A n n u a l R e p o r t 2 0 1 1 C o n t e n t s 2 Directors 3 Chairman’s Statement 4 Business and Financial Review 5 Directors’ Report 9 Review of Principal Risks and Uncertainties 11 Corporate Social Responsibility 13 Corporate Governance 16 Remuneration Report 18 Statement of Directors’ Responsibilities 19 Independent Auditors’ Report 20 Consolidated Statement of Comprehensive Income 21 Consolidated Balance Sheet 22 Consolidated Cash Flow Statement 23 Consolidated Statement of Changes in Equity 24 Notes to the Accounts 44 Five Year Financial History 45 Parent Company Balance Sheet 46 Notes to the Parent Company Accounts 52 Notice of Meeting 54 Directors, Officers and Advisers 55 Shareholder Information A n n u a l R e p o r t 2 0 1 1 1 D i r e c t o r s Executive Directors Non-Executive Directors Brian Cooke Chairman Gerard Wainwright Non-executive Director Aged 71, he joined the company in 1960 Aged 61, he was appointed a director after attending foundry college and in 1998 and is the senior independent serving an engineering apprenticeship. He director. He has been chief executive of a worked in all departments of the company wide range of manufacturing companies and was appointed a director in 1966, for over twenty-five years together with becoming joint managing director in 1968 international experience. He is chairman and managing director in 1970. He ceased of the remuneration committee and a to be chief executive in 2007. He has been member of the audit and nomination Chairman since 1983. David Gawthorpe Chief Executive Officer committees. Paul King Non-executive Director Aged 49, he joined the company in 1984 Aged 74, he was appointed a director and became local technical director at in 1998 and is an independent director. Brownhills in 1994. He was appointed He retired from practice as a partner a director in 2003 and became chief with Coopers & Lybrand and has been executive in April 2007 and is the director a member of the boards of a number with environmental and human resource of companies. He is chairman of the responsibility. Steve Mant Finance Director audit committee and is regarded as the financial expert of that committee and is also a member of the remuneration and nomination committees. Aged 35, he joined the company in June 2010 and was appointed company Tony Smith secretary and finance director on 1 Non-executive Director November. Prior to joining the company he Aged 64, he joined the company in 1962 had been working for BDO LLP specialising and became a director in 1985, ultimately in manufacturing, international and listed being managing director at Brownhills. In 2004 he retired from executive duties. His continuing involvement is invaluable to the company with his experience in foundry production and human relations. He adds to the existing strength of our non-executive directors. He is a member of the audit, remuneration and nomination committees. companies. Mark Lewis Managing Director — CNC Speedwell Ltd Aged 47, he joined CNC Speedwell in 1990 becoming their managing director in 1996. He has overseen the machining requirements for the group and was appointed a director in 2003. Graham Cooper Managing Director — William Lee Ltd Aged 57, he joined William Lee in 1977 becoming operations director there in 2003 and their managing director in 2005, when he was appointed to the main board. 2 A n n u a l R e p o r t 2 0 1 1 C h a i r m a n ’ s S t a t e m e n t S t a t e m e n t o f f u l l y e a r r e s u l t s The financial year under review was a period of recovery from a low level of activity rising to levels not seen since year ending March 2008. Our turnover increased from £60.6m to a record level of £105.4m. The turnover has been affected by the rapid rise in raw material costs which accounts for some £5.7m of turnover. Foundry Production We are now operating at the Castings Icelandic Banks As reported in the business and financial Brownhills site at previous levels of review, during the year we have received production and at William Lee we are £0.86m from the administrators of the UK producing at record levels with the new subsidiaries of the Icelandic Banks. We foundry operating at near capacity levels. have now recovered a total of £2.06m Overall we still have capacity available for and it is hoped further payments will be future growth. We had considerable costly received. It was reported at the half year that trading the rapid changes in customer schedules. was improving; this has continued and we This caused excessive transport costs and logistics problems during the year due to Dividend I am pleased to report the directors are now operating at pre-recession levels higher stock levels to satisfy customer’s recommend an increase in the final and in the machining business at levels demands, however I am pleased to report dividend to 8.04 pence per share after two above those in 2008. that we are now back to on-time delivery years of no increases. It is gratifying that During this period we are pleased to report that we have re-employed a considerable number of people we had made redundant. We have also taken on many new employees. I wish to thank all our employees for their contribution to the recovery and to welcome new employees. It is sincerely hoped we can enjoy a period of sustained growth in a somewhat uncertain economic outlook. Our major customers appear to be optimistic about the future and forecast increased volumes. and we are getting our stocks under due to careful cash management and the control. CNC Speedwell – Machining Business I am pleased to report CNC had a record year which is very satisfying thus justifying the considerable investment made in policy of maintaining a good cash position we did not reduce dividends during the recession. We hope the shareholders support our view on cash management. Outlook Despite various adverse reports, our the company. This has been achieved customers are forecasting stable or by obtaining new customers, machining increased demands and if these forecasts third party castings and an improvement are converted to sales we will enjoy in traditional business. The company will further growth in the company and our continue to invest when opportunities investments in both foundry production arise. Again the management and staff and machining capacity will improve have reacted well to the rapid changes in returns. customer demands. Future Investments We are at advanced stages of obtaining planning permission to build a warehouse and possible manufacturing area on land we acquired three years ago. This will improve our logistics, stock control and also improve traffic congestion on the main road at our Brownhills sites. The estimated cost will be £5m and it is hoped the project will be complete by the end of the year. In conclusion, I would again like to thank all our employees for their continued support and understanding through a period of considerable change. B. J. COOKE Chairman 22 June 2011 A n n u a l R e p o r t 2 0 1 1 3 B u s i n e s s a n d F i n a n c i a l R e v i e w We have seen further increases in During the year we have received Overall the group returned a profit demand during the financial year and we £0.86 million from the administrators before taxation of £15.5 million for have added further shifts to match the of the UK subsidiaries of the Icelandic the year, which includes a £0.4 million increased order levels. banks. This brings the total sums credit in respect of the defined benefit Revenue has increased by 74% to £105 million of which 60% was exported. The despatch weight of castings to third party customers was 50,600 tonnes, being an increase of 18,800 tonnes from the previous year. Revenue from the machinist operation, CNC Speedwell, increased by 151%. The speed at which volumes increased did result in some temporary inefficiencies in production which, along with raw material price increases, have impacted on margins when compared to pre-recession levels. The use of the new foundry at William Lee continues to increase as volumes rise. received to-date to £2.06 million which pension schemes (as set out in note 6) in is £0.2 million in excess of the original accordance with IAS 19. The directors are recommending a final dividend that will be paid August which, with the interim dividend paid in January, will result in the return of £4.7 million to shareholders. 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 level of finance income again reflects the prevailing low interest rates during the year. The overall cash position at the balance sheet date has reduced by £1 million as the group has invested £9 million in plant and equipment during the year which has off-set the £13 million net cash generated from operating activities (excluding dividends paid of £4.4 million). The pension valuation showed a further improvement in the surplus, on an IAS 19 basis, to £6.7 million. This continues to not be recognised on the balance sheet due to the restriction of recognition of assets. 4 A n n u a l R e p o r t 2 0 1 1 D i r e c t o r s ’ R e p o r t Act 2006 are required to direct all communications to the registered holder of their shares rather than to the company’s registrar, Capita Registrars, or to the company directly. Subject to legislation and to any resolution of the company in general meeting, all unissued shares are at the disposal of the board who may allot, grant options over or otherwise dispose of them to such persons, on such terms and at such times as it may think fit. The company is authorised to purchase its own shares. Directors The directors of the company are listed on page 2 and in addition J. C. Roby was a director until 31 October 2010. The interests of directors in the ordinary share capital at the beginning and end of the year were: activities of these companies during the B. J. Cooke A. J. Smith G. B. Wainwright D. J. Gawthorpe G. Cooper M. A. Lewis C. P. King S. J. Mant Beneficial Holdings 2011 2010 1,955,386 1,953,986 103,079 103,079 59,261 28,296 8,000 3,025 — — 30,000 28,296 8,000 3,025 — — There have been no changes in the shareholdings of directors since the year end. The following directors retire under the provisions of the Articles of Association and, being eligible, offer themselves for re-election: G. B. Wainwright G. Cooper } by rotation S. J. Mant – having been appointed since the last Annual General Meeting. The unexpired period of the contracts of service for B. J. Cooke, S. J. Mant, D. J. Gawthorpe, M. A. Lewis and G. Cooper is one year. Mr A. J. Smith, G. B. Wainwright and C. P. King do not have contracts of service. The company has made qualifying third-party indemnity provisions for the benefit of its directors which were in force during the year and exist at the date of this report. There are no agreements between the company and its directors or employees providing for compensation for loss of office or employment that occurs because of a takeover bid. The number of directors is not subject to any maximum but shall not be less than two. The company may by ordinary resolution elect any person to be director and the board has the power to appoint any person to be director, but any director so appointed shall retire from office at the next Annual General Meeting. A director is not required to hold any share qualification. One-third of the directors retire from office at every Annual General Meeting and are eligible for reappointment. The board considers that the performance of those directors proposed for re-election continues to be effective, that they remain independent in judgement and that they demonstrate a strong commitment to their role. The directors submit their Annual Report and the Audited Accounts for the year ended 31 March 2011. Trading activities Castings P.L.C. supplies spheroidal graphite iron castings to a variety of manufacturing industries from its highly mechanised foundries at Brownhills. William Lee Limited supplies spheroidal graphite iron castings from Dronfield, Sheffield and CNC Speedwell Limited is a machining operation. There were no significant changes in the principal year. The progress of these companies during the year is recorded in the accounts, the Chairman’s Statement on page 3 and the Business and Financial Review on page 4. A Review of Principal Risks and Uncertainties is given on pages 9 and 10. Dividends An interim dividend of 2.71 pence per share was paid in January 2011. The directors now recommend a final dividend of 8.04 pence per share payable on 19th August 2011 to shareholders on the register on 22nd July 2011, making a total distribution of 10.75 pence for the year. Share capital The company’s capital consists of 43,632,068 (2010 – 43,632,068) ordinary shares of 10 pence each with voting rights. There are no restrictions on voting rights. There are no restrictions on the transfer of shares in the company and in particular there are no limitations on the holding of shares and no requirements to obtain the approval of the company, or of other shareholders, for a transfer of shares. Beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies A n n u a l R e p o r t 2 0 1 1 5 D i r e c t o r s ’ R e p o r t continued The business of the company is managed by the board who may exercise all such days immediately preceding the day of a powers of the company as are not by legislation or by the company’s Articles required to purchase. The minimum price which may be exercised in general meeting. The board may make such arrangements as it thinks fit for be paid for each share is 10 pence. the management and transaction of the company’s affairs and may for that purpose appoint local boards, managers and agents and delegate to them any of the powers of the board (other than the power to borrow and make calls on shares) with power to sub-delegate. The current authority to make market purchases expires at the forthcoming Annual General Meeting. The directors are Other than the directors’ service contracts the directors have no interests in any other now seeking the approval of shareholders contract of the business. Substantial shareholdings The directors have been notified that the following investors, including directors, held interests in 3% or more of the company’s issued share capital at 22nd June 2011: Aberforth Partners’ Clients Delta Lloyd Asset Management NV* Ruffer LLP B. J. Cooke Hamstall Investments Inc. Rathbone Investment Management Ltd Number 6,995,285 6,008,062 4,146,172 1,955,386 1,800,000 1,600,000 % 16.0 13.8 9.5 4.5 4.1 3.7 * The Delta Lloyd Asset Management NV holding was previously disclosed as Aviva plc & subsidiaries. Business review The Chairman’s Statement on page sought from shareholders to allow the 3, the Business and Financial Review directors to issue new shares for cash to on page 4, the Corporate Governance persons other than to existing members Statement on page 13, and the Notes to up to a maximum nominal amount of the Accounts on pages 24 to 43 provide £218,160, being approximately 5% of the detailed information relating to the group, current issued share capital. the operation and development of the business and the results and financial position for the year ended 31st March 2011. Future prospects Future prospects are dealt with in the Chairman’s Statement on page 3. Special business There will be two items of Special Business at the Annual General Meeting. Directors’ authority to allot shares Approval will be sought for a special resolution to renew the authority given to the directors to allot shares in the company. The present authority was granted on 18th August 2010 and under the Companies Act must be renewed at least every five years. Authority will also be In any three year period no more than 7.5% of the issued share capital will be issued on a pre-emptive basis. Both authorities are to be for the period commencing on the date of passing of the Resolution until 16th August 2015 but will be put to annual shareholder approval. The proposed Resolutions are set out as items 8 and 9 in the Notice of Meeting. Authority to purchase own shares At the Annual General Meeting in 2010, the board was given authority to purchase and cancel up to 4,358,844 of its own shares representing 9.99% of the company’s existing shares, through market purchases on The London Stock Exchange. The maximum price to be paid on any exercise of the authority was restricted to 105% of the average of the middle market quotation for the shares for the five dealing for the renewal of this authority upon the same terms, save that the authority is now sought to allow the company to purchase and cancel up to 4,358,844 of its own shares, representing 9.99% of its issued share capital at 31st March 2011. The authority is sought by way of a special resolution, details of which are also included in the notice of the meeting as item 10. This authority will only be exercised if the directors, in the light of market conditions prevailing at the time, expect it to result in an increase in future earnings per share, and if it is in the best interests of shareholders generally. Notice of meetings Changes made to the Companies Act 2006 by the Shareholders’ Rights Regulations state that the notice period required for general meetings of the Company is 21 days unless shareholders approve a shorter notice period, which cannot however be less than 14 clear days. (AGMs will continue to be held on at least 21 clear days’ notice.) The directors seek such approval for meetings other than annual general meetings as they believe it is in the best interests of the Company to have the ability to use the shorter notice period. It is intended that this flexibility will only be used for non routine business and where merited in the interests of the shareholders as a whole. The approval will be effective until the Company’s next annual general meeting, when it is intended that a similar resolution will be proposed. 