Castings Regulatory News (CGS)

Castings P.L.C.

Annual Financial Report

DTR 6.3.5 Disclosure

Year ended 31 March 2015

Chairman's Statement

The turnover of the group decreased to £131 million (£137 million last year) with reduced profits of £17.5 million compared to £21.8 million last year.

Foundry businesses

The foundry operation saw a reduction in casting output of 8.5%. This was expected from the high levels of the previous financial year due to the change over from Euro 5 vehicle production to Euro 6 production which boosted sales to our European customers in 2013.

The work mix at William Lee has increased in complexity and this has led us to pursue further harmonisation of production methods across the group. The new senior management team at William Lee have addressed the production issues that arose and good progress has been made. I am confident that the William Lee foundry will return to greater profitability under the new team.

CNC Speedwell

Production volumes at CNC also reduced from the high level of the previous year and this resulted in a small profit reduction. It is pleasing to report a higher proportion of revenue from external customers following our decision to increase machining of alternative materials with a wider customer base.

The group has invested £3.9m in the machining business to support the new orders that have been generated.

Dividend

I am pleased to report that the directors recommend an increase in the final dividend to 10.08 pence per share. This, together with an increased interim dividend, gives a total for the year of 13.30 pence per share.

Outlook

In general we are now experiencing improved volumes from many of our customers and it is anticipated profits will increase providing the recovery continues.

Directors

Graham Cooper retired as managing director of William Lee on 30 September 2014 and Paul King will retire as a non-executive director at the Annual General Meeting on 18 August 2015.

I wish to thank them both for their contribution over many years to Castings plc.

In conclusion I wish to thank all our employees for their contribution during the year and hope we will now enjoy a period of stability.

B. J. CookeChairman

10 June 2015

Business and Financial Review

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 are set out below.

Foundry operations

The foundry businesses have experienced a reduction in output of 8.5% to 52,700 tonnes resulting in a fall in external sales revenue of 5.5% to £113.3 million.

Foundry sales volumes were expected to reduce compared to the previous year which experienced exceptional levels of commercial vehicle customer demand. This was as a result of emissions legislation changes in Europe to the Euro 6 standard causing a pre-buy effect up to 31 December 2013, with demand from European customers reducing in the final quarter of the 2014 financial year.

The segmental profit has fallen to £13.1 million, from £16.2 million in the previous year, which represents 9.8% of total segmental sales (2014 - 11.3%).

The work mix at William Lee has increased in complexity which has impacted profitability in the year and necessitated greater harmonisation of production methods across the group. Following some senior personnel changes, the new management team have addressed the production issues that arose and good progress has been made.

With customer requirements forecast to increase from current levels, particularly in the commercial vehicles sector, it is hoped that the foundry operations can improve performance during the current financial year. Following investment in processing, finishing and warehousing during the year, it is not anticipated that significant further investment in the foundry operations will be required to satisfy the current or anticipated levels of demand.

Machining

The machining business generated total sales of £31.4 million in the year compared to £31.5 million in the previous year. Of the total revenue, 57.3% was generated from external customers compared to 55.8% in 2014, reflecting our strategy to expand general machining in alternative materials with blue chip customers.

With the European engine change to Euro 6, the business has had to adapt to varying levels of demand for both the old and new engines. During that period that company was not able to fully maximise the utilisation of the assets in the business. As a result, the segmental profit has fallen to £4.5 million (2014 - £5.2 million) and the profit on total sales to 14.4% (2014 - 16.5%). As demand becomes more predictable, it is anticipated that the profitability of the machining segment will improve.

We have invested £3.9 million during the year to accommodate new orders and will continue to do so as and when the order book grows further. In the current year, the business expects to benefit from the commercial vehicle market increases in line with the foundry operations and for volumes from other markets to remain strong.

Business review and performance

Revenue

Group revenues decreased by 4.5% to £131.3 million compared to £137.5 million reported in 2014, of which 67% was exported (2014 - 67%).

