Castings P.L.C.
Annual Financial Report
DTR 6.3.5 Disclosure
Year ended 31 March 2021
Chairman's Statement
The turnover of the group decreased to £115 million (£139 million last year) with a reduction in profit before exceptional items and income tax to £4.4 million compared to £12.7 million last year.
Overview
It has been a very difficult year for the company and its employees as a result of the COVID-19 pandemic. As stated in the interim report in November, output was reduced by 80% during the first two months of the financial year. This was because all our major customers in the commercial vehicle sector stopped building trucks.
During this period of lower demand we had to furlough many of our employees. The furlough scheme was put in place by the government to help employees retain their jobs; the alternative would have been a significant number of redundancies in the group.
During the second half of the year, demand continued to increase to pre-COVID output levels. However, production was hampered by more employees needing to self-isolate as UK COVID cases increased around the turn of the calendar year.
We are now back to full production and busy, however our customers are still seeing shortages of semi-conductors and other materials. We have also seen large increases in raw material prices, in particular steel scrap and copper. These increases will be reflected in price rises in the new financial year, but the profit for the last three months of the year has been affected by under recovery.
Foundry businesses
During this year our oldest foundry in Brownhills was rebuilt with an improved cooling line and sand plant. This upgrade was delayed until December due to our supplier being unable to obtain some products and the availability of engineers to carry out the job due to COVID-19. I am pleased to say the plant is now working well.
Further automation investments have been made at Brownhills and at William Lee in the finishing processes. William Lee have also invested in a heat treatment plant to improve productivity and remove the need to subcontract this process.
CNC Speedwell
It is disappointing that just as profitability was starting to improve in the machining business, COVID-19 happened. However, we have continued to invest in robotic handling and we have now seen an improvement with extra volumes and greater utilisation of our investments. We anticipate this improvement will continue and that the company will return to profitability in the current year.
Outlook
Our customers are forecasting increased volumes in the second half of this financial year and despite some problems in their supply chain we are maintaining full production and increasing our stock back to our previous levels.
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 11.69 pence per share to be paid on 23 August 2021 to shareholders on the register on 23 July 2021. This, together with the interim dividend, gives a total dividend for the year of 15.26 pence per share.
It has been a very difficult year and, in this respect, I particularly wish to thank the directors and senior management of the group who kept the operations running during the worst of the pandemic. I also wish to thank all of our employees for their help and understanding during this unique period.
B. J. Cooke
Chairman
16 June 2021
Business and Financial Review
General overview
The year has been significantly impacted by reduced demand as a direct result of the COVID-19 pandemic. The first two months of the year saw commercial vehicle customers, which make up approximately 70% of group revenue, close their production facilities. Schedules increased gradually from that point and by the end of the first half of the year revenue was 57% of the level compared to the first six months of the previous financial year.
During the second half of the year, demand continued to increase to pre-COVID output levels. However, production was hampered by the need for more employees having to self-isolate as UK COVID cases increased around the turn of the calendar year.
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 above, customer demand was weak during the first quarter of the financial year but started to improve during the second quarter and through the second half of the year.
The foundry businesses experienced a decrease in output of 15.9% to 40,100 tonnes and a fall in external sales revenue of 16.2% to £112.0 million.
The trend of an increase in more complex, machined parts has continued in the year. Of the total output weight for the year, 57.5% related to machined castings compared to 55.8% in the previous year.
The segmental profit has decreased to £6.7million, from £13.4 million in the previous year, which represents a profit margin of 5.4% on total segmental sales (2020 - 8.9%).
In addition to the disruption of self-isolation, margins have been negatively impacted by significant increases in raw material prices in the last three months of the year. Due to the nature of the customer escalator mechanism, these price increases will not be reflected in the selling price until the current financial year.
During the period of lower production, the opportunity was taken to advance the automation in the finishing processes. The businesses are now well positioned to achieve the productivity gains in this area.
Investment of £3.7 million has been made in the foundry businesses during the year. This included £1.5 million on an upgrade to one of the Brownhills production lines and a £0.5 million investment to bring in-house a finishing process that was previously outsourced.
Machining
The machining business generated total sales of £18.3 million in the year compared to £24.4 million in the previous year. Of the total revenue, 14.8% was generated from external customers compared to 20.6% in 2020.