6 A n n u a l R e p o r t 2 0 1 1 New Articles of Association Further details of employee involvement Each of the persons who are directors The directors seek approval to adopt new are given under the Corporate Social at the date when this report was approved articles of association (the “New Articles”) Responsibility section on pages 11 and 12. confirms that so far as each of the directors in order to update the Company’s current articles of association (the “Current Articles”) primarily to take account of the Health and safety As required by legislation, the group’s is aware, there is no relevant audit information of which the group’s auditors are unaware, and each of the directors has implementation of the Companies Act policy for securing the health, safety and taken all steps that he ought to have taken 2006. The principal changes introduced in the New Articles are summarised in an Appendix document. Other changes, which are of a minor, technical or clarifying nature and also some more minor changes which merely reflect changes made by the Companies Act 2006 or conform the language of the New Articles with that used in the model articles for public companies, have not been noted in an Appendix within the Shareholder Information section on page 55. Fixed assets The market value of the group’s interests in land cannot be accurately established without obtaining a revaluation of all the land and buildings owned by the group. The directors consider that although a revaluation would show the market value of the land and buildings to be in excess of book value, this excess would not be significant in the context of group trading and would not justify the expense of a revaluation. Employee involvement Employees are informed weekly of production levels and the relative production performance. Similarly, they are kept informed of any factor affecting the group and the industry generally. Their involvement in the group’s performance is encouraged by means of a production bonus and at the time of annual wages and salaries review they are made aware of all economic factors affecting the previous year’s performance and the outlook for the ensuing year. welfare at work of all employees has been as a director to make himself aware of any brought to their notice. In addition, safety relevant audit information (as defined) and committees hold regular meetings. to establish that the auditors are aware of Supplier payment policy The group’s policy is to settle the terms of payment with suppliers when agreeing that information. Significant agreements There are no significant agreements to the terms of each transaction, ensure that which the company is party that take suppliers are made aware of the terms of effect, alter or terminate upon a change payment and abide by them provided the of control of the company following a supplier complies with all relevant terms takeover bid. and conditions. The group does not follow any code or standard on payment practice. Individual operating businesses within the group are responsible for establishing Principal risks and uncertainties Principal risks and uncertainties are set appropriate policies with regard to the out on page 9 and in note 4(b) in the Notes payment of their suppliers. The number of to the Accounts. days’ purchases outstanding for payment by the group at the year end was 71 (2010 – 58). Financial instruments Details of the use of financial instruments by the group are contained in note 19 and in note 4(b) in the Notes to the Accounts. Articles of Association Any amendments to the Articles of Corporate Governance the Details group’s of corporate governance policies are dealt with on page 13. Cautionary statement Under the Companies Act, a company’s directors’ report is required, among other matters, to contain a fair review by the directors of the group’s business through Association have to be adopted by a balanced and comprehensive analysis of the members by a special resolution in the development and performance of the general meeting. The current articles were business of the group and the position of adopted in January 1989. the group at the year end, consistent with Auditors The auditors, BDO LLP, have indicated their willingness to continue in office. A resolution proposing their reappointment as auditors of the company and authorising the directors to determine their remuneration will be submitted at the Annual General Meeting. the size and complexity of the business. The Directors’ Report set out above, including the Chairman’s Statement, the Principal Risks and Uncertainties and Corporate Social Responsibility incorporated into it by reference (together, the Directors’ Report), has been prepared solely to provide additional information to shareholders to assess the company’s strategies and the potential for those strategies to succeed. The Directors’ Report should not be relied upon by any other party or for any other purpose. A n n u a l R e p o r t 2 0 1 1 7 D i r e c t o r s ’ R e p o r t continued The Directors’ Report (as defined) contains certain forward looking statements. These statements 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 and 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. Approval of Directors’ Report and Responsibility Statement 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, Business and Financial Review 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 22nd June 2011 8 A n n u a l R e p o r t 2 0 1 1 R e v i e w o f P r i n c i p a l R i s k s a n d U n c e r t a i n t i e s Risk In common with all trading business, the Market competition Automotive and commercial vehicle group is exposed to a variety of risks in the markets are, by their nature, highly Commodity and energy pricing The principal metal raw materials used conduct of its normal business operations. competitive, which has historically led to by the group’s businesses are steel scrap 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. 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. 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. deflationary pressure on selling prices. and various alloys. The most important This pressure is most pronounced in alloy raw material inputs are premium cycles of lower demand. A number of graphite, magnesium ferrosilicon, nickel the group’s customers are also adopting and molybdenum. Wherever possible, global sourcing models with the aim to prices and quantities (except steel) are reduce bought out costs. Whilst there can secured through long-term agreements be no guarantee that business will not be with suppliers. In general, the risk of lost on price, we are confident that we can price inflation of these materials resides remain competitive. Customer concentration, programme dependencies and relationships The loss of, or deterioration in any single with the group’s customers through price adjustment clauses. The group is exposed to price level changes in copper and molybdenum, which have seen dramatic increases in recent years. Where possible, the group seeks to mitigate the customer relationship could have a financial impact through the application material impact on the group’s results. of surcharges, although the success Equipment The group operates a number of specialist of this approach varies by customer. Energy contracts are locked in for at least twelve months, although renegotiation pieces of equipment, including foundry risks remain at contract maturity dates furnaces, moulding lines and CNC milling but again this is mitigated through the machines which, due to manufacturing application of surcharges. However, lead times, would be difficult to replace energy contracts relate to specified usage sufficiently quickly to prevent major and if not obtained can result in penalties. 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 Information technology and systems reliability The group is dependent on its information equipment, all key equipment is maintained technology (“IT”) systems to operate to the highest possible standards and its business efficiently, without failure inventories of strategic equipment spares or interruption. Whilst data within key maintained. The facilities at Brownhills systems is regularly backed up and and Dronfield have similar equipment and systems subject to virus protection, any work can be transferred from one location failure of back-up systems or other major to another very quickly. IT interruption could have a disruptive Suppliers Although the group takes care to ensure alternative sources of supply remain available effect on the group’s business. Short-term deposits Advice is taken as to where to deposit for materials or services on which the group’s funds, usually banks and building businesses are critically dependent, this is societies. Only highly rated institutions not always possible to guarantee without risk of short-term business disruption, additional are used. However, institutions can be downgraded before maturity therefore costs and potential damage to relationships possibly placing these deposits at risk. with key customers. A n n u a l R e p o r t 2 0 1 1 9 R e v i e w o f P r i n c i p a l R i s k s a n d U n c e r t a i n t i e s continued Product quality and liability The group’s businesses expose it to certain Pension scheme funding The fair value of the assets and liabilities of the group’s defined benefit pension product liability risks which, in the event of schemes is substantial. As at 31st March failure, could give rise to material financial 2011 the schemes were in surplus on an liabilities. Whilst it is a policy of the group IAS 19 basis. Further details are set out in to limit its financial liability by contract in note 6 to the accounts. The potential risks all long-term agreements (“LTAs”), it is not and uncertainties are mitigated by careful always possible to secure such limitations management and continual monitoring of in the absence of LTAs. The group’s the schemes and by appropriate and timely customers do require the maintenance of action to ensure as far as possible that the demanding quality systems to safeguard defined benefit pension liabilities do not against quality-related risks and the group increase disproportionately. The company maintains appropriate external quality works closely with the scheme trustees accreditations. The group maintains and specialist advisers in managing the insurance for public liability-related claims inherent risks of such schemes. but does not insure against the risk of product warranty or recall. 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. The schemes were closed to future accruals from 6th April 2009 which only leaves past service liabilities to be funded. Trade credit 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. 10 A n n u a l R e p o r t 2 0 1 1 C o r p o r a t e S o c i a l R e s p o n s i b i l i t y General As a long-standing and principled company, we place great importance on our responsibilities to all our key stakeholders, whether shareholders, employees, customers, suppliers or the l Complying with all relevant legal information and training is given to all requirements, process, planning employees and contractors. and discharge authorisations, as appropriate to its operations. l Pursuing best practice techniques in the use of energy and raw materials. Both of our foundry sites are ISO 14001:2004 accredited. The group’s practices and procedures are subject to regular environmental audits by external communities in which we operate. The l Encouraging the beneficial reuse, consultants. group works hard to meet the legitimate recycling and recovery of its waste The group has also in place an energy expectations of these stakeholder groups products. The group has a network of policies manufacturing processes. l To reduce the consumption of l Ensuring that environmental issues considered when making are policy which requires each company to make continuing efforts to achieve the following objectives: decisions to invest in capital plant l To monitor and record energy and and in the planning and controlling of water consumption. l Promoting environmental awareness throughout the group and ensuring fossil fuels and utilise energy from sustainable sources where that personnel whose activities have practicable. whilst at the same time seeking to fulfil our objective of creating outstanding and enduring value through commercial success based on superior performance. and strategies through which we seek to ensure that our values form part of the culture of each of our operations. The environment We recognise our duty and responsibility towards protecting the environment wherever we conduct our business and strive to adopt the highest standards of environmental practices with the aim of minimising the impact of our commercial activities on the surrounding environment. Thus, we aim to meet, and wherever possible exceed, the standards demanded by applicable environmental legislation and operate a policy of effecting continual improvement in all of our processes that the potential to cause a significant impact on the environment receive appropriate training. l Ensuring that suppliers and contractors adopt environmental practices on site that are compatible with our exacting environmental standards. l Establishing and maintaining adequate contingency procedures and plans to deal effectively with any accidental discharge or emission of pollutants. l Communicating our Environmental Policy Statement to any persons have the potential to impact the environment. working on our behalf and any Specifically, the company is interested parties. committed to: l Implementing and maintaining an Environmental Management System in accordance with the ISO 14001 standard. l Establishing procedures to review the impact of current or new activities or processes on the environment. l Reviewing audit results and initiating to address any corrective action deficiencies found within the group’s environmental management system, policy, objectives or targets. The group demands that all activities and services will comply with applicable laws and regulations and that all substances and materials will be continually reviewed to ensure that only those that have the lowest impact on the environment will be used. In addition, where it is possible for us to assess, only waste disposal companies and facilities where the level of operational control and environmental compliance meets legislative requirements are used by our businesses. Noise from operations legislative is kept level below to a requirements to ensure the minimum l Using techniques to avoid, reduce or of nuisance to the local environment. control pollution. Appropriate and adequate environmental l To examine ways of reducing water consumption. l To promote energy awareness amongst employees and contractors. l To identify and implement energy saving measures and practise energy efficiency throughout all group premises, plant and equipment. l To incorporate environmentally sensitive designs into both new and refurbished buildings. l To target a reduction in energy consumption in line with the Government’s goal of cutting carbon dioxide emissions to counter the threat of climate change. Employees The group’s policy is to employ people who embody its core values of commitment and excellence. These values apply to all employees regardless of seniority or position, including directors. The group seeks to communicate with its employees in a structured open manner, including regular briefings and dissemination of relevant information on the group and business unit. Employees are informed weekly of production levels and the relative A n n u a l R e p o r t 2 0 1 1 11 C o r p o r a t e S o c i a l R e s p o n s i b i l i t y continued production performance. Similarly, they are kept informed of any factor affecting l To maintain a constant and continuing interest in health and safety matters the group and the industry generally. applicable to the group’s activities, Their involvement in the group’s performance is encouraged by means consulting and involving employees wherever possible. of a production bonus and at the time of The group has clearly defined health annual wages and salaries review they and safety policies and we operate are made aware of all economic factors a system of strict reporting. Regular affecting the previous year’s performance audits of health and safety at the group’s and the outlook for the ensuing year. manufacturing operations are carried out Recognising the demands of our customers and our strategy, the group’s policy is to recruit the best available people and to invest in their training and development to enable a high level of retention. In this regard, we are committed using independent agencies who make recommendations for improvements to achieve best practice wherever appropriate. The group’s health and safety policy is regularly reviewed and modified as circumstances and experiences dictate. to equality, judging applications for The group encourages the employment neither by race, nationality, maintenance of consistent high standards gender, age, disability, sexual orientation and each site is required to develop a nor political bias. safety management system that includes: The group gives full consideration l Health and safety planning and to employment applications by disabled objective setting. persons where they can adequately fulfil the requirements of the position. If necessary, we endeavour to retrain any employee who becomes disabled during their period of employment with the group. Health and Safety The board regards the promotion of health l Carrying out risk assessments, both general and hazard specific. l Producing and issuing safe systems of work. l Induction training both job and hazard specific and refresher training. l Maintenance, inspection and statutory and safety measures as a mutual objective inspection of work equipment. for management and employees at all levels. It is our policy to do all that is practicable to prevent personal injury and damage to property and to protect everyone from foreseeable hazards, including third parties in so far as they come into contact with the group’s activities. In particular, we aim to fulfil our responsibilities: l To provide and maintain safe and healthy working conditions complying l Providing appropriate personal protective equipment and rules for its use. l Occupational health including health surveillance and exposure monitoring as required. l The control of visitors and contractors. l Incident reporting, recording and investigation. with all statutory conditions. l Routine workplace inspections. l To provide training and instruction to enable employees to perform their l Performance evaluation. monitoring and work safely and efficiently. l To make available all necessary safety devices and protective equipment and to supervise their use. 12 A n n u a l R e p o r t 2 0 1 1 C o r p o r a t e G o v e r n a n c e General Castings P.L.C. recognises the importance Internal financial control are The directors responsible for Auditors’ independence The non-audit work undertaken in the of high standards of Corporate maintaining the group’s systems of year by the group auditors, BDO LLP, Governance. The board has considered internal financial control. These controls was restricted to an involvement in the the principles and provisions of the are designed to both safeguard the preparation of the tax computations and Combined Code published in 2008 and group’s assets and ensure the reliability related tax advice of the group companies will continue to adhere to them where it of financial information used within the and a review of the interim financial is in the interests of the business, and of business and for publication. As with any statements. shareholders, to do so. Internal control The Combined Code on Corporate Governance introduced a requirement that the directors review the effectiveness of the group’s systems of internal controls. This extended the existing requirement in respect of internal financial controls to cover all controls including financial, operational and compliance controls and risk management. The board is ultimately responsible for the group’s system of internal controls, including internal financial control, and for monitoring its effectiveness. There is a continuous process for identifying, evaluating and managing the significant risks faced by the group which is regularly reviewed and has been in place throughout the year under review and up to the date of approval of the annual report