Castings Regulatory News (CGS)

Castings plc

ANNUAL FINANCIAL REPORT

DTR 6.3.5 DISCLOSURE

YEAR ENDED 31 MARCH 2014

Chairman's Statement

The turnover of the group increased to £137.4m with profits of £21.8m.

As previously reported, the results were affected by the disruption following the change in European exhaust emissions regulations from Euro 5 to Euro 6. The increase in demand at short notice created excessive manufacturing and transport costs to meet our customers' requirements. Business has since returned to more predictable levels without exceptional disruptions.

Foundry Production

The foundries at Brownhills and Dronfield have enjoyed high levels of production during most of the year and £3.4m has been invested to increase capacity for core production and finishing.

Further prudent investments will be made to improve productivity in order to maintain our position in a highly competitive market.

CNC Speedwell

Once again it is pleasing to report that CNC has increased sales both from machining castings for our foundries and also for external customers. £6.1m has been invested during the year on new machines and improved inspection equipment. Further investments in plant and equipment will be made as and when new orders are obtained.

Dividend

I am pleased to report the directors recommend an increase in the final dividend to 9.83 pence per share. This, together with an increased interim dividend, gives a total for the year of 12.96 pence per share.

Outlook

Customer requirements have slightly reduced at the present time from the high levels achieved last year. However, several of our major customers have forecast that demand will increase during quarters 3 and 4 of the current financial year. We await further developments and hope the economic recovery in Europe continues.

The company continues to invest in the most up to date machinery both in the foundries and the machining operations and is in a sound financial position to react at short notice for any future investments required.

In conclusion I would like to thank all our employees who have reacted well to the variable demands from our customers.

BRIAN J. COOKE

Chairman

11 June 2014

Castings plc

Lichfield Road

Brownhills

West Midlands

WS8 6JZ

Business and Financial Review

Revenue has increased by 12% to £137.5 million of which 67% (2013 - 65%) was exported. Profit before taxation increased to £21.8 million from £19.2 million.

The dispatch weight of castings to third party customers was 57,600 tonnes, being an increase of 4,900 tonnes from the previous year.

Revenue from the machining operation, CNC Speedwell, to external customers increased by 13% during the year.

During the year we have received £0.36 million (2013 - £0.15 million) from the administrators of the UK subsidiaries of the Icelandic banks. This brings the total sums received to date, of the original balance of £5.7 million, to £3.26 million which is £1.4 million in excess of the original estimate of recoverable amounts. Given the uncertainty over the quantum and timing of any possible further receipts, no allowance has been made for future recoverable amounts.

The reduction in the level of finance income reflects the lower interest rates available during the year.

Operationally the group generated £19.2 million in cash (after tax payments) which, after investment of £9.7 million in property, plant and equipment and £5.4 million in dividend payments, resulted in an increase in cash of £4.1 million in the year (excluding the impact of the £5 million long-term deposit that matured during the year). This results in a total cash and deposits position at the balance sheet date of £27.8 million.

The pension valuation showed an increase in the surplus, on an IAS 19 (Revised) basis, to £14.6 million. This improvement has been aided by additional contributions of £4 million by the company during the year. The 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.

Overall the group returned a profit before taxation of £21.8 million (2013 - £19.2 million) for the year. This includes a £0.1 million charge in respect of the defined benefit pension schemes (as set out in note 6) in accordance with IAS 19 (Revised) and £0.36 million credit for Icelandic bank receipts.

The directors are recommending a final dividend that will be paid in August which, with the interim dividend paid in January, will result in the return of £5.65 million to shareholders.

Consolidated Statement of Comprehensive Income

Consolidated Balance Sheet

Consolidated Cash Flow Statement

Consolidated Statement of Changes in Equity

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.

Castings plc

Notes to the financial report

1. Basis of preparation and accounting policies

While the financial information included in the annual financial report announcement has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards as endorsed for use in the European Union (IFRSs), this announcement does not contain sufficient information to comply with IFRSs.

The same accounting policies that were used in the group financial statements for the year ended 31 March 2013 are followed except for the adoption of:

· IAS 1 'Presentation of Items in Other Comprehensive Income' (Amendments to IAS 1) which introduces the grouping of items in other comprehensive income.

· IAS 19 'Employee Benefits' (Revised 2011) which includes a number of amendments to the accounting for defined benefit pension schemes, including actuarial gains and losses are now required to be recognised in the statement of comprehensive income and excluded permanently from profit and loss and expected returns on plan assets are no longer recognised in profit and loss. The transition to IAS 19 (Revised) has had no impact on the group balance sheet position as actuarial gains and losses were previously reflected within other comprehensive income and the impact on the amounts included within profit and loss or statement of comprehensive income are not considered material so no prior year restatement has been made.

The annual report and accounts will be posted to shareholders on 19 June 2014 and will be available on the company's website, www.castings.plc.uk from 3 July 2014.

2. Business 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 plc and William Lee are aggregated into Foundry Operations and CNC Speedwell is the Machining Operation.

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2014:

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2013:

3. Exceptional item

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 £3.26 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.

4. Dividends

The Board are proposing a final dividend amounting to 9.83 pence per share (2013: 9.36p). An interim dividend of 3.13 pence per share (2013: 2.98p) has already been paid, making the total dividend for the year 12.96 pence per share (2013: 12.34p). 

