Last checked at 13 Nov 2020 07:00
CASTINGS P.L.C.INTERIM MANAGEMENT REPORT
Six months ended 30 September 2020
Overview
Sales for the six months ended 30 September 2020 were £41.7 million (2019 - £73.1 million) with loss before tax of £0.63 million (2019 - profit of £7.34 million).
The period has been significantly impacted by reduced demand as a result of the COVID-19 pandemic. Output reduced by approximately 80% during the first two months of the period as the commercial vehicle sector, which represents 70% of group revenue, closed production facilities and 80% of our workforce was placed on furlough leave under the Coronavirus Job Retention Scheme. During the following four months, there was a gradual increase in demand from the heavy-truck OEMs such that monthly demand levels were approximately 85% of pre-COVID levels at the end of the period.
The group completed on the sale of the Fradley site for £1.95 million (before disposal costs) on 22 September 2020, resulting in a profit of £0.66 million.
Foundry operations
Output during the period was down 43% at 14,350 tonnes (2019 - 25,200 tonnes) and external sales revenue decreased by 42% to £40.5 million.
The profit from the foundry segment of £0.8 million represents a decrease of 89% from the equivalent period last year ('previous period'). The margin has been negatively impacted by the lower production levels and significant disruption during the period resulting in production inefficiencies. However, assuming demand remains buoyant, productivity gains are due to be realised during the second half of the financial year and into 2021/22.
The strong group cash position has enabled the continued investment in foundry facilities during the period, including £1.6 million to support a production line upgrade and the introduction of a new in-house heat treatment plant.
Machining operation
CNC Speedwell generated external revenue of £1.2 million during the period, a decrease of 60% compared to the previous period, with a reported loss of £2.1 million compared to a profit of £0.1 million in the previous period. The significantly lower levels of demand have a particularly negative impact on such a well-invested business with a depreciation cost of £2.0 million in the period.
The focus on automation and productivity improvements has continued which makes up the majority of the capital investment of £0.8 million during the period.
Outlook
The current heavy-truck schedules suggest output returning to pre-COVID levels, albeit there continues to be uncertainty regarding the pandemic. Assuming these levels are realised, the group is well positioned to see the benefits of the productivity improvements in both the foundry and machining businesses.
The group has been successful in obtaining a number of new projects with our European truck customers that will commence production in 2021/22 and 2022/23. In addition to replacement work, these projects include additional platform volumes and also more value-add product solutions.
The automation of finishing processes within the foundries is largely complete and 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 £35.2 million; an increase of £1.8 million during the period after the dividend payment of £5.0 million.
Dividend
An interim dividend of 3.57 pence per share has been declared and will be paid on 7 January 2021 to shareholders who are on the register at 27 November 2020.
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 and 9 of the Annual Report for the year ended 31 March 2020.
The COVID-19 pandemic has caused significant disruption to the group during the period. Our commercial vehicle customers ceased production for a three to five week period during March and April 2020. However, since that time, demand levels have steadily improved, employees have returned from furlough leave and production levels have increased. Whilst we have not seen any further significant impact as a result of the pandemic, it does still have the potential to disrupt supply chains and future demand.
The negotiations on the UK's future trading relationship with the European Union remain ongoing. With over 70% of the group's sales revenue being generated in this market, there remains a potential risk. We maintain regular dialogue with suppliers and customers to ensure that supply risks are mitigated where possible.