The segmental result for the year was a loss of £2.3 million (2020 - loss of £0.67 million).
The significantly lower volumes during the first half of the year have a particularly negative impact on such a well invested business; resulting in a first half loss of £2.1 million.
The benefits of the engineering and productivity improvements that have been made started to be realised as volumes increased in the second half of the year; the loss reducing to £0.2 million in this period.
We have invested £1.5 million during the year, which remains in line with the forecast lower levels, continuing management's focus on enhancing the return on the capital already invested in the machining business. This investment included £0.9 million in the roll-out of automation which will continue during the current year.
Business review and performance
Revenue
Group revenues decreased by 17.3% to £114.7 million compared to £138.7 million reported in 2020, of which 76% was exported (2020 - 74%).
The revenue from the foundry operations to external customers decreased by 16.2% to £112.0 million (2020 - £133.6 million) with the dispatch weight of castings to third-party customers decreasing by 15.9% to 40,100 tonnes (2020 - 47,700 tonnes).
Revenue from the machining operation to external customers decreased by 46.1% during the year to £2.7 million (2020 - £5.0 million).
Operating profit and segmental result
The group operating profit for the year was £4.9 million compared to £12.5 million reported in 2020, which represents a return on sales of 4.3% (2020 - 9.0%). However, this year's result includes an exceptional gain of £0.63 million, primarily relating to the profit on the sale of a property during the year; an adjusted return on sales figure for the year would be 3.7%.
Finance income
The level of finance income decreased to £0.08 million compared to £0.21 million in 2020, reflecting the lower interest rates available on deposits compared to the prior year.
Profit before income tax and exceptional items
Profit before income tax and exceptional items has decreased to £4.4 million from £12.7 million.
Taxation
The current year tax charge of £0.84 million (2020 - £2.63 million) is made up of a current tax charge of £1.18 million (2020 - £2.18 million) and a deferred tax credit of £0.35 million (2020 - charge of £0.45 million).
The effective rate of tax of 16.8% (2020 - 20.7%) is lower than the main rate of corporation tax of 19%. The main reason being an adjustment to the deferred tax balance relating to the prior year.
Earnings per share
Basic earnings per share decreased 58.8% to 9.51 pence (2020 - 23.07 pence), reflecting the 60.1% decrease in profit before income tax and a lower effective tax rate compared to the previous year.
Options over 35,292 shares were granted during the year. The weighted average number of shares in issue has therefore increased to 43,667,360, resulting in a diluted earnings per share of 9.50 pence per share.
Due to the magnitude of the exceptional items in the year, an alternative earnings per share excluding exceptional items has been presented. This year's basic figure is 8.06 pence per share (2020 - 23.05 pence).
Dividends
The directors are recommending a final dividend of 11.69 pence per share (2020 - 11.40 pence per share) to be paid on 23 August 2021 to shareholders on the register on 23 July 2021. This would give a total ordinary distribution for the year of 15.26 pence per share (2020 - 14.88 pence per share).
Cash flow
The group generated cash from operating activities of £13.0 million compared to £27.2 million in 2020, a decline of £14.2 million. When compared to 2020, the variance is due to a decrease in operating profit of £8.4 million and a working capital movement difference of £5.8 million.
In the year to 31 March 2021, the inflows from a decrease in inventories of £2.5 million and increase in payables of £4.3 million were offset by an outflow from an increase in receivables of £7.0 million. The movement in receivables is a result of the higher demand in the final quarter of the year when compared to the lower, COVID impacted, demand in the same quarter of the prior year.
Corporation tax payments during the year totalled £0.7 million compared to £4.4 million in 2020. The current year outflow reflects the estimates made relating to the current year profits. The prior year saw a change in the timing of quarterly payments such that all are paid in the financial year to which they relate. As a result, the prior year had an outflow of four quarterly payments relating to that year as well as two payments relating to the year ended 31 March 2019.
Capital expenditure during the year amounted to £5.2 million (2020 - £8.2 million). This included investment of £1.5 million in a foundry plant upgrade as well as other automation and productivity enhancements. The charge for depreciation was £8.8 million compared to £8.9 million in 2020.
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 are shown net of disposal costs and a payment to secure the freehold of the site.
