Castings P.L.C. Annual Report for the year ended 31 March 2015 Stock Code: CGS 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 An Introduction to Castings P.L.C. Castings P.L.C. is a market leading UK iron casting and machining group. Our continued strength is largely as a result of our investment in the latest technologies and manufacturing processes. Maintaining an ungeared balance sheet provides investment flexibility, enabling us to maximise commercial opportunities to generate strong returns for the benefit of shareholders, customers and employees alike. 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Contents Strategic Report Financial Highlights Chairman’s Statement Objectives and Strategy Business Model Business and Financial Review Principal Risks and Uncertainties Corporate Social Responsibility Corporate Governance Board of Directors Directors’ Report Corporate Governance Audit and Risk Committee Report Directors’ Remuneration Report Annual Statement Remuneration Policy Annual Report on Directors’ Remuneration Statement of Directors’ Responsibilities Independent Auditors’ Report Financial Statements Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Cash Flow Statement Consolidated Statement of Changes in Equity Notes to the Accounts Five Year Financial History Parent Company Balance Sheet Notes to the Parent Company Accounts Company Information Notice of Meeting Directors, Officers and Advisers Shareholder Information 02 03 04 04 05 07 09 11 12 15 17 18 19 21 23 24 27 28 29 30 31 48 49 50 54 56 57 01 24116.04 — 12 June 2015 12:14 PM — Proof 4 Financial Highlights Group revenue (£m) £131m (2014: £137m) Profit before tax (£m) £17.5m (2014: £21.8m) Capital expenditure (£m) £8.2m (2014: £9.7m) 2015 2014 2013 2012 131 137 122 126 2015 2014 2013 2012 17.5 21.8 19.2 2015 2014 2013 8.2 9.7 6.9 23.1 2012 12.6 Foundry sales volume (tonnes) 52,700 (2014: 57,600) EPS (basic and diluted) 31.80p (2014: 39.55p) Dividend per share (pence) 13.30p (2014: 12.96p) 2015 2014 2013 2012 52,700 57,600 52,700 57,200 2015 2014 2013 2012 31.80 39.55 33.89 40.32 2015 2014 2013 2012 13.30 12.96 12.34 11.75 Revenue Profile Geographical revenue split Customer sector profile United Kingdom 33% Export 67% Commercial vehicle 57% Automotive 29% Other 14% 02 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Chairman’s Statement The turnover of the group decreased to £131 million (£137 million last year) with reduced profits of £17.5 million compared to £21.8 million last year. Foundry businesses The foundry operation saw a reduction in casting output of 8.5%. This was expected from the high levels of the previous financial year due to the change over from Euro 5 vehicle production to Euro 6 production which boosted sales to our European customers in 2013. The work mix at William Lee has increased in complexity and this has led us to pursue further harmonisation of production methods across the group. The new senior management team at William Lee have addressed the production issues that arose and good progress has been made. I am confident that the William Lee foundry will return to greater profitability under the new team. CNC Speedwell Production volumes at CNC also reduced from the high level of the previous year and this resulted in a small profit reduction. It is pleasing to report a higher proportion of revenue from external customers following our decision to increase machining of alternative materials with a wider customer base. The group has invested £3.9m in the machining business to support the new orders that have been generated. Dividend I am pleased to report that the directors recommend an increase in the final dividend to 10.08 pence per share. This, together with an increased interim dividend, gives a total for the year of 13.30 pence per share. Outlook In general we are now experiencing improved volumes from many of our customers and it is anticipated profits will increase providing the recovery continues. Directors Graham Cooper retired as managing director of William Lee on 30 September 2014 and Paul King will retire as a non-executive director at the Annual General Meeting on 18 August 2015. I wish to thank them both for their contribution over many years to Castings plc. In conclusion I wish to thank all our employees for their contribution during the year and hope we will now enjoy a period of stability. B. J. Cooke Chairman 10 June 2015 24116.04 — 12 June 2015 12:14 PM — Proof 4 03 Castings P.L.C. Annual Report for the year ended 31 March 2015Strategic Report Objectives and Strategy Group objective Our objective is to generate shareholder value through the delivery of innovative design and flexible production solutions to global markets, delivering long-term sustainable revenues at higher than average margins through investment in market leading technologies. We maintain sufficient available funds to be able to make strategic decisions to support customer demand increases and new orders. We are always mindful of our competitor activity and invest in the latest technology to maintain our market advantage. Group strategy Our strategy is to invest in the latest technologies to provide our customers with state-of-the-art design and flexible production offerings. We invest to match the capacity of the foundries with the requirements of our major customers with the aim of building long-term supply relationships. Our machining operation is invested to support both the capacity requirements of the foundry customer base and also to expand general machining in alternative materials with blue chip customers. The group balance sheet is managed to ensure long-term financial stability and the ability to make efficient investment decisions to support our objectives. We measure progress against our strategic priorities by reference to our financial performance as shown on page 27. Business Model We seek to enhance our strong margins by continually striving for further operational efficiencies. These efficiencies also provide the opportunity to invest in growth. Group structure Castings P.L.C. is an established iron casting and machining group based in the UK, supplying both the domestic and export markets. The group comprises three trading operations: • Castings (Brownhills) supplies spheroidal graphite iron castings to a variety of manufacturing industries from its highly mechanised foundries. • William Lee Limited supplies spheroidal graphite iron castings from its well invested foundries in Dronfield, Derbyshire. • CNC Speedwell Limited is a highly invested machining operation primarily focused on the prismatic machining of iron and aluminium castings from its sites in Brownhills and Fradley. Management structure Our board manages overall control of the group’s affairs and is responsible for delivering on the group’s objectives. The group executive team includes a managing director from each of the three trading operations who are responsible for assisting the chief executive in implementing our strategy and the day-to-day management of the group. Each managing director is supported by a local senior management team who are all directly involved in the detailed operations at their respective sites. Group business model Our trading operations share the common business model of working closely with customers in developing products to meet their specific needs. As part of this process we: • Undertake the design, including virtual analyses, of ductile and SG iron castings. • Produce rapid prototypes and pre-series castings using full production processes as well as serial quantities of fully machined ductile iron castings and sub-assemblies. • Provide vertical and horizontal machining capacity together with 5-axis prototyping. • Maintain international and customer specific quality and process control standards incumbent on a first tier supplier. We seek to enhance our strong margins by continually striving for further operational efficiencies. These efficiencies also provide the opportunity to invest in growth. We ensure the latest environmental standards are achieved in all areas of activity. 04 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Business and Financial Review Machining The machining business generated total sales of £31.4 million in the year compared to £31.5 million in the previous year. Of the total revenue, 57.3% was generated from external customers compared to 55.8% in 2014, reflecting our strategy to expand general machining in alternative materials with blue chip customers. With the European engine change to Euro 6, the business has had to adapt to varying levels of demand for both the old and new engines. During that period the company was not able to fully maximise the utilisation of the assets in the business. As a result, the segmental profit has fallen to £4.5 million (2014 – £5.2 million) and the profit on total sales to 14.4% (2014 – 16.5%). As demand becomes more predictable, it is anticipated that the profitability of the machining segment will improve. We have invested £3.9 million during the year to accommodate new orders and will continue to do so as and when the order book grows further. In the current year, the business expects to benefit from the commercial vehicle market increases in line with the foundry operations and for volumes from other markets to remain strong. Overview of business segment performance The segmental revenue and results for the current and previous years are set out in note 2 on pages 34 and 35. An overview of the performance, position and future prospects of each segment are set out below. Foundry operations The foundry businesses have experienced a reduction in output of 8.5% to 52,700 tonnes resulting in a fall in external sales revenue of 5.5% to £113.3 million. Foundry sales volumes were expected to reduce compared to the previous year which experienced exceptional levels of commercial vehicle customer demand. This was as a result of emissions legislation changes in Europe to the Euro 6 standard causing a pre-buy effect up to 31 December 2013, with demand from European customers reducing in the final quarter of the 2014 financial year. The segmental profit has fallen to £13.1 million, from £16.2 million in the previous year, which represents 9.8% of total segmental sales (2014 – 11.3%). The work mix at William Lee has increased in complexity which has impacted profitability in the year and necessitated greater harmonisation of production methods across the group. Following some senior personnel changes, the new management team have addressed the production issues that arose and good progress has been made. With customer requirements forecast to increase from current levels, particularly in the commercial vehicles sector, it is hoped that the foundry operations can improve performance during the current financial year. Following investment in processing, finishing and warehousing during the year, it is not anticipated that significant further investment in the foundry operations will be required to satisfy the current or anticipated levels of demand. Business review and performance Revenue Group revenues decreased by 4.5% to £131.3 million compared to £137.5 million reported in 2014, of which 67% was exported (2014 – 67%). The revenue from the foundry operations to external customers decreased 5.5% to £113.3 million (2014 – £119.9 million) with the dispatch weight of castings to third-party customers decreasing 8.5% to 52,700 tonnes (2014 – 57,600 tonnes). Revenue from the machining operation to external customers increased by 2.3% during the year to £18.0 million (2014 - £17.6 million). Operating profit and segmental result The group operating profit for the year was £17.4 million compared to £21.6 million reported in 2014. The foundry operations returned a segmental profit of £13.1 million compared to £16.2 million in 2014. This represents a fall in segmental profit as a percentage of total segment sales from 11.3% in 2014 to 9.8% in 2015, reflecting the production inefficiencies experienced at William Lee Limited. The segmental profit of the machining operation was £4.5 million in the year compared to £5.2 million in 2014, being 14.4% (2014 – 16.5%) of total segment sales. Icelandic bank receipts During the year we have received £0.02 million (2014 – £0.36 million) from the administrators of the UK subsidiaries of the Icelandic banks. Of the original balance of £5.7 million, the total received to date is £3.28 million which is £1.42 million in excess of the original estimate of recoverable amounts. Given the uncertainty over the quantum and timing of any possible further receipts, no allowance has been made for future recoverable amounts. Finance income The reduction in the level of finance income from £0.18 million in 2014 to £0.14 million in the current year reflects the lower deposit interest rates available during the year. 24116.04 — 12 June 2015 12:14 PM — Proof 4 05 Castings P.L.C. Annual Report for the year ended 31 March 2015Strategic Report Business and Financial Review continued Profit before income tax Profit before taxation has decreased to £17.5 million from £21.8 million. Taxation The current year tax charge of £3.67 million (2014 – £4.58 million) is made up of a current tax charge of £3.14 million (2014 – £4.82 million) and a deferred tax charge of £0.53 million (2014 – credit of £0.24 million). The effective rate of tax of 20.9% (2014 - 21.0%) is in line with the prevailing UK corporation tax for the year. Earnings per share Underlying basic earnings per share decreased 19.6% to 31.80 pence (2014 – 39.55 pence) reflecting a 19.6% reduction in profits and a consistent effective tax rate. There has been no change in the weighted average number of shares in issue of 43,632,068. Dividends The directors are recommending an increase in the final dividend to 10.08 pence per share (2014 – 9.83 pence per share). This would give a total distribution for the year of 13.30 pence per share (2014 – 12.96 pence per share). Cash flow The group generated cash from operating activities of £20.4 million compared to £23.9 million in 2014. Working capital levels have increased in the year with an increase in receivables (£2.1 million) and a reduction in payables (£2.5 million) being partly offset by a fall in inventories of £0.5 million. Corporation tax payments during the year totalled £4.4 million compared to £4.9 million in 2014. Capital expenditure during the year amounted to £8.2 million (2014 – £9.7 million) with investment in production processes, finishing equipment and warehousing in the foundry businesses and machining centres within the machining operation. The charge for depreciation was broadly consistent at £6.8 million compared to £6.0 million in 2014. A longer term deposit of £10 million was taken out during the year and matures during the next financial year resulting in a decrease in cash and cash equivalents during the year. This compares to an inflow of £5 million in 2014 with the maturity of a similar deposit. Dividends paid to shareholders were £5.7 million in the year compared to £5.5 million in 2014. The resulting net cash and cash equivalents represented a decrease by £7.8 million (2014 - £9.1 million increase) including the impact of the current interest-bearing deposit of £10 million. If this were to be excluded, the total cash and deposits increased by £2.2 million in the year compared to £4.1 million in 2014. At 31 March 2015, the total cash and deposits position at the balance sheet date is £30.0 million (2014 – £27.8 million). Pensions The pension valuation showed a consistent surplus, on an IAS 19 (Revised) basis, of £14.6 million compared to the previous year. The surplus continues not to be shown on the balance sheet due to the IAS 19 (Revised) restriction of recognition of assets where the company does not have an unconditional right to receive returns of contributions or refunds. Balance sheet Net assets at 31 March 2015 were £119.3 million (2014 – £110.9 million). This reflect the total comprehensive income for the year of £14.1 million, offset by dividends of £5.7 million. Non-current assets have increased to £71.6m (2014 – £65.7 million) primarily as a result of the debtor due from the pension scheme of £4.5 million, details of which are set out in note 6. Current assets have decreased to £72.5 million (2014 – £73.2 million) primarily due to the transfer of the pension debtor to non-current assets and working capital movements. Total liabilities have reduced to £24.7 million (2014 – £28.0 million), mainly as a result of a reduction in trade payables. 