12th Nov 2021 07:00
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 operationsOutput 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. COOKEChairman12 November 2021Castings p.l.c. Lichfield RoadBrownhills West MidlandsWS8 6JZ
Consolidated Statement of Comprehensive Income
For six months ended 30 September 2021
| Unaudited Half year to 30 September 2021 £'000 | Unaudited Half year to 30 September 2020 £'000 | Audited Year to 31 March 2021 £'000 |
Revenue | 69,747 | 41,748 | 114,702 |
Cost of sales | (55,798) | (36,593) | (94,870) |
Gross profit | 13,949 | 5,155 | 19,832 |
Distribution costs | (1,490) | (769) | (2,237) |
Administrative expenses | (7,071) | (5,722) | (13,345) |
Profit/(loss) before surplus on sale of property | 5,388 | (1,336) | 4,250 |
Surplus on sale of property | - | 658 | 658 |
Profit/(loss) from operations | 5,388 | (678) | 4,908 |
Finance income | 19 | 51 | 79 |
Profit/(loss) before income tax | 5,407 | (627) | 4,987 |
Income tax (expense)/credit | (1,025) | 121 | (838) |
Profit/(loss) for the period attributable to the equity holdersof the parent company | 4,382 | (506) | 4,149 |
Other comprehensive income/(losses) for the period: |
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|
|
Items that will not be reclassified to profit and loss: |
|
|
|
Movement in unrecognised surplus on defined benefit pensionschemes net of actuarial gains and losses | - | - | 142 |
Defined benefit pension schemes GMP equalisation charge | - | - | 66 |
| - | - | 208 |
Items that may be reclassified subsequently to profit and loss: |
|
|
|
Change in fair value of financial assets | 26 | (15) | (50) |
Tax effect of items that may be reclassified | (4) | 3 | 10 |
| 22 | (12) | (40) |
Total other comprehensive income/(losses) for the period(net of tax) | 22 | (12) | 168 |
Total comprehensive income/(loss) for the period attributableto the equity holders of the parent company | 4,404 | (518) | 4,317 |
Earnings per share attributable to the equity holdersof the parent company |
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|
|
Basic | 10.04p | (1.16)p | 9.51p |
Diluted | 10.03p | (1.16)p | 9.50p |
Consolidated Balance Sheet
30 September 2021
| Unaudited 30 September 2021 £'000 | Unaudited 30 September 2020 £'000 | Audited 31 March 2021 £'000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Property, plant and equipment | 65,441 | 68,843 | 67,112 |
Financial assets | 334 | 343 | 308 |
| 65,775 | 69,186 | 67,420 |
Current assets |
|
|
|
Inventories | 20,275 | 17,932 | 18,719 |
Trade and other receivables | 36,048 | 30,777 | 35,358 |
Current tax asset | 251 | 411 | - |
Cash and cash equivalents | 34,648 | 35,217 | 36,092 |
| 91,222 | 84,337 | 90,169 |
Total assets | 156,997 | 153,523 | 157,589 |
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Trade and other payables | 24,528 | 23,550 | 24,371 |
Current tax liabilities | - | - | 184 |
| 24,528 | 23,550 | 24,555 |
Non-current liabilities |
|
|
|
Deferred tax liabilities | 3,628 | 3,807 | 3,570 |
Total liabilities | 28,156 | 27,357 | 28,125 |
Net assets | 128,841 | 126,166 | 129,464 |
Equity attributable to equity holders of the parent company |
|
|
|
Share capital | 4,363 | 4,363 | 4,363 |
Share premium account | 874 | 874 | 874 |
Other reserve | 13 | 13 | 13 |
Retained earnings | 123,591 | 120,916 | 124,214 |
Total equity | 128,841 | 126,166 | 129,464 |
Consolidated Cash Flow Statement
For six months ended 30 September 2021
| Unaudited Half year to 30 September 2021 £'000 | Unaudited Half year to 30 September 2020 £'000 | Audited Year to 31 March 2021 £'000 |
Cash flows from operating activities |
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|
|
Profit/(loss) before income tax | 5,407 | (627) | 4,987 |
Adjustments for: |
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|
|
Depreciation | 4,050 | 4,251 | 8,802 |
Profit on disposal of property, plant and equipment | - | - | 3 |
Profit on disposal of held for sale asset | - | (658) | (658) |
Finance income | (19) | (51) | (79) |
Equity settled share-based payment expense | 74 | - | 21 |
Pension administrative costs | - | - | 142 |
Pension GMP equalisation charge | - | - | 66 |
(Increase)/decrease in inventories | (1,556) | 3,243 | 2,456 |
Decrease/(increase) in receivables | 383 | (712) | (6,979) |
Increase in payables | 157 | 3,458 | 4,279 |
Cash generated from operating activities | 8,496 | 8,904 | 13,040 |
Tax paid | (1,406) | (78) | (672) |
Interest received | 9 | 41 | 60 |
Net cash generated from operating activities | 7,099 | 8,867 | 12,428 |
Cash flows from investing activities |
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|
|
Dividends received from listed investments | 10 | 10 | 19 |
Purchase of property, plant and equipment | (2,379) | (2,606) | (5,244) |
Proceeds from disposal of property, plant and equipment | - | - | 20 |
Proceeds from disposal of held for sale asset | - | 1,923 | 1,718 |
Repayments from pension schemes | - | - | 2,778 |
Advances to pension schemes | (1,073) | (1,404) | (2,496) |
Net cash used in investing activities | (3,442) | (2,077) | (3,205) |
Cash flow from financing activities |
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|
|
Dividends paid to shareholders | (5,101) | (4,974) | (6,532) |
Net cash used in financing activities | (5,101) | (4,974) | (6,532) |
Net (decrease)/increase in cash and cash equivalents | (1,444) | 1,816 | 2,691 |