The other current interest-bearing deposit (a deposit with a maturity of more than three months at inception) inflow in the prior year reflected the maturity of a £5.0 million deposit that was placed on a shorter term deposit and was therefore treated as a cash and cash equivalent inflow.
The company pays pensions on behalf of the two final salary pension schemes and then reclaims these advances from the schemes (as set out in note 6). During the year repayments of £2.8 million (2020 - £3.5 million) were received from the schemes and advances were made to the schemes of £2.5 million (2020 - £2.8 million).
Dividends paid to shareholders were £6.5 million in the year (2020 - £13.0 million). The prior year figure includes £6.5 million in respect of a supplementary dividend declared in respect of the year ended 31 March 2019.
The net cash and cash equivalents movement for the year was an increase of £2.7 million (2020 - £7.6 million).
At 31 March 2021, the total cash and deposits position was £36.1 million (2020 - £33.4 million).
Pensions
The pension valuation showed a decrease in the surplus, on an IAS 19 (Revised) basis, to £9.9 million compared to £11.2 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 (which has been extended to include previous transfer values as well as current members). 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 2021 were £129.5 million (2020 - £131.7 million). Other than the total comprehensive income for the year of £4.3 million, the only movement relates to the dividend payment of £6.5 million.
Non-current assets have decreased to £67.4 million (2020 - £71.1 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 £90.2 million (2020 - £84.6 million). The level of receivables and total cash balances have increased compared to 2020 but this has been partially offset by the reduction in inventories and the disposal of the held for sale asset.
Total liabilities have increased to £28.1 million (2020 - £24.0 million), largely as a result of an increase in trade payables along with the current tax balance moving to be a liability this year.
Consolidated Statement of Comprehensive Income for the year ended 31 March 2021
|
|
2021 |
2020 |
|||||
|
|
|
Before exceptional items £000 |
Exceptional items (note 3) £000 |
Total £000 |
Before exceptional items £000 |
Exceptional items (note 3) £000 |
Total £000 |
|
Revenue |
|
114,702 |
- |
114,702 |
138,667 |
- |
138,667 |
|
Cost of sales |
|
(94,870) |
- |
(94,870) |
(109,186) |
- |
(109,186) |
|
Gross profit |
|
19,832 |
- |
19,832 |
29,481 |
- |
29,481 |
|
Distribution costs |
|
(2,237) |
- |
(2,237) |
(2,510) |
- |
(2,510) |
|
Administrative expenses |
|
(13,320) |
633 |
(12,687) |
(14,487) |
10 |
(14,477) |
|
Profit from operations |
|
4,275 |
633 |
4,908 |
12,484 |
10 |
12,494 |
|
Finance income |
|
79 |
- |
79 |
206 |
- |
206 |
|
Profit before income tax |
|
4,354 |
633 |
4,987 |
12,690 |
10 |
12,700 |
|
Income tax expense |
|
(838) |
- |
(838) |
(2,634) |
- |
(2,634) |
|
Profit for the year attributable to equity holders of the parent company |
|
3,516 |
633 |
4,149 |
10,056 |
10 |
10,066 |
|
|
|
|
|
|
|
|
|
|
Profit for the year attributable to equity holders of the parent company |
|
|
|
4,149 |
|
|
10,066 |
|
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 actuarial gains and losses |
|
|
|
142 |
|
|
258 |
|
Defined benefit pension schemes GMP equalisation charge |
|
|
|
66 |
|
|
- |
|
|
|
|
|
208 |
|
|
258 |
|
Items that may be reclassified subsequently to profit and loss: |
|
|
|
|
|
|
|
|
Change in fair value of financial assets |
|
|
|
(50) |
|
|
(22) |
|
Tax effect of items that may be reclassified |
|
|
|
10 |
|
|
4 |
|
|
|
|
|
(40) |
|
|
(18) |
|
Other comprehensive income for the year (net of tax) |
|
|
|
168 |
|
|
240 |
|
Total comprehensive income for the year attributable to the equity holders of the parent company |
|
|
|
4,317 |
|
|
10,306 |
|
Earnings per share attributable to the equity holders of the parent company |
|
|
|
|
|
|
|
|
Basic |
|
|
|
9.51p |
|
|
23.07p |
|
Diluted |
|
|
|
9.50p |
|
|
23.07p |
|
Basic (before exceptional items) |
|
8.06p |
|
|
23.05p |
|
|
Consolidated Balance Sheet as at 31 March 2021
|
|
|
2021 £000 |
2020 £000 |
|
ASSETS |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
|
67,112 |
70,693 |
|
Financial assets |
|
308 |
358 |
|
|
|
67,420 |
71,051 |
|
