two final salary pension schemes
and then reclaims these advances from the schemes. During the year
repayments of £2.5 million (2021 - £2.8 million) were received from the
schemes and advances were made to the schemes of £2.1 million (2021 - £2.5
million). These advances will be repaid to the company during the current
financial year.
Dividends paid to shareholders were £6.7 million in the year (2021 - £6.5
million).
The company purchased 26,100 shares to be held in treasury at a total cost of
£0.08 million.
The net cash and cash equivalents movement for the year was a slight decrease
of £0.3 million (2021 - increase of £2.7 million).
At 31 March 2022, the total cash and deposits position was £35.7 million
(2021 - £36.1 million).
Pensions
The pension valuation showed a decrease in the surplus, on an IAS 19 (Revised)
basis, to £9.93 million compared to £9.98 million in the previous year.
The majority of the liabilities of the schemes are covered by an insurance
asset that fully matches, subject to final adjustment of the bulk annuity
pricing, the remaining pension liabilities of the schemes. However, there
remains the uninsured element relating to the GMP equalisation liability. This
liability has increased during the year as a result of the change in valuation
assumptions.
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 2022 were £131.5 million (2021 - £129.5 million).
Other than the total comprehensive income for the year of £8.7 million, the
only movement relates to the dividend payment of £6.7 million and the shares
purchased in the year for £0.08 million.
Non-current assets have decreased to £63.2 million (2021 - £67.4 million)
primarily as a result of investment in property, plant and equipment during
the year being at a level below the depreciation charge.
Current assets have increased to £102.0 million (2021 - £90.2 million). The
increase to level of inventories and receivables make up this movement.
Total liabilities have increased to £33.7 million (2021 - £28.1 million),
largely as a result of an increase in trade payables.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2022
2022 2021
Before exceptional items Exceptional items Total Before exceptional items Exceptional items Total
£000 (note 3) £000 £000 (note 3) £000
£000 £000
Revenue 148,583 - 148,583 114,702 - 114,702
Cost of sales (118,105) - (118,105) (94,870) - (94,870)
Gross profit 30,478 - 30,478 19,832 - 19,832
Distribution costs (3,411) - (3,411) (2,237) - (2,237)
Administrative expenses (15,046) 6 (15,040) (13,320) 633 (12,687)
Profit from operations 12,021 6 12,027 4,275 633 4,908
Finance income 47 - 47 79 - 79
Profit before income tax 12,068 6 12,074 4,354 633 4,987
Income tax expense (3,522) - (3,522) (838) - (838)
Profit for the year attributable to equity holders of the parent company 8,546 6 8,552 3,516 633 4,149
Profit for the year attributable to equity holders of the parent company 8,552 4,149
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 119 142
actuarial gains and losses
Defined benefit pension schemes GMP equalisation charge - 66
119 208
Items that may be reclassified subsequently to profit and loss:
Change in fair value of financial assets 88 (50)
Tax effect of items that may be reclassified (22) 10
66 (40)
Other comprehensive income for the year (net of tax) 185 168
Total comprehensive income for the year attributable to the equity holders of 8,737 4,317
the parent company
Earnings per share attributable to the equity holders of the parent company
Basic 19.60p 9.51p
Diluted 19.57p 9.50p
Basic (before exceptional items) 19.59p 8.06p
Consolidated Balance Sheet
as at 31 March 2022
2022 2021
£000 £000
ASSETS
Non-current assets
Property, plant and equipment 62,801 67,112
Financial assets 396 308
63,197 67,420
Current assets
Inventories 25,889 18,719
Trade and other receivables 39,874 35,358
Current tax asset 489 -
Cash and cash equivalents 35,745 36,092
101,997 90,169
Total assets 165,194 157,589
LIABILITIES
Current liabilities
Trade and other payables 28,477 24,371
Current tax liabilities - 184