The revenue from the foundry operations to external customers decreased 5.5% to £113.3 million (2014 - £119.9 million) with the dispatch weight of castings to third-party customers decreasing 8.5% to 52,700 tonnes (2014 - 57,600 tonnes).

Revenue from the machining operation to external customers increased by 2.3% during the year to £18.0 million (2014 - £17.6 million).

Operating profit and segmental result

The group operating profit for the year was £17.4 million compared to £21.6 million reported in 2014.

The foundry operations returned a segmental profit of £13.1 million compared to £16.2 million in 2014. This represents a fall in segmental profit as a percentage of total segment sales from 11.3% in 2014 to 9.8% in 2015, reflecting the production inefficiencies experienced at William Lee Limited.

The segmental profit of the machining operation was £4.5 million in the year compared to £5.2 million in 2014, being 14.4% (2014 - 16.5%) of total segment sales.

Icelandic bank receipts

During the year we have received £0.02 million (2014 - £0.36 million) from the administrators of the UK subsidiaries of the Icelandic banks. Of the original balance of £5.7 million, the total received to date is £3.28 million which is £1.42 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.

Finance income

The reduction in the level of finance income from £0.18 million in 2014 to £0.14 million in the current year reflects the lower deposit interest rates available during the year.

Profit before income tax

Profit before taxation has decreased to £17.5 million from £21.8 million.

Taxation

The current year tax charge of £3.67 million (2014 - £4.58 million) is made up of a current tax charge of £3.14 million (2014 - £4.82 million) and a deferred tax charge of £0.53 million (2014 - credit of £0.24 million).

The effective rate of tax of 20.9% (2014 - 21.0%) is in line with the prevailing UK corporation tax for the year.

Earnings per share

Underlying basic earnings per share decreased 19.6% to 31.80 pence (2014 - 39.55 pence) reflecting a 19.6% reduction in profits and a consistent effective tax rate. There has been no change in the weighted average number of shares in issue of 43,632,068.

Dividends

The directors are recommending an increase in the final dividend to 10.08 pence per share (2014 - 9.83 pence per share). This would give a total distribution for the year of 13.30 pence per share (2014 - 12.96 pence per share).

Cash flow

The group generated cash from operating activities of £20.4 million compared to £23.9 million in 2014. Working capital levels have increased in the year with an increase in receivables (£2.1 million) and a reduction in payables (£2.5 million) being partly offset by a fall in inventories of £0.5 million.

Corporation tax payments during the year totalled £4.4 million compared to £4.9 million in 2014.

Capital expenditure during the year amounted to £8.2 million (2014 - £9.7 million) with investment in production processes, finishing equipment and warehousing in the foundry businesses and machining centres within the machining operation. The charge for depreciation was broadly consistent at £6.8 million compared to £6.0 million in 2014.

A longer term deposit of £10 million was taken out during the year and matures during the next financial year resulting in a decrease in cash and cash equivalents during the year. This compares to an inflow of £5 million in 2014 with the maturity of a similar deposit.

Dividends paid to shareholders were £5.7 million in the year compared to £5.5 million in 2014.

The resulting net cash and cash equivalents represented a decrease by £7.8 million (2014 - £9.1 million increase) including the impact of the current interest-bearing deposit of £10 million. If this were to be excluded, the total cash and deposits increased by £2.2 million in the year compared to £4.1 million in 2014.

At 31 March 2015, the total cash and deposits position at the balance sheet date is £30.0 million (2014 - £27.8 million).

Pensions

The pension valuation showed a consistent surplus, on an IAS 19 (Revised) basis, of £14.6 million compared to the previous 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.

