REG - Castings PLC - Final Results
14/06/2023 07:00
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RNS Number : 5936C Castings PLC 14 June 2023
The information contained within this announcement is deemed by the Company to
constitute inside information stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018. Upon the publication of this
announcement via the Regulatory Information Service, this inside information
is now considered to be in the public domain.
Castings P.L.C.
Annual Financial Report
DTR 6.3.5 Disclosure
Year ended 31 March 2023
Chairman's Statement
The turnover of the group increased to £201 million (£149 million last year)
with a rise in profit before tax to £16.7 million compared to £12.1 million
last year.
Overview
Turnover increased by 35% compared with the previous year and operating profit
increased by 36%. The despatch weight was at the highest level since 2014.
Demand from our customers has been very strong, with the heavy truck OEMs
(approximately 75% of revenue) increasing build rates throughout the year and
this has continued into the current financial year. In order to satisfy the
increasing schedules, which has been skewed towards certain production lines,
it has been necessary to rebalance production in the foundries which resulted
in some inefficiencies particularly in the second half of the year, but these
are now behind us.
We have experienced very significant price increases in raw materials and
energy, which have been largely recovered from our customers through
established escalators. The most significant increase related to electricity
following the end of our fixed price contract on 30 September 2022. This
additional cost of power was surcharged to our customers and although it did
not adversely affect group profit, it did impact reported margins.
Further price increases have been negotiated in respect of other cost rises
which have taken effect from the start of the current financial year.
Foundry businesses
Despite the impact of the production rebalancing, foundry production increased
compared to the prior year. The recruitment issues that have been experienced
in the last few years now seem to be largely behind us. With increased demand,
the foundry profitability has improved compared to the previous year, although
the margin percentage is impacted by the direct pass-through of the cost
increases.
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 on the return to profitability in the machining
business, with a particularly strong final quarter of the financial year. With
higher output levels and improved prices, the current performance of CNC
Speedwell is beginning to reflect the level of investment that has been made
in the business.
Outlook
Our customers continue to increase schedules with the demand for heavy trucks
in particular remaining very strong. In addition, demand in other growth
sectors such as USA, wind energy, trailer braking and coupling systems and
innovative agricultural products continues to grow.
Dividend
The directors are recommending the payment of a final dividend of 13.51 pence
per share to be paid on 18 August 2023 to shareholders on the register on 21
July 2023. This, together with the interim dividend, gives a total dividend
for the year of 17.35 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 pence per share to be paid on 26 July 2023 to
shareholders on the register on 23 June 2023. This dividend, being
discretionary and non-recurring, does not compromise our commitment to invest
in market leading technologies to maintain our competitive advantage.
Brian Cooke
As previously announced, after nearly sixty three years with the company, of
which forty have been as Chairman, Brian Cooke is standing down as a director
and will not be seeking re-election at the AGM in August. Brian joined the
company from foundry college in 1960 and was appointed a director six years
later. Prior to becoming Chairman in 1983, he served as managing director at
Brownhills and then as group chief executive.
Brian has led Castings from the front and everything the group does reflects
his energy and wise business acumen. We would all like to thank him for his
outstanding contribution over the last seven decades. I am very pleased that
he has agreed to remain available to consult with the group after the AGM.
I also wish to thank the directors, senior management and all of our employees
for their help and commitment during the year.
A. N. Jones
Chairman
14 June 2023
Business and Financial Review
General overview
The year has seen increasing demand during the period with our commercial
vehicle customers, which make up approximately 75% of group revenue,
experiencing extremely strong order books for heavy trucks.
With demand being skewed towards particular foundry lines, significant
production rebalancing has been necessary to try to satisfy the dramatic
schedule increases. This has caused some production inefficiencies,
particularly in the second half of the year, but these are now largely behind
us.
Input price increases have been another key element in the financial year. We
have seen significant changes in respect of raw materials and energy which
have been recovered from our customers through established escalators. The
most significant increase related to electricity following the end of a fixed
price contract on 30 September 2022; the additional cost for power
(approximately £15 million) was surcharged to our customers and resulted in
increased revenue in the second half of the year. This did not adversely
affect group profit as it is a pass-through of a direct cost increase.
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 with schedules increasing
during the financial year.