28,477 24,555
Non-current liabilities
Deferred tax liabilities 5,219 3,570
Total liabilities 33,696 28,125
Net assets 131,498 129,464
Equity attributable to equity holders of the parent company
Share capital 4,363 4,363
Share premium account 874 874
Treasury shares (79) -
Other reserve 13 13
Retained earnings 126,327 124,214
Total equity 131,498 129,464
Consolidated Cash Flow Statement
for the year ended 31 March 2022
2022 2021
£000 £000
Cash flows from operating activities
Profit before income tax 12,074 4,987
Adjustments for:
Depreciation 8,601 8,802
Loss on disposal of property, plant and equipment 62 3
Profit on disposal of asset held for sale - (658)
Finance income (47) (79)
Equity settled share-based payment expense 74 21
Pension administrative costs 119 142
Pension GMP equalisation charge - 66
(Increase)/decrease in inventories (7,170) 2,456
Increase in receivables (4,898) (6,979)
Increase in payables 4,106 4,279
Cash generated from operating activities 12,921 13,040
Tax paid (2,568) (672)
Interest received 28 60
Net cash generated from operating activities 10,381 12,428
Cash flows from investing activities
Dividends received from listed investments 19 19
Purchase of property, plant and equipment (4,379) (5,244)
Proceeds from disposal of property, plant and equipment 27 20
Proceeds from disposal of asset held for sale - 1,718
Repayments from pension schemes 2,496 2,778
Advances to the pension schemes (2,114) (2,496)
Net cash used in investing activities (3,951) (3,205)
Cash flow from financing activities
Dividends paid to shareholders (6,698) (6,532)
Purchase of own shares (79) -
Net cash used in financing activities (6,777) (6,532)
Net (decrease)/increase in cash and cash equivalents (347) 2,691
Cash and cash equivalents at beginning of year 36,092 33,401
Cash and cash equivalents at end of year 35,745 36,092
Cash and cash equivalents:
Short-term deposits 17,065 13,062
Cash available on demand 18,680 23,030
35,745 36,092
Consolidated Statement of Changes in Equity
for the year ended 31 March 2022
Equity attributable to equity holders of the parent
Share Share Treasury shares(c)) Other Retained Total
capital(a)) premium(b)) £000 reserve(d)) earnings(e)) equity
£000 £000 £000 £000 £000
At 1 April 2021 4,363 874 - 13 124,214 129,464
Profit for the year - - - - 8,552 8,552
Other comprehensive income/(losses):
Movement in unrecognised surplus on defined benefit pension schemes net of - - - - 119 119
actuarial gains and losses
Change in fair value of financial assets - - - - 88 88
Tax effect of items taken directly to reserves - - - - (22) (22)
Total comprehensive income for the year - - - - 8,737 8,737
Shares acquired in the year - - (79) - - (79)
Equity settled share-based payments - - - - 74 74
Dividends (see note 5) - - - - (6,698) (6,698)
At 31 March 2022 4,363 874 (79) 13 126,327 131,498
Equity attributable to equity holders of the parent
Share Share Treasury shares(c)) Other Retained Total
capital(a)) premium(b)) £000 reserve(d)) earnings(e)) equity
£000 £000 £000 £000 £000
At 1 April 2020 4,363 874 - 13 126,408 131,658
Profit for the year - - - - 4,149 4,149
Other comprehensive income/(losses): -
Movement in unrecognised surplus on defined benefit pension schemes net of - - - - 142 142
actuarial gains and losses
Defined benefit pension schemes GMP equalisation charge` - - - - 66 66
Change in fair value of financial assets - - - - (50) (50)
Tax effect of items taken directly to reserves - - - - 10 10
Total comprehensive income for the year - - - - 4,317 4,317
Equity settled share-based payments - - - - 21 21
Dividends (see note 5) - - - - (6,532) (6,532)
At 31 March 2021 4,363 874 - 13 124,214 129,464
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) Treasury shares - Value of shares acquired by the company.
d) Other reserve - Amounts transferred from share capital on redemption of
issued shares.
e) 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
UK-adopted international accounting standard in conformity with the
requirements of the Companies Act 2006.