Current assets |
|
|
|
|
Inventories |
|
18,719 |
21,175 |
|
Trade and other receivables |
|
35,358 |
28,661 |
|
Current tax asset |
|
- |
332 |
|
Cash and cash equivalents |
|
36,092 |
33,401 |
|
|
|
90,169 |
83,569 |
|
Assets classified as held for sale |
|
- |
1,060 |
|
|
|
90,169 |
84,629 |
|
Total assets |
|
157,589 |
155,680 |
|
LIABILITIES |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
|
24,371 |
20,092 |
|
Current tax liabilities |
|
184 |
- |
|
|
|
24,555 |
20,092 |
|
Non-current liabilities |
|
|
|
|
Deferred tax liabilities |
|
3,570 |
3,930 |
|
Total liabilities |
|
28,125 |
24,022 |
|
Net assets |
|
129,464 |
131,658 |
|
Equity attributable to equity holders of the parent company |
|
|
|
|
Share capital |
|
4,363 |
4,363 |
|
Share premium account |
|
874 |
874 |
|
Other reserve |
|
13 |
13 |
|
Retained earnings |
|
124,214 |
126,408 |
|
Total equity |
|
129,464 |
131,658 |
Consolidated Cash Flow Statement for the year ended 31 March 2021
|
|
|
2021 £000 |
2020 £000 |
|
Cash flows from operating activities |
|
|
|
|
Profit before income tax |
|
4,987 |
12,700 |
|
Adjustments for: |
|
|
|
|
Depreciation |
|
8,802 |
8,903 |
|
Loss/(profit) on disposal of property, plant and equipment |
|
3 |
(40) |
|
Profit on disposal of asset held for sale |
|
(658) |
- |
|
Finance income |
|
(79) |
(206) |
|
Equity settled share-based payment expense |
|
21 |
- |
|
Pension administrative costs |
|
142 |
258 |
|
Pension GMP equalisation charge |
|
66 |
- |
|
Decrease/(increase) in inventories |
|
2,456 |
(2,011) |
|
(Increase)/decrease in receivables |
|
(6,979) |
11,713 |
|
Increase/(decrease) in payables |
|
4,279 |
(4,130) |
|
Cash generated from operating activities |
|
13,040 |
27,187 |
|
Tax paid |
|
(672) |
(4,355) |
|
Interest received |
|
60 |
186 |
|
Net cash generated from operating activities |
|
12,428 |
23,018 |
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Dividends received from listed investments |
|
19 |
20 |
|
Purchase of property, plant and equipment |
|
(5,244) |
(8,158) |
|
Proceeds from disposal of property, plant and equipment |
|
20 |
40 |
|
Proceeds from disposal of asset held for sale |
|
1,718 |
- |
|
Transfer from other current interest-bearing deposits |
|
- |
5,000 |
|
Repayments from pension schemes |
|
2,778 |
3,525 |
|
Advances to the pension schemes |
|
(2,496) |
(2,778) |
|
Net cash used in investing activities |
|
(3,205) |
(2,351) |
|
|
|
|
|
|
Cash flow from financing activities |
|
|
|
|
Dividends paid to shareholders |
|
(6,532) |
(13,037) |
|
Net cash used in financing activities |
|
(6,532) |
(13,037) |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
2,691 |
7,630 |
|
Cash and cash equivalents at beginning of year |
|
33,401 |
25,771 |
|
Cash and cash equivalents at end of year |
|
36,092 |
33,401 |
|
Cash and cash equivalents: |
|
|
|
|
Short-term deposits |
|
13,062 |
28,610 |
|
Cash available on demand |
|
23,030 |
4,791 |
|
|
|
36,092 |
33,401 |
Consolidated Statement of Changes in Equity for the year ended 31 March 2021
|
|
Equity attributable to equity holders of the parent |
||||
|
|
Share capitala) £000 |
Share premiumb) £000 |
Other reservec) £000 |
Retained earningsd) £000 |
Total equity £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 actuarial gains and losses |
- |
- |
- |
142 |
142 |
|
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 9) |
- |
- |
- |
(6,532) |
(6,532) |
|
At 31 March 2021 |
4,363 |
874 |
13 |
124,214 |
129,464 |
|
|
Equity attributable to equity holders of the parent |
||||
|
|
Share capitala) £000 |
Share premiumb) £000 |
Other reservec) £000 |
Retained earningsd) £000 |
Total equity £000 |
|
At 1 April 2019 |
4,363 |
874 |
13 |
129,139 |
134,389 |
|
Profit for the year |
- |
- |
- |
10,066 |
10,066 |
|
Other comprehensive income/(losses): |
|
|
|
|
|
|
Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses |
- |
- |
- |
258 |
258 |
|
Change in fair value of financial assets |
- |
- |
- |
(22) |
(22) |
|
Tax effect of items taken directly to reserves |
- |
- |
- |
4 |
4 |
|
Total comprehensive income for the year |
- |
- |
- |
10,306 |
10,306 |
|
Dividends (see note 9) |
- |
- |
- |
(13,037) |
(13,037) |
|
At 31 March 2020 |
4,363 |
874 |
13 |
126,408 |
131,658 |
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) Other reserve - Amounts transferred from share capital on redemption of issued shares.