and accounts. However, such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The review covers all controls including financial, operational, compliance and risk management. The directors confirm that they have established procedures necessary to implement the guidance for directors on the Combined Code such that they fully comply with it for the accounting period ended on 31st March 2011. such systems, controls can only provide reasonable and not absolute assurance against material misstatement or loss. Internal financial control is operated within a clearly defined organisational structure with clear control responsibilities and authorities, and a practice throughout the group of regular management and board meetings to review all aspects of the group’s businesses including those aspects where there is a potential risk to the group. For each business there are regular weekly and monthly reports, reviewed by boards and management, which contain both written reports and accounts. The accounts include profit and loss accounts and balance sheets for the period under review, year to date and previous year and are compared with expected results. A variety of operational and financial ratios are also produced. Continual monitoring of the systems of internal financial control is conducted by all management. The external auditors, who are engaged to express an opinion on the group accounts, also consider the systems of internal financial control to the extent necessary to express that opinion. The external auditors report the results of their work to management, including members of the board and the audit committee. The board does not consider there is a need for an internal audit function due to the size and non-complexity of the group. Environment The board recognises that our operations have an effect on the local, regional and global environment, and as a consequence of this, the board is committed to adopting policies, processes and procedures which will lead to the continual improvement in environmental performance and the prevention of pollution. Directors’ conflicts of interest A director has a statutory duty to avoid a situation in which he has, or can have, an interest that conflicts or possibly may conflict with the interests of the company. A director will not breach that duty if the relevant matter has been authorised in accordance with the Articles of Association by the other directors. The board has conducted a review of actual or possible conflicts of interest in respect of each director. At its meeting on 2nd October 2008, the board considered the process for identifying current conflicts, authorised conflicts that have been identified and stipulated conditions in accordance with the guiding principles and agreed a process to identify and authorise future conflicts. In practice, directors are asked to consider and disclose actual or potential conflicts at the beginning of each meeting and as and when a matter arises. A n n u a l R e p o r t 2 0 1 1 13 C o r p o r a t e G o v e r n a n c e continued Attendance at board and board committee meetings during the year is detailed in the table shown below: Director B. J. Cooke D. J. Gawthorpe S. J. Mant (appointed 1 November 2010) J. C. Roby (retired on 31 October 2010) M. A. Lewis G. Cooper C. P. King G. B. Wainwright A. J. Smith Board Audit Committee Remuneration Committee Eligible to attend Attended Eligible to attend Attended Eligible to attend Attended 8 8 3 5 8 8 8 8 8 7 8 3 5 8 8 7 8 8 — — — — — — 2 2 2 — — — — — — 2 2 2 — — — — — — 1 1 1 — — — — — — 1 1 1 The chairman communicates frequently with the non-executive and executive directors. Directors are also encouraged to discuss any issues or concerns with the chairman at any time throughout the year. The chairman also holds meetings with the non-executive directors without executives present. The remuneration committee reviews the performance of the directors, including the chairman. The non-executive directors appraise the chairman’s performance. Board of directors The board meets regularly to monitor the Board committees The principal committees established by current state of business and to determine the directors are: its future strategic direction. During the year the board comprised five executive directors and three non-executive directors. Two of the non-executive directors are independent of executive management and none of the non-executive directors participate in share option or other executive remuneration schemes nor do they qualify for pension benefits. Although the non-executive directors have served for more than ten years their knowledge, advice and controls are still invaluable to the group. Audit committee This committee comprised the three non-executive directors and is chaired by C. P. King. The finance director and other executive directors may also attend meetings as appropriate to the business in hand but are not members of the committee. The committee meets at least twice a year and examines any matters relating to the financial affairs of the group including the review of annual and interim results, internal control procedures and accounting practices. The audit committee meets with Directors receive regular updates the auditors periodically and as necessary. appropriate to the business throughout the year. Remuneration committee As detailed in the remuneration report on To assist with the conduct of their page 15. function, the non-executive directors are able to obtain professional advice at the company’s expense if required in connection with their duties. In addition, all directors have access to the services of the company secretary. Nomination committee This committee comprised the three non- executive directors and is chaired by G. B. Wainwright. The chairman may attend meetings as appropriate to the business in hand but is not a member of the committee. The committee met once during the year. Relations with shareholders The company holds meetings from time to time with institutional shareholders to discuss the company’s strategy and financial performance. The Annual General Meeting is used to communicate with private and institutional investors. Going Concern The directors have assessed the future funding requirements of the group and the company and compared them to the level of funding available. Details of the cash position are set out in note 19. to the accounts. The group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposure to credit risk and liquidity risk are also set out in notes 17 and 19 to the accounts. The directors’ assessment included a review of the group’s financial forecasts, and financial instruments for the 15 months from the balance sheet date. The directors considered a range of potential scenarios within the key markets the group 14 A n n u a l R e p o r t 2 0 1 1 serves and how these may impact on cash l The non-executive directors do not flow. The group and company’s business have specified term contracts. activities, together with the factors likely to affect its future development, performance and position are set out in the Chairman’s Statement on page 3. The directors also considered what mitigating actions the group could take to limit any adverse consequences. l The chairman is also regarded as an executive director but on reduced hours. However, the chief executive is responsible for the day to day running of the group with direct responsibility for the Brownhills site and through the managing directors of William Lee After making these enquiries, the and CNC Speedwell. The chairman directors have a reasonable expectation concentrates on the effective working that the company and the group have of the board and overall group adequate resources to continue operations strategies and remains a high level for the foreseeable future. For this reason, contact with our main customers. they continue to adopt the going concern basis in preparing the financial statements. l The role of the financial director and company secretary are fulfilled by the same person as there is no one else within the group qualified to do the job and it would not be a full-time position. The board monitors the effectiveness of this arrangement annually. l There is no formal arrangement whereby staff may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. These are considered appropriate in relation to the size of the company and the way in which it operates. Summary The board takes its responsibilities seriously even though there are a number of the provisions of the Code with which it does not comply. It does not feel that the size or complexity of the group and the way in which it governs would be enhanced or strengthened by further changing the already existing high standards of corporate governance practised. For the year ended 31st March 2011 the company complied with the Combined Code other than the following points: l There are three non-executive directors but one does not conform to the definition of independent. Although these directors have served for more than ten years the board recognises the value they bring and believes it is important too that shareholders have the reassurance of non-executives on the board whose independence is beyond question. A n n u a l R e p o r t 2 0 1 1 15 R e m u n e r a t i o n R e p o r t under report has been prepared to in This the accordance with Schedule 8 Accounting Regulations the Companies Act 2006 and also meets the relevant requirements of the Listing Rules of the Financial Services Authority. The report describes how the board has applied the principles relating to directors’ remuneration. As required by the Act, a resolution will be proposed at the Annual General Meeting to approve the remuneration report for the financial year ended 31st March 2011. The Act requires the auditors to report to the company’s members on certain parts of the directors’ remuneration report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the Act. Items marked * have been subject to audit and reported on in the auditors’ report on page 18 and all other information is unaudited. Directors’ Emoluments* Remuneration committee This committee comprised the three non- executive directors and is chaired by G. B. Wainwright. The chairman of the group is invited to attend meetings where appropriate but is not a member of the committee. None of the executive directors were present at meetings of the committee during consideration of their own remuneration. No advice has been provided by external advisers or consultants. Remuneration policy the The underlying policy remuneration of the executive directors is that it shall be designed to retain and motivate the directors and be reasonable and fair in relation to their responsibilities. in setting Executive emoluments directors’ comprise annual salary, an annual bonus, membership of a company pension scheme and other benefits. The committee ordinarily reviews directors’ salaries annually, effective from 1st April, taking into account market rates and the performance of the individual and of the company. Pay and employment conditions of the group are taken into account in determining directors’ remuneration, with the committee approving similar rates of salary increase across the group. Policies for benefits (which include provision of a car or car benefit, private health care and life assurance) are reviewed regularly and comparisons with other companies are made. Reports and published data are also taken into consideration in setting salary and benefit packages. Remuneration in 2011 The individual elements of remuneration of each director are set out in the table below. Annual bonus Executive directors participate in a performance-related annual bonus scheme. Bonuses are payable based on the group obtaining profits before tax and exceptional items above a predetermined threshold. Salary/ fees £000 Benefits (note 1) £000 Performance related bonus £000 B. J. Cooke D. J. Gawthorpe S. J. Mant (appointed 1 November 2010) — Note 2 M. A. Lewis G. Cooper C. P. King G. B. Wainwright A. J. Smith J. C. Roby (retired 31 October 2010) 80 200 46 145 145 20 20 20 94 770 4 9 4 9 10 — — — 10 46 2011 Total £000 120 280 80 •225 •226 •20 •20 •20 145 36 71 30 71 71 — — — 41 320 •1,136 2010 Total £000 83 175 — 147 148 18 18 18 162 769 Note 1 — Benefits in kind include car or 2009. Their dependants are eligible for P.L.C. Money Purchase Pension Scheme, car benefit, fuel or cash allowance, and dependants’ pensions and the payment of a defined contribution pension scheme. private health care. a lump sum in the event of death in service. Pension contributions are not paid on Note 2 — S. J. Mant was paid a salary of £31,000 and bonus of £23,000 in respect of the period prior to joining the Board. Pension arrangements Executive directors were contributing members of the Castings P.L.C. Staff Pension and Life Assurance Scheme, a defined benefit scheme, up to 5th April The scheme provides for a pension accrued benefits or bonuses. Total contributions at 1/60th per year of service to 2005 and of the company total 7% of pensionable 1/80th per year thereafter. From 6th April earnings. 2009, they became deferred members. Four directors are members of the Money Final pensionable remuneration is based Purchase Pension Scheme. In addition, on capped basic salaries on retirement at J. C. Roby received a pension allowance normal retirement age. equivalent to company contributions up to From 6th April 2009, the executive directors were able to join the Castings the point of his retirement. 16 A n n u a l R e p o r t 2 0 1 1 Directors’ pension entitlements* Directors’ contributions in the year (note 1) £ Age at year end Increase Increase in accrued pension during Transfer Accumulated Accumulated total value of accrued increase net pension at of inflation year net and directors’ 31/03/2011 31/03/2010 total accrued pension at in accrued pension during the year of inflation contributions £ £ £ 49 47 57 62 — — — — 2,028 943 1,143 1,796 — — — — — — — — Transfer value of accrued benefits Transfer Difference in transfer value of values accrued less benefits (note 2) 31/03/2011 31/03/2010 contributions £ £ £ £ 44,078 443,687 403,019 20,492 203,140 186,937 24,841 340,915 311,018 39,037 684,607 622,922 40,668 16,203 29,897 61,685 (note 2) £ 46,106 21,435 25,984 40,833 Name of director D. J. Gawthorpe M. A. Lewis G. Cooper J. C. Roby The following directors are members of the Castings P.L.C. Money Purchase Pension and Life Assurance Scheme and the contributions paid by Castings P.L.C. in respect of those directors over the year is set out below: Contributions paid to 31/03/2011 D. J. Gawthorpe S. J. Mant M. A. Lewis G. Cooper 10,030 3,754 9,264 9,264 Notes to pension benefits: 1. The Castings P.L.C. Staff Pension and Life Assurance Scheme was closed to future accrual of benefits on 5th April 2009. The above directors (excluding S. J. Mant) were members of this scheme up until this date. 2. The pension entitlement shown is that which would be paid annually on retirement based on service to the end of the company financial year. Performance graph The following graph shows the company’s performance, measured by total shareholder Directors’ contracts Executive directors have contracts return, compared with the performance of the FTSE All Share Index — Engineering sub- of service terminable on one year’s sector, also measured by total shareholder return. This index has been selected for this notice. These contracts are considered comparison because this is the most relevant index in which the company’s shares are appropriate in the context of the overall CCaassttiinnggss PPLCC — TToottaall RReettuurrnn oonn IInnvveessttmmeenntt quoted. 300.00 250.00 200.00 150.00 100.00 50.00 0.00 01 April 2006 01 April 2007 31 March 2008 31 March 2009 31 March 2010 31 March 2011 Castings P.L.C. FTSE 350 INDS ENG Source: Thomson Financial – Thomson One Banker remuneration policy, as in the opinion of the board it is consistent for directors to take a long-term rather than a short-term view of their conduct and planning of the company’s affairs. None of the contracts contains any provision for predetermined compensation in the event of termination. The date of contracts currently in place for the executive directors is 1st April 2007, with the exception of S. J. Mant who has a contract dated 1 November 2010. Messrs King, Wainwright and Smith do not have a contract of service and do not participate in the company’s bonus schemes and are not eligible to join a company pension scheme. On behalf of the board G. B. WAINWRIGHT Chairman of the remuneration committee 22 June 2011 A n n u a l R e p o r t 2 0 1 1 17 S t a t e m e n t o f D i r e c t o r s ’ R e s p o n s i b i l i t i e s The directors are responsible for preparing l prepare a directors’ report and the annual report and the financial directors’ remuneration report which statements in accordance with applicable comply with the requirements of the law and regulations. Companies Act 2006. Company law requires the directors The directors are responsible for to prepare financial statements for keeping adequate accounting records each financial year. Under that law the that are sufficient to show and explain directors are required to prepare the the company’s transactions and disclose group financial statements in accordance with reasonable accuracy at any time the with International Financial Reporting financial position of the company and Standards (IFRSs) as adopted by the enable them to ensure that the financial European Union and have elected to statements comply with the Companies prepare the company financial statements Act 2006 and, as regards the group in accordance with United Kingdom financial statements, Article 4 of the IAS Generally Accepted Accounting Practice Regulation. They are also responsible for (United Kingdom Accounting Standards safeguarding the assets of the company and applicable law). Under company and hence for taking reasonable steps for law the directors must not approve the the prevention and detection of fraud and financial statements unless they are other irregularities. satisfied that they give a true and fair view of the state of affairs of the group and company and of the profit or loss for the Website publication The directors are responsible for Directors’ responsibilities pursuant to DTR 4 The directors confirm to the best of their knowledge: l The group financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and give a true and fair view of the assets, liabilities, financial position and profit and loss of the group. l The annual report includes a fair review of the development and performance of the business and the financial position of the group and the parent company, together with a description or the principal risks and uncertainties that they face. group and company for that period. ensuring the annual report and the In preparing these financial statements, the directors are required to: l select suitable accounting policies and then apply them consistently; l make judgements and accounting estimates that are reasonable and prudent; financial statements are made available on a website. Financial statements are published on the company’s website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and l state whether they have been prepared in accordance with IFRSs as adopted integrity of the company’s website is the responsibility of the directors. The by the European Union, subject to any directors’ responsibility also extends material departures disclosed and to the ongoing integrity of the financial explained in the financial statements; statements contained therein. l prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business; 18 A n n u a l R e p o r t 2 0 1 1 I n d e p e n d e n t A u d i t o r s ’ R e p o r t To the members of Castings P.L.C. We have audited the financial statements of Castings P.L.C. for the year ended 31st March 2011 which comprise the consolidated statement of comprehensive income, consolidated and parent company balance sheets, consolidated cash flow statement, the consolidated statement of changes in equity and the related notes. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting in framework that has been applied preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (APB’s) Ethical Standards for Auditors. Scope of the audit of the financial statements A description of the scope of an audit of financial statements is provided on the APB’s website at http://www.frc.org.uk/ apb/scope/private.cfm. Opinion on financial statements In our opinion: l l l l the financial statements give a true and fair view of the state of the group’s and the parent company’s affairs as at 31st March 2011 and of the group’s profit for the year then ended; the group financial statements have been properly prepared in accordance with the IFRSs as adopted by European Union; the parent company financial statements have been properly prepared in accordance with United Kingdom Accounting Accepted Generally Practice; and in accordance with the financial statements have been prepared the requirements of the Companies Act 2006; and, as regards the group financial statements, Articles 4 of the IAS Regulation. Opinion on other matters prescribed by the Companies Act 2006 In our opinion: l l the part of the directors’ remuneration report to be audited has been properly prepared the Companies Act 2006; and in accordance with the information given in the directors’ report for the financial year for which the financial statements are prepared is consistent with financial statements. the Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: l adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or l parent company financial the the statements and directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or the part of l certain disclosures of directors’ remuneration specified by law are not made; or l we have not received all the information and explanations we required for our audit. Under the Listing Rules we are required to review: l l the directors’ statements, set out on page 14 in relation to going concern; and the part of the corporate governance relating to the company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. l certain elements of report to shareholders by the board on directors’ remuneration. the Stephen Ward (senior statutory auditor) For and behalf of BDO LLP, Statutory auditor Birmingham United Kingdom 22nd June 2011 BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). A n n u a l R e p o r t 2 0 1 1 19 C o n s o l i d a t e d S t a t e m e n t o f C o m p r e h e n s i v e I n c o m e for the year ended 31st March 2011 Revenue Cost of sales Gross profit Distribution costs Administrative expenses Excluding exceptional Exceptional Total administrative expenses Profit from operations Finance income Profit before income tax Income tax expense Profit for the year attributable to equity holders of the parent company Other comprehensive income for the year: Change in fair value of available-for-sale financial assets Net actuarial gain/(loss) and movement in unrecognised surplus on defined benefit pension schemes Tax effect of gains and losses recognised directly in equity Total other comprehensive income for the year (net of tax) Notes 2 4 3 7 8 2011 £000 105,368 (77,526) 27,842 (1,909) (10,942) 352 (10,590) 15,343 158 15,501 (3,849) 11,652 — (409) — (409) 2010 £000 60,649 (45,523) 15,126 (769) (4,896) 204 (4,692) 9,665 139 9,804 (2,166) 7,638 68 (4,466) 681 (3,717) Total comprehensive income for the year attributable to the equity holders of the parent company 11,243 3,921 Earnings per share attributable to the equity holders of the parent company Basic and diluted 10 26.71p 17.51p Notes to the accounts are on pages 24 to 43. 20 A n n u a l R e p o r t 2 0 1 1 C o n s o l i d a t e d B a l a n c e S h e e t 31st March 2011 ASSETS Non-current assets Property, plant and equipment Financial assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets LIABILITIES Current liabilities Trade and other payables Current tax liabilities Non-current liabilities Deferred tax liabilities Total liabilities Net assets Equity attributable to equity holders of the parent company Share capital Share premium account Other reserve Retained earnings Total equity Notes 11 12 13 14 15 16 17 2011 £000 55,889 467 56,356 11,402 30,956 13,707 56,065 112,421 25,113 1,546 26,659 5,647 32,306 80,115 4,363 874 13 74,865 80,115 2010 £000 51,596 480 52,076 7,818 19,149 14,718 41,685 93,761 14,671 568 15,239 5,287 20,526 73,235 4,363 874 13 67,985 73,235 The accounts on pages 20 to 43 were approved and authorised for issue by the board of directors on 22nd June 2011, and were signed on its behalf by: B. J. Cooke S. J. Mant Chairman Finance Director Notes to the accounts are on pages 24 to 43. A n n u a l R e p o r t 2 0 1 1 21 C o n s o l i d a t e d C a s h F l o w S t a t e m e n t for the year ended 31st March 2011 Notes Cash flows from operating activities Profit before income tax Adjustments for: Depreciation Profit on disposal of property, plant and equipment Interest received Excess of employer pension contributions over income statement charge (Increase) in inventories (Increase) in receivables Increase in payables Cash generated from operating activities Tax paid Interest received Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Proceeds from disposal of financial assets Net cash used in investing activities Cash flow from financing activities Dividends paid to shareholders Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 19 Cash and cash equivalents: Short-term deposits Cash available on demand Notes to the accounts are on pages 24 to 43. 2011 £000 15,501 5,606 (26) (120) (409) (3,584) (12,219) 10,442 15,191 (2,099) 120 13,212 (9,907) 15 32 (9,860) (4,363) (4,363) (1,011) 14,718 13,707 13,280 427 13,707 2010 £000 9,804 4,533 (51) (139) (4,466) (417) (4,884) 2,063 6,443 (652) 139 5,930 (2,721) 51 17 (2,653) (4,363) (4,363) (1,086) 15,804 14,718 14,401 317 14,718 22 A n n u a l R e p o r t 2 0 1 1 C o n s o l i d a t e d S t a t e m e n t o f C h a n g e s i n E q u i t y for the year ended 31st March 2011 Equity attributable to equity holders of the parent Share Share Other Retained capitala) premiumb) reservec) earningsd) At 1st April 2010 Total comprehensive income for the period ended 31st March 2011 Dividends £000 4,363 — — £000 874 — — At 31st March 2011 4,363 874 £000 13 — — 13 £000 67,985 11,243 (4,363) 74,865 80,115 Equity attributable to equity holders of the parent Share Share Other Retained capitala) premiumb) reservec) earningsd) At 1st April 2009 Total comprehensive income for the year ended 31st March 2010 Dividends At 31st March 2010 £000 4,363 — — £000 874 — — 4,363 874 £000 13 £000 68,427 3,921 (4,363) — — 13 67,985 73,235 Total equity £000 73,235 11,243 (4,363) Total equity £000 73,677 3,921 (4,363) 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. A n n u a l R e p o r t 2 0 1 1 23 N o t e s t o t h e A c c o u n t s 1 Accounting policies New standards effective in 2011 adopted by the group accounting following new The standards have been adopted by the group in these financial statements: l Amendments to IFRS 7 ‘Improving Financial disclosures about Instruments’ l Improvements to IFRSs There has been no significant impact in respect of adopting these new standards. Basis of accounting The group financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards (‘IAS’) and Interpretations (collectively ‘IFRS’), as endorsed for use in the EU. The IFRSs applied in the group financial statements are subject to ongoing amendment by the IASB and subsequent endorsement by the European Commission and therefore subject to possible change in the future. Further standards and interpretations may be issued that will be applicable for financial years beginning on or after 1st April 2011 or later accounting periods but may be adopted early. The preparation of financial statements in accordance with IFRS requires the use of certain accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The primary statements within the of the Companies Act 2006 applicable to companies reporting under IFRS. A summary of the principal group IFRS accounting policies is set out below. Basis of consolidation statement The consolidated of comprehensive income and balance sheet include the accounts of the parent company and its subsidiaries made up to the end of the financial year. These subsidiaries include William Lee Limited and CNC Speedwell Limited, both of which are 100% owned and are based in the UK. Intercompany transactions and balances between group companies are eliminated in full. Business combinations and goodwill Shares issued as consideration for the acquisition of companies have a fair value attributed to them, which is normally their market value at the date of acquisition. Net tangible assets acquired are consolidated at a fair value to the group at the date of acquisition. All changes to these assets and liabilities, and the resulting gains and losses that arise after the group has gained control of the subsidiary, are credited and charged to the post-acquisition income statement. Under UK GAAP, goodwill arising on acquisitions prior to 1998 was written off to reserves. There have been no acquisitions since 1998. Following the exemption in IFRS 1 this treatment has continued to be followed. Revenue recognition Revenue, which excludes value added financial information contained in this tax and intra-group sales, represents the document have been presented in invoiced value of goods and services sold accordance with IAS 1: Presentation of to customers. Appropriate provisions for Financial Statements. The accounts are prepared under the historical cost convention, except returns and other allowances are deducted from revenue as appropriate. The group has no barter transactions. where adjusted for revaluations of certain The group’s revenue has been assets, and in accordance with applicable recognised when goods have been Accounting Standards and those parts dispatched. Post-retirement benefits Two of the group’s pension plans are of a defined benefit type. Under IAS 19: Employee Benefits the employer’s portion of the current service costs and curtailment gains are charged to operating profit for these plans, with the interest cost net of the expected return on assets in the plans also being credited to operating profit. Actuarial gains and losses are recognised directly in equity, in the statement of comprehensive income, and the balance sheet reflects the schemes’ surplus or deficit at the balance sheet date. A full valuation is carried out tri-annually using the projected unit credit method. If the group cannot benefit from a scheme surplus in the form of refunds from the plans or reductions in future contributions, any asset resulting from the above policy is restricted accordingly. Payments to the defined contribution scheme are charged to the consolidated statement of comprehensive income as they become payable. Property, plant and equipment Property, plant and equipment assets are held at cost less accumulated depreciation. Depreciation is provided on property, plant and equipment, other than freehold land and assets in the course of construction, on a straight-line basis. The periods of write-off used are as follows: i Freehold buildings over 50 years. ii Leasehold land and buildings over 50 years or the period of the lease, whichever is less. iii Plant and equipment over a period of 3 to 15 years, straight line or unit of production method if more appropriate. The group annually the assessment of residual values and useful reviews lives in accordance with IAS 16. 24 A n n u a l R e p o r t 2 0 1 1 Inventories The group’s inventories are valued at the Loans and receivables These assets are non-derivative financial b) Financial liabilities The group classifies its financial liabilities lower of cost on a first in, first out basis assets with fixed or determinable into liabilities measured at amortised and net realisable value. Cost includes a payments that are not quoted in an active cost. Although the group uses derivative proportion of production overheads based market. They arise principally through financial instruments in economic hedges on normal levels of activity. Provision is the provision of goods and services to of currency risk, it does not hedge account made for obsolete and slow-moving items. customers (e.g. trade receivables) and for these transactions, and the amounts deposits held at banks and building are not material. Cash and cash equivalents Cash and cash equivalents includes cash in societies, but may also incorporate other types of contractual monetary asset. hand, deposits at call with banks and other They are initially recognised at fair value short-term highly liquid investments with plus transaction costs that are directly original maturities of three months or less. attributable to the acquisition or issue and Unless otherwise indicated, the carrying amounts of the group’s financial liabilities are a reasonable approximation of their fair values. Financial liabilities measured at amortised cost Financial liabilities include trade payables subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. The effect of discounting on these financial instruments is not considered to and other short-term monetary liabilities, be material. Impairment provisions are recognised when there is objective evidence (such as which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. significant financial difficulties on the part Fair value is calculated by discounting of the counterparty or default or significant estimated future cash flows using a market delay in payment) that the group will be rate of interest. unable to collect all of the amounts due Foreign currencies Assets and liabilities in foreign currencies are translated at the spot rates of exchange ruling at the balance sheet date. Exchange differences are dealt with through the consolidated statement of comprehensive income. Financial Instruments a) Financial assets The group’s financial assets relate to loans and receivables and available-for-sale under the terms of the deposit or receivable. assets. Although the group occasionally The amount of such a provision is the uses derivative financial instruments in difference between the net carrying amount economic hedges of currency rate risk, and the present value of the future expected it does not hedge account for these cash flows associated with the impaired transactions and the amounts are not asset. Such provisions are recorded in a material. The group has not classified any separate allowance account with the loss of its financial assets as held to maturity. being recognised within administrative Available-for-sale assets Available-for-sale financial assets expenses in the consolidated statement of comprehensive income. On confirmation that the deposit or receivable will not be comprise the group’s strategic investments collectable, the gross carrying value of the in entities not qualifying as subsidiaries. asset is written off against the associated They are carried at fair value with changes provision. in fair value recognised directly in the consolidated statement of comprehensive income. Fair value is determined with reference to published quoted prices in an active market. c) Share capital The group’s ordinary shares are classified as equity instruments. The group is not subject to any externally imposed capital requirements. Share capital includes the nominal value of the shares and any share premium attaching to the shares. Current and deferred tax Deferred tax is provided using the liability method. Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the temporary differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. A n n u a l R e p o r t 2 0 1 1 25 N o t e s t o t h e A c c o u n t s continued Critical accounting estimates and judgements The group makes certain estimates and Inventory The company reviews the net realisable value of, and demand for, its inventory on a regular basis to provide assurance that the judgements regarding the future. Estimates recorded inventory is stated at the lower and judgements are continually evaluated of cost and net realisable value. Factors based on historical experience and other that could impact estimated demand factors, including expectation of future and selling prices include customer order events that are believed to be reasonable scheduling, competitor actions, supplier under the circumstances. In the future, prices and economic trends. See note 13 actual experience may differ from these for further details. estimates and judgements. The estimates and assumptions that have a significant risk of causing a material adjustment Pension assumptions The costs, assets and liabilities of to the carrying amounts of assets and the defined benefit pension schemes liabilities within the next financial year are operated by the group are determined using methods relying on actuarial estimates and assumptions. Details of the key assumptions are set out in note 6. discussed below. Short-term deposits See note 19 for further details. Useful lives of property, plant and equipment Property, plant and equipment are depreciated over their useful lives based on management’s estimates of the period that the assets will generate revenue, which are periodically reviewed for continued appropriateness. Changes to estimates can result in significant variations in the carrying value and amounts charged to the consolidated income statement in specific periods. More details including carrying values are included in note 11. Current tax is provided for on the taxable profits of each company in the group, using current tax rates and legislation that have been enacted or substantially enacted by the balance sheet date. Dividends The final dividend is only recognised at the point it is declared and approved by the shareholders at the Annual General Meeting. Interim dividends are recognised on payment. Exceptional items Exceptional items are those significant items which are separately disclosed by virtue of the size or incidence to enable a full understanding of the group’s financial performance. Standards, interpretations and amendments to published standards that are not yet effective The following have not been adopted in the financial statements. In each case the potential impact has been noted and management are considering the impact of the changes on future reporting. Improvements to IFRSs (2010) - the amendments take various forms including financial instrument and clarifying the components of other comprehensive income. The amendments are not expected to have a significant impact. There are a number of further standards, interpretations and amendments to published standards not set out above which the directors consider not to be relevant to the group. 