Cash and cash equivalents at beginning of period | 36,092 | 33,401 | 33,401 |
Cash and cash equivalents at end of period | 34,648 | 35,217 | 36,092 |
Cash and cash equivalents: |
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|
|
Short-term deposits | 19,080 | 33,394 | 13,062 |
Cash available on demand | 15,568 | 1,823 | 23,030 |
| 34,648 | 35,217 | 36,092 |
Consolidated Statement of Changes in Equity
| Equity attributable to equity holders of the parent | ||||
Unaudited | Share capital £'000 | Share premium £'000 | Other reserve £'000 | Retained earnings £'000 | Total equity £'000 |
At 1 April 2021 | 4,363 | 874 | 13 | 124,214 | 129,464 |
Profit for the period | - | - | - | 4,382 | 4,382 |
Other comprehensive income/(losses): |
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|
|
|
|
Change in fair value of financial assets | - | - | - | 26 | 26 |
Tax effect of items taken directly to reserves | - | - | - | (4) | (4) |
Total comprehensive income for the period ended 30 September 2021 | - | - | - | 4,404 | 4,404 |
Equity settled share-based payments | - | - | - | 74 | 74 |
Dividends | - | - | - | (5,101) | (5,101) |
At 30 September 2021 | 4,363 | 874 | 13 | 123,591 | 128,841 |
Unaudited | £'000 | £'000 | £'000 | £'000 |
£'000 |
At 1 April 2020 | 4,363 | 874 | 13 | 126,408 | 131,658 |
Loss for the period | - | - | - | (506) | (506) |
Other comprehensive income/(losses): |
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|
|
|
|
Change in fair value of financial assets | - | - | - | (15) | (15) |
Tax effect of items taken directly to reserves | - | - | - | 3 | 3 |
Total comprehensive loss for the period ended 30 September 2020 | - | - | - | (518) | (518) |
Dividends | - | - | - | (4,974) | (4,974) |
At 30 September 2020 | 4,363 | 874 | 13 | 120,916 | 126,166 |
Audited | £'000 | £'000 | £'000 | £'000 | £'000 |
At 1 April 2020 | 4,363 | 874 | 13 | 126,408 | 131,658 |
Profit for the period | - | - | - | 4,149 | 4,149 |
Other comprehensive income/(losses): |
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|
|
|
|
Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses | - | - | - | 142 | 142 |
Defined benefit pension 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 yearended 31 March 2021 | - | - | - | 4,317 | 4,317 |
Equity settled share-based payments | - | - | - | 21 | 21 |
Dividends | - | - | - | (6,532) | (6,532) |
At 31 March 2021 | 4,363 | 874 | 13 | 124,214 | 129,464 |
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.
| Foundry operations £'000 | Machining £'000 | Elimination £'000 | Total £'000 |
Revenue from external customers | 68,132 | 1,615 | - | 69,747 |
Inter-segmental revenue | 7,538 | 9,381 | - | 16,919 |
Segmental result | 5,336 | 52 | - | 5,388 |
Unallocated income: Finance income |
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| 19 | |
Profit before income tax |
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| 5,407 |
Total assets | 141,272 | 28,119 | (12,394) | 156,997 |
Non-current asset additions | 2,081 | 298 | - | 2,379 |
Depreciation | 2,263 | 1,787 | - | 4,050 |
Total liabilities | (27,328) | (6,997) | 6,169 | (28,156) |
The following shows the revenues, results and total assets by reportable segment for the half year to 30 September 2020.
| Foundry operations £'000 | Machining £'000 | Elimination £'000 | Total £'000 |
Revenue from external customers | 40,523 | 1,225 | - | 41,748 |
Inter-segmental revenue | 4,099 | 4,767 | - | 8,866 |
Segmental result | 776 | (2,112) | - | (1,336) |
Unallocated income: Exceptional profit on disposal of held for sale asset Finance income |
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|
|
658 |
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|
| 51 | |
Loss before income tax |
|
|
| (627) |
Total assets | 136,837 | 29,966 | (13,280) | 153,523 |
Non-current asset additions | 1,784 | 822 | - | 2,606 |
Depreciation | 2,246 | 2,005 | - | 4,251 |
Total liabilities | (26,214) | (9,299) | 8,156 | (27,357) |
The following shows the revenues, results and total assets by reportable segment for the year ended 31 March 2021.
| Foundry operations £'000 | Machining £'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 income/(costs): |
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|
|
|
Exceptional credit for recovery of Icelandic bank deposits previously written off |
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| 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) |
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:
| Half year to 30 September 2021 £'000 | Half year to 30 September 2020 £'000 |
Final dividend of 11.69p per share for the year ended 31 March 2021 (2020 - 11.40p per share) | 5,101 | 4,974 |
| 5,101 | 4,974 |
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.
| Unaudited Half year to 30 September 2021 | Unaudited Half year to 30 September 2020 | Audited Year to 31 March 2021 |
Profit/(loss) after tax (£'000) | 4,382 | (506) | 4,149 |
Weighted average number of shares - basic calculation | 43,632,068 | 43,632,068 | 43,632,068 |
Weighted average number of shares - diluted calculation | 43,699,509 | 43,667,360 | 43,667,360 |
Earnings per share - basic | 10.04p | (1.16)p | 9.51p |
Earnings per share - diluted | 10.03p | (1.16)p | 9.50p |
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 FCAGroup Finance Director12 November 2021