Balance sheet

Net assets at 31 March 2015 were £119.3 million (2014 - £110.9 million). This reflects the total comprehensive income for the year of £14.1 million, offset by dividends of £5.7 million. Non-current assets have increased to £71.6m (2014 - £65.7 million) primarily as a result of the debtor due from the pension scheme of £4.5 million, details of which are set out in note 6. Current assets have decreased to £72.5 million (2014 - £73.2 million) primarily due to the transfer of the pension debtor to non-current assets and working capital movements. Total liabilities have reduced to £24.7 million (2014 - £28.0 million), mainly as a result of a reduction in trade payables.

Consolidated Statement of Comprehensive Income

for the year ended 31 March 2015

Consolidated Balance Sheet

31 March 2015

Consolidated Cash Flow Statement

for the year ended 31 March 2015

Consolidated Statement of Changes in Equity

for the year ended 31 March 2015

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 report

1 Basis of preparation

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 2014 are followed except for the adoption of:

IFRS 10 Consolidated Financial Statements - this standard established the requirement for entities that a company controls.

IFRS 12 Disclosure of Interests in Other Entities - this standard outlines disclosure requirements for interests in subsidiaries, joint arrangements, associates and structured entities.

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 and CNC Speedwell Limited is the Machining operation.

The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2015:

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 2014:

All non-current assets are based in the United Kingdom.

3 Exceptional items

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 £3.28 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 Income tax

The reduction in the UK corporation tax rate to 20% from 1 April 2015 was substantively enacted in July 2013. Accordingly, this rate has been applied in the measurement of the group's deferred tax assets and liabilities at 31 March 2014 and 2015.

5 Dividends

The directors are proposing a final dividend of 10.08 pence (2014 - 9.83 pence) per share totalling £4,398,112 (2014 - £4,288,160). The Annual General Meeting will be held on Tuesday 18 August 2015 and if the proposed final dividend is approved by the members the dividend will be paid on 21 August 2015 to shareholders registered on 10 July 2015.

6 Earnings per share

Earnings per share is calculated on the profit on ordinary activities after taxation of £13,875,000 (2014 - £17,258,000) and on the weighted average number of shares in issue at the end of the year of 43,632,068 (2014 - 43,632,068). There are no share options, hence the diluted earnings per share is the same as above.

7 Property, plant and equipment

The net book value of group land and buildings includes £2,527,000 (2014 - £2,527,000) for land which is not depreciated. Included within the land and buildings are assets in the course of construction with a net book value of £1,015,000 (2014 and 2013 - £nil) which are not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2014 - £359,000).

8 Commitments

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 2015 was a surplus of £14,564,000 (2014 - £14,587,000). 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.

10 Preliminary statement

The financial information set out above does not constitute the company's statutory accounts for the years ended 31 March 2015 or 2014, but is derived from those accounts. Statutory accounts for 2014 have been delivered to the Registrar of Companies and those for 2015 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.

The annual report and accounts will be posted to shareholders on 18 June 2015 and will be available on the company's website, www.castings.plc.uk, from 26 June 2015.

Appendix A - 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

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

The group is exposed to foreign exchange risk on both sales and purchases that are denominated in currencies other than sterling, primarily euro and US dollar. Foreign exchange rate risk is sometimes partially hedged using forward foreign exchange contracts.

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. Whilst this risk cannot be entirely mitigated without uneconomic duplication of all key equipment, all key equipment is maintained to the highest possible standards 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. 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 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 ability of our suppliers to maintain credit insurance on the group and its principal operating businesses 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 scrap and various alloys. The most important alloy raw material inputs are premium graphite, 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. At 31 March 2015, the group has electricity contracts in place until 30 September 2016 with consumption levels at the balance sheet date being well within the agreed tolerance levels and this situation is not expected to change.

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 thereby possibly placing these deposits at risk.

Environmental

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. Further information is set out on page 9.

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 2015 the schemes were in surplus on an IAS 19 (Revised) basis. Further details are set out in note 6 to the accounts. The potential risks and uncertainties resulting from factors such as investment return, interest rates and mortality rates 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 only leaves 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 2015. 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. CookeChairman

10 June 2015