26 A n n u a l R e p o r t 2 0 1 1 2 Business and geographical 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 31st March 2011. Revenue from external customers Inter-segmental revenue Segmental result Unallocated costs: Exceptional credit for recovery of Icelandic Bank deposits previously written off Release of provision for Industrial Tribunal costs Excess of employer pension contributions over statement of comprehensive income charge Finance income Profit before income tax Total assets Non-current asset additions Depreciation All non-current assets are based in the United Kingdom. Foundry operations Machining Elimination £000 97,163 14,429 £000 8,205 11,701 £000 — — Total £000 105,368 26,130 11,593 3,410 (421) 14,582 196 156 409 158 15,501 104,311 20,781 (12,671) 112,421 3,419 6,488 2,882 2,724 — — 9,907 5,606 A n n u a l R e p o r t 2 0 1 1 27 N o t e s t o t h e A c c o u n t s continued 2 Business and geographical segments continued The following shows the revenues, results and total assets by reportable segment in the year to 31st March 2010: Revenue from external customers Inter-segmental revenue Segmental result Unallocated costs: Exceptional write-down of Icelandic bank deposits Exceptional costs relating to redundancy payments Excess of employer pension contributions over statement of comprehensive income charge Finance income Profit before income tax Total assets Non-current asset additions Depreciation All non-current assets are based in the United Kingdom The geographical analysis of revenues by destination for the year is as follows: United Kingdom Sweden Rest of Europe North and South America Other Foundry operations Machining Elimination £000 58,077 939 £000 2,572 5,359 £000 — — Total £000 60,649 6,298 5,438 (433) — 4,995 404 (200) 4,466 139 9,804 91,381 17,363 (14,983) 93,761 1,050 1,671 2,248 2,285 — — 2011 £000 42,617 21,189 38,147 2,436 979 105,368 2,721 4,533 2010 £000 28,212 10,001 21,256 1,166 14 60,649 All revenue arises in the United Kingdom from the group’s continuing activities. Inter-company sales are priced on an arm’s length basis. Information about major customers Included in revenues arising from Foundry operations are revenues of approximately £23,893,000 and £11,754,000 from two customers (2010 – £9,189,000 and £6,188,000). 28 A n n u a l R e p o r t 2 0 1 1 3 Profit from operations This has been arrived at after charging/(crediting): Staff costs (note 5) Cost of inventories recognised as an expense Depreciation of property, plant and equipment Fees payable to the company’s auditors for the audit of the company’s annual accounts Fees payable to the company’s auditors for other services: — The audit of the company’s subsidiaries — Tax services Profit on disposal of property, plant and equipment 4 Exceptional items Redundancy costs (see (a) below) Provision for losses on deposits with Icelandic banks (see (b) below) Provision for Industrial Tribunal costs (see (c) below) 2011 £000 32,222 55,553 5,606 25 26 10 (8) 2011 £000 — (196) (156) (352) 2010 £000 17,681 39,978 4,533 24 25 18 (51) 2010 (404) — 200 (204) a) The exceptional credit of £404,000 in the prior year relates to accruals for redundancy payments made as at 31st March 2009 that were not used due to the subsequent increase in production volumes and were released. b) The company reported in the year end 31st March 2009 that £1.86 million was included in other receivables as recoverable from various Icelandic banks. So far £2,056,000 has been received with the excess being shown as an exceptional credit. c) The exceptional credit of £156,000 relates to a provision for Industrial Tribunal costs made as at 31st March 2010 that was released due to the costs incurred being lower than the estimate made of £200,000. 5 Employee information Average number of employees during the year was: Production Management and administration 2011 840 86 926 2010 594 78 672 A n n u a l R e p o r t 2 0 1 1 29 N o t e s t o t h e A c c o u n t s continued 5 Employee information continued Staff costs (including directors) comprise: Wages and salaries Defined contribution pension costs Defined benefit pension cost (note 6) Employer’s national insurance contributions and similar taxes 2011 £000 27,754 658 (409) 2,790 30,793 2010 £000 17,148 430 (1,966) 1,731 17,343 In addition to the wages and salaries disclosed above, the group incurred costs of £1,429,000 (2010 — £147,000) in respect of agency workers. The directors represent the key management personnel. Details of their compensation are given in the Remuneration Report on page 15. 6 Pensions The group operates two pension schemes providing benefits based on final pensionable pay. These schemes are closed to new entrants and closed to future accruals on 6th April 2009. The assets are independent of the finances of the group and are administered by Trustees. In July 2010 the UK Government announced that the statutory minimum level of revaluation would in the future be calculated using the Consumer Price Index (“CPI”) rather than the Retail Price Index (“RPI”). The company, in conjunction with the Trustees of the Pension Scheme, has undertaken to review the impact of this change and has therefore continued to link the deferred pensions to RPI for the purpose of the current year Scheme revaluation. The assumption regarding future RPI rates is higher than for CPI rates and whilst it is estimated that the impact of the change to CPI would be to increase the unrecognised surplus, this amount is not considered to be material to the financial statements. The latest actuarial valuation was made as at 6th April 2008 using the attained age method. It assumed that the rate of return on investments was 5.9% per annum for pre-retirement and 4.9% per annum for post-retirement, and the rate of increase in wages and salaries was 4.4% per annum for the Staff Scheme and 3.9% per annum for the Shopfloor Scheme and price inflation was 3.4%. The demographic assumptions are based on the PA92 tables with medium cohort projected improvements and an underpin of 1.0% p.a. on future annual life expectancy improvements. An age rating of +1 year is then applied for the Staff Scheme and +3 years for the Shopfloor Scheme. The next actuarial valuation is being performed with an effective date of 6 April 2011. In addition, the group operates a money purchase pension scheme whereby contributions are invested through individual accounts under an insurance policy administered by Trustees. Composition of the schemes The group operates defined benefit schemes (in addition to a defined contribution scheme) in the UK. Full actuarial valuations of the defined benefit schemes were carried out at 6th April 2008 and updated to 31st March 2011 using the projected unit method by a qualified independent actuary. The service cost has been calculated using the projected unit method. The major assumptions used by the actuary were (in nominal terms): Rate of increase of pensions in payment Discount rate Inflation assumption 2011 3.4% 5.5% 3.4% 2010 3.6% 5.6% 3.6% 30 A n n u a l R e p o r t 2 0 1 1 6 Pension disclosures under IAS 19 continued Change in benefit obligation Benefit obligation at beginning of year Current service cost Curtailment Interest cost Plan participants’ contributions Actuarial (gain)/loss Benefits paid Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Expected return on plan assets Actuarial gain/(loss) Employer contribution Member contributions Benefits paid Fair value of plan assets at end of year Funded status Unrecognised pension surplus (Effect of paragraph 58(b) limit) Net amount recognised in the balance sheet Components of pension cost Current service cost Curtailment Interest cost Expected return on plan assets 2011 £000 41,369 — — 2,271 — (520) (1,634) 41,486 46,250 2,680 873 — — 1,634 48,169 6,683 (6,683) — 2010 £000 33,251 — (2,158) 2,086 — 10,779 (2,589) 41,369 34,258 1,894 10,187 2,500 — (2,589) 46,250 4,881 (4,881) — Year to 31st March Year to 31st March 2011 £000 — — 2,271 (2,680) 2010 £000 — (2,158) 2,086 (1,894) Total pension cost recognised within administrative expenses (note 5) (1,966) (409)) 9(1,966) Unrecognised pension surplus at beginning of year Unrecognised pension surplus at end of year Actuarial gain/(loss) for the year Pension cost shown in Other Comprehensive Income 4,881 (6,683) 1,393 409 1,007 (4,881) (592) (4,466) Cumulative amount of actuarial losses immediately recognised 10,712 13,105 A n n u a l R e p o r t 2 0 1 1 31 N o t e s t o t h e A c c o u n t s continued 6 Pension disclosures under IAS 19 continued Plan assets The weighted average assets allocations at the year end were as follows: Assets category Equities Bonds Real estate Plan assets at 31st March Plan assets at 31st March 2011 69% 28% 3% 100% 2010 69% 28% 3% 100% To develop the expected long-term rate of return on assets assumption, the company considered the current level of expected returns on risk-free investments (primarily government bonds), the historical level of risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocation to develop the expected long-term rate of return on assets assumption for the portfolio. This resulted in the selection of the 5.9% (2010 – 5.6%) assumption. The projected pension cost for the year ending 31st March 2012 is £nil. Actuarial return on plan assets Weighted average assumptions used to determine benefit obligations: Discount rate Weighted average assumptions used to determine net pension cost: Discount rate Expected long-term return on plan assets Rate of compensation increase 2011 £000 3,553 5.5% 5.6% 5.9% n/a 2010 £000 12,081 5.6% 7.0% 5.6% 4.5% 32 A n n u a l R e p o r t 2 0 1 1 6 Pension disclosures under IAS 19 continued Weighted average life expectancy for mortality tables* used to determine benefit obligations at: 2011 2010 Male Staff/ Shopfloor Female Staff/ Shopfloor Male Staff/ Shopfloor Female Staff/ Shopfloor 21.8/20.1 25.0/23.2 21.6/19.9 24.8/23.0 Scheme member age 65 (current life expectancy) Scheme member age 45 (life expectancy at age 65) 23.6/21.9 26.9/25.1 23.4/21.7 26.7/24.9 * Mortality tables are PA92 mc (YOB) +1 for the Staff Scheme and PA92 mc (YOB) +3 for the Shopfloor Scheme. A 1% p.a. floor in future improvements was included as at 31st March 2011. History of experience gains and losses Financial year ended in: Present value of defined obligation Fair value of plan assets 2011 41,486 48,169 2010 41,369 46,250 2009 33,251 34,258 2008 39,043 41,829 2007 38,774 43,122 Surplus/(deficit) 6,683 4,881 1,007 2,786 4,348 Difference between expected and actual return on scheme assets: amount (£000) percentage of scheme assets Experience gains and (losses) on scheme liabilities: amount (£000) percentage of scheme liabilities Total gains and (losses): amount (£000) percentage of scheme assets 7 Finance income Interest on short-term deposits Income from listed investments Other 873 2.0% 10,187 22.0% (11,054) (32.0%) (4,781) (11.0%) (27) 0% — 0% — 0% 86 0% (2,033) 5.0% (1,875) 5.0% 1,393 3.0% (592) (1.0%) (2,955) (10.0%) (2,748) (7.0%) 1,848 5.0% 2011 £000 120 18 20 158 2010 £000 92 17 30 139 A n n u a l R e p o r t 2 0 1 1 33 N o t e s t o t h e A c c o u n t s continued 8 Income tax Corporation tax based on a rate of 28% (2010 – 28%) UK Corporation tax Current tax on profits for the year Adjustments to tax charge in respect of prior periods Deferred tax Current year origination and reversal of temporary differences Prior year deferred tax movement Change in rate of corporation tax Taxation on profit on ordinary activities Profit on ordinary activities before tax Tax on profit on ordinary activities at the standard rate of corporation tax in the UK of 28% (2010 – 28%) Effect of: Expenses not deductible for tax purposes Adjustment to tax charge in respect of prior periods Adjustment to deferred tax charge in respect of prior periods Change in rate of future tax Pension adjustments Total tax charge for period Effective rate of tax (%) 9 Dividends Final paid of 7.29 per share for the year ended 31st March 2010 (2009 – 7.29p) Interim paid of 2.71 per share (2010 – 2.71p) 2011 £000 3,924 (435) 3,489 412 384 (436) 3,849 15,501 4,340 110 (435) 384 (436) (114) 3,849 24.8 2011 £000 3,181 1,182 4,363 2010 £000 1,541 (867) 674 688 804 — 2,166 9,804 2,745 34 (867) 804 — (550) 2,166 22.1 2010 £000 3,181 1,182 4,363 The directors are proposing a final dividend of 8.04 pence (2010 – 7.29 pence) per share totalling £3,508,000 (2010 – £3,181,000). This dividend has not been accrued at the balance sheet date. 34 A n n u a l R e p o r t 2 0 1 1 10 Earnings per share Earnings per share is calculated on the profit on ordinary activities after taxation of £11,652,000 (2010 – £7,638,000) and on the weighted average number of shares in issue at the end of the year of 43,632,068 (2010 – 43,632,068 ). There are no share options, hence the diluted earnings per share is the same as above. 11 Property, plant and equipment Land and buildings £000 Plant and other equipment £000 Cost At 1st April 2010 Additions during year Disposals At 31st March 2011 Depreciation and amounts written off At 1st April 2010 Charge for year Disposals Reclassification At 31st March 2011 Net book values At 31st March 2011 At 31st March 2010 Cost At 1st April 2009 Additions during year Disposals At 31st March 2010 Depreciation and amounts written off At 1st April 2009 Charge for year Disposals At 31st March 2010 Net book values At 31st March 2010 At 31st March 2009 22,320 1,016 — 23,336 2,822 481 — 22 3,325 20,011 19,498 21,849 471 — 22,320 2,541 281 — 2,822 19,498 19,308 84,385 8,891 (1,081) 92,195 52,287 5,125 (1,073) (22) 56,317 35,878 32,098 83,459 2,250 (1,324) 84,385 49,359 4,252 (1,324) 52,287 32,098 34,100 Total £000 106,705 9,907 (1,081) 115,531• 55,109 5,606 (1,073) — 59,642 55,889 51,596 105,308 2,721 (1,324) 106,705 51,900 4,533 (1,324) 55,109 51,596 53,408 The net book value of group land and buildings includes £2,527,000 (2010 – £2,527,000) for land which is not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2010 – £359,000). A n n u a l R e p o r t 2 0 1 1 35 N o t e s t o t h e A c c o u n t s continued 12 Financial assets Available-for-sale assets At 1st April 2010 Disposals Net gains/(losses) transferred to statement of comprehensive income At 31st March 2011 2011 £000 467 2011 £000 480 (13) — 467 2010 £000 480 2010 £000 429 (17) 68 480 Available-for-sale financial assets are UK quoted equity securities and denominated in sterling. The fair value of the securities is based on published market prices. 13 Inventories Raw materials Work in progress Finished goods Inventories are net of impairment provisions of £272,000 (2010 – £599,000). 14 Trade and other receivables Due within one year: Trade receivables Other receivables Prepayments 2011 £000 3,169 2,946 5,287 11,402 2011 £000 23,23,537 3,310 4,109 30,956 Other receivables in 2010 include deposits with Icelandic banks of £4,497,000 less impairment provision of £3,843,000 (see note 4). 15 Trade and other payables Current trade and other payables: Trade payables Social security Other payables Accruals 2011 £000 15,893 2,118 422 6,680 25,113 2010 £000 2,347 2,226 3,245 7,818 2010 £000 15,130 2,315 1,704 19,149 2010 £000 7,945 1,193 507 5,026 14,671 Included within accruals in 2010 is a provision of £200,000 relating to Industrial Tribunal costs which was not included in a separate provision as it is not material to the financial statements. 36 A n n u a l R e p o r t 2 0 1 1 16 Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 28% (2009 – 28%). The movement on the deferred tax account is shown below: Deferred tax — net At 1st April 2010 Taken to equity Charge At 31st March 2011 The movement in deferred tax assets and liabilities during the year is shown below: Deferred tax liabilities At 1st April 2010 Charged to profit At 31st March 2011 Accelerated tax depreciation Pension Adjustment £000 6,156 (102) 6,054 £000 (525) 357 (168) The movement in the deferred tax assets and liabilities during the prior year is shown below: At 1st April 2009 Charged to profit Charged to other comprehensive income At 31st March 2010 Accelerated tax depreciation Pension Adjustment £000 4,690 1,466 — 6,156 £000 — — (525) (525)(869) The deferred tax charged to equity during the year is as follows: Tax on pension adjustments Tax on change in fair value of available-for-sale financial assets Tax on items taken directly to reserves 2011 £000 5,287 — 360 5,647 Other £000 (344) 105 (239) Other £000 (389) 26 19 (344) 2011 £000 — — — 2010 £000 4,301 (506) 1,492 5,287 Total £000 5,287 360 5,647 Total £000 4,301 1,492 (506) 5,287 2010 £000 (525) 19 (506) The total tax on items taken directly to reserves is £nil (2010 — £681,000) which includes £nil (2010 — £175,000) of current tax on pension adjustments taken directly to reserves. A n n u a l R e p o r t 2 0 1 1 37 N o t e s t o t h e A c c o u n t s continued 17 Share capital Authorised 50,000,000 10p ordinary shares Allotted and fully paid 43,632,068 10p ordinary shares 2011 £000 5,000 4,363 2010 £000 5,000 4,363 The group considers its capital to comprise its ordinary share capital, share premium and accumulated retained earnings. In managing its capital, the group’s primary objective is to ensure its continued ability to provide a consistent return for its equity shareholders through a combination of capital growth and distributions. Each share entitles the holder to receive the amount of dividends per share declared by the company and a vote at any meetings of the company. In order to achieve this objective, the group monitors its gearing to balance risks and returns at an acceptable level and also to maintain a sufficient funding base to enable the group to meet its working capital and strategic investment needs. In making decisions to adjust its capital structure to achieve these aims, either through altering its dividend policy, new share issues, or the reduction of debt, the group considers not only its short-term position but also its long-term operational and strategic objectives. 