d) 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 international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
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 2021 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 2021:
|
|
Foundry operations £000 |
Machining operations £000 |
Elimination £000 |
Total £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 |
|
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.
The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2020:
|
|
Foundry operations £000 |
Machining operations £000 |
Elimination £000 |
Total £000 |
|
Revenue from external customers |
133,626 |
5,041 |
- |
138,667 |
|
Inter-segmental revenue |
17,701 |
19,471 |
- |
37,172 |
|
|
|
|
|
|
|
Segmental result |
13,400 |
(667) |
9 |
12,742 |
|
Unallocated costs: |
|
|
|
|
|
Exceptional credit for recovery of Icelandic bank deposits |
|
|
|
10 |
|
Defined benefit pension cost |
|
|
|
(258) |
|
Finance income |
|
|
|
206 |
|
Profit before income tax |
|
|
|
12,700 |
|
Total assets |
137,247 |
29,523 |
(11,090) |
155,680 |
|
Non-current asset additions |
5,651 |
2,507 |
- |
8,158 |
|
Depreciation |
4,406 |
4,497 |
- |
8,903 |
|
Total liabilities |
(23,135) |
(6,744) |
5,857 |
(24,022) |
All non-current assets are based in the United Kingdom.
|
|
2021 £000 |
2020 £000 |
|
The geographical analysis of revenues by destination for the year is as follows: |
|
|
|
United Kingdom |
26,805 |
36,499 |
|
Sweden |
32,237 |
37,161 |
|
Netherlands |
14,754 |
18,826 |
|
Germany |
12,618 |
11,637 |
|
Rest of Europe |
21,435 |
26,257 |
|
North and South America |
6,208 |
7,691 |
|
Other |
645 |
596 |
|
|
114,702 |
138,667 |
All revenue arises in the United Kingdom from the group's continuing activities.
3 Exceptional items
|
|
2021 £000 |
2020 £000 |
|
Recovery of past provision for losses on deposits with Icelandic banks |
(41) |
(10) |
|
Profit on the disposal of asset classified as held for sale |
(658) |
- |
|
Defined benefit pension scheme GMP equalisation charge |
66 |
- |
|
|
(633) |
(10) |
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.
The group completed on the sale of the Fradley site during the year, 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 has been recognised 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
|
|
2021 £000 |
2020 £000 |
|
Corporation tax based on a rate of 19% (2020 - 19%) |
|
|
|
UK corporation tax |
|
|
|
Current tax on profits for the year |
1,220 |
2,480 |
|
Adjustments to tax charge in respect of prior years |
(32) |
(299) |
|
|
1,188 |
2,181 |
|
|
|
|
|
Deferred tax |
|
|
|
Current year origination and reversal of temporary differences |
(196) |
(110) |
|
Adjustment to deferred tax charge in respect of prior years |
(154) |
135 |
|
Adjustment to deferred tax charge in respect of change in tax rate |
- |
428 |
|
|
(350) |
453 |
|
Taxation on profit |
838 |
2,634 |
|
|
|
|
|
Profit before income tax |
4,987 |
12,700 |
|
|
|
|
|
Tax on profit at the standard rate of corporation tax in the UK of 19% (2020 - 19%) |
948 |
2,413 |
|
Effect of: |
|
|
|
Expenses/(income) not deductible/chargeable for tax purposes |
36 |
(88) |
|
Adjustment to tax charge in respect of prior years |
(32) |
(299) |
|
Adjustment to deferred tax charge in respect of prior years |
(154) |
135 |
|
Adjustment to deferred tax charge in respect of change in tax rate |
- |
428 |
|
Pension adjustments |
40 |
45 |
|
Total tax charge for the year |
838 |
2,634 |
|
Effective rate of tax (%) |
16.8 |
20.7 |
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2020 on 17 March 2020, the applicable rate being 19%. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these financial statements.