06 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Principal Risks and Uncertainties Risk In common with all trading business, the group is exposed to a variety of risks in the conduct of its normal business operations. The group maintains a range of insurance policies against major identified insurable risks, including (but not limited to) those related to business interruption, damage to property and equipment, products and employment. Whilst it is not possible to either completely record or to quantify every material risk that the group faces, below is a summary of those risks that the directors believe are most significant to the group’s business and could have a material impact on future performance, causing it to differ materially from expected or historic achieved results. Operational and commercial The group’s revenues are principally derived from commercial vehicle and automotive markets. Both markets, and therefore group revenues, can be subject to variations in patterns of demand. Commercial vehicle sales are linked to technological factors (e.g. emission legislations) and economic growth. Passenger vehicle sales are influenced, inter alia, by consumer preferences, incentives and the availability of consumer credit. Market competition Automotive and commercial vehicle markets are, by their nature, highly competitive, which has historically led to deflationary pressure on selling prices. This pressure is most pronounced in cycles of lower demand. A number of the group’s customers are also adopting global sourcing models with the aim to reduce bought out costs. Whilst there can be no guarantee that business will not be lost on price, we are confident that we can remain competitive. Customer concentration, programme dependencies and relationships The loss of, or deterioration in, any major customer relationship could have a material impact on the group’s results. Product quality and liability The group’s businesses expose it to certain product liability risks which, in the event of failure, could give rise to material financial liabilities. Whilst it is a policy of the group to limit its financial liability by contract in all long-term agreements (‘LTAs’), it is not always possible to secure such limitations in the absence of LTAs. The group’s customers do require the maintenance of demanding quality systems to safeguard against quality-related risks and the group maintains appropriate external quality accreditations. The group maintains insurance for public liability-related claims but does not insure against the risk of product warranty or recall. Foreign exchange The group is exposed to foreign exchange risk on both sales and purchases that are denominated in currencies other than sterling, primarily euro and US dollar. Foreign exchange rate risk is sometimes partially hedged using forward foreign exchange contracts. Equipment The group operates a number of specialist pieces of equipment, including foundry furnaces, moulding lines and CNC milling machines which, due to manufacturing lead times, would be difficult to replace sufficiently quickly to prevent major interruption and possible loss of business in the event of unforeseen failure. Whilst this risk cannot be entirely mitigated without uneconomic duplication of all key equipment, all key equipment is maintained to the highest possible standards and inventories of strategic equipment spares maintained. The facilities at Brownhills and Dronfield have similar equipment and work can be transferred from one location to another very quickly. The machining business also operates from two separate locations enabling the transfer of some production if required. Suppliers and trade credit Although the group takes care to ensure alternative sources of supply remain available for materials or services on which the group’s businesses are critically dependent, this is not always possible to guarantee without risk of short-term business disruption, additional costs and potential damage to relationships with key customers. The ability of our suppliers to maintain credit insurance on the group and its principal operating businesses is an important issue. We have excellent relationships with our suppliers and we continue to work closely with them on a normal commercial basis. A reduction in the level of cover available to suppliers may impact on our trading relationship with them and may have a significant effect on cash flows. 24116.04 — 12 June 2015 12:14 PM — Proof 4 07 Castings P.L.C. Annual Report for the year ended 31 March 2015Strategic Report Principal Risks and Uncertainties continued Commodity and energy pricing The principal metal raw materials used by the group’s businesses are steel scrap and various alloys. The most important alloy raw material inputs are premium graphite, magnesium ferro-silicon, copper, nickel and molybdenum. Wherever possible, prices and quantities (except steel) are secured through long-term agreements with suppliers. In general, the risk of price inflation of these materials resides with the group’s customers through price adjustment clauses. Energy contracts are locked in for at least twelve months, although renegotiation risks remain at contract maturity dates but again this is mitigated through the application of price adjustment clauses. At 31 March 2015, the group has electricity contracts in place until 30 September 2016 with consumption levels at the balance sheet date being well within the agreed tolerance levels and this situation is not expected to change. Information technology and systems reliability The group is dependent on its information technology (‘IT’) systems to operate its business efficiently, without failure or interruption. Whilst data within key systems is regularly backed up and systems subject to virus protection, any failure of back-up systems or other major IT interruption could have a disruptive effect on the group’s business. Short-term deposits A review of credit ratings is undertaken prior to making new deposits and the maximum exposure to any one counter-party is restricted. However, institutions can be downgraded before maturity thereby possibly placing these deposits at risk. Environmental The group’s businesses are subject to compliance with many different laws and requirements in the UK, Europe, North America and elsewhere. Great care is made to act responsibly towards the environment to achieve compliance with all relevant laws and to establish a standard above the minimum level required. Whilst the group’s manufacturing processes are not generally considered to provide a high risk of harm to the environment, a major control failure leading to environmental harm could give rise to a material financial liability as well as significant harm to the reputation of our business. Further information is set out on page 9. Pension scheme funding The fair value of the assets and liabilities of the group’s defined benefit pension schemes is substantial. As at 31 March 2015 the schemes were in surplus on an IAS 19 (Revised) basis. Further details are set out in note 6 to the accounts. The potential risks and uncertainties resulting from factors such as investment return, interest rates and mortality rates are mitigated by careful management and continual monitoring of the schemes and by appropriate and timely action to ensure as far as possible that the defined benefit pension liabilities do not increase disproportionately. The company works closely with the scheme trustees and specialist advisers in managing the inherent risks of such schemes. The schemes were closed to future accruals from 6 April 2009, which only leaves past service liabilities to be funded. 08 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Corporate Social Responsibility 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 communities in which we operate. The group works hard to meet the legitimate expectations of these stakeholder groups whilst at the same time seeking to fulfil our objective of creating outstanding and enduring value through commercial success based on superior performance. The group has a network of policies 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 have the potential to impact the environment. Specifically, the company is committed to: • Implementing and maintaining an Environmental Management System in accordance with the ISO 14001 standard. • Establishing procedures to review the impact of current or new activities or processes on the environment. • Reviewing audit results and initiating corrective action to address any deficiencies found within the group’s environmental management system, policy, objectives or targets. • Using techniques to avoid, reduce or control pollution. • Complying with all relevant legal requirements, process, planning and discharge authorisations, as appropriate to its operations. • Pursuing best practice techniques in the use of energy and raw materials. • Encouraging the beneficial reuse, recycling and recovery of its waste products. The group has also in place an energy policy which requires each company to make continuing efforts to achieve the following objectives: • Ensuring that environmental issues are considered when making decisions to invest in capital plant and in the planning and controlling of manufacturing processes. • Promoting environmental awareness throughout the group and ensuring that personnel whose activities have the potential to cause a significant impact on the environment receive appropriate training. • Ensuring that suppliers and contractors adopt environmental practices on-site that are compatible with our exacting environmental standards. • Establishing and maintaining adequate contingency procedures and plans to deal effectively with any accidental discharge or emission of pollutants. • Communicating our Environmental Policy Statement to any persons working on our behalf and any interested parties. 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 is kept to a level below legislative requirements to ensure the minimum of nuisance to the local environment. Appropriate and adequate environmental information and training is given to all employees and contractors. Both of our foundry sites are ISO 14001:2004 accredited. The group’s practices and procedures are subject to regular environmental audits by external consultants. • To monitor and record energy and water consumption. • To reduce the consumption of fossil fuels and utilise energy from sustainable sources where practicable. • To examine ways of reducing water consumption. • To promote energy awareness amongst employees and contractors. • To identify and implement energy saving measures and practise energy efficiency throughout all group premises, plant and equipment. • To incorporate environmentally sensitive designs into both new and refurbished buildings. • 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. Greenhouse gas emissions Our gross greenhouse gas (GHG) emissions for the year ended 31 March 2015 were 67,697 tonnes of CO2 (2014 – 72,101 tonnes of CO2). Our material emissions arise entirely from indirect emissions that come from our use of electricity, gas and water (Scope 2). We have calculated our carbon footprint according to the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) GHG Protocol, which is the internationally recognised standard for corporate carbon reporting. For the foundry businesses, the most appropriate metric to measure the level of GHG emissions is per production tonne. The metric used for the machining operation is emissions per thousand pounds of sales revenue, the foundry emissions results for the year being 1.09 (2014 – 1.06) tonnes/production tonne and 0.19 (2014 – 0.19) tonnes/£000 of machining revenue respectively. 24116.04 — 12 June 2015 12:14 PM — Proof 4 09 Castings P.L.C. Annual Report for the year ended 31 March 2015Strategic Report • Induction training both job and hazard specific and refresher training. • Maintenance, inspection and statutory inspection of work equipment. • Providing appropriate personal protective equipment and rules for its use. • Occupational health including health surveillance and exposure monitoring as required. • The control of visitors and contractors. • Incident reporting, recording and investigation. • Routine workplace inspections. • Performance monitoring and evaluation. Human rights Given the nature of the group’s business model, we have concluded that human rights is not a material issue to the business due to existing regulatory controls in our core areas of activity. The Strategic Report was approved by the board and signed on its behalf by D. J. Gawthorpe Chief Executive Officer 10 June 2015 Corporate Social Responsibility continued 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 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. 