The foundry businesses experienced an increase in output of 6.6% to 53,100
tonnes and a rise in external sales revenue of
£53.4 million (36.7%) to £199.0 million. After taking into account the
reduction in weight from machining, this equates to approximately 59,000
tonnes of production.
Of the total output weight for the year, 59.2% related to machined castings
compared to 54.0% in the previous year. The change reflects a return to the
increasing proportion of more complex, machined parts after the reduction last
year as a result of disrupted demand patterns.
The segmental profit has increased to
£16.3 million, from £13.1 million in the previous year, which represents a
profit margin of 7.3% on total segmental sales (2022 - 8.0%).
The most significant impact on the margin percentage is due to the
pass-through impact of cost rises, along with the disruption due to production
rebalancing. Further price increases have been negotiated with customers to
address the margin erosion experienced during the year.
Investment of £4.8 million has been made in the foundry businesses during the
year. This included £0.8 million completing the project to partially automate
the pouring on one of the William Lee production lines and a further £1.1
million on other automation projects.
Machining
The machining business generated total sales of £27.7 million in the year
compared to £22.5 million in the previous year. Of the total revenue, 7.3%
was generated from external customers compared to 13.3% in 2022.
The segmental result for the year was a profit of £0.2 million (2022 - loss
of £0.9 million).
With the higher volumes in the year, the benefits of the engineering and
productivity improvements that have been made are now being realised. With the
pricing corrections that have been made, the result in the final quarter was
particularly strong.
We have invested £1.4 million during the year, which included £0.4 million
in the roll-out of automation which will continue during the current year. A
further £0.5 million investment was made in a more power efficient cooling
plant in one area of the business, which will help to reduce energy
consumption.
Business review and performance
Revenue
Group revenues increased by 35.3% to £201.0 million compared to £148.6
million reported in 2022, of which 83% was exported (2022 - 79%).
The revenue from the foundry operations to external customers increased by
36.7% to £199.0 million (2022 - £145.6 million) with the dispatch weight of
castings to third-party customers increasing by 6.6% to 53,100 tonnes (2022 -
49,800 tonnes).
Revenue from the machining operation to external customers decreased by 32.3%
during the year to £2.0 million (2022 -
£3.0 million).
Operating profit and segmental result
The group operating profit for the year was £16.4 million compared to £12.0
million reported in 2022, which represents a return on sales of 8.1% (2022 -
8.1%).
Finance income
The level of finance income increased to £0.34 million compared to £0.05
million in 2022, reflecting the rising interest rates available on deposits
during the financial year.
Profit before tax
Profit before tax has increased to £16.7 million from £12.1 million in the
prior year.
Taxation
The current year tax charge of £2.92 million (2022 - £3.52 million) is made
up of a current tax charge of £2.41 million (2022 - £1.89 million) and a
deferred tax charge of £0.51 million (2022 - charge of £1.63 million).
The effective rate of tax of 17.5% (2022 - 29.2%) is lower than the main rate
of corporation tax of 19%. The primary reason for this is a credit to the
deferred tax estimate relating to the prior year of £0.43 million, offset by
the deferred tax liability arising from the super-deduction claimed on plant
investment during the year.
Earnings per share
Basic earnings per share increased 61.5% to 31.66 pence (2022 - 19.60 pence),
reflecting the 38.0% increase in profit before tax and a significantly lower
effective tax rate compared to the previous year.
Options over 42,468 shares were granted during the year (2022 - options over
32,149 shares). The company purchased 47,900 shares during the year (2022 -
26,100). As a result, the weighted average number of shares has decreased to
43,671,502 resulting in a diluted earnings per share of 31.58 pence per share
(2022 - 19.57 pence per share).
Dividends
The directors are recommending a final dividend of 13.51 pence per share (2022
- 12.57 pence per share) to be paid on 18 August 2023 to shareholders on the
register on 21 July 2023. This would give a total ordinary distribution for
the year of 17.35 pence per share (2022 - 16.23 pence per share).
In addition, a supplementary dividend of 15.00 pence per share has been
declared which will be payable on 26 July 2023 to shareholders on the register
on 23 June 2023.
Cash flow
The group generated cash from operating activities of £22.4 million compared
to £12.9 million in 2022. When compared to 2022, the variance is mainly due
to a significant increase in operating profit of £4.6 million and a working
capital outflow swing of £5.1 million.