The Annual General Meeting will be held on Tuesday 19 August 2014 and if the proposed final dividend is approved by the members the dividend will be paid on 22 August 2014 to shareholders registered on 11 July 2014.

5. Earnings per share

The basic and diluted earnings per share is calculated on the profit on ordinary activities after taxation of £17,258,000 (2013: £14,786,000) and on the weighted average number of shares in issue of 43,632,068 in 2014 and in 2013.

6. Property, plant and equipment

The net book value of group land and buildings includes £2,527,000 (2013: £2,527,000) for land which is not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2013: £359,000).

7. Commitments

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 2014 was a surplus of £14,587,000 (2013: £6,655,000). 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. The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2014 or 2013, but is derived from those accounts. Statutory accounts for 2013 have been delivered to the Registrar of Companies and those for 2014 will be delivered following the company's annual general meeting. The auditors have reported on those accounts; 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.

Appendix A

Review of Principal Risks and Uncertainties

Risk

In common with all trading business, 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, products and employment.

Whilst it is not possible to either completely record or to 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.

Operational and commercial risks

The group's revenues are principally derived from commercial vehicle and automotive markets. Both markets, and therefore group revenues, can be subject to variations in patterns of demand. Commercial vehicle sales are linked to technological factors (e.g. emission legislations) and economic growth. Passenger vehicle sales are influenced, inter alia, by consumer preferences, incentives and the availability of consumer credit.

Market competition

Automotive and 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. Whilst there can be no guarantee that business will not be lost on price, we are confident that we can remain competitive.

Customer concentration, programme dependencies and relationships

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 the event of failure, could give rise to material financial liabilities. Whilst it is a policy of the group 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 risk

Foreign exchange rate risk is sometimes partially hedged using forward foreign exchange contracts. Translational risk arises as a consequence of applying different exchange rates to net assets denominated in currencies other than sterling and, not being an exposure that results in an actual cash flow, is not hedged.

Equipment

The group operates a number of specialist pieces of equipment, including foundryfurnaces, moulding lines and CNC milling machines which, due to manufacturinglead times, would be difficult to replace sufficiently quickly to prevent major interruption and possible loss of business in the event of unforeseen failure. Whilstthis risk cannot be entirely mitigated without uneconomic duplication of all keyequipment, all key equipment is maintained to the highest possible standards andinventories of strategic equipment spares maintained. The facilities at Brownhillsand Dronfield have similar equipment and work can be transferred from one locationto another very quickly. The machining business also operates from two separate locations enabling the transfer of some production if required.

Suppliers and trade credit

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 dependant, 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 ability of our suppliers to maintain credit insurance on the group and its principal operating business is an important issue. We have excellent relationships with our suppliers and we continue to work closely with them on a normal commercial basis. A reduction in the level of cover available to suppliers may impact on our trading relationship with them and may have a significant effect on cash flows.

Commodity and energy pricing

The principal metal raw materials used by the group's businesses are steel scrapand various alloys. The most important alloy raw material inputs are premiumgraphite, magnesium ferro-silicon, copper, nickel and molybdenum. 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 twelve months, although renegotiation risks remain at contract maturity dates but again this is mitigated through the application of price adjustment clauses.

Information technology and systems reliability

The group is dependent on its information technology ('IT') systems to operate its business efficiently, without failure or interruption. Whilst data within key systems is regularly backed up and systems subject to virus protection, any failure of back-up systems or other major IT interruption could have a disruptive effect on the group's business.

Short-term deposits

A review of credit ratings is undertaken prior to making new deposits and the maximum exposure to any one counter-party is restricted. However, institutions can be downgraded before maturity therefore possibly placing these deposits at risk.

Environmental risk

The group's businesses are subject to compliance with many different laws and requirements in the UK, Europe, North America and elsewhere. Great care is made to act responsibly towards the environment to achieve compliance with all relevant laws and to establish a standard above the minimum level required. Whilst the group's manufacturing processes are not generally considered to provide a high risk of harm to the environment, a major control failure leading to environmental harm could give rise to a material financial liability as well as significant harm to the reputation of our business.

Pension scheme funding

The fair value of the assets and liabilities of the group's defined benefit pension schemes is substantial. As at 31 March 2014 the schemes were in surplus on an IAS19 (Revised 2011) basis. The potential risks and uncertainties are mitigated by careful management and continual monitoring of the schemes and by appropriate and timely action to ensure as far as possible that the defined benefit pension liabilities do not increase disproportionately. The company works closely with the scheme trustees and specialist advisers in managing the inherent risks of such schemes.

The schemes were closed to future accruals from 6 April 2009 which will only leave past service liabilities to be funded.

Appendix B

The statements below have been prepared in connection with the group's full annual report for the year ended 31 March 2014. Certain parts thereof are not included within this announcement.

Each of the persons who is a director at the date of approval of this report confirms that to the best of his knowledge:

(a) each of the Group and Parent financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU and UK Accounting Standards respectively, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and

(b) the Chairman's Statement, Strategic Report and Directors' Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

By order of the Board

B J Cooke

Chairman

11 June 2014