5 Dividends
|
|
2021 £000 |
2020 £000 |
|
Final paid of 11.40p per share for the year ended 31 March 2020 (2019 - 11.40p) |
4,974 |
4,974 |
|
Interim paid of 3.57p per share (2020 - 3.48p) |
1,558 |
1,518 |
|
Supplementary dividend of 15.00p per share for the year ended 31 March 2019 |
- |
6,545 |
|
|
6,532 |
13,037 |
The directors are proposing a final dividend of 11.69 pence (2020 - 11.40 pence) per share totalling £5,100,589 (2020 - £4,974,056). This dividend has 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:
|
|
2021 |
2020 |
|
Profit after taxation (£000) |
4,149 |
10,066 |
|
Weighted average number of shares - basic calculation |
43,632,068 |
43,632,068 |
|
Earnings per share - basic calculation (pence per share) |
9.51p |
23.07p |
|
Number of dilutive share options in issue |
35,292 |
- |
|
Weighted average number of shares - diluted calculation |
43,667,360 |
43,632,068 |
|
Earnings per share - diluted calculation (pence per share) |
9.50p |
23.07p |
Earnings per share (basic) excluding exceptional items of 8.06 pence per share (2020 - 23.05 pence per share) is calculated on the profit on ordinary activities before exceptional items after taxation of £3,516,000 (2020 - £10,056,000), using the basic weighted average number of shares of 43,632,068. The corresponding diluted earnings per share excluding exceptional items, using the weighted average number of shares of 43,667,360 is 8.05 pence per share.
7 Property, plant and equipment
|
|
Freehold and leasehold land and buildings £000 |
Plant and equipment £000 |
Total £000 |
|
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 |
|
|
|
|
|
|
Cost |
|
|
|
|
At 1 April 2019 |
39,826 |
139,967 |
179,793 |
|
Additions during the year |
357 |
7,801 |
8,158 |
|
Disposals |
- |
(319) |
(319) |
|
At 31 March 2020 |
40,183 |
147,449 |
187,632 |
|
Accumulated depreciation |
|
|
|
|
At 1 April 2019 |
9,780 |
98,575 |
108,355 |
|
Charge for year |
1,161 |
7,742 |
8,903 |
|
Disposals |
- |
(319) |
(319) |
|
At 31 March 2020 |
10,941 |
105,998 |
116,939 |
|
Net book values |
|
|
|
|
At 31 March 2020 |
29,242 |
41,451 |
70,693 |
|
At 31 March 2019 |
30,046 |
41,392 |
71,438 |
The net book value of land and buildings includes £2,169,000 (2020 - £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 £464,000 (2020 - £1,993,000).
8 Commitments and contingencies
|
|
2021 £000 |
2020 £000 |
|
Capital commitments contracted for by the group but not provided for in the financial statements |
1,784 |
3,323 |
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 2021, the directors do not consider any significant liability will arise in respect of any such claims (2020 - £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 2021 was a surplus of £9,980,000 (2020 - £11,227,000). 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 2021 or 2020 but is derived from those financial statements. Statutory financial statements for 2020 have been delivered to the Registrar of Companies and those for 2021 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 25 June 2021 and will be available on the company's website, www.castings.plc.uk, from 30 June 2021.
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 group maintains a range of insurance policies against major identified insurable risks, including (but not limited to) those related to business interruption, damage to property and equipment, damage to stocks, public and product liability and employers' liability.
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 an 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.