In the year to 31 March 2023, the main working capital movements centre around
the higher input prices from suppliers which are then passed onto customers in
the form of higher selling prices. This has resulted in a £10.0 million
increase in trade receivables in the year and a £6.5 million increase in
trade payables. The input price increase impact on inventory has been offset
by the lower level held in stock at the year end compared to the prior year.
Corporation tax payments during the year totalled £2.9 million compared to
£2.6 million in 2022.
Capital expenditure during the year amounted to £6.2 million (2022 - £4.4
million). This included investment of £0.8 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 (2022 - £8.6
million).
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 £2.1 million (2022 - £2.5 million) were received from the schemes and
advances were paid on behalf of the schemes of £2.1 million (2022 - £2.1
million). These advances will be repaid to the company during the current
financial year.
Dividends paid to shareholders were £13.7 million in the year (2022 - £6.7
million) which includes £6.5 million in relation to a supplementary dividend
in respect of the year ended 31 March 2022.
The company purchased 47,900 (2022 - 26,100) shares to be held in treasury at
a total cost of £0.15 million (2022 - £0.08 million).
The net cash and cash equivalents movement for the year was a slight decrease
of £0.18 million (2022 - decrease of £0.35 million).
At 31 March 2023, the total cash and deposits position was £35.6 million
(2022 - £35.8 million).
Pensions
The pension valuation showed an increase in the surplus, on an IAS 19
(Revised) basis, to £10.4 million compared to £9.9 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 decreased 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 2023 were £131.7 million (2022 - £131.5million).
Other than the total comprehensive income for the year of £13.9 million (2022
- £8.7 million), the only movements relate to the dividend payment of £13.7
million (2022 - £6.7 million), shares purchased in the year for £0.15
million (2022 - £0.08 million) and share-based payment charge of £0.1
million
(2022 - £0.08 million).
Non-current assets have decreased to £60.7 million (20221 - £63.2 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 £113.7 million (2022 - £102.0million) as a
result of the increase in trade receivables as previously mentioned.
Total liabilities have increased to £42.8 million (2022 - £33.7 million),
largely as a result of an increase in trade payables.
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2023
2023 2022
£000 £000
Revenue 200,990 148,583
Cost of sales (162,077) (118,105)
Gross profit 38,913 30,478
Distribution costs (5,440) (3,411)
Administrative expenses (17,104) (15,040)
Profit from operations 16,369 12,027
Finance income 344 47
Profit before income tax 16,713 12,074
Income tax expense (2,923) (3,522)
Profit for the year attributable to equity holders of the parent company 13,790 8,552
Profit for the year attributable to equity holders of the parent company 13,790 8,552
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 117 119
actuarial gains and losses
117 119
Items that may be reclassified subsequently to profit and loss:
Change in fair value of financial assets (40) 88
Tax effect of items that may be reclassified 10 (22)
(30) 66
Other comprehensive income for the year (net of tax) 87 185
Total comprehensive income for the year attributable to the equity holders 13,877 8,737
of the parent company
Earnings per share attributable to the equity holders of the parent company
Basic 31.66p 19.60p
Diluted 31.58p 19.57p
Consolidated Balance Sheet
as at 31 March 2023
2023 2022
£000 £000
ASSETS
Non-current assets
Property, plant and equipment 60,353 62,801
Financial assets 356 396
60,709 63,197
Current assets
Inventories 26,095 25,889
Trade and other receivables 51,080 39,874
Current tax asset 980 489
Cash and cash equivalents 35,566 35,745
113,721 101,997
Total assets 174,430 165,194
LIABILITIES
Current liabilities
Trade and other payables 37,051 28,477
37,051 28,477
Non-current liabilities
Deferred tax liabilities 5,719 5,219
Total liabilities 42,770 33,696
Net assets 131,660 131,498
Equity attributable to equity holders of the parent company
Share capital 4,363 4,363
Share premium account 874 874
Treasury shares (231) (79)
Other reserve 13 13
Retained earnings 126,641 126,327
Total equity 131,660 131,498
Consolidated Cash Flow Statement
for the year ended 31 March 2023