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 to equality, judging applications for employment neither by race, nationality, gender, age, disability, sexual orientation nor political bias. The group gives full consideration to employment applications by disabled 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. The gender of our staff at 31 March 2015 was as follows: Non-executive directors Executive directors Senior managers Other employees Male Female 4 4 16 959 983 — — 3 98 101 Health and safety The board regards the promotion of health and safety measures as a mutual objective 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: • To provide and maintain safe and healthy working conditions complying with all statutory conditions. • To provide training and instruction to enable employees to perform their work safely and efficiently. • To make available all necessary safety devices and protective equipment and to supervise their use. • To maintain a constant and continuing interest in health and safety matters applicable to the group’s activities, consulting and involving employees wherever possible. The group has clearly defined health and safety policies and we operate a system of strict reporting. Regular audits of health and safety at the group’s manufacturing operations are carried out 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. The group encourages the maintenance of consistent high standards and each site is required to develop a safety management system that includes: • Health and safety planning and objective setting. • Carrying out risk assessments, both general and hazard specific. • Producing and issuing safe systems of work. 10 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Board of Directors Executive directors David Gawthorpe Chief Executive Officer Aged 53, he joined the company in 1984 and became local technical director at Brownhills in 1994. He was appointed a director in 2003 and became chief executive in April 2007 and is the director with environmental and human resource responsibility. Steve Mant Finance Director Aged 39, he joined the company in June 2010 and was appointed company secretary and finance director on 1 November 2010. Prior to joining the company he had been working for BDO LLP specialising in manufacturing, international and listed companies. Non-executive directors Brian Cooke Chairman Aged 75, he joined the company in 1960 after attending foundry college and serving an engineering apprenticeship. He worked in all departments of the company and was appointed a director in 1966, becoming joint managing director in 1968 and managing director in 1970. He ceased to be chief executive in 2007. He has been executive chairman since 1983, becoming non- executive chairman on 31 March 2015. Gerard Wainwright Senior Independent Non-executive Director Aged 65, he was appointed a director in 1998 and is the senior independent director. He has been chief executive of a wide range of manufacturing companies for over 25 years together with international experience. He is chairman of the remuneration committee and a member of the audit and risk and nomination committees. Mark Lewis Managing Director — CNC Speedwell Ltd Aged 51, 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. Adam Vicary Managing Director — Brownhills Aged 47, he joined the company in September 2010 as joint managing director and was appointed to the main board in April 2012. Paul King Non-executive Director Aged 78, he was appointed a director in 1998 and is an independent director. He retired from practice as a partner with Coopers & Lybrand and has been a member of the boards of a number of companies. He is a member of the audit and risk, remuneration and nomination committees. He is not seeking re-election and will retire from the board at the Annual General Meeting. Alec Jones Non-executive Director Aged 63, he was appointed a director in April 2012 and is an independent director. He was a partner in PricewaterhouseCoopers for 27 years until his retirement in 2010. He is chairman of the audit and risk committee and is also a member of the remuneration and nomination committees. 24116.04 — 12 June 2015 12:14 PM — Proof 4 11 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Directors’ Report The directors submit the Annual Report and audited financial statements of Castings P.L.C. for the year ended 31 March 2015. Strategic Report The Strategic Report, which contains a review of the group’s business, a description of the principal risks and uncertainties facing the group and commentary on the likely future developments, is set out on pages 2 to 10. Financial results and dividend The profit for the year after taxation was £13,875,000 (2014 – £17,258,000), full details of which are set out in the consolidated statement of comprehensive income on page 27. An interim dividend of 3.22 pence per share was paid in January 2015 in respect of the year ended 31 March 2015. The directors recommend a final dividend of 10.08 pence per share payable on 21 August 2015 to shareholders on the register on 10 July 2015, making a total distribution of 13.30 pence for the year. Share capital The company’s capital consists of 43,632,068 (2014 – 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 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 11 and their interests in the ordinary share capital at the beginning and end of the year were: Beneficial holdings B. J. Cooke G. B. Wainwright D. J. Gawthorpe A. Vicary G. Cooper (retired on 30 September 2014) M. A. Lewis S. J. Mant C. P. King A. N. Jones 2015 Total 1,959,636 101,261 29,379 14,000 — 3,025 1,000 — — 2014 Total 1,959,636 84,261 29,379 14,000 8,000 3,025 1,000 — — 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 provision B.7.1 of the UK Corporate Governance Code for non-executive directors having served more than nine years and, being eligible, offer themselves for re-election: • D. J. Gawthorpe – by rotation • A. Vicary – by rotation • G. B. Wainwright – annual re-election C. P. King will not be seeking re-election and will retire from the board at the Annual General Meeting. The unexpired period of the contracts of service for D. J. Gawthorpe, S. J. Mant, M. A. Lewis, and A. Vicary is one year. B. J. Cooke, A. N. Jones, 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. Directors retire from office at the third Annual General Meeting after the general meeting at which they were appointed or last reappointed and are eligible for reappointment. In addition, non-executive directors with service greater than nine years are subject to annual re-election. 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. 12 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 The business of the company is managed by the board, who may exercise all such powers of the company as are not by legislation or by the company’s Articles required to be exercised in general meeting. The board may make such arrangements as it thinks fit for 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. 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. Other than the directors’ service contracts the directors have no interests in any other 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 10 June 2015: Ruffer LLP Delta Lloyd Asset Management NV Aberforth Partners’ Clients B. J. Cooke Hamstall Investments Inc. Rathbone Investment Management Ltd Number 7,357,143 4,793,572 4,341,407 1,959,636 1,949,900 1,600,000 % 16.9 11.0 10.0 4.5 4.5 3.7 During the period between 31 March 2015 and 10 June 2015, the directors have not been notified of any changes to the shareholdings set out above. 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 19 August 2014 and under the Companies Act must be renewed at least every five years. Authority will also be sought from shareholders to allow the directors to issue new shares for cash to persons other than to existing members up to a maximum nominal amount of £218,160, being approximately 5% of the current issued share capital. 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 17 August 2020 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 2014, 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 days immediately preceding the day of a purchase. The minimum price which may be paid for each share is 10 pence. The current authority to make market purchases expires at the forthcoming Annual General Meeting. The directors are now seeking the approval of shareholders for the renewal of this authority upon the same terms, namely 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 31 March 2015. The authority is sought by way of a special resolution, details of which are also included in the Notice of Meeting as item 10. 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. Further details of employee involvement are given under the Corporate Social Responsibility section on pages 9 and 10. Health and safety As required by legislation, the group’s policy for securing the health, safety and welfare at work of all employees has been brought to their notice. In addition, safety committees hold regular meetings. Financial instruments Details of the use of financial instruments by the group are contained in note 19 in the Notes to the Accounts. Articles of Association Any amendments to the Articles of Association have to be adopted by the members by a special resolution in general meeting. The current articles were adopted in August 2011. 24116.04 — 12 June 2015 12:14 PM — Proof 4 13 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Directors’ Report continued 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. Each of the persons who are directors at the date when this report was approved confirms that so far as each of the directors is aware, there is no relevant audit information of which the group’s auditors are unaware, and each of the directors has taken all steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the auditors are aware of that information. Significant agreements There are no significant agreements to which the company is party that take effect, alter or terminate upon a change of control of the company following a takeover bid. Corporate Governance Details of the group’s corporate governance policies are dealt with on page 15. Greenhouse gas emissions Details of the group’s greenhouse gas emissions are dealt with on page 9. Cautionary statement Under the Companies Act, a company’s strategic report and directors’ report are required, among other matters, to contain a fair review by the directors of the group’s business through a balanced and comprehensive analysis of the development and performance of the business of the group and the position of the group at the year end, consistent with 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. 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 the profit or loss of the issuer and the undertakings included in the consolidation taken as a whole; and b. the Chairman’s Statement, Strategic Report and Directors’ Report include 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 they face. The directors consider that the annual report and financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the company’s and group’s performance, business model and strategy. By order of the board B. J. Cooke Chairman 10 June 2015 14 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Corporate Governance General Castings P.L.C. recognises the importance of high standards of corporate governance. The board has considered the principles and provisions of the 2012 UK Corporate Governance Code and will continue to adhere to them where it is in the interests of the business, and of the shareholders, to do so. Directors receive regular updates appropriate to the business throughout the year. To assist with the conduct of their 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. The manner in which the board provides leadership of the company within a framework of prudent and effective controls is set out in this section and also within the Remuneration Report. Board of directors The board meets regularly to monitor the current state of business and to determine its future strategic direction. During the financial year the board comprised six (five from 1 October 2014) executive directors and three non-executive directors. 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 two of the non-executive directors have served for more than ten years, their knowledge and advice are considered invaluable to the group. Director B. J. Cooke D. J. Gawthorpe S. J. Mant M. A. Lewis G. Cooper (retired on 30 September 2014) A. Vicary C. P. King G. B. Wainwright A. N. Jones 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. 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. The board has an agreed 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. Attendance at board and board committee meetings during the year is detailed in the table shown below: Board committees The principal committees established by the directors are: Audit and risk committee Further details are contained within the Audit and Risk Committee Report on page 17. Remuneration committee Further details are set out in the Directors’ Remuneration Report on page 18. Nomination committee This committee comprises 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. Board Audit and risk committee Remuneration committee Eligible to attend 8 8 8 8 4 8 8 8 8 Attended 8 8 8 8 3 8 7 8 8 Eligible to attend — — — — — — 5 5 5 Attended — — — — — — 4 5 5 Eligible to attend — — — — — — 1 1 1 Attended — — — — — — 1 1 1 Internal control 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. 24116.04 — 12 June 2015 12:14 PM — Proof 4 15 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Corporate Governance continued • There were three non-executive directors during the year. Although two of 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. • The non-executive directors do not have specified term contracts. • 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 through the managing directors of each location. The chairman concentrates on the effective working of the board and overall group strategies and remains a high level contact with our main customers. From 31 March 2015 the chairman was a non-executive director. • The roles 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. These are considered appropriate in relation to the size of the company and the way in which it operates. By order of the board S. J. Mant Company Secretary 10 June 2015 The directors confirm that they have established procedures necessary to implement the internal control guidance for directors such that they fully comply with the 2012 UK Corporate Governance Code for the accounting period ended on 31 March 2015. Internal financial control The directors are responsible for maintaining the group’s systems of internal financial control. These controls are designed to both safeguard the group’s assets and ensure the reliability of financial information used within the business and for publication. As with any 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. 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 serves and how these may impact on cash flow. The group and company’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The directors also considered what mitigating actions the group could take to limit any adverse consequences. After making these enquiries, the directors have a reasonable expectation that the company and the group have adequate resources to continue operations for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Summary The board takes its responsibilities seriously even though there are a number of areas in which it does not comply fully with the 2012 UK Corporate Governance Code. 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 31 March 2015 the company complied with the 2012 UK Corporate Governance Code other than the following points: 16 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Audit and Risk Committee Report Responsibilities The main responsibilities of the audit and risk committee are: • • • • • • • to monitor the integrity of the financial statements of the company and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them; to ensure the company’s Annual Report is fair, balanced and understandable; to review the company’s internal financial controls and internal control and risk management systems; to review the need for an internal audit function; to make recommendations to the board, for it to put to the shareholders for their approval in general meeting, in relation to the appointment, reappointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditors; to review and monitor the external auditors’ independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements; to develop and implement policy on the engagement of the external auditors to supply non-audit services, taking into account relevant ethical guidance regarding the provision of non-audit services by the external audit firm; and to report to the board, identifying any matters in respect of which it considers that action or improvement is needed and making recommendations as to the steps to be taken; and • to report to the board on how it has discharged its responsibilities. Committee composition and meetings The audit and risk committee comprises the three non-executive directors and is chaired by A. N. Jones. 