The IFRSs applied in the group financial statements are subject to ongoing
amendment by the IASB 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 2022 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 on a going concern basis and 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. A
summary of the principal group IFRS accounting policies is set out below. 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 2022:
Foundry Machining Elimination Total
operations operations £000 £000
£000 £000
Revenue from external customers 145,601 2,982 - 148,583
Inter-segmental revenue 17,037 19,488 - 36,525
Segmental result 13,084 (894) (50) 12,140
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits 6
previously written off
Defined benefit pension cost (119)
Finance income 47
Profit before income tax 12,074
Total assets 148,554 26,741 (10,101) 165,194
Non-current asset additions 3,388 991 - 4,379
Depreciation 4,790 3,811 - 8,601
Total liabilities (31,561) (6,977) 4,842 (33,696)
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 2021:
Foundry Machining Elimination Total
operations operations £000 £000
£000 £000
Revenue from external customers 111,987 2,715 - 114,702
Inter-segmental revenue 11,089 15,594 - 26,683
Segmental result 6,659 (2,255) 13 4,417
Unallocated costs:
Exceptional credit for recovery of Icelandic bank deposits 41
previously written off
Profit on disposal of held for sale asset 658
Defined benefit pension cost (142)
Defined benefit pension GMP equalisation charge (66)
Finance income 79
Profit before income tax 4,987
Total assets 140,141 28,795 (11,347) 157,589
Non-current asset additions 3,744 1,500 - 5,244
Depreciation 4,582 4,220 - 8,802
Total liabilities (26,525) (7,725) 6,125 (28,125)
All non-current assets are based in the United Kingdom.
2022 2021
£000 £000
The geographical analysis of revenues by destination for the year is as
follows:
United Kingdom 31,319 26,805
Sweden 38,809 32,237
Germany 20,506 12,618
Netherlands 19,907 14,754
Rest of Europe 26,050 21,435
North and South America 11,294 6,208
Other 698 645
148,583 114,702
All revenue arises in the United Kingdom from the group's continuing
activities.
3 Exceptional items
2022 2021
£000 £000
Recovery of past provision for losses on deposits with Icelandic banks (6) (41)
Profit on the disposal of asset classified as held for sale - (658)
Defined benefit pension scheme GMP equalisation charge - 66
(6) (633)
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 £3.9 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.
In the prior year, the group completed on the sale of the Fradley site, an
asset classified as held for sale, resulting in a profit of £0.66 million.
An additional GMP equalisation charge to that applied in the year ended 31
March 2019 was recognised in the prior year following the High Court ruling on
20 November 2020. The ruling clarified that pension equalisation should be
applied to past transfer values from the defined benefit pension schemes. The
best estimate, working with the schemes' actuaries, is an increase of £66,000
to the pension liabilities.
4 Income tax expense
2022 2021
£000 £000
Corporation tax based on a rate of 19% (2021 - 19%)
UK corporation tax
Current tax on profits for the year 2,050 1,220
Adjustments to tax charge in respect of prior years (155) (32)
1,895 1,188
Deferred tax
Current year origination and reversal of temporary differences 624 (196)
Adjustment to deferred tax charge in respect of prior years (107) (154)
Adjustment to deferred tax charge in respect of change in tax rate 1,100 -
1,627 (350)
Taxation on profit 3,522 838
Profit before income tax 12,074 4,987
Tax on profit at the standard rate of corporation tax 2,294 948
in the UK of 19% (2021 - 19%)
Effect of:
Expenses not deductible for tax purposes 357 36
Adjustment to tax charge in respect of prior years (155) (32)
Adjustment to deferred tax charge in respect of prior years (107) (154)
Adjustment to deferred tax charge in respect of change in tax rate 1,110 -
Pension adjustments 23 40
Total tax charge for the year 3,522 838
Effective rate of tax (%) 29.2 16.8
Changes to the UK corporation tax rates were substantively enacted as part of
Finance Bill 2021 on 24 May 2021, the applicable main rate increasing from the
current level of 19% to 25% from 1 April 2023. Deferred taxes at the balance
sheet date have been measured using these enacted tax rates and reflected in
these financial statements.
