Castings rusts under pressure from government policy, Icelandic banks and operational costs

In its annual report for the year ended 31 March, the company confirmed that it was continuing to operate at 40% of its previous production level although the situation since February had not worsened and schedules had stabilised at this low level. Chairman Brian Cooke said it was with much regret that 350 employees had been made redundant and that it was particularly sad that many long serving employees had to leave the company. "It would surely have been cheaper for the government to fund temporary short time working rather than increasing unemployment. The unavoidable cost of the redundancies has been £2.2 million; money that could have been spent more wisely on future investment," he went on. "Apart from the redundancy costs, we have provided £3.845 million as possible losses on deposits with Icelandic banks. It has been indicated by the administrators of Heritable Bank and Kaupthing Singer and Friedlander that we will recover some money and this is why the provision has been reduced from the £5.7 million we stated at the interim stage." Castings said it had also been confronted by high operational costs, mainly in respect of electricity, due to the unexpectedly rapid decline in demand. The group had contracted to buy electricity in July 2008 for an estimated year's requirements from October 2008 to September 2009. This was at a high price as at the time energy costs were rising rapidly due to high world oil and gas prices and forecasts were made of a shortage of energy and power cuts. Castings' customers had also been forecasting high demands throughout the year. "It was never predicted that the world recession would be so dramatic. We had to sell excess electricity back into the market at a loss of £2.2 million," Cooke said. "This cost has been taken as normal cost of production, but cannot be recovered from our customers and has therefore had a significant effect on our results. "Our management at all companies have taken timely action to reduce overheads and employment costs, and future capital expenditure is on hold. "The new foundry at William Lee which has cost some £16m is now ready for production; melting and moulding trials are nearly complete and in general very satisfactory with the quality of castings made during trials being excellent. We are well placed to bring this plant into production as soon as customer demand starts to improve. We have purchased land next to the Brownhills site which will enable us to develop for future expansion of the business." The group's machine shop, CNC Speedwell, had seen schedules reduce even more than its foundry companies because of customer de-stocking. "We have had to continue to invest in machinery because of long term comitments, hence we still have a large depreciation charge, with little revenue." Cooke concluded: "Although we have seen levels of demand stabilise, the timing and strength of any recovery still remains uncertain, and we remain cautious with regard to prospects for the 2009/10 financial year." Revenues for the year to 31 March fell to £84.8 million (2008: £97.4m) while pre-tax profit crashed to £3.6 million (£16.7m).