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 board considers that A. N. Jones has the most recent and relevant financial experience as required by the code. The committee meets at least three times a year. Meetings are also attended by the executive directors and on at least one occasion by representatives of the group’s external auditors. At meetings attended by the external auditors time is allowed for the committee to discuss issues with the external auditors without the executive directors being present. The committee operates under formal terms of reference and these are reviewed annually. The committee considers that it has discharged its responsibilities as set out in its terms of reference to the extent appropriate during the year. There were no changes to the terms of reference in the year under review. Financial reporting During the year the committee reviewed the appropriateness of the group’s half year and full year financial statements, taking into account the reports of the group finance director and external auditors. The main areas of focus considered by the committee during the year were as follows: • Revenue recognition processes have been reviewed to ensure revenue has been recognised appropriately and consistency of policy applied across the group; • Final salary pension scheme matters, in particular the financial reporting treatment of the balances due from the pension schemes to the company following the repayment agreement signed during the year; and • Valuation of inventory, which involved understanding the approach to updating the standard costs used within the foundry businesses and ensuring a materially correct cost valuation at the year end. Internal control During the year the committee reviewed the effectiveness of the group’s system of internal controls and risk management. The committee again concurred with the board’s view that there is no requirement for an internal audit function due to the size and non-complex nature of the group. provided by and fees payable to them, to ensure that potential conflicts of interest are considered and that an objective and professional relationship is maintained. In particular, the committee reviews and monitors the independence and objectivity of the external auditors and the effectiveness of the audit process. At the outset of the audit process, the committee receives from the auditors a detailed audit plan, identifying their assessment of the key risks and their intended areas of focus. This is agreed with the committee to ensure coverage is appropriately focused. Feedback on the audit process is requested from management and for the 2015 financial year, management were satisfied that there had been appropriate focus and challenge on the primary areas of audit risk and assessed the quality of the audit process to be satisfactory. The committee concurred with the view of management. The committee also keeps under review the nature, extent, objectivity and cost of non-audit services provided by the external auditors, which has again been minimal this year. BDO LLP (‘BDO’) have been the group’s external auditors since 2006. In June 2015 the committee reviewed the external audit mandate and confirmed the continuing appointment of BDO. This was on the basis that the committee was comfortable that the BDO audit team remained objective and independent on the basis of the rotation of the audit partner every five years. The committee has therefore recommended to the board that a resolution be put to shareholders for the reappointment of the auditor at the Annual General Meeting. As part of its work, and in line with its terms of reference, the committee also considers the discharge of the board’s responsibilities in the areas of corporate governance, financial reporting and internal control, including the internal management of risk, as identified in the Turnbull Guidance. A. N. Jones Chairman of the Audit and Risk Committee External auditors The committee oversees the relationship with the external auditors and monitors all services 10 June 2015 24116.04 — 12 June 2015 12:14 PM — Proof 4 17 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Directors’ Remuneration Report Remuneration committee This committee comprises 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. Annual Statement On behalf of the board, I am pleased to present the Directors’ Remuneration Report for the year ended 31 March 2015 which sets out the remuneration policy for the directors and the amounts earned during the current year. The aim of the group’s remuneration policy is to produce an outcome which supports the business objectives of the group whilst remaining straightforward and transparent. The policy is designed to ensure the remuneration of executive directors and senior management is sufficiently competitive to retain and motivate the existing directors. During the year the remuneration committee considered all aspects of its policy on executive director remuneration, including benchmarking against industry market rates and considering the appropriateness of long- term incentive plans (‘LTIPs’). The conclusion of this review is that the current policy is in line with the strategy of the group and, accordingly, no substantial changes have been made. The remuneration committee welcomes any feedback on the disclosures made in this report. As the remuneration policy is unchanged, we have not consulted specifically with shareholders during the year, but will do so in the future where appropriate. By order of the board G. B. Wainwright Chairman of the Remuneration Committee 10 June 2015 18 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Remuneration Policy The underlying policy in setting the 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. Detailed policy The table below summarises the main components of the remuneration policy for executive directors for the three year period commencing 19 August 2014 and highlights any changes to the policy when compared to that in operation for the current financial year. Element of remuneration Purpose and link to strategy Operation Maximum potential value Base salary To provide competitive fixed remuneration. To attract and retain high calibre directors to deliver growth for the business. Benefits To aid retention and remain competitive within the marketplace. Annual bonus Rewards contribution to performance of the group and aligned to shareholder aspirations. Pension To reward sustained contribution by providing retirement benefits. Whilst no absolute maximum exists, increases will be referenced to other salary increases across the group, although discretion may be applied. Car benefit increase in line with salary increases across the group. It is not possible to provide a maximum figure for the other insured benefits. There is no maximum in place; however, there is discretion for the threshold level to be adjusted to restrict the maximum bonus payable. Maximum of 7% of notional earnings cap. Reviewed with effect from 1 April each year taking into account market rates, performance of the individual, performance of the company and the rates of salary increase across the group. Currently include the provision of car benefit, private health care, life assurance and income protection. Benefits are reviewed annually and in comparison with other companies with discretion for the provided benefits to alter. Executive chairman – Bonus is based on 0.5% of PBIT (before exceptional items) in excess of a threshold of £10m. Other executives – Bonus is based on 1% of PBIT (before exceptional items) in excess of £10m threshold. B. J. Cooke does not receive pension benefits. D. J. Gawthorpe, G. Cooper and M. A. Lewis are deferred members of the now closed final salary pension scheme. All executive directors (excluding B. J. Cooke) receive 7% of base salary as contributions into personal pension plans. 24116.04 — 12 June 2015 12:14 PM — Proof 4 19 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Directors’ Remuneration Report continued Scenario charts The following set out the potential remuneration payments for the year ended 31 March 2016 under two scenarios (as there is no set maximum bonus, such a scenario cannot be shown): • Minimum – assuming no bonus payment due to group profits being below the thresholds. • Market expectations – based on profit before tax and exceptional items of £20.6 million, being the estimate of the company broker (prior to the issue of this Annual Report). As no element of remuneration is linked to performance measures in excess of one year, only fixed and annual variable elements have been shown. Recruitment policy In the event of the recruitment of a new executive director, the remuneration package would reflect the policy set out above. There have been no instances where additional upfront payments have been required to obtain the services of a director; however, discretion may be applied in this area. Non-executive director remuneration The fees paid to non-executive directors are set out in the annual report on directors’ remuneration and are set by reference to current levels in the marketplace. Non- executive directors do not receive other benefits or participate in the company’s bonus schemes, nor are they eligible to join a company pension scheme. Directors’ contracts Executive directors have contracts of service terminable on one year’s notice. These contracts are considered appropriate in the context of the overall remuneration policy as, in the opinion of the board, it encourages 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 contain any provision for predetermined compensation in the event of termination. The date of contracts currently in place for the executive directors is 1 April 2015. The non-executive directors 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. Chief Executive Officer Finance Director Managing Director 0 0 0 £ n o i t a r e n u m e R 400 300 200 100 0 100% 30% 70% £000 Minimum £000 Market expectations 0 0 0 £ n o i t a r e n u m e R 300 250 200 150 100 50 0 38% 62% 100% £000 Minimum £000 Market expectations 0 0 0 £ n o i t a r e n u m e R 350 300 250 200 150 100 50 0 36% 64% 100% £000 Minimum £000 Market expectations 20 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Annual Report on Directors’ Remuneration Directors’ remuneration during the year (audited) The directors’ remuneration for the year ended 31 March 2015 is set out in the table below. B. J. Cooke D. J. Gawthorpe S. J. Mant M. A. Lewis G. Cooper (retired 30/09/14) A. Vicary G. B. Wainwright C. P. King A. N. Jones Salary/fees Benefits Performance-related bonus Pension contributions Total remuneration 2015 £000 92 244 171 184 92 184 35 32 32 1,066 2014 £000 89 237 165 178 178 178 34 31 31 1,121 2015 £000 5 11 11 11 5 11 — — — 54 2014 £000 5 11 11 11 11 11 — — — 60 2015 £000 41 82 82 82 41 82 — — — 410 2014 £000 69 123 123 123 123 123 — — — 684 2015 £000 — 10 10 10 5 10 — — — 45 2014 £000 — 9 9 9 9 9 — — — 45 2015 £000 138 347 274 287 143 287 35 32 32 1,575 2014 £000 163 380 308 321 321 321 34 31 31 1,910 Directors’ pension entitlements (audited) The pension contributions set out in the above table relate to company contributions into personal pension plans. The Castings P.L.C. Staff Pension and Life Assurance Scheme was closed to future accrual of benefits on 5 April 2009. The table below sets out the pension entitlement which would be paid annually on retirement based on service to the end of the company financial year for those directors who were members of the scheme. Increase in accrued pension during year net of inflation £ — — — Transfer value of increase net of inflation and directors’ contributions £ — — — Increase in accrued pension during the year £ 612 285 897 Directors’ contributions in the year £ — — — Accumulated total accrued pension at 31/03/2015 £ 51,623 23,999 75,622 Transfer value of Accumulated accrued total accrued benefits pension at 31/03/2015 31/03/2014 £ £ 836,337 51,011 384,879 23,714 74,725 1,221,216 Transfer value of accrued benefits 31/03/2014 £ 627,594 284,795 912,389 Difference in transfer values less contributions £ 208,743 100,084 308,827 Name of director D. J. Gawthorpe M. A. Lewis Age at year end 53 51 The accumulated accrued pension figures shown above are what would be paid annually on retirement based on service to the end of the financial year. No additional benefits are payable on early retirement. Relative importance of spend on pay The following table shows actual expenditure of the group and change in spend between the current and previous financial years on remuneration paid to all employees compared to distributions to shareholders. Remuneration of all employees Dividends to shareholders 2015 £000 37,080 5,803 2014 £000 37,073 5,654 Change £000 7 149 Change % — 2.6% Chief Executive Officer remuneration The total remuneration paid to the chief executive officer for the last five years is as follows: Remuneration 2015 £000 347 2014 £000 380 2013 £000 341 2012 £000 370 2011 £000 289 The total remuneration (including performance bonus) paid to the chief executive officer in the current year represents an decrease of 8.7% compared to the prior period. The corresponding decrease in average pay to all employees in the same period is, on average,1.4%. 24116.04 — 12 June 2015 12:14 PM — Proof 4 21 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Directors’ Remuneration Report continued Directors’ shareholdings (subject to audit) The directors’ interests in the ordinary share capital of the company (including the interest of connected persons) are set out in the Directors’ Report on page 12. Total shareholder return performance graph The following graph shows the company’s performance, measured by total shareholder return, compared with the performance of the FTSE All Share Index — Engineering sub-sector, also measured by total shareholder return. This index has been selected for this comparison because this is the most relevant index in which the company’s shares are quoted. Castings PLC — Total Return on Investment 340 320 300 280 260 240 220 200 180 160 140 120 100 80 02 April 2010 31 March 2015 Castings PLC FTSE 350 INDS ENG 22 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Statement of Directors’ Responsibilities The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Website publication The directors are responsible for ensuring the Annual Report and the 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 integrity of the company’s website is the responsibility of the directors. The directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein. The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as adopted by the European Union and have elected to prepare the company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are 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 group and company for that period. In preparing these financial statements, the directors are required to: • select suitable accounting policies and then apply them consistently; • make judgements and accounting estimates that are reasonable and prudent; • state whether they have been prepared in accordance with IFRSs as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business; and • prepare a directors’ report, strategic report and directors’ remuneration report which comply with the requirements of the Companies Act 2006. 