5 Dividends
2022 2021
£000 £000
Final paid of 11.69p per share for the year ended 31 March 2021 (2020 - 5,101 4,974
11.40p)
Interim paid of 3.66p per share (2021 - 3.57p) 1,597 1,558
6,698 6,532
The directors are proposing a final dividend of 12.57 pence (2021 - 11.69
pence) per share totalling £5,484,551 (2021 - £5,100,589). In addition, the
directors have declared a supplementary dividend of 15.00 pence per share,
totalling £6,544,810. These dividends have not been accrued at the balance
sheet date.
6 Earnings per share and diluted earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
2022 2021
Profit after taxation (£000) 8,552 4,149
Weighted average number of shares - basic calculation 43,631,545 43,632,068
Earnings per share - basic calculation (pence per share) 19.60p 9.51p
Number of dilutive share options in issue 67,441 35,292
Weighted average number of shares - diluted calculation 43,698,986 43,667,360
Earnings per share - diluted calculation (pence per share) 19.57p 9.50p
Earnings per share (basic) excluding exceptional items of 19.59 pence per
share (2021 - 8.06 pence per share) is calculated on the profit on ordinary
activities before exceptional items after taxation of £8,546,000 (2021 -
£3,516,000), using the basic weighted average number of shares of 43,631,545.
The corresponding diluted earnings per share excluding exceptional items,
using the weighted average number of shares of 43,698,986 is 19.57 pence per
share (2021 - 8.05 pence per share).
7 Property, plant and equipment
Freehold and leasehold land and Plant and equipment Total
buildings £000 £000
£000
Cost
At 1 April 2021 40,357 151,831 192,188
Additions during the year 163 4,216 4,379
Disposals (410) (451) (861)
At 31 March 2022 40,110 155,596 195,706
Accumulated depreciation
At 1 April 2021 11,632 113,444 125,076
Charge for year 1,073 7,528 8,601
Disposals (410) (362) (772)
At 31 March 2022 12,295 120,610 132,905
Net book values
At 31 March 2022 27,815 34,986 62,801
At 31 March 2021 28,725 38,387 67,112
Cost
At 1 April 2020 40,183 147,449 187,632
Additions during the year 584 4,660 5,244
Disposals (410) (278) (688)
At 31 March 2021 40,357 151,831 192,188
Accumulated depreciation
At 1 April 2020 10,941 105,998 116,939
Charge for year 1,101 7,701 8,802
Disposals (410) (255) (665)
At 31 March 2021 11,632 113,444 125,076
Net book values
At 31 March 2021 28,725 38,387 67,112
At 31 March 2020 29,242 41,451 70,693
The net book value of land and buildings includes £2,169,000 (2021 -
£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 £1,043,000 (2021 - £464,000) which are not
depreciated.
8 Commitments and contingencies
2022 2021
£000 £000
Capital commitments contracted for by the group but not provided for in the 1,637 1,784
financial statements
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 2022, the directors do not consider any significant liability will arise
in respect of any such claims (2021 - £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 2022 was a surplus of £9,932,000 (2021 - £9.980,000). 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 2022 or 2021 but
is derived from those financial statements. Statutory financial statements for
2022 have been delivered to the Registrar of Companies and those for 2022 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
24 June 2022 and will be available on the company's website,
www.castings.plc.uk, from 27 June 2022.
Appendix 1 - Principal Risks and Uncertainties
In common with all trading businesses, the group is exposed to a variety of
risks in the conduct of its normal business operations.
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.
The group does not operate a formal internal audit function; however, risk
management is overseen by senior management and group risk registers are
maintained and regularly reviewed, alongside factors which may result in
changes to risk assessments or require additional mitigation measures to be
implemented.
External consultants are used to assess design and effectiveness of controls
relating to IT security to provide specialist support to management in this
area.
Key risks arising or increasing in impact are reviewed at both group and
subsidiary board meetings.
The impact of each risk set out below has been described as increased, stable
or decreased dependent upon whether the business environment and group
activity has resulted in a change to the potential impact of that risk.