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 increasing, stable or decreasing dependent upon whether the business environment and group activity has resulted in a change to the potential impact of that risk. A number of risks have been described as constantly under review.
Due to the unprecedented trading conditions during the financial period, managing the impact the risks have on operations and stakeholders has been a core part of the business management activity during the period and management continues to monitor and react to changes to those risks daily whilst maintaining a focus on delivery of medium and long-term objectives.
|
Risk description |
Impact |
Mitigation and control |
|
COVID-19 |
|
|
|
As a result of the COVID-19 pandemic, the group has seen significant disruption to its operations. Our commercial vehicle customers, which comprise 71% of our revenue base, reported plant closures impacting the period between March and May 2020. Since that time, all OEMs have reopened their facilities and have increased their build rates during the remainder of the financial year.
|
Constantly under review Operationally, the group maintained production at all locations commensurate with the level of demand. A significant proportion of the workforce was placed on furlough leave under the Coronavirus Job Retention Scheme with others working remotely or operating under strict social distancing guidelines. Other than lower demand, which remains an on-going risk, the group has continued to operate in the usual manner and the normal controls have been maintained. |
The group has implemented strict social distancing guidelines for those employees whose job roles cannot be performed remotely to minimise the risk of COVID-19 outbreaks disrupting business activity and to safeguard our employees. Additional protective equipment is available, and cleaning of shared site facilities has increased in line with government guidance.
|
|
European market exposure |
|
|
|
The negotiations on the UK's membership and future relationship with the European Union have now been concluded. As a group with over 70% of sales exported to Europe, the process presented a potential commercial and compliance risk and threatened possible business interruptions due to the logistics network not functioning on a timely basis. Whilst a deal has now been concluded, the continuing evolution of business processes, regulatory understanding and commercial positioning in the post Brexit market presents a material risk to the group's financial position and prospects. |
Constantly under review Any additional duties could reduce how competitive the group is in key European markets and therefore impact future demand. The greater administrative complexity of trading with the EU could increase the operating cost of the business. Short term business interruption could damage relationships with key customers. |
As part of the short-term mitigation, we maintained higher than normal levels of raw material inventories and customers and suppliers were encouraged to build stock. We maintain a regular dialogue with our key suppliers and customers to ensure the risk in disruption to supply is mitigated. The group conducted Brexit reviews led by the group CEO which included senior management of each entity in order to ensure that a coordinated and timely response to issues minimised negative impacts and maximised any strategic opportunities arising.
|
|
Operational and commercial |
|
|
|
The group's revenues are principally derived from the commercial vehicle markets which can be subject to variations in patterns of demand. Commercial vehicle sales are linked to technological factors (for example emissions legislation) and economic growth. |
Constantly under review The operational and commercial activity of the business is driven by customer demand. At present demand continues to change rapidly dependent upon the significant variable factors in the macroeconomic environment such as COVID-19, Brexit and changing regulatory positions. |
The groups operations are set up in such a way as to ensure that variation in demand can be accommodated and rapidly responded to. Demand is closely reviewed by senior management on a constant basis. |
|
Market competition |
|
|
|
Commercial vehicle markets are, by their nature, highly competitive, which has historically led to deflationary pressure on selling prices. This pressure is most pronounced in cycles of lower demand. A number of the group's customers are also adopting global sourcing models with the aim to reduce bought-out costs. |
Stable Erosion of market share could result in loss of revenue and profit. |
Whilst there can be no guarantee that business will not be lost on price, we are confident that we can remain competitive. The group continues to mitigate this risk through investment in productivity, 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 vehicle market which form the majority of the customer base. |
Stable The loss of, or deterioration in, any major customer relationship could have a material impact on the group's results. |
We build strong relationships with our customers to develop products to meet their specific needs.
|
|
Product quality and liability |
|
|
|
The group's businesses expose it to certain product liability risks which, in the event of failure, could give rise to material financial liabilities. |
Stable Fines or penalties could result in a loss of revenue, additional costs and reduced profits. |
Whilst it is a policy of the group to endeavour to limit its financial liability by contract in all long-term agreements ("LTAs"), it is not always possible to secure such limitations in the absence of LTAs. 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 denominated in currencies other than sterling, being primarily euro and US dollar. |
Stable 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 pricing is to overseas markets. |
The group's foreign exchange risk is well mitigated through commercial arrangements with key customers. Foreign exchange rate risk is sometimes partially mitigated by using forward 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 foundry furnaces, moulding lines and CNC milling machines which, due to manufacturing lead times, would be difficult to replace sufficiently quickly to prevent major interruption and possible loss of business in the event of unforeseen failure.