24116.04 — 12 June 2015 12:14 PM — Proof 4 23 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Independent Auditors’ Report to the Members of Castings P.L.C. Our opinion on the financial statements • In our opinion the financial statements What our opinion covers Our audit opinion on the financial statements covers the: give a true and fair view of the state of the group’s and the company’s affairs as at 31 March 2015 and of group’s profit for the year then ended; • Consolidated Statement of Comprehensive Income; • Consolidated Balance Sheet Our audit strategy and assessment of risks of material misstatement Our audit strategy was developed by obtaining an understanding of the Group and Company’s activities, the key functions undertaken by the Board and the overall • the group financial statements have • Consolidated Cash Flow Statement control environment. Based on this been properly prepared in accordance • Consolidated Statement of Changes in with International Financial Reporting Equity Standards (‘IFRSs’) as adopted by the • Company Balance Sheet; and European Union; • related notes understanding we assessed those aspects of the Group and Company’s transactions and balances which were most likely to give rise to a material misstatement. We identified three significant components, all of which • the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. 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. The financial reporting framework that has were subject to full scope audit performed by been applied in the preparation of the group ourselves. These components covered 100% financial statements is applicable law and IFRSs as adopted by the European Union. The financial reporting framework that has of the Group’s Assets and Revenue. Below are those risks which we considered to have the greatest impact on our audit strategy and been applied in preparation of the parent our audit response: Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). Respective responsibilities of directors and auditor As explained more fully in the report of the directors, 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 FRC’s Ethical Standards for Auditors. A description of the scope of an audit of financial statements is provided on the Financial Reporting Council’s (‘FRC’) website at www.frc.org.uk/auditscopeukprivate 24 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Risk area Audit response Revenue recognition: We considered whether there is • For two of the three significant components within the group we performed audit procedures to understand and test the design and operating effectiveness of controls established by management a risk of revenue misstatement over the completeness, accuracy and existence of sales recording. because of the pressure management may feel to achieve planned results. • For the other component we performed substantive procedures on individual transactions to test the completeness and accuracy of sales recording. • For all components, as part of the confirmation of the existence of sales, we also selected a sample of trade debtors and agreed to after date cash receipts and/or to customer signed delivery notes. • We performed sales cut off procedures on sales and despatch documentation prior to and post year end which included agreement to customer signed delivery notes and ensuring revenue was recognised appropriately. • We also reviewed after-date credit notes to ensure completeness of the sales credit note provision. • Finally we reviewed the appropriateness of the revenue recognition policy compared to the requirements of accounting standards and that the policy was being complied with. Inventory valuation method: We focussed on this area because • We performed audit procedures to understand the method of calculating standard cost. We compared the respective elements of this standard cost with the actual costs incurred based on the group uses a standard cost underlying management information to ensure there was no material difference. We checked the approach to valuing inventories arithmetical accuracy of the calculations within the standard cost. throughout the year which involves elements of judgement. The group then ensures that this standard cost is materially correct by comparison to actual costs as recorded in production and cost records for the month of March, which is considered to be the period over which year end stocks are manufactured. Risk of management override of internal controls: Management by its nature is in a unique position to be able to manipulate results and override controls that otherwise appear to be operating effectively. We considered the risk of this occurring. • We considered the nature of the overheads absorbed to ensure only directly attributable costs were included. We also considered production levels to ensure inefficiencies were not absorbed. We performed sample tests on the inputs to the calculation and we challenged management on the key assumptions and estimates used within the calculations. • We assessed the overall control environment of the group, including the arrangements for staff to whistle-blow inappropriate actions. • We examined the significant accounting estimates and judgements relevant to the financial statements for evidence of bias by the directors that may represent a risk of material misstatement. • We performed testing of journals, with particular focus on adjustments to the income statement, to mitigate the risk of manipulation of revenue and profit figures. • We note that two members of the senior management team at a significant component are related. As part of our response to this particular matter we extended our audit procedures to include: understanding and assessing the procedures adopted by those charged with governance and implemented by the group’s executive directors to mitigate this risk, testing the robustness of the independent review of the financial records of this component performed by the group’s finance director and examining revenue recognition, significant transactions, accounting estimates, judgements and journals made by component management for evidence of management override of controls. The audit and risk committee’s consideration of their key issues is set out on page 17. 24116.04 — 12 June 2015 12:14 PM — Proof 4 25 Castings P.L.C. Annual Report for the year ended 31 March 2015Corporate Governance Independent Auditors’ Report to the Members of Castings P.L.C. continued Materiality in context We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatements on our audit and on the financial statements. We define materiality to be the magnitude by which misstatements, including omissions, could influence the economic decisions of reasonable users that are taken on the basis of the financial statements. We use materiality to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole. We determined planning materiality for the group financial statements as a whole to be £1,000,000 and based this assessment at a level of 5% of the 3 year average group Opinion on other matters prescribed by the Companies Act 2006 In our opinion: • the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and • the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial Under the Companies Act 2006 we are required to report to you if, in our opinion: • 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 • the parent financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or statements are prepared is consistent • certain disclosures of directors’ with the financial statements. remuneration specified by law are not Matters on which we are required to report by exception Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: made; or • we have not received all the information and explanations we require for our audit. Under the Listing Rules we are required to review: • the directors’ statement, set out on page profit before tax. Our objective in adopting • materially inconsistent with the these levels of materiality is to ensure information in the audited financial 16, in relation to going concern; and that our audit procedures were designed statements; or to select appropriate sample sizes for detailed testing work performed, that our analytical procedures were performed at an appropriate level and to reduce to an appropriately low level the probability that detected and undetected misstatements do not exceed our materiality of £1,000,000 for the financial statements as a whole. Importantly, misstatements below this level will not necessarily be evaluated as immaterial as we also take into account the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements. We agreed with the audit and risk committee that we would report to the • apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired in the course of performing our audit; or • the part of the corporate governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review. • is otherwise misleading. We have nothing to report in respect of these In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the directors’ statement that they consider the Annual Report is fair, balanced and understandable and whether the Annual matters. Philip Storer (senior statutory auditor) For and on behalf of BDO LLP Statutory auditor Birmingham United Kingdom 10 June 2015 Report appropriately discloses those matters that we communicated to the audit and risk committee which we consider should have BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127). committee all audited differences in excess been disclosed. of £20,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. 26 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Consolidated Statement of Comprehensive Income for the year ended 31 March 2015 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: Items that will not be reclassified to profit and loss: Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gains and losses Tax effect of items that will not be reclassified Items that may be reclassified subsequently to profit and loss: Change in fair value of available-for-sale financial assets Tax effect of items that may be reclassified Total other comprehensive income/(losses) for the year (net of tax) Total comprehensive income for the year attributable to the equity holders of the parent company Earnings per share attributable to the equity holders of the parent company Basic and diluted Notes to the accounts are on pages 31 to 47. Notes 2 4 3 7 8 6 2015 £000 131,268 (99,150) 32,118 (2,162) (12,570) 24 (12,546) 17,410 137 17,547 (3,672) 13,875 283 — 283 (55) 11 (44) 239 2014 £000 137,466 (101,424) 36,042 (2,722) (12,034) 363 (11,671) 21,649 184 21,833 (4,575) 17,258 (3,872) 853 (3,019) 28 (6) 22 (2,997) 14,114 14,261 10 31.80p 39.55p 24116.04 — 12 June 2015 12:14 PM — Proof 4 27 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Consolidated Balance Sheet 31 March 2015 ASSETS Non-current assets Property, plant and equipment Financial assets Other receivables Current assets Inventories Trade and other receivables Other current interest-bearing deposits 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 2015 £000 2014 £000 11 12 14 13 14 19 15 16 17 66,572 467 4,538 71,577 12,115 30,342 10,000 20,021 72,478 144,055 18,602 1,336 19,938 4,788 24,726 119,329 4,363 874 13 114,079 119,329 65,195 522 — 65,717 12,621 32,753 — 27,780 73,154 138,871 21,076 2,615 23,691 4,271 27,962 110,909 4,363 874 13 105,659 110,909 The accounts on pages 27 to 47 were approved and authorised for issue by the board of directors on 10 June 2015, and were signed on its behalf by: B. J. Cooke Chairman S. J. Mant Finance Director Notes to the accounts are on pages 31 to 47. 28 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Consolidated Cash Flow Statement for the year ended 31 March 2015 Cash flows from operating activities Profit before income tax Adjustments for: Depreciation Loss on disposal of property, plant and equipment Finance income Excess of employer pension contributions over income statement charge Decrease/(increase) in inventories (Increase)/decrease in receivables (Decrease)/increase in payables Cash generated from operating activities Tax paid Interest received Net cash generated from operating activities Cash flows from investing activities Dividends received from listed investments Purchase of property, plant and equipment Proceeds from disposal of property, plant and equipment Transfer (to)/from other current interest-bearing deposits 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)/increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Cash and cash equivalents: Short-term deposits Cash available on demand Notes to the accounts are on pages 31 to 47. 24116.04 — 12 June 2015 12:14 PM — Proof 4 Notes 2015 £000 2014 £000 17,547 21,833 6,760 1 6,046 94 (137) (184) 283 506 (2,127) (2,474) 20,359 (4,423) 115 16,051 22 (8,210) 72 (10,000) — (18,116) (5,694) (5,694) (7,759) 27,780 20,021 19,253 768 20,021 19 (3,872) (1,979) 573 1,390 23,901 (4,850) 162 19,213 22 (9,668) 9 5,000 — (4,637) (5,450) (5,450) 9,126 18,654 27,780 27,113 667 27,780 29 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Consolidated Statement of Changes in Equity for the year ended 31 March 2015 Equity attributable to equity holders of the parent At 1 April 2014 Profit for the year Other comprehensive income/(losses): Movement in unrecognised surplus on defined benefit pension schemes net of actuarial loss Change in fair value of available for sale assets Tax effect of items taken directly to reserves Total comprehensive income for the period ended 31 March 2015 Dividends (see note 9) Share capitala) £000 4,363 — — — — — — Share premiumb) £000 874 — — — — — — At 31 March 2015 4,363 874 Other reservec) £000 13 — — — — — — 13 Retained earningsd) £000 105,659 13,875 Total equity £000 110,909 13,875 283 (55) 11 283 (55) 11 14,114 (5,694) 114,079 14,114 (5,694) 119,329 At 1 April 2013 Profit for the year Other comprehensive income/(losses): Movement in unrecognised surplus on defined benefit pension schemes net of actuarial gain Change in fair value of available for sale assets Tax effect of items taken directly to reserves Total comprehensive income for the period ended 31 March 2014 Dividends (see note 9) At 31 March 2014 Equity attributable to equity holders of the parent Share capitala) £000 4,363 — Share premiumb) £000 874 — — — — — — — — — — — 4,363 874 Other reservec) £000 13 — — — — — — 13 Retained earningsd) £000 96,848 17,258 Total equity £000 102,098 17,258 (3,872) (3,872) 28 847 14,261 (5,450) 105,659 28 847 14,261 (5,450) 110,909 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. 