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. COOKEChairman13 November 2020Castings p.l.c.Lichfield RoadBrownhillsWest MidlandsWS8 6JZ
Consolidated Statement of Comprehensive Income
For six months ended 30 September 2020
| Unaudited Half year to 30 September 2020 £'000 | Unaudited Half year to 30 September 2019 £'000 | Audited Year to 31 March 2020 £'000 |
Revenue | 41,748 | 73,135 | 138,667 |
Cost of sales | (36,593) | (57,349) | (109,186) |
Gross profit | 5,155 | 15,786 | 29,481 |
Distribution costs | (769) | (1,444) | (2,510) |
Administrative expenses | (5,722) | (7,109) | (14,477) |
(Loss)/profit before surplus on sale of property | (1,336) | 7,233 | 12,494 |
Surplus on sale of property | 658 | - | - |
(Loss)/profit from operations | (678) | 7,233 | 12,494 |
Finance income | 51 | 111 | 206 |
(Loss)/profit before income tax | (627) | 7,344 | 12,700 |
Income tax credit/(expense) | 121 | (1,393) | (2,634) |
(Loss)/profit for the period attributable to the equity holdersof the parent company | (506) | 5,951 | 10,066 |
Other comprehensive income/(expense) for the period: |
|
|
|
Items that will not be reclassified to profit and loss: |
|
|
|
Movement in unrecognised surplus on defined benefit pensionschemes net of actuarial gains and losses | - | - | 258 |
| - | - | 258 |
Items that may be reclassified subsequently to profit and loss: |
|
|
|
Change in fair value of available for sale financial assets | (15) | 30 | (22) |
Tax effect of items that may be reclassified | 3 | (5) | 4 |
| (12) | 25 | (18) |
Total other comprehensive (losses)/income for the period(net of tax) | (12) | 25 | 240 |
Total comprehensive (loss)/income for the period attributableto the equity holders of the parent company | (518) | 5,976 | 10,306 |
Earnings per share attributable to the equity holdersof the parent company |
|
|
|
Basic and diluted | (1.16)p | 13.64p | 23.07p |
Consolidated Balance Sheet
30 September 2020
| Unaudited 30 September 2020 £'000 | Unaudited 30 September 2019 £'000 | Audited 31 March 2020 £'000 |
ASSETS |
|
|
|
Non-current assets |
|
|
|
Property, plant and equipment | 68,843 | 70,999 | 70,693 |
Financial assets | 343 | 410 | 358 |
| 69,186 | 71,409 | 71,051 |
Current assets |
|
|
|
Inventories | 17,932 | 19,077 | 21,175 |
Trade and other receivables | 30,777 | 36,954 | 28,661 |
Current tax asset | 411 | 524 | 332 |
Cash and cash equivalents | 35,217 | 25,835 | 33,401 |
| 84,337 | 82,390 | 83,569 |
Assets classed as held for sale | - | 1,060 | 1,060 |
| 84,337 | 83,450 | 84,629 |
Total assets | 153,523 | 154,859 | 155,680 |
LIABILITIES |
|
|
|
Current liabilities |
|
|
|
Trade and other payables | 23,550 | 22,453 | 20,092 |
Current tax liabilities | - | - | - |
| 23,550 | 22,453 | 20,092 |
Non-current liabilities |
|
|
|
Deferred tax liabilities | 3,807 | 3,560 | 3,930 |
Total liabilities | 27,357 | 26,013 | 24,022 |
Net assets | 126,166 | 128,846 | 131,658 |
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 | 120,916 | 123,596 | 126,408 |
Total equity | 126,166 | 128,846 | 131,658 |
Consolidated Cash Flow Statement
For six months ended 30 September 2020
| Unaudited Half year to 30 September 2020 £'000 | Unaudited Half year to 30 September 2019 £'000 | Audited Year to 31 March 2020 £'000 |
Cash flows from operating activities |
|
|
|
(Loss)/profit before income tax | (627) | 7,344 | 12,700 |
Adjustments for: |
|
|
|
Depreciation | 4,251 | 4,163 | 8,903 |
Profit on disposal of property, plant and equipment | - | - | (40) |
Profit on disposal of held for sale asset | (658) | - | - |
Finance income | (51) | (111) | (206) |
Pension administrative costs | - | - | 258 |
Decrease/(increase) in inventories | 3,243 | 87 | (2,011) |
(Increase)/decrease in receivables | (712) | 5,185 | 11,713 |
Increase/(decrease) in payables | 3,458 | (1,769) | (4,130) |
Cash generated from operating activities | 8,904 | 14,899 | 27,187 |
Tax paid | (78) | (3,685) | (4,355) |
Interest received | 41 | 101 | 186 |
Net cash generated from operating activities | 8,867 | 11,315 | 23,018 |
Cash flows from investing activities |
|
|
|
Dividends received from listed investments | 10 | 10 | 20 |
Purchase of property, plant and equipment | (2,606) | (3,724) | (8,158) |
Proceeds from disposal of property, plant and equipment | - | - | 40 |
Proceeds from disposal of held for sale asset | 1,923 | - | - |
Transfer from/(to) other current interest-bearing deposits | - | 5,000 | 5,000 |
Repayments from pension schemes | - | - | 3,525 |
Advances to pension schemes | (1,404) | (1,018) | (2,778) |
Net cash used in investing activities | (2,077) | 268 | (2,351) |
Cash flow from financing activities |
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|
|
Dividends paid to shareholders | (4,974) | (11,519) | (13,037) |
Net cash used in financing activities | (4,974) | (11,519) | (13,037) |
Net increase/(decrease) in cash and cash equivalents | 1,816 | 64 | 7,630 |
Cash and cash equivalents at beginning of period | 33,401 | 25,771 | 25,771 |