Several principal risks have been removed which have been key themes in the
last few years. As the conditions of the United Kingdom's exit from the
European Union seems to be largely concluded and the resulting changes
embedded, it is no longer considered a principal risk to the business as a
standalone issue. Similarly, with vaccination programmes largely successful in
major markets, COVID-19 has also been removed as a principal risk. Both issues
remain subject to review as part of the group's internal risk review process.
Risk description Impact Mitigation and control
Technological change
Customers continue to invest in the development of electric and hydrogen Stable The strategic focus of the group is evaluated regularly through group board
powered vehicles to move away from internal combustion engines ('ICE').
meetings.
The group continues to work with key customers producing the next generation
The initial phase of this is focussed on passenger cars and smaller, of ICE commercial vehicles, whilst monitoring opportunities for the future. Consideration is given to what opportunities might be available within
short-range trucks which are not key markets for the group. However, the
alternative light-weight metals, such as aluminium, or through value-added
continued development of new technology does present a medium-term risk to the opportunities.
group as c. 30% of group revenue arises from the supply of cast iron
powertrain components. The group continues to monitor the potential market impacts from hydrogen fuel
cell deployment (considered to be the most likely replacement technology for
It is important to note that such a change also presents an opportunity for heavy-duty trucks).
the group to evolve its product offering, as has always been the case over the
years.
Operational and commercial
The group's revenues are principally derived from the commercial vehicle Stable The group's operations are set up in such a way as to ensure that variation in
markets which can be subject to variations in patterns of demand.
demand can be accommodated and rapidly responded to.
The operational and commercial activity of the business is driven by customer
Commercial vehicle sales are linked to technological factors (for example demand. At present demand has the potential to change rapidly dependent upon Demand is closely reviewed by senior management on a constant basis.
emissions legislation) and economic growth. the significant variable factors in the macroeconomic environment such as
conflict in Ukraine, semi-conductor shortages, COVID-19 or changing regulatory
positions.
Market competition
Commercial vehicle markets are, by their nature, highly competitive, which has Stable Whilst there can be no guarantee that business will not be lost on price, we
historically led to deflationary pressure on selling prices. This pressure is
are confident that we can remain competitive.
most pronounced in cycles of lower demand. A number of the group's customers Erosion of market share could result in loss of revenue and profit.
are also adopting global sourcing models with the aim to reduce bought-out
The group continues to mitigate this risk through investment in productivity,
costs. with a strong focus on cost and customer value.
Customer concentration, programme dependencies and relationships
The group has strong relationships with key customers in the commercial Stable We build strong relationships with our customers to develop products to meet
vehicle market which form the majority of the customer base.
their specific needs.
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 Stable Whilst it is a policy of the group to endeavour to limit its financial
the event of failure, could give rise to material financial liabilities.
liability by contract in all long-term agreements ('LTAs'), it is not always
Fines or penalties could result in a loss of revenue, additional costs and possible to secure such limitations in the absence of LTAs.
reduced profits.
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 Stable The group's foreign exchange risk is well-mitigated through commercial
denominated in currencies other than sterling, being primarily euro and US
arrangements with key customers.
dollar. The group is exposed to gains or losses that could be material to the group's
financial results and can increase or decrease how competitive the group's Foreign exchange rate risk is sometimes partially mitigated by using forward
pricing is to overseas markets. 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 Stable Whilst this risk cannot be entirely mitigated without uneconomic duplication
foundry furnaces, moulding lines and CNC milling machines which, due to
of all key equipment, all key equipment is maintained to a high standard and
manufacturing lead times, would be difficult to replace sufficiently quickly A large incident could disrupt business at the site affected and result in inventories of strategic equipment spares maintained.
to prevent major interruption and possible loss of business in the event of significant rectification costs or material asset impairments.
unforeseen failure. The foundry facilities at Brownhills and Dronfield have similar equipment and
work can be transferred from one location to another very quickly.