30 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Notes to the Accounts 1 Accounting policies Basis of preparation 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 1 April 2015 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 financial information contained in this document have been presented in accordance with IAS 1 Presentation of Financial Statements. The accounts are prepared under the historical cost convention, except where adjusted for revaluations of certain assets, and in accordance with applicable Accounting Standards and those parts of the Companies Act 2006 applicable to companies reporting under IFRS. A summary of the principal group IFRS accounting policies is set out below. New standards effective and adopted by the group in the year The following new standards, or amendments to standards, have been applied in the year, but have had no material impact on the group: IFRS 10 Consolidated Financial Statements – this standard established the requirement for entities that a company controls. IFRS 12 Disclosure of Interests in Other Entities – this standard outlines disclosure requirements for interests in subsidiaries, joint arrangements, associates and structured entities. Basis of consolidation The consolidated statement 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 is measured at the fair value of consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Revenue from the sale of goods relates to the sale of castings. Revenue from the sale of services relates to machining and minor assembly work performed on a subcontract basis for external customers. Revenue is recognised when the goods and services have been collected by, or delivered to, the customer in accordance with the agreed delivery terms, reflecting the point at which the risks and rewards of ownership are transferred to the customer. 24116.04 — 12 June 2015 12:14 PM — Proof 4 31 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 1 Accounting policies continued Post-retirement benefits Two of the group’s pension plans are of a defined benefit type. Under IAS 19R Employee Benefits the employer’s portion of the current service costs and curtailment gains are charged to operating profit for these plans, with the net interest also being charged/credited to operating profit subject to the asset ceiling. Actuarial gains and losses are recognised in other comprehensive income and the balance sheet reflects the schemes’ surplus or deficit at the balance sheet date. A full valuation is carried out triennially using the projected unit credit method. Where 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. The group annually reviews the assessment of residual values and useful lives in accordance with IAS 16. Inventories The group’s inventories are valued at the lower of cost on a first in, first out basis and net realisable value. Cost includes a proportion of production overheads based on normal levels of activity. Provision is made for obsolete and slow-moving items. Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits at call with banks and other short-term highly liquid investments with original maturities of three months or less from inception. Foreign currencies Assets and liabilities in foreign currencies are translated at the spot rates of exchange ruling at the balance sheet date. Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction; all 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 assets. 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 held to maturity. Available-for-sale assets Available-for-sale financial assets comprise the group’s strategic investments in entities not qualifying as subsidiaries. They are carried at fair value with changes 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. Loans and receivables 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 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. 32 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as 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 of the deposit or receivable. The amount of such a provision is the difference between the net carrying amount and the present value of the future expected cash flows associated with the impaired asset. Such provisions are recorded in a separate allowance account with the loss being recognised within administrative expenses in the consolidated statement of comprehensive income. On confirmation that the deposit or 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. Financial liabilities measured at amortised cost Financial liabilities include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Fair value is calculated by discounting estimated future cash flows using a market rate of interest. c) Share capital The group’s ordinary shares are classified as equity instruments. 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 actual 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 substantively enacted by the balance sheet date. Current tax is provided for on the taxable profits of each company in the group, using current tax rates and legislation that has been enacted or substantively enacted by the balance sheet date. Dividends Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are only recognised when approved by the shareholders at the Annual General Meeting. 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 new standards, amendments and interpretations have been issued but are not yet effective and therefore have not been adopted in these financial statements. Management are considering the impact of the changes on future reporting. • • IFRS 9 Financial Instruments; IFRS 15 Revenue from Contracts with Customers; • Annual Improvements 2010–2012 Cycle – including IFRS 8 Operating Segments; • Annual Improvements 2010–2012 Cycle – including Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation; and • Annual Improvements 2012–2014 Cycle – including IFRS 7 Financial Instruments, IAS 19 Employee Benefits and IAS 34 Interim Reporting. 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. 24116.04 — 12 June 2015 12:14 PM — Proof 4 33 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 1 Accounting policies continued Critical accounting estimates and judgements The group makes certain estimates and judgements regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and judgements. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Pension assumptions The costs, assets and liabilities of the defined benefit pension schemes 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. Pension surplus In accordance with the winding-up provisions of the Trust Deed and Rules of the final salary pension schemes, management have concluded that the company does not have an unconditional right to receive returns of contributions or refunds when the schemes are in surplus. Accordingly, the surplus has not been recognised on the balance sheet as set out in note 6. 2 Operating segments For internal decision making purposes, the group is organised into three operating companies which are considered to be the operating segments of the group: Castings P.L.C. and William Lee Limited are aggregated into Foundry operations and CNC Speedwell Limited is the Machining operation. The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2015: Revenue from external customers Inter-segmental revenue Segmental result Unallocated costs: Exceptional credit for recovery of Icelandic bank deposits previously written off Defined benefit pension cost 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 £000 113,300 20,532 Machining £000 Elimination £000 17,968 13,398 13,064 4,521 — — 84 122,650 4,303 3,507 31,919 3,907 3,253 (10,514) — — Total £000 131,268 33,930 17,669 24 (283) 137 17,547 144,055 8,210 6,760 34 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 The following shows the revenues, results and total assets by reportable segment in the year to 31 March 2014: Revenue from external customers Inter-segmental revenue Segmental result Unallocated costs: Exceptional credit for recovery of Icelandic bank deposits previously written off Defined benefit pension credit 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 £000 119,893 23,070 Machining £000 17,573 13,915 Elimination £000 — — Total £000 137,466 36,985 16,225 5,187 — 21,412 121,153 3,531 3,031 30,529 6,137 3,015 (12,811) — — 363 (126) 184 21,833 138,871 9,668 6,046 2014 £000 44,824 28,391 19,448 39,444 3,182 2,177 The geographical analysis of revenues by destination for the year is as follows: United Kingdom Sweden Netherlands Rest of Europe North and South America Other 2015 £000 43,544 31,348 14,715 35,902 3,967 1,792 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 £33,308,000, £15,923,000 and £9,985,000 from three ultimate customer groups (2014 – £33,748,000, £16,158,000 and £15,600,000 respectively). 131,268 137,466 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 compliance services Loss on disposal of property, plant and equipment 24116.04 — 12 June 2015 12:14 PM — Proof 4 2015 £000 41,087 57,609 6,760 22 30 9 1 2014 £000 41,102 56,642 6,046 26 30 9 94 35 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 4 Exceptional items Recovery of past provision for losses on deposits with Icelandic banks 2015 £000 (24) (24) 2014 £000 (363) (363) The company reported in the year ended 31 March 2009 that £1.86 million was included in other receivables as the net recoverable after provision from various Icelandic banks. So far £3.28 million has been received of the original balance of £5.7 million with the excess over the £1.86 million being shown as an exceptional credit. 5 Employee information Average number of employees during the year was: Production Management and administration Staff costs (including directors) comprise: Wages and salaries Defined contribution pension costs Defined benefit pension cost/(credit) (note 6) Employer’s national insurance contributions and similar taxes 2015 1,022 104 1,126 2015 £000 36,121 959 283 3,724 41,087 2014 994 105 1,099 2014 £000 36,262 811 126 3,903 41,102 In addition to the wages and salaries disclosed above, the group incurred costs of £314,000 (2014 – £1,145,000) in respect of agency workers. The directors represent the key management personnel. Details of their compensation are given in the Remuneration Report on page 21. 6 Pensions The group operates two pension schemes providing benefits based on final pensionable pay, which are closed to new entrants and were closed to future accruals on 6 April 2009. The assets are independent of the finances of the group and are administered by Trustees. The latest actuarial valuation was performed with an effective date of 6 April 2014 using the defined accrued method. It assumed that the rate of return on investments was 4.9% per annum for pre-retirement and 3.9% for post-retirement and price inflation was 3.4% under RPI and 2.7% under CPI. The demographic assumptions are based on S2PA tables with an age rating of -1 year being applied to the tables for the Staff Scheme. For both schemes, the future mortality improvements were based on CMI 2013 projections with a 1.25% per annum long-term improvement rate. The next actuarial valuation will be performed with an effective date of 6 April 2017. In order to help optimise the return on assets held by the pension schemes, the pension and administration costs incurred by the schemes are paid by the company. The net amount due from the schemes (being payments made less repayments received from the schemes) are subject to repayment to the company and recorded as amounts receivable from pension schemes in the group and company accounts (notes 14 and 7 respectively). The amounts are recorded as payables by the schemes and shown as a reduction to asset values in the pension disclosures set out below. The pension schemes are related parties of the company and during the year £2,242,000 (2014 – £1,948,000) was paid by the company on behalf of the schemes in respect of pension payments and administration costs. The company also paid £nil (2014 – £3,998,000) in additional contributions to the schemes. There are no funding arrangements in place that would impact on future contributions and no contributions are expected to be made in the next financial period. 36 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Neither pension scheme made repayments to the company during the year (2014 – £3,998,000). On 16 March 2015 an agreement was entered into setting out the revised repayment terms of the outstanding balance such that it is recoverable in five equal instalments commencing on 30 November 2015. As a result, at 31 March 2015 the outstanding balance due from the schemes to the company was £5,673,000 (2014 – £3,431,000) as set out in note 14. The outstanding balance was not discounted to fair value on the change of terms because the resulting adjustment was not material to the financial statements. In addition, the group made contributions to individual members’ Group Personal Pension Plans during the year. 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 6 April 2014 and updated to 31 March 2015 using the projected unit method by a qualified independent actuary. The major assumptions used by the actuary were (in nominal terms): Rate of increase of pensions in payment Discount rate Inflation assumption (RPI) Inflation assumption (CPI) Change in benefit obligation Benefit obligation at beginning of year Current service cost Past service cost Interest cost on defined benefit obligation Member contributions Actuarial gain – demographic assumptions Actuarial loss/(gain) – financial assumptions Actuarial loss – experience Benefits paid Benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Interest income on plan assets Return on plan assets greater than discount rate Employer contribution Member contributions Administrative expenses Benefits paid Fair value of plan assets at end of year Surplus Unrecognised pension surplus (asset ceiling) Net amount recognised in the balance sheet 2015 2.20% 3.25% 2.90% 2.20% 2015 £000 46,582 — — 2,050 — (1,093) 7,620 317 (1,958) 53,518 61,169 2,706 6,448 — — (283) (1,958) 68,082 14,564 (14,564) — 2014 2.60% 4.50% 3.30% 2.60% 2014 £000 48,748 — — 2,011 — — (2,439) — (1,738) 46,582 55,403 2,374 1,341 3,998 — (209) (1,738) 61,169 14,587 (14,587) — 37 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 6 Pensions continued The pension surplus has not been recognised as the group does not have an unconditional right to receive returns of contributions or refunds under the scheme rules. Components of pension cost Current service cost Recognition of past service cost Interest cost on defined benefit obligation Interest income on plan assets Interest expense on effect of asset ceiling on unrecognised surplus Total net interest cost Administrative expenses Total pension cost recognised within administrative expenses (note 5) Actuarial loss/(gain) Return on plan assets greater than discount rate Changes in asset ceiling on unrecognised surplus Pension cost shown in statement of comprehensive income Total defined benefit cost recognised in the year Defined benefit obligation by participant category Participant category Active participants Deferred participants Pensioners Year to 31 March 2015 £000 Year to 31 March 2014 £000 — — 2,050 (2,706) 656 — 283 283 6,844 (6,448) (679) (283) — — — 2,011 (2,374) 280 (83) 209 126 (2,439) (1,341) 7,652 3,872 3,998 31 March 2015 £000 31 March 2014 £000 — 29,175 24,343 53,518 — 27,247 19,335 46,582 Plan assets Investments of the defined benefit schemes are diversified, such that failure of any single investment would not have a material impact on the overall level of assets. The largest proportion of assets are invested in equities, although the schemes also invest in other assets including debt securities and managed property. The asset allocations at the year end were as follows: Assets category Equities Bonds Real estate Amounts repayable to the group Plan assets at 31 March 2015 £000 Plan assets at 31 March 2014 £000 49,595 21,901 2,259 73,755 (5,673) 68,082 44,632 18,023 1,945 64,600 (3,431) 61,169 The equities are invested in UK equity index (59%), World equity index (36%) and Europe equity index (5%). Of the bonds, 75% of the value are invested in over 15 year gilts and active corporate bonds over 10 years. In determining the appropriate discount rate, the company considers the interest rates of corporate bonds with at least an ‘AA’ rating. The projected pension cost for the year ending 31 March 2016 is £289,000. 