Cash and cash equivalents at end of period | 35,217 | 25,835 | 33,401 |
Cash and cash equivalents: |
|
|
|
Short-term deposits | 33,394 | 23,362 | 28,610 |
Cash available on demand | 1,823 | 2,473 | 4,791 |
| 35,217 | 25,835 | 33,401 |
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 2020 | 4,363 | 874 | 13 | 126,408 | 131,658 |
Loss for the period | - | - | - | (506) | (506) |
Other comprehensive income/(losses): |
|
|
|
|
|
Change in fair value of available for sale 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 |
Unaudited | £'000 | £'000 | £'000 | £'000 | £'000 |
At 1 April 2019 | 4,363 | 874 | 13 | 129,139 | 134,389 |
Profit for the period | - | - | - | 5,951 | 5,951 |
Other comprehensive income/(losses): |
|
|
|
|
|
Change in fair value of available for sale assets | - | - | - | 30 | 30 |
Tax effect of items taken directly to reserves | - | - | - | (5) | (5) |
Total comprehensive income for the periodended 30 September 2019 | - | - | - | 5,976 | 5,976 |
Dividends | - | - | - | (11,519) | (11,519) |
At 30 September 2019 | 4,363 | 874 | 13 | 123,596 | 128,846 |
Audited | £'000 | £'000 | £'000 | £'000 | £'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 loss | - | - | - | 258 | 258 |
Change in fair value of available for sale assets | - | - | - | (22) | (22) |
Tax effect of items taken directly to reserves | - | - | - | 4 | 4 |
Total comprehensive income for the year ended 31 March 2020 | - | - | - | 10,306 | 10,306 |
Dividends | - | - | - | (13,037) | (13,037) |
At 31 March 2020 | 4,363 | 874 | 13 | 126,408 | 131,658 |
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 2020 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 2020 does not constitute the full statutory accounts for that period. The Annual Report and Financial Statements for the year ended 31 March 2020 have been filed with the Registrar of Companies. The Independent Auditors' Report on the Annual Report and Financial Statements for 2019 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 as endorsed by the European Union. The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.
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 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 |
|
|
|
658 |
|
|
| 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 half year to 30 September 2019.
| Foundry operations £'000 |
Machining £'000 |
Elimination £'000 |
Total £'000 |
Revenue from external customers | 70,106 | 3,029 | - | 73,135 |
Inter-segmental revenue | 9,609 | 10,325 | - | 19,934 |
Segmental result | 7,094 | 139 | - | 7,233 |
Unallocated income: Finance income |
|
|
|
|
|
|
| 111 | |
Profit before income tax |
|
|
| 7,344 |
Total assets | 137,691 | 31,430 | (14,262) | 154,859 |
Non-current asset additions | 3,077 | 647 | - | 3,724 |
Depreciation | 2,048 | 2,115 | - | 4,163 |
Total liabilities | (25,890) | (7,776) | 7,653 | (26,013) |
The following shows the revenues, results and total assets by reportable segment for the year ended 31 March 2020.
| Foundry operations £'000 | Machining £'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 income/(costs): |
|
|
|
|
Exceptional credit for recovery of Icelandic bank deposits previously written off |
|
|
| 10 |
Defined benefit pension costs |
|
|
| (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) |
5. Surplus on sale of property
During the 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 2020 £'000 | Half year to 30 September 2019 £'000 |
Final dividend of 11.40p per share for the year ended 31 March 2020 (2019 - 11.40p per share) | 4,974 | 4,974 |
Supplementary dividend of 15.00p per share for the year ended 31 March 2019 | - | 6,545 |
| 4,974 | 11,519 |
The directors have declared an interim dividend in respect of the financial year ending 31 March 2021 of 3.57p per share (2020 - 3.48p), which will be paid on 7 January 2021.
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 2020 | Unaudited Half year to 30 September 2019 | Audited Year to 31 March 2020 |
(Loss)/profit after tax (£'000) | (506) | 5,951 | 10,066 |
Weighted average number of shares - basic earnings per share calculation | 43,632,068 | 43,632,068 | 43,632,068 |
Weighted average number of shares - diluted earnings per share calculation | 43,667,360 | 43,632,068 | 43,632,068 |
Earnings per share - basic and diluted | (1.16)p | 13.64p | 23.07p |
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 £1,404,000 (2019 - £1,018,000) was paid by the group on behalf of the schemes in respect of pension payments and administration costs. At 30 September 2020, the outstanding balance of £4,182,000 (2019 - £4,543,000) is repayable within one year.
Payments made by the company on behalf of the schemes in the current period are repayable by 30 November 2021.
9. Interim report
Copies of this interim management report will be available on the company's website, www.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 as adopted by the European Union 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 Director13 November 2020