18 Commitments Capital commitments contracted for by the group but not provided for in the accounts 2011 £000 1,609 2010 £000 909 38 A n n u a l R e p o r t 2 0 1 1 19 Financial instrument risk exposure and management In common with all other businesses, the group is exposed to risks that arise from its use of financial instruments. This note describes the group’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements. There have been no substantive changes in the group’s exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note. The added credit risks associated with bank deposits have led the group to only use major UK banks and to hold amounts on deposit for shorter periods. Principal financial instruments The principal financial instruments used by the group, from which financial instrument risk arises, are as follows: l trade receivables l other receivables l cash at bank l trade and other payables General objectives, policies and processes The board has overall responsibility for the determination of the group’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the group’s finance function. The board receives reports through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the board is to set policies that seek to reduce risk as far as possible without unduly affecting the group’s competitiveness and flexibility. Further details regarding these policies are set out below: Categories of financial assets and financial liabilities Current financial assets Trade receivables Other receivables (excluding corporation tax recoverable) Cash and cash equivalents Total current financial assets The maximum exposure to credit risks is detailed in the above table. Loans and receivables 2010 £000 15,130 1,904 14,718 31,752 2011 £000 23,537 3,310 13,707 40,554 A n n u a l R e p o r t 2 0 1 1 39 N o t e s t o t h e A c c o u n t s continued 19 Financial instrument risk exposure and management continued Current financial liabilities Trade payables Other payables Accruals Total current financial liabilities Credit risk Financial liabilities measured at amortised cost 2011 £000 15,893 422 6,680 22,995 2010 £000 7,945 507 5,026 13,478 Credit risk arises principally from the group’s trade receivables. It is the risk that the counterparty fails to discharge its obligation in respect of the instrument. As at 31st March 2011, trade receivables of £23,216,000 (2010 – £14,696,000) were not past due. Against these balances no impairment provisions were made. The Icelandic bank deposits signify a significant concentration of credit risk. See notes 4 and 14. Trade receivables Credit risk is managed locally by the management of each subsidiary. Prior to accepting new customers, credit checks are obtained from a reputable external source (for example Creditsafe and trade references). Based on this information, credit limits and payment terms are established, although for some large customers and contracts, credit risk is not considered to be high risk, and credit limits can sometimes be exceeded. These exceeded accounts are closely monitored and if there is a concern over recoverability accounts are put on stop and no further goods will be sold before receiving payment. Pro forma invoicing is sometimes used for new customers, or customers with a poor payment history until creditworthiness can be proven or re-established. Management teams at each subsidiary receive regular ageing reports, and these are used to chase relevant customers for outstanding balances. Impairment provisions are made against trade receivables when considered appropriate based upon objective evidence. No major renegotiation of terms has taken place during the year. The carrying value of the group’s trade receivables is denominated in the following currencies: Sterling Euro US$ 2011 £000 17,822 5,634 81 23,537 2010 £000 11,184 3,946 — 15,130 40 A n n u a l R e p o r t 2 0 1 1 19 Financial instrument risk exposure and management continued At 31st March 2011 trade receivables of £321,000 (2010 – £45,000) were past due but not impaired. They relate to customers with no default history. The ageing of these receivables is as follows: 30–60 days 60–90 days 90+ days 2011 £000 233 40 48 321 2010 £000 45 — — 45 At 31st March 2011 trade receivables of £209,000 (2010 – £389,000) were past due and impaired. The amount of the provision at 31st March 2011 was £359,000 (2010 – £517,000). The ageing of these receivables is as follows: 30–60 days 60–90 days 90+ days 2011 £000 22 60 127 209 2010 £000 1 55 333 389 The group records impairment losses on its trade receivables separately from gross receivables. The movements on this allowance account during the year are summarised below: Opening balance Decrease in provisions Written off against provisions Recovered amounts reversed Closing balance 2011 £000 517 (155) — (3) 359 2010 £000 684 (132) — (35) 517 Impairment losses on trade receivables of £nil (2010 – £34,000) were recognised in administrative expenses. Liquidity risk Liquidity risk arises from the group’s management of working capital. It is the risk that the group will encounter difficulty in meeting its financial obligations as they fall due. The group’s policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. To achieve this aim, it seeks to maintain cash balances to meet expected requirements for a period of at least 90 days. The cash position is continuously monitored to ensure that there is sufficient cash and that the optimum interest rate is obtained. At the balance sheet date, the group has unused bank overdraft facilities of £nil (2010 – £1,000,000) which are reviewed on an annual basis. Based on projected cash flows, the group expected to have sufficient liquid resources to meet its obligations under all reasonably expected circumstances. Market risk Market risk arises from the group’s use of interest bearing and foreign currency financial instruments. It is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in interest rates (interest rate risk), foreign exchange rates (currency risk) or other market factors (other price risk). A n n u a l R e p o r t 2 0 1 1 41 N o t e s t o t h e A c c o u n t s continued 19 Financial instrument risk exposure and management continued The group balance sheet is exposed to market risk in two main ways. Firstly, the group holds some strategic equity investments in other companies where these complement the group’s operations (see note 12). Furthermore, where the group has generated a significant amount of surplus cash it will invest in high quality instruments if liquidity risk is not unduly compromised. Although the directors on investing in such instruments never intend to dispose of investments before maturity, they cannot guarantee this will never happen and therefore do not classify these instruments as ‘held to maturity’ in the consolidated balance sheet. The directors believe that the exposure to market price risk from these activities is acceptable in the group’s circumstances. Interest rate and currency risk The group does not have any financial liabilities subject to interest rate risk at the balance sheet date (2010 – £nil). Foreign exchange risk arises when individual group operations enter into transactions denominated in a currency other than their functional currency. It is the group’s policy to convert all non-functional currency to sterling at the first opportunity after allowing for similar functional currency outlays. It does not consider the use of hedging facilities would significantly minimise this risk. At the balance sheet date foreign exchange facilities of £1.7 million (2010 – £2 million) were available to the group to enable them to enter into forward exchange contracts. The group had no outstanding foreign currency forward at 31st March 2011 (2010 – £nil). The currency and interest profile of the group’s financial assets (less other receivables) and liabilities are as follows: Floating rate Fixed rate Interest-free Sterling US$ Euro Sterling US$ Euro assets 2011 £000 17 122 286 425 assets 2011 £000 12,313 — 969 13,282 assets 2011 £000 17,822 81 5,634 23,537 Floating rate Fixed rate Interest-free assets 2010 £000 23 36 258 317 assets 2010 £000 14,060 — 341 14,401 assets 2010 £000 11,185 — 3,945 15,130 Total £000 30,152 203 6,889 37,244 Total £000 25,268 36 4,544 29,848 42 A n n u a l R e p o r t 2 0 1 1 19 Financial instrument risk exposure and management continued Sterling US$ Euro Interest-free liabilities Interest-free liabilities 2011 £000 14,903 — 990 15,893 2010 £000 7,210 2 733 7,945 Fixed rate assets attracted interest rates between 0.75% to 1.30% (2010 – 0.53% to 1.65%) on sterling deposits. Floating rate assets consisted of overnight cash at bank at nominal interest rates. Cash and cash equivalents Cash and cash equivalents generally comprise short-term deposits that have fixed interest rates and maturity periods within three months. The effect of a +50/(50) increase/(decrease) in basis points with all other variables held constant would have the effect of increasing/ (decreasing) profit before tax by £60,000/(£70,000) (2010 – £85,000/(£26,000)). The group believes that movements on exchange rates of +/–5% could be possible, the effect of which is that profit before tax would increase/(decrease) by (£268,000)/£297,000 (2010 – (£196,000)/£217,000 ). Derivative Financial Instruments In prior periods the group entered into contracts to purchase electricity. These contracts contained clauses which met the definition of a derivative. At the point of initial recognition the derivative had no value and as the contracts ended during the year there was no derivative at the balance sheet date. During the year the Statement of Comprehensive Income was credited with £1,053,000 (2010 – charged with £203,000) under the heading Cost of Sales. This amount reflected the additional rebates/(costs) as a result of higher/(lower) than predicted usage. Fair value Unless otherwise indicated, the carrying amounts of the group’s financial instruments are a reasonable approximation of their fair values. A n n u a l R e p o r t 2 0 1 1 43 F i v e Y e a r F i n a n c i a l H i s t o r y — u n a u d i t e d For the years ended 31st March Trading results Revenue Profit before tax Profit after tax Dividends Balance sheet summary Equity Share capital Reserves Total equity Assets 2011 £000 2010 £000 2009 £000 105,368 60,649 84,812 15,501 11,652 4,363 9,804 7,638 4,363 3,616 622 4,363 2008 £000 97,372 16,664 11,996 4,210 2007 £000 86,230 13,057 9,410 4,036 4,363 75,752 4,363 68,872 4,363 69,314 4,363 73,494 4,363 66,273 80,115 73,235 73,677 77,857 70,636 Property, plant and equipment 55,889 51,596 53,408 38,772 35,495 Financial assets Deferred tax asset Current assets Total liabilities Dividends and earnings Pence per share paid Number of times covered Earnings per share — basic and diluted 467 — 480 — 429 — 736 — 56,356 56,065 52,076 41,685 53,837 37,059 39,508 61,136 823 — 36,318 53,554 (32,306) (20,526) (17,219) (22,787) (19,236) 80,115 73,235 73,677 77,857 70,636 10.0 2.7 10.0 1.7 26.71p 17.51p 10.0 — 1.43p 10.0 2.8 9.52 2.3 27.49p 21.57p 44 A n n u a l R e p o r t 2 0 1 1 P a r e n t C o m p a n y A c c o u n t s U n d e r U K G A A P As noted on page 18, the company has elected to prepare its financial statements under UK GAAP P a r e n t C o m p a n y B a l a n c e S h e e t 31st March 2011 Fixed assets Tangible assets Investments Current assets Stocks Debtors Short-term deposits Cash at bank and in hand Creditors — amounts falling due within one year Net current assets Total assets less current liabilities Provisions for liabilities Capital and reserves Called up share capital Share premium Other reserve Retained earnings Shareholders’ funds Notes 4 5 6 7 8 9 10 11 11 11 2011 £000 11,809 5,749 17,558 7,536 25,328 10,516 217 43,597 14,793 28,804 46,362 (494) 45,868 4,363 874 13 40,618 45,868 2010 £000 11,957 5,761 17,718 4,756 18,366 12,840 88 36,050 8,078 27,972 45,690 (181) 45,509 4,363 874 13 40,259 45,509 The parent company accounts on pages 45 to 51 were approved and authorised for issue by the board of directors on 22 June 2011, and were signed on its behalf by: B. J. Cooke S. J. Mant Chairman Finance Director Notes to the accounts are on pages 46 to 51. A n n u a l R e p o r t 2 0 1 1 45 N o t e s t o t h e P a r e n t C o m p a n y A c c o u n t s The Directors’ Report is on pages 5 to 8 of the Annual Report and Accounts 1 Accounting policies Stocks Financial Instruments Basis of accounting Stock and work in progress have been a) Financial assets The accounts are prepared under the historical cost convention except for revaluation of certain financial instruments as required by FRS 26 and in accordance with applicable UK Accounting Standards and the Companies Act 2006. consistently valued at the lower of cost and net realisable value. The valuation of work in progress and finished stocks includes appropriate manufacturing and works overheads computed on the basis of normal activity. Foreign currencies The company’s financial assets relate to loans and receivables. Although the group occasionally uses derivative financial instruments in economic hedges of currency rate risk, it does not hedge account for these transactions and the amounts are not material. The group has not classified any of its financial assets as Depreciation Monetary assets and liabilities held to maturity. Depreciation is calculated on the straight- line basis to write off the initial cost of fixed assets at the following rates per annum: l Buildings 2% l Plant and other equipment 7% to 33% Freehold land is not depreciated. Pension costs The cost of providing retirement pensions and related benefits is charged to the profit and loss account over the periods benefiting from the employees’ services in accordance with FRS 17. Where defined benefit pension schemes are multi-employer schemes and it is not possible to identify the company’s share of assets and liabilities of those schemes on a reasonable and consistent basis, the company contributions payable to those schemes during the year are charged to the profit and loss account. Turnover Turnover is the aggregate of the invoiced values of sales (less returns and allowances) charged to external customers of the company, excluding value added tax. Turnover is recognised when goods are dispatched. denominated in foreign currencies are translated at the rate of exchange ruling Available-for-sale assets at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction, all differences being taken to the profit and loss account. Deferred tax Available-for-sale financial assets comprise the company’s strategic investments in entities not qualifying as subsidiaries. They are carried at fair value with changes in fair value recognised directly in the statement of comprehensive income. Fair value is determined with Deferred tax is recognised in respect of reference to published quoted prices in an all timing differences that have originated active market. but not reversed at the balance sheet date where transactions or events that result in Loans and receivables an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the company’s taxable profits and its results as stated in the accounts. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non- discounted basis. Investments These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables and amounts owed by subsidiary companies) and deposits held at banks and building societies, but may also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition or issue and subsequently carried at amortised cost using the effective interest rate method, less provision for impairment. Listed investments are accounted for The effect of discounting on these at fair value in accordance with FRS 26 financial instruments is not considered to ‘Financial Instruments: Measurement’. be material. Investments in subsidiaries are held at cost and reviewed for impairment annually. 46 A n n u a l R e p o r t 2 0 1 1 Impairment provisions are recognised Financial liabilities measured at Dividends when there is objective evidence (such as amortised cost Equity dividends are recognised when Financial liabilities include trade payables they become legally payable. Interim and other short-term monetary liabilities, equity dividends are recognised when which are initially recognised at fair value paid. Final equity dividends are recognised and subsequently carried at amortised when approved by the shareholders at an cost using the effective interest method. Annual General Meeting. Fair value is calculated discounting Related party transactions estimated future cash flows using a market rate of interest. c) Share capital The company has taken advantage of the exemption conferred by Financial Reporting Standard 8 ‘Related party disclosures’ not to disclose transactions The group’s ordinary shares are classified with members of the group on the grounds as equity instruments. The group is not that 100% of the voting rights in the subject to any externally imposed capital company are controlled within that group. requirements. Share capital includes the nominal value of the shares and any share premium attaching to the shares. significant financial difficulties on the part of the counterparty or default or significant delay in payment) that the group will be unable to collect all of the amounts due under the terms receivable, the amount of such a provision being the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired receivable. For trade receivables, such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the income statement. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision. b) Financial liabilities The group classifies its financial liabilities into liabilities measured at amortised cost. Although the group uses derivative financial instruments in economic hedges of currency risk, it does not hedge account for these transactions and the amounts are not material. Unless otherwise indicated, the carrying amounts of the group’s financial liabilities are a reasonable approximation of their fair values. A n n u a l R e p o r t 2 0 1 1 47 N o t e s t o t h e P a r e n t C o m p a n y A c c o u n t s The Directors’ Report is on pages 5 to 8 of the Annual Report and Accounts 2 Company profit and loss account Castings P.L.C. has taken advantage of section 408 of the Companies Act 2006 and has not included its own profit and loss account in these accounts. The company’s profit after tax was £4,722,000 (2010 – £2,261,000). The profit and loss account includes £25,000 (2010 – £24,000) for audit fees. 3 Dividends Final paid of 7.29p per share for the year ended 31st March 2010 (2009 – 7.29p) Interim paid of 2.71p per share (2010 – 2.71p) 2011 £000 3,181 1,182 4,363 2010 £000 3,181 1,182 4,363 The directors are proposing a final dividend of 8.04 pence (2010 – 7.29 pence) per share totalling £3,508,000 (2010 – £3,181,000). This dividend has not been accrued at the balance sheet date. 4 Fixed assets Cost At 1st April 2010 Additions during year Disposals At 31st March 2011 Depreciation and amounts written off At 1st April 2010 Charge for year Disposals and adjustments At 31st March 2011 Net book values At 31st March 2011 At 31st March 2010 Land and buildings £000 Plant and other equipment £000 10,282 246 — 10,528 1,980 163 — 2,143 8,385 8,302 23,446 682 (44) 24,104 19,811 906 (37) 20,680 3,424 3,655 Total £000 33,748 928 (44) 34,632 21,791 1,069 (37) 22,823 11,809 11,957 The net book value of land and buildings includes £2,127,000 (2010 – £2,127,000) for land which is not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2010 – £359,000). 48 A n n u a l R e p o r t 2 0 1 1 5 Investments Subsidiary companies At cost Listed investments at market value 2011 £000 5,281 468 5,749 2010 £000 5,281 480 5,761 The company owns 100% of the issued share capital of William Lee Limited, CNC Speedwell Limited and W.H. Booth & Co. Limited, companies which operate in the United Kingdom. William Lee Limited supplies spheroidal graphite iron castings from Dronfield, Sheffield and CNC Speedwell Limited is a machinist operation. W.H. Booth & Co. Limited does not trade and is dormant. During the year the company disposed of listed investments of £12,000 (2010 – £17,000) and the change in fair value taken to equity is £nil (2010 – £68,000). 