Company Announcements

CASTINGS P.L.C.

INTERIM MANAGEMENT REPORT

Six months ended 30 September 2021

Interim Management Report

Overview

Sales for the six months ended 30 September 2021 were £69.7 million (2020 - £41.7 million) with profit before tax of £5.41 million (2020 - loss of £0.63 million). In the prior period, demand was significantly reduced as a result of the COVID-19 pandemic.

After a strong start, the current period has been impacted by supply chain disruption affecting our commercial vehicle customers, which represent 70% of group revenue. As a result of these issues (particularly in respect of semiconductors), the OEMs have been unable to build sufficient heavy trucks to satisfy the high demand in the market.

Group despatch weight during the first quarter of the financial year was in line with recent years before COVID-19. However, with the OEMs having to reduce truck build rates to below their order intake levels, group sales were reduced from the last two weeks of June and into the second quarter.

Whilst forward demand schedules from our customers have remained high throughout the period, the conversion rate to actual sales has been significantly below what we would normally expect. In an attempt to cut across these fluctuations and remain efficient, higher production levels were retained and inventory levels increased. However, this has been hampered by labour recruitment difficulties and, as a result, we closed the machining business for a week at the end of September.

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.

Foundry operations
Output during the period was up 69% at 24,300 tonnes (2020 - 14,350 tonnes) and external sales revenue was up by 68% to £68.1 million.

The profit from the foundry segment of £5.3 million compares to £0.8 million in the equivalent period last year ('previous period'). The margin has been negatively impacted by lower and fluctuating demand during the period, as well as rising raw material prices.

The strong group cash position has enabled the continued investment in foundry facilities during the period, including the start of a production line automation upgrade that will be completed in 2022/23.

Machining operation

CNC Speedwell generated external revenue of £1.6 million during the period, an increase of 32% compared to the previous period, with a reported profit of £0.1 million compared to a loss of £2.1 million in the previous period.

The break-even result demonstrates the positive impact of the productivity improvements made in the business over recent years. However, being a well-invested business with a depreciation charge of £1.8 million in the six month period, the significantly lower levels of demand in the second quarter had a particularly negative impact on the result.

The focus on automation and productivity improvements has continued, which makes up the majority of the capital investment of £0.3 million during the period.

Outlook

The long term demand schedules continue to reflect the higher build rates that the heavy truck OEMs require to satisfy their order books. However, the medium term call-off schedules have significantly reduced, reflecting the supply chain restrictions being experienced by our customers.

The group is well positioned to see the benefits of the productivity improvements in both the foundry and machining businesses when supply chain restrictions do ease.

The automation of finishing processes within the foundries is now largely complete, with the focus now shifting to automating elements of the melting process. 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 £34.6 million; a decrease of £1.4 million during the period after the dividend payment of £5.1 million.

Dividend

An interim dividend of 3.66 pence per share has been declared and will be paid on 6 January 2022 to shareholders who are on the register at 26 November 2021.

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 to 12 of the Annual Report for the year ended 31 March 2021.

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
12 November 2021

Castings p.l.c.   
Lichfield Road
Brownhills            
West Midlands
WS8 6JZ

 Consolidated Statement of Comprehensive Income

For six months ended 30 September 2021

Consolidated Balance Sheet

30 September 2021

Consolidated Cash Flow Statement

For six months ended 30 September 2021

Consolidated Statement of Changes in Equity

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 2021 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 2021 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 31 March 2021 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2020 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 adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the UK.

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 2021.

The following shows the revenues, results and total assets by reportable segment for the half year to 30 September 2020.

The following shows the revenues, results and total assets by reportable segment for the year ended 31 March 2021.

5.   Surplus on sale of property

During the prior 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:

The directors have declared an interim dividend in respect of the financial year ending 31 March 2022 of 3.66p per share (2021 - 3.57p), which will be paid on 6 January 2022.

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.

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 £1,073,000 (2020 - £1,404,000) was paid by the group on behalf of the schemes in respect of pension payments and administration costs. At 30 September 2021, the outstanding balance of £3,569,000 (2020 - £4,182,000) is repayable within one year.

Payments made by the company on behalf of the schemes in the current period are repayable by 30 November 2022.

9.   Interim report

Copies of this interim management report will be available on the company's website, https://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 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
12 November 2021