38 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Weighted average life expectancy for mortality tables* used to determine benefit obligations at: Scheme member age 65 (current life expectancy) Scheme member age 45 (life expectancy at age 65) 2015 2014 Male Staff/ Shopfloor Female Staff/ Shopfloor Male Staff/ Shopfloor Female Staff/ Shopfloor 23.3/22.4 25.3/24.4 23.7/22.9 26.6/25.8 25.1/24.2 27.2/26.3 25.8/24.9 28.6/27.7 * Mortality tables S2PA CMI 2013 projections with a 1.25% long-term rate of improvement have been used for both schemes, with a -1 age rating applied to the Staff scheme. Sensitivities The calculations of the defined benefit obligations are sensitive to the assumptions set out on pages 36 to 38. The following table sets out the estimated impact of a change in the assumptions on the defined benefit obligation at 31 March 2015, while holding all other assumptions constant. The sensitivity analysis may not be representative of the actual change in defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of another as some of the assumptions may be correlated. Increase in defined benefit obligation as a result of: Reduction in the discount rate of 0.25% Increase in inflation of 0.25% One year increase in life expectancy Maturity profile of defined benefit obligation Expected benefit payments during: Year 1 Year 2 Year 3 Year 4 Year 5 Years 6–10 £000 2,424 1,660 1,431 31 March 2015 £000 31 March 2014 £000 2,098 2,131 2,164 2,198 2,233 11,704 1,769 1,800 1,832 1,864 1,897 10,005 The maturity profile shown above is not the full maturity profile but that of the next ten years, based on an analysis of the present value of the defined benefit obligation. The weighted average duration of the defined benefit obligation of the schemes is 17 years. 7 Finance income Interest on short-term deposits Income from listed investments 2015 £000 115 22 137 2014 £000 162 22 184 39 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 8 Income tax Corporation tax based on a rate of 21% (2014 – 23%) 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 21% (2014 – 23%) 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 (%) 2015 £000 3,730 (586) 3,144 80 448 — 528 3,672 2014 £000 5,007 (184) 4,823 145 307 (700) (248) 4,575 17,547 21,833 3,685 5,022 66 (586) 448 — 59 3,672 20.9 101 (184) 307 (700) 29 4,575 21.0 The reduction in the UK corporation tax rate to 20% from 1 April 2015 was substantively enacted in July 2013. Accordingly, this rate has been applied in the measurement of the group’s deferred tax assets and liabilities at 31 March 2014 and 2015. 9 Dividends Final paid of 9.83p per share for the year ended 31 March 2014 (2013 – 9.36p) Interim paid of 3.22p per share (2014 – 3.13p) 2015 £000 4,289 1,405 5,694 2014 £000 4,084 1,366 5,450 The directors are proposing a final dividend of 10.08 pence (2014 – 9.83 pence) per share totalling £4,398,112 (2014 – £4,288,160). This dividend has not been accrued at the balance sheet date. 10 Earnings per share Earnings per share is calculated on the profit on ordinary activities after taxation of £13,875,000 (2014 – £17,258,000) and on the weighted average number of shares in issue at the end of the year of 43,632,068 (2014 – 43,632,068). There are no share options, hence the diluted earnings per share is the same as above. 40 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 11 Property, plant and equipment Cost At 1 April 2014 Adjustment to opening position Additions during year Disposals At 31 March 2015 Depreciation and amounts written off At 1 April 2014 Charge for year Disposals At 31 March 2015 Net book values At 31 March 2015 At 31 March 2014 Cost At 1 April 2013 Additions during year Disposals At 31 March 2014 Depreciation and amounts written off At 1 April 2013 Charge for year Disposals At 31 March 2014 Net book values At 31 March 2014 At 31 March 2013 Land and buildings £000 Plant and other equipment £000 Total £000 30,950 110,370 141,320 24 1,282 — (24) 6,928 (493) — 8,210 (493) 32,256 116,781 149,037 5,400 775 — 6,175 26,081 25,550 70,725 5,985 (420) 76,290 40,491 39,645 76,125 6,760 (420) 82,465 66,572 65,195 30,083 103,100 133,183 867 — 8,801 (1,531) 9,668 (1,531) 30,950 110,370 141,320 4,625 775 — 5,400 25,550 25,458 66,882 5,271 (1,428) 70,725 39,645 36,218 71,507 6,046 (1,428) 76,125 65,195 61,676 The net book value of group land and buildings includes £2,527,000 (2014 – £2,527,000) for land which is not depreciated. Included within the land and buildings are assets in the course of construction with a net book value of £1,015,000 (2014 and 2013 – £nil) which are not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2014 – £359,000). 12 Financial assets Available-for-sale assets At 1 April 2014 Net (losses)/gains transferred to statement of comprehensive income At 31 March 2015 2015 £000 467 2015 £000 522 (55) 467 2014 £000 522 2014 £000 494 28 522 Available-for-sale financial assets are UK quoted equity securities and are denominated in sterling. The fair value of the securities is based on published market prices. 24116.04 — 12 June 2015 12:14 PM — Proof 4 41 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 13 Inventories Raw materials Work in progress Finished goods Inventories are net of impairment provisions of £197,000 (2014 – £216,000). 14 Trade and other receivables Due within one year: Trade receivables Other receivables Receivable from pension schemes (see note 6) Prepayments Due after more than one year: Receivable from pension schemes (see note 6) 15 Trade and other payables Current trade and other payables: Trade payables Social security Other payables Accruals 2015 £000 2,527 4,521 5,067 12,115 2015 £000 26,200 1,123 1,135 1,884 30,342 2015 £000 4,538 4,538 2015 £000 11,378 1,814 413 4,997 18,602 2014 £000 2,478 4,207 5,936 12,621 2014 £000 26,658 1,144 3,431 1,520 32,753 2014 £000 — — 2014 £000 12,864 2,175 433 5,604 21,076 Included within accruals is a warranty provision that is not material to the financial statements. 16 Deferred tax Deferred tax is calculated in full on temporary differences under the liability method using the large company tax rate applicable in future years of 20% (2014 – 20%). The movement on the deferred tax account is shown below: Deferred tax – net At 1 April 2014 Credited to other comprehensive income Charged/(credited) to profit At 31 March 2015 2015 £000 4,271 (11) 528 4,788 2014 £000 5,058 (539) (248) 4,271 42 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 The movement in deferred tax assets and liabilities during the year is shown below: Deferred tax – liabilities At 1 April 2014 Charged to profit Credited to other comprehensive income At 31 March 2015 The movement in the deferred tax assets and liabilities during the prior year is shown below: At 1 April 2013 Credited/(charged) to profit Credited to other comprehensive income At 31 March 2014 Accelerated tax depreciation £000 4,855 55 — 4,910 Accelerated tax depreciation £000 5,160 (305) — 4,855 The deferred tax (credited)/charged to other comprehensive income during the year is as follows: Tax on change in fair value of available-for-sale financial assets Tax on change in pension scheme Tax on items taken directly to other comprehensive income 17 Share capital Authorised 50,000,000 10p ordinary shares Allotted and fully paid 43,632,068 10p ordinary shares Other £000 (584) 473 (11) (122) Other £000 (102) 57 (539) (584) 2015 £000 (11) — (11) 2015 £000 5,000 4,363 Total £000 4,271 528 (11) 4,788 Total £000 5,058 (248) (539) 4,271 2014 £000 6 (545) (539) 2014 £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 or new share issues, 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 2015 £000 1,174 2014 £000 3,047 24116.04 — 12 June 2015 12:14 PM — Proof 4 43 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 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. Principal financial instruments The principal financial instruments used by the group, from which financial instrument risk arises, are as follows: • trade receivables • other receivables • cash at bank • other interest-bearing deposits • 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 Financial assets 2015 £000 26,200 2,258 20,021 10,000 58,479 467 4,538 5,005 63,484 2014 £000 26,658 4,575 27,780 — 59,013 522 — 522 59,535 Financial liabilities measured at amortised cost 2015 £000 11,378 413 4,997 16,788 2014 £000 12,864 433 5,604 18,901 Current financial assets Trade receivables Other receivables Cash and cash equivalents Other interest-bearing deposits Total current financial assets Non-current financial assets Available for sale assets Other receivables Total non-current financial assets Total financial assets The maximum exposure to credit risks is detailed in the above table. Current financial liabilities Trade payables Other payables Accruals Total current financial liabilities 44 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Credit risk 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 31 March 2015, trade receivables of £25,916,000 (2014 – £26,418,000) were not past due. Apart from the largest customers set out in note 2, the group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics, being related entities. Concentration of credit risk to the direct customers included in note 2 did not exceed 25% of trade receivables at any time during the year. Concentration of credit risk to any other counterparty did not exceed 10% of trade receivables at any time during the year. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. 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. At 31 March 2015 trade receivables of £234,000 (2014 – £240,000) were past due but not impaired. They relate to customers with no default history. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit-ratings (if available) or to historical information about default rates. The ageing of these receivables is as follows: 30–60 days 60–90 days 90+ days 2015 £000 78 156 — 234 2014 £000 — 25 215 240 The group records impairment losses on its trade receivables (including an impairment provision for trade receivables not past due) separately from gross receivables. The movements on this allowance account during the year are summarised below: Opening balance (Decrease)/increase in provisions Written off against provisions Recovered amounts reversed Closing balance 2015 £000 319 (85) (7) — 227 2014 £000 488 (147) (22) — 319 Impairment loss reversals on trade receivables of £92,000 (2014 – £169,000) were recognised in administrative expenses. 24116.04 — 12 June 2015 12:14 PM — Proof 4 45 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Accounts continued 19 Financial instrument risk exposure and management continued 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. 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). Where the group has generated a significant amount of surplus cash it will invest in term deposits if liquidity risk is not unduly compromised. Whilst a review of credit ratings is performed for each counterparty, there will always remain an element of risk over deposits. 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 (2014 – £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 the group had forward contracts in place to sell euros with a sterling value of £nil (2014 – £2,086,000). The fair value adjustment associated with these contracts in the prior year was not considered material and was therefore not recognised in these financial statements. At the balance sheet date foreign exchange facilities of £1.9 million (2014 – £1.9 million) were unused and available to the group to enable it to enter into forward exchange contracts. The currency and interest profile of the group’s financial assets and financial liabilities are as follows: Sterling US$ Euro Sterling US$ Euro 46 Floating rate assets 2015 £000 205 177 2,049 2,431 Floating rate assets 2014 £000 5 54 653 712 Fixed rate assets 2015 £000 27,490 — 100 27,590 Interest-free assets 2015 £000 30,757 147 2,559 33,463 Fixed rate assets 2014 £000 26,294 — 774 27,068 Interest-free assets 2014 £000 28,787 185 2,783 31,755 Total 2015 £000 58,452 324 4,708 63,484 Total 2014 £000 55,086 239 4,210 59,535 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Sterling US$ Euro Interest-free liabilities 2015 £000 16,573 — 215 16,788 Interest-free liabilities 2014 £000 17,702 — 1,199 18,901 Fixed rate assets attracted interest rates between 0.35% to 1.00% (2014 – 0.50% to 1.25%) on sterling deposits. Floating rate assets consisted of overnight cash at bank at nominal interest rates. Cash and cash equivalents Cash and cash equivalents comprise cash in hand, deposits on call with banks and short-term deposits that have fixed interest rates and original maturities of three months or less on inception. The effect of a +25/(25) increase/(decrease) in basis points with all other variables held constant would have the effect of increasing/(decreasing) profit before tax by £69,000/(£69,000) (2014 – £61,000/(£61,000)). 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 £122,000/(£135,000) (2014 – £133,000/(£146,000)). Other interest bearing deposits Other interest bearing deposits comprise short-term deposits that have fixed interest rates and a maturity date of 5 November 2015. Fair value Unless otherwise indicated, the carrying amounts of the group’s financial instruments are a reasonable approximation of their fair values. 24116.04 — 12 June 2015 12:14 PM — Proof 4 47 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Five Year Financial History – unaudited For the years ended 31 March Trading results Revenue Profit before tax Profit after tax Dividends paid Balance sheet summary Equity Share capital Reserves Total equity Assets Property, plant and equipment Financial assets Other receivables Deferred tax asset Current assets Total liabilities Dividends and earnings Pence per share declared Number of times covered (dividend paid) Earnings per share — basic and diluted 2015 £000 131,268 17,547 13,875 5,694 4,363 114,966 119,329 66,572 467 4,538 — 71,577 72,478 (24,726) 119,329 2014 £000 137,466 21,833 17,258 5,450 4,363 106,546 110,909 65,195 522 — — 65,717 73,154 (27,962) 110,909 2013 £000 122,215 19,157 14,786 5,157 4,363 97,735 102,098 61,676 494 — — 62,170 67,622 (27,694) 102,098 2012 £000 126,271 23,093 17,591 4,778 4,363 88,241 92,604 62,226 495 — — 62,721 57,306 (27,423) 92,604 2011 £000 105,368 15,501 11,652 4,363 4,363 75,752 80,115 55,889 467 — — 56,356 56,065 (32,306) 80,115 13.30 2.4 31.80p 12.96 3.2 39.55p 12.34 2.9 33.89p 11.75 3.7 40.32p 10.75 2.7 26.71p 48 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Parent Company Accounts Under UK GAAP The company has elected to prepare its financial statements under UK GAAP Parent Company Balance Sheet 31 March 2015 Non-current assets Tangible assets Investments Other debtors Current assets Stocks Debtors Other current interest-bearing deposits Cash at bank and in hand Creditors — amounts falling due within one year Net current assets Total assets less current liabilities Deferred taxation Capital and reserves Called up share capital Share premium Other reserve Retained earnings Shareholders’ funds Notes 4 5 7 6 7 8 9 10 11 11 11 2015 £000 16,140 5,748 4,538 26,426 7,835 22,408 19,953 1,663 51,859 12,583 39,276 65,702 372 65,330 4,363 874 13 60,080 65,330 2014 £000 15,968 5,803 — 21,771 8,168 26,603 18,372 150 53,293 15,308 37,985 59,756 — 59,756 4,363 874 13 54,506 59,756 The parent company accounts on pages 49 to 53 were approved and authorised for issue by the board of directors on 10 June 2015, and were signed on its behalf by: B. J. Cooke Chairman S. J. Mant Finance Director Notes to the accounts are on pages 50 to 53. Registered number — 91580. 