6 Stocks Raw materials Work in progress Finished goods 7 Debtors Due within one year: Trade debtors Amounts owed by subsidiary companies Other debtors Prepayments and accrued income 8 Creditors Due within one year: Trade creditors Amounts owed to subsidiary companies Corporation tax Other taxation and social security Other creditors Accruals and deferred income 2011 £000 1,019 2,462 4,055 7,536 2011 £000 14,797 4,286 3,309 2,936 25,328 2011 £000 7,021 2,498 926 885 101 3,362 14,793 2010 £000 721 1,896 2,139 4,756 2010 £000 8,887 6,670 1,902 907 18,366 2010 £000 3,445 796 567 452 121 2,697 8,078 A n n u a l R e p o r t 2 0 1 1 49 N o t e s t o t h e P a r e n t C o m p a n y A c c o u n t s continued 9 Provisions for liabilities Deferred taxation At 1st April 2010 Taxation deferred this year At 31st March 2011 Deferred tax is provided as follows: Accelerated capital allowances Other timing differences 10 Called up share capital Authorised 50,000,000 10p ordinary shares Allotted and fully paid 43,632,068 10p ordinary shares 11 Reserves At 1st April 2010 Profit retained Changes in fair value of investments At 31st March 2011 2011 £000 181 313 494 668 (174) 494 2011 £000 5,000 4,363 2010 £000 571 (390) 181 776 (595) 181 2010 £000 5,000 4,363 Share capital £000 4,363 — — 4,363 Share premium £000 874 — — 874 Other reserve £000 13 — — 13 Retained earnings £000 40,259 359 — Total equity £000 45,509 359 — 40,618 45,868 50 A n n u a l R e p o r t 2 0 1 1 12 Reconciliation of movements in shareholders’ funds Profit for the year Changes in fair value of investments Dividends Net increase/(reduction) to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2011 £000 4,722 — (4,363) 359 45,509 45,868 2010 £000 2,261 68 (4,363) (2,034) 47,543 45,509 13 Pensions It is not possible to identify the company’s share of the underlying assets and liabilities in respect of the group defined benefit schemes on a consistent and reasonable basis. Contributions to the schemes by the company are based on professional and independent actuarial advice. During the year the contributions payable by the company to the funds amounted to £nil (2010 – £2,500,000). The last valuation was performed with an effective date of 6th April 2008. Further details of the schemes are contained in note 6 of the consolidated accounts of Castings P.L.C. 14 Capital commitments Authorised, but not provided in the accounts 2011 £000 14 2010 £000 17 A n n u a l R e p o r t 2 0 1 1 51 N o t i c e o f M e e t i n g Notice is hereby given that the one hundred make an offer or enter into an this resolution) of equity securities and third Annual General Meeting of Castings agreement which would or might having, in the case of relevant P.L.C. (the ‘Company’) will be held at Holiday require relevant securities to be shares, an aggregate nominal Inn, Birmingham M6, Junc. 7, Chapel Lane, allotted after the expiry of such amount, or, in the case of other Great Barr, Birmingham, West Midlands, B43 period and the directors may allot equity securities, giving the right to 7BG, on Tuesday 16th August at 3.30 pm for relevant securities in pursuance subscribe for or convert into relevant the following purposes: As ordinary business 1 To receive and adopt the directors’ report and audited accounts for the year ended 31st March 2011. 2 To declare a final dividend. 3 To re-elect Mr G. B. Wainwright as a director. of any such offer or agreement as shares having an aggregate nominal if the authority conferred had not amount not exceeding £218,160, expired; (c) the foregoing authority shall be in substitution for the authorities given which represents approximately 5% of the current issued share capital of the Company, to the directors under the Companies and shall expire at the conclusion of the Act 2006 on 18th August 2009, next Annual General Meeting following which authorities are accordingly the date of this resolution save that the hereby revoked; 4 To re-elect Mr G. Cooper as a director. (d) this authority will be put to annual 5 To re-elect Mr S. J. Mant as a director. shareholder approval. 6 To approve the directors’ remuneration As special business report for the year ended 31st March 2011. 7 To reappoint BDO LLP as auditors of the Company at a fee to be agreed with the directors. To consider and, if thought fit, pass the following resolutions, of which resolution 8 will be proposed as an ordinary resolution and resolutions 9 and 10 will be proposed as special resolutions. As special resolutions 9 THAT the directors be and are hereby empowered pursuant to the Companies Act 2006 to allot equity securities (within the meaning of that Act) for cash pursuant to the general authority conferred by the ordinary resolution numbered 8 set out in the notice convening this meeting as if the said Act did not apply to any such allotment The share capital consists of 43,632,068 provided that this power shall be limited: ordinary shares with voting rights. (a) to allotments in connection with Company shall be entitled before such expiry to make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors shall be entitled to allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. In any three year period no more than 7.5% of the issued share capital will be issued on a pre-emptive basis. 10 THAT the Company be and is hereby generally and unconditionally authorised for the purposes of the Companies Act 2006 to make one or more market purchases of any of its ordinary shares of 10p each (the ‘ordinary shares’), As an ordinary resolution 8 THAT: (a) the directors be and are hereby generally and unconditionally authorised in accordance with the Companies Act 2006 to exercise all the powers of the Company to allot relevant securities provided that the aggregate nominal value of such securities shall not exceed £636,793, which represents approximately 14.6% of the current issued share capital of the Company; (b) the foregoing authority shall expire on 16th August 2015 save that the Company may before such expiry an offer of equity securities to provided that: the ordinary shareholders of the Company where the securities respectively attributable to the interests of such holders are proportionate (as nearly as may be and subject to such exclusions or other arrangement as the directors may consider appropriate, necessary or expedient to deal with any fractional entitlements or with any legal or practical difficulties in respect of overseas holders or otherwise) to the respective numbers of ordinary shares then held by such shareholders; and (b) to the allotment (otherwise than pursuant to subparagraph (a) of (a) the maximum number of ordinary shares hereby authorised to be purchased is 4,358,844 representing 9.99% of the issued share capital at 31st March 2011; (b) the minimum price which may be paid for each ordinary share is 10p, exclusive of the expenses of purchase; (c) the maximum price (exclusive of expenses) which may be paid for each ordinary share is an amount equal to 105% of the average of the middle market quotations for the ordinary shares as derived from the Daily Official List of the London 52 A n n u a l R e p o r t 2 0 1 1 Stock Exchange Limited for the The record date for payment of the final Act, that they may have a right under an five business days immediately dividend is 22nd July 2011. Assuming agreement with the registered member preceding the day of purchase; the final dividend is approved by the by whom they were nominated to be members, the dividend will be paid on appointed, or to have someone else (d) unless previously revoked or varied, the authority hereby 19th August 2011. conferred shall expire at the Information about the meeting can be conclusion of the next Annual found on the Company’s website (www. General Meeting of the Company castings.plc.uk). The right to vote at the following the date of this meeting is determined by reference to appointed, as a proxy for this meeting. If they have no such right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the member as to the exercise of voting resolution, unless such authority is the register of members as it stands on rights. renewed on or prior to such date; 12th August 2011. Shareholders have the Nominated persons should contact right to ask questions at the meeting. the registered member by whom they (e) the Company may, before the expiry of this authority, conclude a contract to purchase ordinary shares under this authority which By order of the board will or may be executed wholly S. J. Mant or partly after such expiry and Company Secretary may make a purchase of ordinary shares pursuant to any such contract, as if such authority had not expired. Registered Office: Lichfield Road, Brownhills, West Midlands, WS8 6JZ. 11 THAT a general meeting other than an 22nd June 2011 were nominated in respect of these arrangements. In Accordance with Regulation 41 of the Uncertified Securities Regulations 2001, only those members entered on the Company’s register of members at 6.00 pm on the day which is two days before the day of the meeting or, if the meeting is adjourned, shareholders entered on the Company’s register of members at 6.00 pm on the day two days before the date of any adjournment shall be entitled to attend and vote at the meeting. New Articles of Association A copy of the proposed new Articles of Note: Any member of the Company entitled to attend and vote at this meeting may appoint one or more proxies, who need not also be a member, to attend and vote, Association of the Company is available on a poll, in his stead. The instrument for inspection during normal business appointing a proxy, including authority hours at the offices of Pinsent Masons LLP, 30 Crown Place, London EC2A 4ES (public holidays excluded) from the date of this notice until the conclusion of the Annual General Meeting and will also be available for inspection at the place of the Annual General Meeting 15 minutes before time of AGM until its conclusion. under which it is signed (or a notarially certified copy of such authority), must be deposited at the offices of the Company’s registrars: Capita Registrars, PXS, 34 Beckenham Road, Kent, BR3 4TU, not less than 48 hours before the time appointed for the meeting. Beneficial owners: In accordance with Section 325 of the Companies Act 2006, the right to appoint proxies does not apply to persons nominated to receive information rights under section 146 of the Act. Persons nominated to receive information rights under section 146 of the Act who have been sent a copy of this notice of meeting are hereby informed, in accordance with Section 149 (2) of the annual general meeting may be called on not less than 14 clear days’ notice. 12 THAT with effect from the passing of this resolution: a the Articles of Association of the Company be amended by deleting all the provisions of the Company’s Memorandum of Association which, by virtue of section 28 of the Companies Act 2006, have been treated as provisions of the Company’s Articles of Association since 1 October 2009; and b the Articles of Association produced to the meeting and initialled by the chairman of the meeting for the purpose of identification be adopted as the Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association. A n n u a l R e p o r t 2 0 1 1 53 D i r e c t o r s , O f f i c e r s a n d A d v i s e r s Directors B. J. Cooke, AdvDipNFC, MIBritF Chairman D. J. Gawthorpe, BSc (Hons), MIBritF Chief Executive S. J. Mant, FCA Finance Director M. A. Lewis Managing Director, CNC Speedwell Ltd G. Cooper Managing Director, William Lee Ltd G. B. Wainwright, MIMgt, MIEx, FRSA Non-executive C. P. King, FCA Non-executive A. J. Smith, MIBritF, IEng Non-executive Secretary and S. J. Mant, FCA Registered Office Lichfield Road, Registrars Auditors Brownhills, West Midlands, WS8 6JZ Tel: 01543 374341 Fax: 01543 377483 Web: www.castings.plc.uk Capita Registrars The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU Tel: 0871 664 0300 (Calls cost 10p per minute plus network extras, lines are open 8.30 am to 5.30 pm Mon–Fri) Fax: 020 8658 3430 BDO LLP Chartered Accountants 125 Colmore Row, Birmingham, B3 3SD Solicitors Enoch Evans (incorporating Kenneth Cooke & Co.) St Paul’s Chambers, 6/9 Hatherton Road, Walsall, West Midlands, WS1 1XS Pinsent Masons LLP 3 Colmore Circus, Birmingham, B4 6BH HSBC Bank plc High Street, Brownhills, West Midlands, WS8 6HJ Bankers Stockbrokers Arden Partners plc Arden House, Highfield Road, Edgbaston, Birmingham, B15 3DU Registered No. 91580 54 A n n u a l R e p o r t 2 0 1 1 S h a r e h o l d e r I n f o r m a t i o n Capital gains tax The official price of Castings P.L.C. ordinary Compensation Scheme. The FSA can out arrangements whereby the holders of be contacted by completing an online shares in uncertificated form may change shares on 31st March 1982, adjusted for form at: such holdings into certificated form (and bonus issues, was 4.92 pence. w w w. f s a . g o v. u k / p a g e s / d o i n g / vice versa). regulated/law/alerts/overseas.shtml Article 18 — Execution of share Warning to shareholders The following guidance has been issued by the Financial Services Authority: Over the last year many companies have become aware that their shareholders have received unsolicited phone calls or correspondence concerning investment matters. These are typically from overseas-based ‘brokers’ who target UK shareholders offering to sell them what often turned out to be worthless or high risk shares in US or UK investments. They can be very persistent and extremely persuasive and a 2006 survey by the Financial Services Authority (FSA) has reported that the average amount lost by investors is around £20,000. It is not just l If the calls persist, hang up. More detailed information on this or similar activity can be found on the FSA website www.moneymadeclear.fsa.gov.uk Website Castings P.L.C.’s website www.castings. plc.uk gives additional information on the group. Notwithstanding the references we make in this Annual Report to Castings P.L.C.’s website, none of the information made available on the website constitutes part of this Annual Report or shall be deemed to be incorporated by reference herein. certificates Share certificates are no longer required to be sealed and this new article permits the Board to take advantage of this relaxation. Articles 37 — 43 - Transfer of shares The New Articles contain references to the fact that shares may be transferred in uncertificated form, and also make reference to the fact that shares may be admitted to the Official List of the UKLA. The discretion of the Directors to refuse to register transfers of partly-paid shares is limited within the New Articles to shares held in certificated form. Article 40 — Notice of refusal to register a transfer of shares The Companies Act 2006 has introduced a new requirement for companies to provide the novice investor that has been duped Explanatory Notes of Principal Changes in this way; many of the victims had been to the Company’s Articles of Association successfully investing for several years. Shareholders are advised to be very wary of any unsolicited advice, offers to buy shares at a discount or offers of free reports into the company. Set out below is a summary of the a transferee with reasons for the refusal principal differences between the current where the directors refuse to register a articles of association of the Company (the transfer of shares. A company is also now “Current Articles”) and the new articles of under an obligation to register a transfer association (the “New Articles”) proposed as soon as is practicable, rather than If you receive any unsolicited investment to be adopted at the forthcoming Annual within two months as was the case under advice: General Meeting. The article numbers previous legislation. These requirements l Make sure you get the correct name of the person and organisation. l Check that they are properly authorised by the FSA before getting involved. You can check at www.fsa. gov.uk/register. l The FSA also maintains on its website a list of unauthorised overseas firms who are targeting, or have targeted, UK investors and any approach from such organisations should be reported to the FSA so that this list can be kept up to date and any other appropriate action can be considered. If you deal with an unauthorised firm, you would not be eligible to receive payment under the Financial Services are the numbers under the New Articles. are reflected in the New Articles. Generally, the opportunity has been taken to bring clearer language into the New Articles, and other than as set out below, the differences between the Current Articles and New Articles are of a minor or technical nature. Article 43 — Renunciation deemed to be a transfer This article gives the Board the same powers to refuse to give effect to a renunciation of a renounceable letter of allotment as if it would have in the case of Articles 12 to 16 — Uncertificated a transfer of shares. Shares The Current Articles do not contain provisions regarding holding shares in an uncertificated form. These new articles set out detailed provisions giving effect to the Uncertificated Securities Regulation 2001, and expressly deal with the holding of shares in uncertificated form and their transfer by means of the CREST system. These articles also set Article 49 — Disclosure of interests This article sets out procedures under the Companies Act 2006, which enable the Company to require the disclosure by shareholders of interests in shares. In addition, the article also reflects current Listing Rule requirements on the sanctions which can be imposed on any shareholder failing to comply with a notice requiring disclosure of interests in shares. In the A n n u a l R e p o r t 2 0 1 1 55 S h a r e h o l d e r I n f o r m a t i o n continued event that any person refuses to disclose 2006. Also, to reflect the Companies Act a minor or formal nature or to correct a information relating to the interests held in 2006, this article has been amended to manifest error or one which he considers shares, the Board may restrict the transfer allow a general meeting (other than an fit for consideration. The New Articles also of shares and the payment of dividends in annual general meeting) to consider a provide that if the chairman consents, respect of shares, and may withdraw the special resolution to be convened on 14 an amendment may be withdrawn by its right of the person in question to attend days’ notice whereas previously 21 days’ proposer before it is put to the vote. or vote at any general meeting. The article notice was required. In accordance with also deals with the circumstances in which the Companies (Shareholder Rights) restrictions on shares must be lifted and Regulations 2009, the Company intends to the provision of dividends and shares apply annually for shareholder approval to issued during any restricted period. Where hold general meetings (other than annual the relevant shares represent less than general meetings) on 14 days notice. 