2023 2022
£000 £000
Cash flows from operating activities
Profit before income tax 16,713 12,074
Adjustments for:
Depreciation 8,646 8,601
Loss on disposal of property, plant and equipment - 62
Finance income (344) (47)
Equity-settled share-based payment expense 119 74
Pension administrative costs 117 119
Increase in inventories (206) (7,170)
Increase in receivables (11,200) (4,898)
Increase in payables 8,574 4,106
Cash generated from operating activities 22,419 12,921
Tax paid (2,904) (2,568)
Interest received 327 28
Net cash generated from operating activities 19,842 10,381
Cash flows from investing activities
Dividends received from listed investments 17 19
Purchase of property, plant and equipment (6,198) (4,379)
Proceeds from disposal of property, plant and equipment - 27
Repayments from pension schemes 2,114 2,496
Advances on behalf of the pension schemes (2,120) (2,114)
Net cash used in investing activities (6,187) (3,951)
Cash flow from financing activities
Dividends paid to shareholders (13,682) (6,698)
Purchase of own shares (152) (79)
Net cash used in financing activities (13,384) (6,777)
Decrease in cash and cash equivalents (179) (347)
Cash and cash equivalents at beginning of year 35,745 36,092
Cash and cash equivalents at end of year 35,566 35,745
Cash and cash equivalents:
Short-term deposits 19,993 17,065
Cash available on demand 15,573 18,680
35,566 35,745
Consolidated Statement of Changes in Equity
for the year ended 31 March 2023
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 2022 4,363 874 (79) 13 126,327 131,498
Profit for the year - - - - 13,790 13,790
Other comprehensive income/(losses):
Movement in unrecognised surplus on defined benefit pension schemes net of - - - - 117 117
actuarial gains and losses
Change in fair value of financial assets - - - - (40) (40)
Tax effect of items taken directly to reserves - - - - 10 10
Total comprehensive income for the year - - - - 13,877 13,877
Shares acquired in the year - - (152) - - (152)
Equity-settled share-based payments - - - - 119 119
Dividends (see note 4) - - - - (13,682) (13,682)
At 31 March 2023 4,363 874 (231) 13 126,641 131,660
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 4) - - - - (6,698) (6,698)
At 31 March 2022 4,363 874 (79) 13 126,327 131,498
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 Consolidated 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 2023 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 2023:
Foundry Machining Elimination Total
operations operations £000 £000
£000 £000
Revenue from external customers 198,972 2,018 - 200,990
Inter-segmental revenue 24,739 25,640 - 50,379
Segmental result 16,332 169 (15) 16,486
Unallocated costs:
Defined benefit pension cost (117)
Finance income 344
Profit before income tax 16,713
Total assets 162,671 26,687 (14,928) 174,430
Non-current asset additions 4,826 1,372 - 6,198
Depreciation 5,235 3,411 - 8,646
Total liabilities (45,668) (6,759) 9,657 (42,770)
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 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.
2023 2022
£000 £000
The geographical analysis of revenues by destination for the year is as
follows:
United Kingdom 34,519 31,319
Sweden 55,107 38,809
Germany 32,292 20,506
Netherlands 31,763 19,907
Rest of Europe 31,810 26,050
North and South America 14,322 11,294
Other 1,177 698
200,990 148,583
All revenue arises in the United Kingdom from the group's continuing
activities.
3 Income tax expense
2023 2022
£000 £000
Corporation tax based on a rate of 19% (2022 - 19%)
UK corporation tax
Current tax on profits for the year 2,500 2,050
Adjustments to tax charge in respect of prior years (87) (155)
2,413 1,895
Deferred tax
Current year origination and reversal of temporary differences 935 624
Adjustment to deferred tax charge in respect of prior years (425) (107)
Adjustment to deferred tax charge in respect of change in tax rate - 1,100
510 1,627
Taxation on profit 2,923 3,522
Profit before income tax 16,713 12,074
Tax on profit at the standard rate of corporation tax 3,175 2,294
in the UK of 19% (2022 - 19%)
Effect of:
Expenses not deductible for tax purposes 238 357
Adjustment to tax charge in respect of prior years (87) (155)
Adjustment to deferred tax charge in respect of prior years (425) (107)
Adjustment to deferred tax charge in respect of change in tax rate - 1,110
Pension adjustments 22 23
Total tax charge for the year 2,923 3,522
Effective rate of tax (%) 17.5 29.2
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.