24116.04 — 12 June 2015 12:14 PM — Proof 4 49 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Parent Company Accounts The Directors’ Report is on pages 12 to 14 of the Annual Report and Accounts 1 Accounting policies Basis of preparation 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. Depreciation Depreciation is calculated on the straight-line basis to write off the initial cost of fixed assets, excluding freehold land, at the following rates per annum: • Freehold buildings over 50 years • Plant and other equipment over a period of 3 to 15 years 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 measured at the fair value of consideration received or receivable and represents amounts receivable for goods provided in the normal course of business, net of discounts, VAT and other sales-related taxes. Turnover is recognised when the goods have been collected by, or delivered to, the customer in accordance with the agreed delivery terms, reflecting the point that the risks and rewards of ownership are transferred to the customer. Stocks Stock and work in progress have been 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 Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling 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 Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in 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 actual 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 substantively enacted by the balance sheet date. Deferred tax is measured on a non- discounted basis. Investments Listed investments are accounted for at fair value in accordance with FRS 26 Financial Instruments: Measurement. Investments in subsidiaries are held at cost and reviewed for impairment annually. Financial instruments a) Financial assets The company’s financial assets relate to loans and receivables. Although the company 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 company has not classified any of its financial assets as held to maturity. Available-for-sale assets 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 reference to published quoted prices in an active market. 50 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 Loans and receivables 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. The effect of discounting on these financial instruments is not considered to be material. Impairment provisions are recognised when there is objective evidence (such as 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 company classifies its financial liabilities into liabilities measured at amortised cost. Although the company uses derivative financial instruments in economic hedges of currency risk, it does not hedge account for these transactions and the amounts are not material. Financial liabilities measured at amortised cost Financial liabilities include trade payables and other short-term monetary liabilities, which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method. Fair value is calculated discounting estimated future cash flows using a market rate of interest. c) Share capital The company’s ordinary shares are classified as equity instruments. Share capital includes the nominal value of the shares and any share premium attaching to the shares. Dividends Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an Annual General Meeting. Related party transactions The company has taken advantage of the exemption conferred by FRS 8 Related Party Disclosures not to disclose transactions with members of the group on the grounds that 100% of the voting rights in the company are controlled within that group. 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 £11,323,000 (2014 – £7,957,000). The profit and loss account includes £22,000 (2014 – £26,000) for audit fees. 3 Dividends Final paid of 9.83p per share for the year ended 31 March 2014 (2013 – 9.36p) Interim paid of 3.22p per share (2014 – 3.13p) 2015 £000 4,289 1,405 5,694 2014 £000 4,084 1,366 5,450 The directors are proposing a final dividend of 10.08 pence (2014 – 9.83 pence) per share totalling £4,398,112 (2014 – £4,288,160). This dividend has not been accrued at the balance sheet date. 24116.04 — 12 June 2015 12:14 PM — Proof 4 51 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notes to the Parent Company Accounts continued The Directors’ Report is on pages 12 to 14 of the Annual Report and Accounts 4 Tangible assets Cost At 1 April 2014 Additions during year Disposals At 31 March 2015 Depreciation and amounts written off At 1 April 2014 Charge for year On Disposals At 31 March 2015 Net book values At 31 March 2015 At 31 March 2014 Land and buildings £000 Plant and other equipment £000 16,188 — — 16,188 2,895 281 — 3,176 13,012 13,293 26,252 1,219 (334) 27,137 23,577 693 (261) 24,009 3,128 2,675 Total £000 42,440 1,219 (334) 43,325 26,472 974 (261) 27,185 16,140 15,968 The net book value of land and buildings includes £2,127,000 (2014 – £2,127,000) for land which is not depreciated. The cost of land and buildings includes £359,000 for property held on long leases (2014 – £359,000). 5 Investments Subsidiary companies At cost Listed investments at market value 2015 £000 5,281 467 5,748 2014 £000 5,281 522 5,803 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. 6 Stocks Raw materials Work in progress Finished goods 7 Debtors Due within one year: Trade debtors Amounts receivable from subsidiary companies Other debtors Amounts receivable from pension schemes (see note 6 of group accounts) Prepayments and accrued income Deferred taxation 2015 £000 838 2,845 4,152 7,835 2015 £000 17,488 2,062 1,120 1,135 603 — 22,408 2014 £000 879 3,051 4,238 8,168 2014 £000 17,783 3,688 1,143 3,431 460 98 26,603 Debtors due after more than one year of £4,538,000 (2014 – £nil) relate to amounts receivable from the pension schemes as set out in note 6 of the group accounts. 52 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 8 Creditors: amounts falling due within one year Due within one year: Trade creditors Amounts owed to subsidiary companies Corporation tax Other taxation and social security Other creditors Accruals and deferred income 9 Deferred taxation Deferred taxation At 1 April 2014 Taxation deferred this year At 31 March 2015 Deferred tax is provided as follows: Accelerated capital allowances Other timing differences 10 Called up share capital Allotted and fully paid 43,632,068 10p ordinary shares 11 Reserves At 1 April 2014 Profit retained Changes in fair value of investments At 31 March 2015 2015 £000 5,226 2,989 857 860 209 2,442 12,583 2015 £000 (98) 470 372 451 (79) 372 2015 £000 4,363 Share capital £000 4,363 — — 4,363 Share premium £000 874 — — 874 Other reserves £000 13 — — 13 Retained earnings £000 54,506 5,629 (55) 60,080 12 Reconciliation of movements in shareholders’ funds Profit for the year Changes in fair value of investments Dividends Net increase in shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2015 £000 11,323 (55) (5,694) 5,574 59,756 65,330 2014 £000 6,027 3,563 1,436 1,057 218 3,007 15,308 2014 £000 309 (407) (98) 435 (533) (98) 2014 £000 4,363 Total equity £000 59,756 5,629 (55) 65,330 2014 £000 7,957 28 (5,450) 2,535 57,221 59,756 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 (2014 – £3,998,000). The last valuation was performed with an effective date of 6 April 2014. Further details of the schemes are contained in note 6 to the group accounts. 14 Capital commitments Authorised, but not provided in the accounts 2015 £000 — 2014 £000 325 53 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015Financial Statements Notice of Meeting Notice is hereby given that the one hundred and eighth Annual General Meeting of Castings P.L.C. (the ‘Company’) will be held at Holiday Inn, Birmingham M6, Junc. 7, Chapel Lane, Great Barr, Birmingham, West Midlands, B43 7BG, on 18 August 2015 at 3.30 pm for the following purposes: As ordinary business 1 To receive and adopt the Directors’ Report and audited accounts for the year ended 31 March 2015. 2 To declare a final dividend. 3 To re-elect D. J. Gawthorpe as a director. 4 To re-elect A. Vicary as a director. 5 To re-elect G. B. Wainwright as a director. 6 To approve the Directors’ Remuneration Report for the year ended 31 March 2015. 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. The share capital consists of 43,632,068 ordinary shares with voting rights. 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 17 August 2020 save that the company may before such expiry make an offer or enter into an agreement which would or might require relevant securities to be allotted after the expiry of such period and the directors may allot relevant securities in pursuance of any such offer or agreement as if the authority conferred had not expired; (c) the foregoing authority shall be in substitution for the authorities given to the directors under the Companies Act 2006 on 19 August 2014, which authorities are accordingly hereby revoked; (d) this authority will be put to annual shareholder approval. As special business 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 provided that this power shall be limited: (a) to allotments in connection with an offer of equity securities to 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 this resolution) of equity securities having, in the case of relevant shares, an aggregate nominal amount, or, in the case of other equity securities, giving the right to subscribe for or convert into relevant shares having an aggregate nominal amount not exceeding £218,160, which represents approximately 5% of the current issued share capital of the Company, and shall expire at the conclusion of the next Annual General Meeting following the date of this resolution save that the 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. 54 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 n o i t a m r o n f I y n a p m o C 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’), provided that: (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 31 March 2015; (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 Stock Exchange Limited for the five business days immediately preceding the day of purchase; (d) unless previously revoked or varied, the authority hereby conferred shall expire at the conclusion of the next Annual General Meeting of the company following the date of this resolution, unless such authority is renewed on or prior to such date; (e) the company may, before the expiry of this authority, conclude a contract to purchase ordinary shares under this authority which will or may be executed wholly or partly after such expiry and may make a purchase of ordinary shares pursuant to any such contract, as if such authority had not expired. The record date for payment of the final dividend is 10 July 2015. Assuming the final dividend is approved by the members, the dividend will be paid on 21 August 2015. Information about the meeting can be found on the company’s website (www.castings.plc.uk). The right to vote at the meeting is determined by reference to the register of members as it stands on 14 August 2015. Shareholders have the right to ask questions at the meeting. By order of the board S. J. Mant Company Secretary Registered Office: Lichfield Road, Brownhills, West Midlands, WS8 6JZ 10 June 2015 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, on a poll, in his stead. The instrument appointing a proxy, including authority 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 Asset Services, 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 Act, that they may have a right under an agreement with the registered member by whom they were nominated to be appointed, or to have someone else 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 rights. Nominated persons should contact the registered member by whom they 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. 24116.04 — 12 June 2015 12:14 PM — Proof 4 55 Castings P.L.C. Annual Report for the year ended 31 March 2015 Directors, Officers and Advisers Directors B. J. Cooke, AdvDipNFC, FICME Non-executive Chairman D. J. Gawthorpe, BSc (Hons), MICME Chief Executive S. J. Mant, BSocSc (Hons) FCA Finance Director M. A. Lewis Managing Director, CNC Speedwell Limited A. Vicary, BEng, MSc, FICME Managing Director, Brownhills G. B. Wainwright, MCMI, MIEx, FRSA Senior Independent Non-executive C. P. King, FCA Non-executive A. N. Jones, BA (Hons), FCA Non-executive Secretary and Registered Office S. J. Mant, FCA Lichfield Road, Brownhills, West Midlands, WS8 6JZ Tel: 01543 374341 Fax: 01543 377483 Web: www.castings.plc.uk Registrars Auditors Solicitors Bankers Stockbrokers Capita Asset Services 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 Enoch Evans LLP 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 Arden Partners plc Arden House, Highfield Road, Edgbaston, Birmingham, B15 3DU Registered No. 91580 56 24116.04 — 12 June 2015 12:14 PM — Proof 4 Castings P.L.C. Annual Report for the year ended 31 March 2015 n o i t a m r o n f I y n a p m o C Shareholder Information Castings P.L.C. Annual Report for the year ended 31 March 2015 Capital gains tax The official price of Castings P.L.C. ordinary shares on 31 March 1982, adjusted for bonus issues, was 4.92 pence. Warning to shareholders The following guidance has been issued by the Financial Conduct 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 turn 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 then Financial Services Authority (FSA) has reported that the average amount lost by investors is around £20,000. It is not just the novice investor that has been duped in this way; many of the victims had been 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. If you receive any unsolicited investment advice: • Make sure you get the correct name of the person and organisation. • Check that they are properly authorised by the FCA before getting involved. You can check at http://www.fca.org.uk/register/ • The FCA 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 FCA 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 Compensation Scheme. • If the calls persist, hang up. More detailed information on this or similar activity can be found on the FCA website www.fca.org.uk/consumers/scams 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. 24116.04 — 12 June 2015 12:14 PM — Proof 1 57 Strategic Report Castings P.L.C. Lichfield Road Brownhills West Midlands WS8 6JZ 24116.04 — 12 June 2015 12:14 PM — Proof 4