0.25 per cent of the issued shares of the same class, the only sanction which can be imposed is the withdrawal of the right to attend or vote at any general meeting. Article 58 — Security arrangements at general meetings In line with current market practice, the New Articles contain provisions which allow the Article 50 — Alteration of Share Capital to Previously, if a company wanted Board to make any security arrangements which it considers appropriate as regards purchase its own shares, consolidate or general meetings of the Company, and to sub-divide its shares or reduce its share also eject any attendees who cause the capital or other undistributable reserves, in proceedings to become disorderly. Articles 70 to 75 — Votes of members Under the Companies Act 2006 proxies are entitled to vote on a show of hands whereas under the Current Articles proxies are only entitled to vote on a poll. The New Articles reflect this new legal position. Articles 76 to 80 — Appointment of Proxies The New Articles make it clear that multiple proxies may be appointed in respect of one member’s shareholding in the Company, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that member. In addition to the amendments addition to shareholder authority, specific provisions in its articles authorising it to undertake the relevant action were required. Under the Companies Act 2006, a company only needs shareholder authority to carry out any of these actions and it will no longer be necessary for the articles of a company to contain enabling provisions. Accordingly, the relevant enabling provisions are being removed from the Current Articles. The remaining article regarding the alteration of share capital has been amended to make it clear that, where fractional entitlements arise on a consolidation of shares, the Directors may sell the shares representing such entitlements on the market or otherwise to such person at such time and at such price as they think fit. This is provided that the net proceeds of the disposal are distributed to the member in question, unless such proceeds are £5 or less, in which case they may be retained by the Company. Articles 51 to 55 — General meetings This article has been updated to remove references to extraordinary general meetings, which are now termed ‘general meetings’ under the Companies Act Article 61 — Adjournment This article gives the chairman of a general made to allow proxies to vote on a show of hands as well as a poll, the New Articles meeting the power to adjourn the meeting allow for the appointment of proxies in without its consent if he considers it electronic as well as hard copy form. impracticable to hold or continue the Article 81 — Determination of proxy’s meeting. Article 62 — Meetings held in more authority The New Articles provide that than one place The New Articles allow for a general determination of the authority of a proxy or corporate representative is effective meeting to be held in more than one only if notice of determination is received place, provided that each person present by the Company at least two hours prior is able to participate in the business of to the time of the meeting (no time period the meeting concerned and can hear and is provided in the Current Articles). The see all speakers present at the general New Articles also extend the ability of a shareholder to determine the authority of an appointed proxy or corporate representative up to two hours prior to the time of any poll taken after the date of the meeting at which it is demanded. meeting in question. Article 63 — Amendments to resolutions The New Articles reflect the common law position that no amendments to special resolutions (other than an amendment to correct an obvious error) may be considered or voted upon. The New Articles further state that an amendment to an ordinary resolution may be considered at a meeting of the Company if notice of the amendment has been received by the Company at least 48 hours before the meeting or if the chairman decides to accept or propose an amendment of 56 A n n u a l R e p o r t 2 0 1 1 Article 82 — Representatives of corporations The New Articles entitle the Company to Article 93 — Alternate directors This article has been extended so that, with current market practice. These amendments are proposed in light of the in addition to the provisions within the fact that the total cap on fees has not appoint multiple corporate representatives, Current Articles, the appointment of an been increased since the Current Articles in line with the Companies Act 2006. alternate director will also be revoked were adopted in 1989 and is therefore Article 83 — Class meetings The New Articles set out more detailed procedures in relation to the holding of resolution. class meetings, and specifically allow a Article 100 to 103 — Powers of where the individual is not a director and substantially out of date. This also reflects the Board revokes its approval of him by the increasing cost of attracting and retaining suitable non-executive directors. An increase of the applicable limit will cater for the appointment of any additional directors to the Board. Directors Currently, a company can only change poll to be called at a class meeting. Article 86 — Appointment and retirement of directors Under the Current Articles, one third of the directors are required to retire annually at each annual general meeting, regardless of the length of time served on the Board by the director in question. The New Articles provide that, in line with current recommended best practice for listed companies, each director shall retire and its name by special resolution. The Articles 115 to 133 — Directors’ Companies Act 2006 allows directors to change a company’s name, providing interests The Companies Act 2006 sets out they are so authorised by the company’s directors’ general duties which largely articles. The New Articles are being codify the existing law but with some amended to give the Company the changes. Under the Companies Act 2006, flexibility to enable the Directors to pass a director must avoid a situation where a resolution to change the Company’s he has, or can have, a direct or indirect name. be eligible for reappointment at the third The Companies Act 2006 allows directors annual general meeting after the general of a company to make provisions for meeting at which he was appointed or payments to employees or former last reappointed. The Current Articles employees in connection with the also provide that the managing director of cessation or transfer of the business of the the Company is exempt from retirement company, its subsidiaries or undertakings. by rotation. The Board believes that it Although similar provisions have existed is now appropriate for all directors to under the Companies Act 1985, it has submit themselves for periodic re-election not been standard practice specifically to and the New Articles do not exempt any include such authority in the Articles. The directors from retirement by rotation. This Companies Act 2006 stipulates that these is also in line with current best practice powers may only be exercised by directors recommendations. Article 87 — Age of Directors The New Articles provide that directors shall not be required to retire from office automatically upon reaching the age of 70 if they are so authorised by the company’s articles or by the company in general meeting. Therefore, the New Articles are being amended so that the Directors may continue to exercise this power. or any other age and allows a director to Article 111 — Remuneration of be appointed as such even after attaining the age of 70. Article 91 — Power of removal of directors by special resolution This article provides for the removal of any director by a special resolution of the Company in general meeting. This is in addition to the statutory procedure which empowers the members to remove a director by ordinary resolution which can prove difficult to use in practice. directors The Current Articles provide that the fees payable to directors for their services (excluding any special or additional services provided by that director, such as membership of any of the Company’s committees) is determined by the Board, but shall not exceed in aggregate £100,000. It is proposed that the opportunity is taken to increase this aggregate limit to £200,000, in line interest that conflicts, or possibly may conflict, with the company’s interests. The requirement is very broad and could apply, for example, if a director becomes a director of another company or a trustee of another organisation. The Companies Act 2006 allows directors of public companies to authorise conflicts and potential conflicts, where appropriate, where the articles of association contain a provision to this effect. The Companies Act 2006 also allows the articles of association to contain other provisions for dealing with directors’ conflicts of interest to avoid a breach of duty. The New Articles give the directors authority to approve such situations and include other provisions to allow conflicts of interest to be dealt with in a similar way to the current position. There are safeguards which will apply when directors decide whether to authorise a conflict or potential conflict. Firstly, only directors who have no interest in the matter being considered will be able to give the relevant authorisation, and secondly, in taking the decision as to whether to authorise a conflict of interests, the directors must act in a way they consider, in good faith, will be most likely to promote the company’s success. A n n u a l R e p o r t 2 0 1 1 57 S h a r e h o l d e r I n f o r m a t i o n continued The directors will be able to impose limits or conditions when giving authorisation if Article 160 — Scrip Dividends This article allows the Board to propose to include the relevant authorities within the New Articles which would be they think this is appropriate. a resolution to be passed by the required to allow such communication, It is also proposed that the New Articles should contain provisions relating to confidential information, attendance at shareholders which permits the Company should the Board decide to use website to offer shareholders the right to receive communication in the future. shares in place of cash dividends. Board meetings and availability of Board Article 163 — Delivery of annual papers to protect a director being in breach of duty if a conflict of interest or accounts The Companies Act 2006 enables Article 171 — Untraced member not entitled to notices This article allows the Company to stop sending notices to a shareholder if the potential conflict of interest arises. These companies to send to their shareholders despatch of cheques or warrants to that provisions will only apply where the a summary of financial statements instead shareholder has been suspended in position giving rise to the potential conflict of the present full audited accounts. accordance with the New Articles or if two has previously been authorised by the This article permits the Company to take consecutive notices to the shareholder’s directors. All provisions of the New Articles advantage of these provisions but this will registered address or address for service which deal with conflicts of interests have not affect the rights of shareholders to have been returned undelivered. The been updated to ensure that the current receive the full audited accounts should Company will resume sending notices if legislative position is reflected. they so wish. Article 136 — Notice of Board meetings the Current Articles, when a Under Articles 166 to 170 — Notices The Companies Act 2006 enables director is abroad he can request that companies to communicate with the shareholder supplies a new registered address or address for service. Article 172 — Proof of service This article has been amended to contain notice of directors’ meetings are sent members by electronic and/or website provisions relating to proof of service to him at a specified address within the communications. The New Articles of electronic documents, which is to be UK and if he does not do so he is not allow communications to members in determined in accordance with guidance entitled to receive notice whilst he is electronic form and, in addition, they also issued by the Institute of Chartered away. This provision has been removed, permit the Company to take advantage Secretaries and Administrators. as modern communications mean that of the provisions relating to website there may be no particular obstacle to communications. Before the Company giving notice to a director who is abroad. can communicate with a member by It has been replaced with a more general means of website communication, under provision that a director is treated as the Companies Act 2006, the relevant having waived his entitlement to notice, member must be asked individually by the unless he supplies the Company with Company to agree that the Company can the information necessary to ensure that send or supply documents or information he receives notice of a meeting before it to him by means of a website. Further, takes place. The New Articles also provide the Company must either have received that notice of directors’ meetings may also a positive response or have received no be served electronically. Article 158 — Uncashed dividends This article allows the Company to stop sending cheques or warrants or give instructions for bank transfers to be made in the event that dividends remain uncashed or payment attempts have failed on one occasion and reasonable enquiries have failed to establish another address or account, as well as in the circumstances set out in the Current Articles where dividends remain uncashed or payment attempts have failed on two consecutive occasions. response within the period of 28 days beginning with the date on which the request was sent. The Company will notify the member (either in writing, or by other permitted means) when a relevant document or information is placed on the website and a member can always request a hard copy version of the document or information. The Company has no current intention of seeking individual shareholder consent to allow communications with shareholders by means of a website, however the Board considers it prudent Articles 178 — Directors’ indemnities The Companies Act 2006 has in some areas widened the scope of the powers of a company to indemnify directors and to fund expenditure incurred in connection with certain actions against directors. In particular, a company that is a trustee of an occupational pension scheme can now indemnify a director against liability incurred in connection with the company’s activities as trustee of the scheme. In addition, the Company will be permitted to provide money for the purpose of funding a director’s defence in court proceedings, to include regulatory proceedings, in the event that the director concerned is acquitted or receives judgment in his favour, or in respect of proceedings which are otherwise concluded without any finding of fault on the part of the director concerned. The indemnity will also apply to associated companies. 58 A n n u a l R e p o r t 2 0 1 1 In addition to the above, the following Article 60 of the Current Articles — The Company’s Objects Special Business Previously, a Company was required to set out the general nature of “special business” to be transacted at a general meeting. As a consequence of this, the Current Articles set out that matters which are deemed to be special business. The Companies Act 2006 requires companies to set out the general nature of all business to be transacted, therefore references to “special business” have been deleted in the New Articles. Article 68 — Chairman’s Casting Vote The Companies (Shareholders’ Rights) The provisions regulating the operations of the Company are currently set out in the Company’s Articles, and also in the Memorandum of Association (‘Memorandum’). The Company’s Memorandum contains the objects clause which sets out the scope of the activities the Company is authorised to undertake. This clause is drafted to give a wide scope. Under the Companies Act 2006, the objects clause and all other provisions which are currently contained in a company’s Memorandum, for existing companies at 1 October 2009, are deemed Regulations 2009 state that traded to be contained in a company’s Articles companies can no longer permit the but can be removed by special resolution. Chairman to have a casting vote upon an equality of votes at a shareholders’ meeting. This provision does not therefore appear in the New Articles. The Companies Act 2006 further states that unless a company’s Articles provide otherwise, a company’s objects are unrestricted. This abolishes the need for companies to have objects clauses. For this reason the Company is proposing to remove its objects clause, together with all other provisions of its Memorandum which, by virtue of the 2006 Act, are to be treated as forming part of the Company’s Articles Resolution 12.1 confirms the removal of these provisions for the Company. As the effect of this resolution will be to in remove the statement currently the Company’s memorandum of association regarding limited liability, the New Articles also contain an express statement regarding the limited liability of shareholders at Article 3. provisions of the Current Articles have no equivalent in the New Articles:- General — Extraordinary Resolutions The Current Articles contain provisions which refer to extraordinary resolutions. These provisions have been amended or removed as appropriate, as the concept of extraordinary resolutions has not been retained under the Companies Act 2006. Article 3 of the Current Articles — Authorised Share Capital This provision of the Current Articles has been removed in its entirety to reflect the abolition under the Companies Act 2006 of the concept of authorised share capital as from 1 October 2009. Directors will still be limited as to the number of shares they can at any time allot because allotment authority continues to be required under the Companies Act 2006. Article 9 of the Current Articles — Purchase of own shares Previously, if a company wanted to purchase its own shares, consolidate or sub-divide its shares or reduce its share capital or other undistributable reserves, in addition to shareholder authority, it required specific provisions in its Articles authorising it to undertake the relevant action. Under the Companies Act 2006 , a company will require only shareholder authority to do any of these things and it will no longer be necessary for the Articles to contain enabling provisions. Accordingly, the relevant enabling provisions are being removed from the New Articles. Articles 47 to 50 of the Current Articles The provisions of the Current Articles relating to the conversion of shares into stock and vice versa do not appear in the New Articles as the Board does not foresee any circumstances in which such a conversion would take place. A n n u a l R e p o r t 2 0 1 1 59 S h a r e h o l d e r N o t e s 60 A n n u a l R e p o r t 2 0 1 1
Continue reading text version or see original annual report in PDF format above