4 Dividends
2023 2022
£000 £000
Final paid of 12.57p per share for the year ended 31 March 2022 (2021 - 5,475 5,101
11.69p)
Interim paid of 3.84p per share (2022 - 3.66p) 1,673 1,597
Supplementary dividend of 15.00p per share for the year ended 31 March 2022 6,534 -
(2021 - nil)
13,682 6,698
The directors are proposing a final dividend of 13.51 pence (2022 - 12.57
pence) per share totalling £5,884,695 (2022 - £5,475,249). In addition, the
directors have declared a supplementary dividend of 15.00 pence per share,
totalling £6,533,710. These dividends have not been accrued at the balance
sheet date.
5 Earnings per share and diluted earnings per share
The calculation of the basic and diluted earnings per share is based on the
following data:
2023 2022
Profit after taxation (£000) 13,790 8,552
Weighted average number of shares - basic calculation 43,561,593 43,631,545
Earnings per share - basic calculation (pence per share) 31.66p 19.60p
Number of dilutive share options in issue 109,909 67,441
Weighted average number of shares - diluted calculation 43,671,502 43,698,986
Earnings per share - diluted calculation (pence per share) 31.58p 19.57p
6 Property, plant and equipment
Freehold Plant and equipment Total
land and £000 £000
buildings
£000
Cost
At 1 April 2022 40,110 155,596 195,706
Additions during the year 437 5,761 6,198
Disposals - (961) (961)
Other 410 - 410
At 31 March 2023 40,957 160,396 201,353
Accumulated depreciation
At 1 April 2022 12,295 120,610 132,905
Charge for year 1,015 7,631 8,646
Disposals - (961) (961)
Other 410 - 410
At 31 March 2023 13,720 127,280 141,000
Net book values
At 31 March 2023 27,237 33,116 60,353
At 31 March 2022 27,815 34,986 62,801
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
The net book value of land and buildings includes £2,169,000 (2022 -
£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 £385,000 (2022 - £1,043,000) which are not
depreciated.
7 Commitments and contingencies
2023 2022
£000 £000
Capital commitments contracted for by the group but not provided for in the 1,799 1,637
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 2023, the directors do not consider any significant liability will arise
in respect of any such claims (2022 - £nil).
8 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 2023 was a surplus of £10,413,000 (2022 - £9.932,000). 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.
9 Preliminary statement
The financial information set out above does not constitute the company's
statutory financial statements for the years ended 31 March 2023 or 2022 but
is derived from those financial statements. Statutory financial statements for
2022 have been delivered to the Registrar of Companies and those for 2023 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
23 June 2023 and will be available on the company's website,
www.castings.plc.uk, from 26 June 2023.
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 (e.g aluminium), value added opportunities and
continued development of new technology does present a medium-term risk to the also replacement technologies for heavy-duty trucks.
group as c. 30% of group revenue arises from the supply of cast iron
powertrain components. The group's electricity contracts are fully Renewable Energy Guarantees of
Origin ('REGO') backed and the gas contracts will be from 1 October 2023. This
It is important to note that such a change also presents an opportunity for provides a platform for the group to support our customers Green Iron
the group to evolve its product offering, as has always been the case over the aspirations.
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. Demand has the potential to change rapidly dependent upon the Demand is closely reviewed by senior management on a constant basis.
emissions legislation) and economic growth. significant variable factors in the macroeconomic environment such as conflict
in Ukraine, supply chain issues 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 relationships with key customers in the commercial vehicle Stable We build strong relationships with our customers to develop products to meet
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 Stable 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 Stable Wherever possible, prices and quantities (except steel) are secured through
energy contracts.
long-term agreements with suppliers. In general, the risk of price inflation
Changes to the pricing of the group's commodity and energy purchases could of these materials resides with the group's customers through price adjustment
The principal metal raw materials used by the group's businesses are steel materially impact the financial performance of the group if no mitigating clauses.
scrap and various alloys. The most important alloy raw material inputs are actions were taken.
premium graphite, magnesium ferro-silicon, copper, nickel and molybdenum.
Historically, energy contracts have been locked in for at least 12 months.
Power and raw material markets have become very volatile because of the With the volatile power market, following the end of our fixed price contract
current conflict in Ukraine and other associated supply issues. on 30 September 2022, the group entered into a flexible power agreement. When
markets permit, it would be the intention to revert back to a fixed contract.
Management has worked with customers during the course of the year to pass
these costs through in a timely manner.
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 The working group, formed last year, continues 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 Stable 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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