Suppliers
The group holds long-standing relationships with key suppliers and there is a Increased Although the group takes care to ensure alternative sources of supply remain
risk that a business which the group is critically dependent upon could be
available for materials or services on which the group's businesses are
subject to significant disruption and that this could materially impact the The risk of a supplier's business interruption remains very high due to the critically dependent, this is not always possible to guarantee without risk of
operations of the group. current global business environment. short-term business disruption, additional costs and potential damage to
relationships with key customers.
There are specifically high risks of semi-conductor shortages in the supply
chain, COVID-19 outbreaks, disruption because of the conflict in Ukraine or The group continues to maintain productive dialogue with key suppliers,
logistical delays. working together to adjust to changes to the business environment.
Commodity and energy pricing
The group is exposed to the risk of price inflation on raw materials and Increased Wherever possible, prices and quantities (except steel) are secured through
energy contracts.
long-term agreements with suppliers.
Changes to the pricing of the group's commodity and energy purchases could
The principal metal raw materials used by the group's businesses are steel materially impact the financial performance of the group if no mitigating In general, the risk of price inflation of these materials resides with the
scrap and various alloys. The most important alloy raw material inputs are actions were taken. group's customers through price adjustment clauses.
premium graphite, magnesium ferro-silicon, copper, nickel and molybdenum.
Power and raw material markets have become very volatile because of the Energy contracts are typically for a period of at least 12 months, although
current conflict in Ukraine and other associated supply issues. renegotiation risks remain at contract maturity dates but again this is
mitigated through the application of price adjustment clauses.
At 31 March 2022, the group had electricity and gas contracts in place until
30 September 2022 and 2023 respectively.
Information technology and systems reliability
The group is dependent on its information technology ('IT') systems to operate Stable Whilst data within key systems is regularly backed up and systems subject to
its business efficiently, without failure or interruption.
virus protection, any failure of backup systems or other major IT interruption
Significant failures to the IT systems of the group as a result of external could have a disruptive effect on the group's business.
The group continues to invest in IT systems to aid in the operational factors could result in operational disruption and a negative impact on
performance of the group and its reporting capabilities. customer delivery and reporting capabilities. IT projects are reviewed and approved at board level and the group continues
to invest in IT security to improve our resilience and response towards such
There are increasing global threats faced by these systems as a result of threats.
sophisticated cyberattacks.
The group engages with external specialists to regularly assess the security
of the IT network and systems.
Regulatory and legislative compliance
The group must comply with a wide range of legislative and regulatory Stable The group maintains a comprehensive range of policies, procedures and training
requirements including modern slavery, anti-bribery and anti-competition
programmes in order to ensure that both management and relevant employees are
legislation, taxation legislation, employment law and import and export Failure to comply with legislation could lead to substantial financial informed of legislative changes and it is clear how the group's business is
controls. penalties, business disruption, diversion of management time, personal and expected to be carried out.
corporate liability and loss of reputation.
Whistleblowing procedures and an open-door management style are in place to
enable concerns to be raised and addressed.
Specialist advice is made available to management when required to ensure that
the group is up to date with changes in regulation and legislation.
Climate change
The group's operations are energy-intensive and whilst the group considers Stable A working group has been formed to continue to monitor and report on
that its businesses provide fundamental components and services which will
developments with regards to climate risk.
prove resilient in a transition towards a net zero economy, the board It is expected that green taxes on energy and the compliance cost of meeting
recognises the group is likely to receive increased scrutiny in the future in developing reporting obligations for our stakeholders will result in increased As part of the renewal of energy contracts the group reviews whether
relation to emissions and climate change. energy prices and administrative expenses. investment in renewable energy sources would meet the group's investment
criteria and such proposals will continue to be considered on their commercial
merits.
The group will continue to engage with and understand the needs of its
stakeholders with regard to climate risk.
People risk
The group's operations depend upon the availability of both skilled and Increased The group looks to provide safe, stable and long-term employment at
unskilled labour to operate manual equipment and fulfil our strategic goals.
competitive rates of pay.
The labour market has been extremely competitive during the year.
Inability to attract and retain talent could result in either a shortage of
We invest in people development and utilise technology and productivity gains
staff or a reduction in operating margins. to ensure that our products remain competitively priced.
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