|
Stable A large incident could disrupt business at the site affected and result in significant rectification costs or material asset impairments. |
Whilst this risk cannot be entirely mitigated without uneconomic duplication of all key equipment, all key equipment is maintained to a high standard and inventories of strategic equipment spares maintained. The facilities at Brownhills and Dronfield have similar equipment and work can be transferred from one location to another very quickly. |
|
Suppliers |
|
|
|
The group holds longstanding relationships with key suppliers and there is a risk that a business which the group is critically dependent upon could be subject to significant disruption and that this could materially impact the operations of the group.
|
Increasing The risk of a supplier's business interruption is increased due to the risk of COVID-19 outbreaks or delays to deliveries as the logistics industry adjusts to import requirements now in place following the UK's exit from the European Union. There is also a greater risk of suppliers having financial difficulties arise due to closures or business interruption which could negatively impact the group. |
Although the group takes care to ensure alternative sources of supply remain available for materials or services on which the group's businesses are critically dependent, this is not always possible to guarantee without risk of short-term business disruption, additional costs and potential damage to relationships with key customers. The group continues to maintain productive dialogue with key suppliers, 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 energy contracts. The principal metal raw materials used by the group's businesses are steel scrap and various alloys. The most important alloy raw material inputs are premium graphite, magnesium ferro-silicon, copper, nickel and molybdenum.
|
Stable Changes to the pricing of the group's commodity and energy purchases could materially impact the financial performance of the group if no mitigating actions were taken. |
Wherever possible, prices and quantities (except steel) are secured through long-term agreements with suppliers. In general, the risk of price inflation of these materials resides with the group's customers through price adjustment clauses. Energy contracts are locked in for at least 12 months, although renegotiation risks remain at contract maturity dates but again this is mitigated through the application of price adjustment clauses. At 31 March 2021, the group had electricity contracts in place until 30 September 2022. |
|
Information technology and systems reliability |
||
|
The group is dependent on its information technology ("IT") systems to operate its business efficiently, without failure or interruption. The group continues to invest in IT systems to aid in the operational performance of the group and its reporting capabilities. There are increasing global threats faced by these systems as a result of sophisticated cyber-attacks. |
Increasing Significant failures to the IT systems of the group as a result of external factors could result in operational disruption and a negative impact on customer delivery and reporting capabilities. |
Whilst data within key systems is regularly backed up and systems subject to virus protection, any failure of backup systems or other major IT interruption could have a disruptive effect on the group's business. 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 threats. |
|
Short-term deposits |
|
|
|
The group holds a number of short-term deposits which are subject to recoverability or downgrade risk. |
Stable Institutions can be downgraded before maturity, thereby possibly placing these deposits at risk. |
A review of credit ratings is undertaken prior to making new deposits and the maximum exposure to any one counterparty is restricted. |
|
Regulatory and legislative compliance |
|
|
|
The group must comply with a wide range of legislative and regulatory requirements including modern slavery, anti-bribery and anti-competition legislation, taxation legislation, employment law and import and export controls.
|
Increasing Failure to comply with legislation could lead to substantial financial penalties, business disruption, diversion of management time, personal and corporate liability and loss of reputation. |
The group maintains a comprehensive range of policies, procedures and training programmes in order to ensure that both management and relevant employees are informed of legislative changes and it is clear how the group's business is expected to be carried out. 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 that its businesses provide fundamental components and services which will prove resilient in a transition towards a net zero economy, the board recognises the group is likely to receive increased scrutiny in the future in relation to emissions and climate change.
|
Increasing It is expected that green taxes on energy and the compliance cost of meeting developing reporting obligations for our stakeholders will result in increased energy prices and administrative expenses.
|
The group is developing its ability to report under the Task Force on Climate-related Financial Disclosure with a view to reporting under the TCFD recommendations in the year ending 31 March 2022. A working group has been formed to continue to monitor and report on developments with regards to climate risk. As part of the renewal of energy contracts the group reviews whether 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 regards to climate risk. |
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